<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-04725
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EINSTEIN/NOAH BAGEL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5812 84-1294908
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL A. STRASEN
VICE PRESIDENT AND GENERAL COUNSEL
EINSTEIN/NOAH BAGEL CORP.
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-3463
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID A. SCHUETTE
KEVIN J. MCCARTHY MAYER, BROWN & PLATT
BELL, BOYD & LLOYD 190 SOUTH LASALLE STREET
THREE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60603
CHICAGO, ILLINOIS 60602 TELEPHONE: (312) 782-0600
TELEPHONE: (312) 372-1121
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
AMENDING THE PROSPECTUS, PART II AND FILING CERTAIN EXHIBITS.
- -------------------------------------------------------------------------------
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<PAGE>
EINSTEIN/NOAH BAGEL CORP.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS OF PART I OF FORM S-1.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT CAPTION OR LOCATION
ITEM NUMBER AND CAPTIONS IN PROSPECTUS
------------------------ -------------------
<C> <S>
1.Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.. Outside Front Cover Page
2.Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages;
Additional Information
3.Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4.Use of Proceeds........................... Use of Proceeds; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
5.Determination of Offering Price........... Outside Front Cover Page; Underwriting
6.Dilution.................................. Dilution
7.Selling Security Holders.................. *
8.Plan of Distribution...................... Outside Front Cover Page; Concurrent
Offerings; Underwriting
9.Description of Securities to be Description of Capital Stock
Registered..............................
10.Interests of Named Experts and Counsel.... *
11.Information with Respect to the Outside Front Cover Page; Prospectus
Registrant.............................. Summary--The Company; Risk Factors;
Dividend Policy; Capitalization; Selected
Historical and Pro Forma Consolidated
Financial and Store Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Relationship with Boston
Chicken; Principal Stockholders and
Securities Ownership of Management; Shares
Eligible for Future Sale; Financial
Statements
12.Disclosure of Commission Position on
Indemnification for Securities Act *
Liabilities.............................
</TABLE>
- --------
*Item inapplicable or answer is negative and omitted from Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 18, 1996
PROSPECTUS
2,625,000 SHARES
LOGO
COMMON STOCK
-----------
All of the shares of Common Stock offered hereby are being issued and sold by
Einstein/Noah Bagel Corp. (the "Company"). Of the 2,625,000 shares offered
hereby, 2,200,000 shares are being offered in an Initial Public Offering and
425,000 shares are being offered in a non-underwritten Concurrent Public
Offering by the Company directly to certain persons or entities, consisting
primarily of officers, directors and employees of each of the Company and
Boston Chicken, Inc. ("Boston Chicken"). Shares of Common Stock offered in the
Concurrent Public Offering are being offered at a price equal to the initial
public offering price per share, net of underwriting discount. Boston Chicken
will not be a purchaser in the Concurrent Public Offering.
Concurrent with the offering of the shares hereby, the Company is offering an
additional 2,000,000 shares of Common Stock in a Concurrent Private Placement
to Boston Chicken at a price equal to the initial public offering price per
share, net of underwriting discount. Following the Offerings, Boston Chicken is
expected to beneficially own approximately 61.9% of the outstanding shares of
Common Stock.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $15.00 and $17.00 per share and that the purchase price
for the shares being offered in the Concurrent Public Offering will be between
$13.95 and $15.81 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ENBX," subject to notice of issuance.
SEE "RISK FACTORS" AT PAGE 7 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share--Initial Public
Offering.......................... $ $ $
- --------------------------------------------------------------------------
Per Share--Concurrent Public
Offering.......................... $ $ -- $
- --------------------------------------------------------------------------
Total (3).......................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $840,000.
(3) The Company has granted the several Underwriters an option for 30 days to
purchase up to 330,000 additional shares of Common Stock, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount, and Proceeds to Company will be
$ , $ , and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock offered in the Initial Public Offering are being
offered by the several Underwriters, subject to prior sale, when, as and if
issued to and accepted by the Underwriters, subject to the approval of certain
legal matters by counsel for the Underwriters. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock will be
made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
-----------
The date of this Prospectus is , 1996.
<PAGE>
[Photograph depicting front facade of, and outside seating for, an Einstein
Bros. Bagels store.]
[Photograph depicting front facade of a Noah's New York Bagels store.]
Einstein Bros.(TM), Noah's Bagels(R) and Noah's New York Bagels(R) are
trademarks owned by the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[Photograph depicting the Service Counter at an Einstein Bros. Bagels Store.]
[Photograph depicting front exterior [Photograph depicting an employee
of an Einstein Bros. Bagels Store.] sorting newly-baked bagels behind
the counter of an Einstein Bros.
Bagels Store.]
[Photograph depicting the interior of an Einstein Bros. Bagels Store.]
[Einstein Bros. Bagels Logo]
<PAGE>
[Photograph depicting the Service Counter at a Noah's New York Bagels Store.]
[Photograph depicting the front exterior of a Noah's New York Bagels Store at
its grand opening.]
[Photograph depicting the front exterior of a Noah's New York Bagels Store.]
[Photograph depicting an employee carrying newly-baked bagels behind the
counter of a Noah's New York Bagels Store.]
[Noah's New York Bagels Logo]
<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 (i)
gives effect to a 225-for-1 stock split declared by the board of directors of
the Company on July 8, 1996, (ii) gives effect to the conversion of the
Company's $120.0 million convertible loan facility from Boston Chicken, Inc.
("Boston Chicken") into 15,307,421 shares of Common Stock on June 17, 1996,
(iii) assumes the conversion of 6,250 shares of preferred stock, par value $.01
per share, of the Company into 488,282 shares of Common Stock and (iv) assumes
no exercise of the over-allotment option granted by the Company to the
Underwriters. Unless the context suggests otherwise, references in this
Prospectus to the "Company" mean Einstein/Noah Bagel Corp., its predecessors,
and its and their subsidiaries. References herein to the "Offerings" include
the 2,200,000 shares being offered in an initial public offering through the
Underwriters (the "Initial Public Offering"), the 425,000 shares being offered
concurrently in a non-underwritten public offering to certain persons or
entities, consisting primarily of officers, directors and employees of each of
the Company and Boston Chicken (the "Concurrent Public Offering") and the
2,000,000 shares being offered concurrently to Boston Chicken in a private
placement (the "Concurrent Private Placement") and references herein to the
"Concurrent Offerings" include the Concurrent Public Offering and the
Concurrent Private Placement. See "--The Offerings," "Concurrent Offerings" and
"Underwriting."
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
July 15, 1996, there were 187 stores in operation systemwide, of which 17 were
Company-operated and 170 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 July 15, 1996, the Company had entered into area development
agreements that provide for the development of 924 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.
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 July 15, 1996, there were 94
stores
3
<PAGE>
operating under the brand in 16 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 July 15, 1996, there
were 57 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.
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 over the next 12 to 18 months.
The Company's executive offices are located at 1526 Cole Boulevard, Suite
200, Golden, Colorado 80401 and its telephone number is (303) 202-9300.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered hereby:
Initial Public Offering...... 2,200,000 shares
Concurrent Public Offering... 425,000 shares
Common Stock offered in the
Concurrent Private Placement.. 2,000,000 shares
Common Stock to be outstanding
after the Offerings(1)........ 27,981,000 shares
Use of Proceeds................ To finance the development of additional stores
and to repay indebtedness utilized for the
acquisition and development of stores. See "Use
of Proceeds."
Proposed Nasdaq National Market
Symbol........................ ENBX
</TABLE>
- --------
(1) Includes 15,307,421 shares of Common Stock issued upon the conversion of
the Company's $120.0 million convertible loan facility from Boston Chicken
(the "Loan Conversion"), 488,282 shares of Common Stock estimated to be
issuable upon the conversion of 6,250 shares of Series A Preferred Stock,
$.01 par value per share, of the Company (the "Preferred Shares") at a
contractual conversion price equal to 80% of an assumed initial public
offering price of $16.00 per share (being the mid-point of the proposed
initial public offering price range) (the "Preferred Conversion") and
1,721,250 shares of Common Stock subject to repurchase by the Company (the
"Repurchase Shares"), which repurchase obligation terminates upon
consummation of the Offerings. See "Relationship with Boston Chicken--Loan
Agreement," "Description of Capital Stock" and Note 12 of Notes to the
Company's Audited Consolidated Financial Statements included elsewhere
herein. References herein to the "Transactions" include the Loan
Conversion, the Preferred Conversion and the termination of the Company's
repurchase obligation with respect to the Repurchase Shares. Excludes
4,895,594 shares of Common Stock issuable upon exercise of outstanding
stock options (vested and unvested) and warrants.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF STORES)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 24, 1995 DECEMBER 26, 1994 QUARTER
(INCEPTION) THROUGH THROUGH (16 WEEKS) ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995 APRIL 21, 1996(1)
------------------- ----------------- ----------------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(3)
------------------- ----------------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenue........... $ 26,423 $ 70,388 $ 22,379 $ 25,683
Income (loss) from
operations(4)(5)....... (43,152) (46,369) (1,270) (2,453)
Net income (loss)(4)(5). $(43,716) $(54,802) $ (3,317) $ (2,428)
======== ======== ======== ========
Net income (loss) per
common and equivalent
share(6)............. $ (4.33) $ (2.16) $ (0.34) $ (0.10)
======== ======== ======== ========
Weighted average
number of common and
equivalent shares
outstanding during
the period........... 10,132 25,460 10,153 25,460
======== ======== ======== ========
STORE DATA (UNAUDITED):
Systemwide revenue(7)... $ 26,986 $ 71,263 $ 29,764 $ 33,088
======== ======== ======== ========
Number of stores in
operation at period
end:
Company-operated...... 47 84 61 61
Area developers....... 13 13 77 77
-------- -------- -------- --------
Total................. 60 97 138 138
======== ======== ======== ========
<CAPTION>
APRIL 21, 1996(1)
----------------------
AS
ACTUAL ADJUSTED(8)
-------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................... $ 643 $ 68,623
Notes receivable.............................................. 38,298 38,298
Total assets.................................................. 184,514 252,494
Long-term debt(9)............................................. 178,162 --
Stockholders' equity (deficit)................................ (12,033) 195,612
</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 the Loan Conversion 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 quarter (16 weeks) ended April 21, 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 April 21, 1996, the Company had approximately $38.5 million of debt
outstanding; the net proceeds from the Offerings will be used to repay such
indebtedness. For the quarter (16 weeks) ended April 21, 1996, assuming
such debt had been repaid utilizing the proceeds from the sale of 2,587,164
shares of Common Stock ($14.88 per share), the net loss per common and
equivalent share would have been $0.21.
(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 Offerings at an assumed initial public
offering price of $16.00 per share (being the mid-point of the proposed
initial public offering price range) and the application of the net
proceeds therefrom and to give effect to the Transactions. See
"Capitalization."
(9) Includes at April 21, 1996, $11,852,000 attributable to the Repurchase
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.
5
<PAGE>
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 July 15, 1996, there were 187 stores in operation systemwide, of
which 17 were Company-operated and 170 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 July 15, 1996, the Company had entered into area
development agreements that provide for the development of 924 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.
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, originally founded in 1988 ("Brackman"),
Bagel & Bagel, Inc. of Kansas City, originally founded in 1988 ("Bagel &
Bagel"), and Offerdahl's Bagel Gourmet, Inc. of Fort Lauderdale, originally
founded in 1989 ("Offerdahl's"), and in August 1995, acquired Baltimore Bagel
Co. of San Diego, originally founded in 1981 ("Baltimore Bagel") (collectively
the "Founding Companies"). The Company issued 1,959,152 shares of Common Stock
and 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
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 agreement, 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. 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 current 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 July 15, 1996,
the Company had entered into area development agreements with nine entities
that provide for the development of 1,094 stores, 170 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 two additional entities during 1996 and, in connection with such
transactions, expects to sell to such entities 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 over the next 12 to 18
months.
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.
6
<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
July 15, 1996, the Company and its area developers operated 187 stores, 36 of
which were operating under brands other than Einstein Bros. Bagels or Noah's
New York Bagels. Approximately 118 of the stores operated by the Company and
its area developers have been open for less than one year and an additional 30
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 has incurred
significant operating losses to date and there can be no assurance that the
Company will be profitable in the future, or that, if profitability is
achieved, it will be sustained. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Audited
Consolidated Financial Statements and the Notes thereto.
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
July 15, 1996, the Company had entered into area development agreements with
nine entities that provide for the opening of 1,094 stores, 170 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. 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."
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 additional 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
7
<PAGE>
developers will be able to raise such funds on satisfactory terms when needed.
See "Use of Proceeds," "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
$178.8 million, of which approximately $49.4 million had been advanced as of
July 8, 1996. These loans subject the Company to the risks of being a secured
lender. The Company anticipates that its area developers will incur
substantial net losses during their expansion phases, which is anticipated to
result in negative net worth for such area developers. 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.
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 $14.0 million, approximately
$13.5 million of which was outstanding as of July 8, 1996. Prior to the
consummation of the Offerings, the Company anticipates increasing the non-
convertible loan facility with Boston Chicken to permit the Company to borrow
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."
CONTROL BY AND CONFLICTS OF INTEREST WITH BOSTON CHICKEN
After consummation of the Offerings, Boston Chicken will beneficially own
approximately 61.9% of the outstanding shares of Common Stock of the Company
(or 61.1% if the Underwriters' over-allotment option is exercised in full). In
addition, in connection with the Concurrent Private Placement, the Company
intends to grant 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. 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."
8
<PAGE>
The Concurrent Private Placement Agreement expected to be 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 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
operated by 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. The Company has entered into a long-term supply agreement with
such third-party baking company. 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
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 products 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 or operating issues stemming from one store or a
limited number of stores, whether or not the Company is liable. 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
9
<PAGE>
with employees, could adversely affect the Company and its area developers.
See "Business--Government Regulation."
ABSENCE OF PRIOR PUBLIC MARKET AND POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for shares of the
Common Stock and there can be no assurance that an active trading market will
develop or, if developed, will be sustained. The initial public offering price
of the Common Stock will be determined through negotiations with the
representatives of the Underwriters (the "Representatives") by a committee of
the Company's board of directors composed of members who have agreed not to
purchase shares of Common Stock in the Offerings. See "Underwriting" for the
factors to be considered in determining the initial public offering price of
the shares of Common Stock offered hereby. The market price of the Common
Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors, and there can be no assurance
that the market price of the Common Stock will bear any relationship to, or
will not decline below, the initial public offering price.
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
Upon completion of the Offerings, the Company will have approximately
27,981,000 shares of Common Stock outstanding. The Company intends to file,
shortly after the completion of the Offerings, a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
approximately 9,875,000 of these shares of Common Stock pursuant to which
certain stockholders (not including Boston Chicken) may resell their shares of
Common Stock in the public market. The holders of approximately 9,000,000 of
such 9,875,000 shares have agreed that they will not sell any of such shares
for a period of 180 days from the date of this Prospectus, and holders of an
additional approximately 400,000 of such shares have agreed that they will not
sell any of such shares for a period of 30 days from the date of this
Prospectus, subject to certain exceptions, without the consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). In addition, the
persons purchasing shares of Common Stock in the Concurrent Public Offering
have agreed that they will not sell such shares for a period of 365 days from
the date of this Prospectus, without the consent of Merrill Lynch. The Company
also intends to register under the Securities Act all shares issued or
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--1995 Stock Option Plan" and "Management--Directors Plan." In
connection with the Concurrent Private Placement, the Company expects to enter
into a registration agreement with Boston Chicken, pursuant to which the
Company will grant to Boston Chicken certain demand and piggyback registration
rights under the Securities Act with respect to shares purchased in the
Concurrent Private Placement and other shares owned by Boston Chicken. Boston
Chicken has agreed with the Representatives not to sell shares purchased in
the Concurrent Private Placement for a period of 365 days from the date of
this Prospectus and not to sell other shares owned by it for a period of 180
days from the date of this Prospectus, subject to certain exceptions, without
the consent of Merrill Lynch. In addition, the Company may file a
10
<PAGE>
registration statement covering shares of Common Stock for issuance 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 for a period of 180 days
from the date of this Prospectus, 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 following the Offerings 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 "Concurrent Offerings," "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."
DILUTION
Investors purchasing shares of Common Stock in the Initial Public Offering
will experience immediate and substantial dilution in the net tangible book
value per share of the Common Stock from the initial public offering price as
compared to the increase in net tangible book value per share that will accrue
to existing stockholders. Based on an initial public offering price of $16.00
per share (being the mid-point of the proposed initial public offering price
range), such dilution would have been equal to $12.40 per share as of April
21, 1996. Investors in the Common Stock of the Company purchased prior to the
Initial Public Offering (including Boston Chicken's investment as a result of
the Loan Conversion) paid an average price per share of $7.64 for an aggregate
83.1% equity interest in the Company compared to investors in the Concurrent
Public Offering and the Concurrent Private Placement, who, considered
together, will have paid an average price per share of $14.88 based on such
assumed initial public offering price, net of estimated underwriting discount,
for an aggregate 8.9% interest in the Company, and new investors in the
Initial Public Offering, who will have paid an average price per share of
$16.00 based on such assumed initial public offering price for an aggregate
8.0% equity interest in the Company. See "Dilution."
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 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 5 of Notes to the Company's Unaudited Consolidated Financial Statements
contained elsewhere herein.
11
<PAGE>
CONCURRENT OFFERINGS
Concurrently with the shares offered hereby in the Initial Public Offering,
certain persons or entities, consisting primarily of officers, directors and
employees of each of the Company and Boston Chicken, are being offered the
opportunity to purchase an aggregate of 425,000 shares of Common Stock in the
Concurrent Public Offering, and Boston Chicken is being offered the
opportunity to purchase 2,000,000 shares of Common Stock in the Concurrent
Private Placement, in each case, at a price equal to the initial public
offering price per share, net of underwriting discount. The consummation of
each of the Initial Public Offering, the Concurrent Public Offering and the
Concurrent Private Placement is conditioned upon the consummation of the other
Offerings. Any such sales will also be conditioned upon the participants in
the Concurrent Public Offering and Boston Chicken agreeing not to sell shares
of Common Stock purchased in the Concurrent Public Offering and the Concurrent
Private Placement, respectively, for a period of 365 days after the date of
this Prospectus, without the consent of Merrill Lynch. See "Certain
Transactions--Concurrent Public Offering," "Relationship with Boston Chicken--
Concurrent Private Placement Agreement and Registration Agreement," "Shares
Eligible for Future Sale" and "Underwriting." None of the members of the
committee of the board of directors who will negotiate the initial public
offering price of the Common Stock with the Representatives will be purchasers
in the Offerings.
USE OF PROCEEDS
The net proceeds to the Company from each of the Initial Public Offering,
the Concurrent Public Offering and the Concurrent Private Placement are
estimated to be approximately $32.0 million ($36.9 million if the
Underwriters' over-allotment option is exercised in full), $6.2 million and
$29.8 million, respectively, or an aggregate of $68.0 million ($72.9 million
if the Underwriters' over-allotment option is exercised in full) assuming an
initial public offering price of $16.00 per share (being the mid-point of the
proposed initial public offering price range) after deduction of estimated
underwriting discount and offering expenses. The Company intends to use
approximately $42.5 million of the aggregate net proceeds from the Offerings
to repay borrowings under the Company's secured revolving credit facility,
approximately $13.5 million of such proceeds to repay borrowings under its
non-convertible loan facility from Boston Chicken (subject to the waiver by
the lenders under the secured revolving credit facility of a covenant
prohibiting such repayment) and the balance of such net proceeds for store
development, although the amount of the proceeds used to repay borrowings is
expected to increase to the extent the aggregate borrowings of the Company
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The use of proceeds
for development of new stores includes development of Company-operated stores
and loaning of funds to area developers to finance development of stores. See
"Business."
As of July 8, 1996, the Company had approximately $42.5 million outstanding
under its secured revolving credit facility, which amount was used to repay a
bridge loan from Boston Chicken incurred in connection with the development
and acquisition of stores and for general corporate purposes. See
"Relationship with Boston Chicken--Loan Agreement." Borrowings under the
secured revolving credit facility bear interest at either the lender's base
rate (currently 8.25% per annum) 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 (currently 5.41% per annum) offered by the lender plus 3.0%
(the "Eurodollar Rate"). As of July 8, 1996, $6.5 million outstanding under
the secured revolving credit facility bore interest at the lender's base rate
plus 1.0% and the remainder of such borrowings bore interest at the Eurodollar
Rate. Any borrowings outstanding under the Company's secured revolving credit
facility are payable on April 30, 1998.
As of July 8, 1996, the Company had approximately $13.5 million outstanding
under its non-convertible loan facility from Boston Chicken, which amount was
incurred in connection with the development of stores and for general
corporate purposes. Borrowings under the non-convertible loan facility from
Boston Chicken bear interest at the reference rate of Bank of America Illinois
(currently 8.25% per annum) plus 1.0%. Any borrowings outstanding under the
Company's non-convertible loan facility from Boston Chicken are payable on
June 15, 2003.
Pending use of the net proceeds as set forth above, they will be invested in
short-term interest-bearing instruments. To the extent that the net proceeds,
the secured revolving credit facility, the non-convertible loan facility from
Boston Chicken and funds from operations are insufficient to finance the
Company's expansion plans, the Company intends to seek additional funds for
this purpose from future public or private offerings of debt or equity
securities, although there can be no assurance that the Company 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."
12
<PAGE>
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.
CAPITALIZATION
The following table sets forth the capitalization of the Company at April
21, 1996 and as adjusted to give effect to (i) the issuance on June 17, 1996
of 15,307,421 shares of Common Stock upon the Loan Conversion, (ii) the
issuance of 488,282 shares of Common Stock upon the Preferred Conversion and
(iii) the termination of the Company's repurchase obligation with respect to
the Repurchase Shares (collectively, the "Transactions"), and as further
adjusted to give effect to the Offerings at an assumed initial public offering
price of $16.00 per share (being the mid-point of the proposed initial public
offering price range) and the application of the net proceeds therefrom. See
"Relationship with Boston Chicken--Loan Agreement," "Description of Capital
Stock" and Note 12 of Notes to the Company's Audited Consolidated Financial
Statements included elsewhere herein. This table should be read in conjunction
with the Company's Audited Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS FURTHER
ACTUAL AT AS ADJUSTED FOR ADJUSTED
APRIL 21, 1996 THE TRANSACTIONS FOR THE OFFERINGS
-------------- ---------------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt.............. $ -- $ -- $ --
=========== =========== ========
Revolving credit facility
(1)......................... $ 38,497 $ 38,497 $ --
Convertible loan from Boston
Chicken..................... 120,000 -- --
Repurchase shares............ 11,852 -- --
Preferred stock, par value
$.01 per share, 20,000,000
shares authorized; 6,250
shares of Series A Preferred
Stock issued and
outstanding; no shares
issued and outstanding as
adjusted.................... 7,813 -- --
----------- ----------- --------
Total long-term debt....... 178,162 38,497 --
Stockholders' equity
(deficit):
Preferred stock, 20,000,000
shares authorized; no
shares issued and
outstanding............... -- -- --
Common Stock, par value
$.01 per share,
200,000,000 shares
authorized; 5,353,128
shares issued and
outstanding; 22,870,081
shares issued and
outstanding as adjusted
for the Transactions;
27,495,081 shares issued
and outstanding as further
adjusted for the
Offerings................. 54 229 275
Additional paid-in capital. 34,946 174,436 242,370
Deficit.................... (47,033) (47,033) (47,033)
----------- ----------- --------
Total stockholders'
equity (deficit)........ (12,033) 127,632 195,612
----------- ----------- --------
Total capitalization..... $ 166,129 $ 166,129 $195,612
=========== =========== ========
</TABLE>
- --------
(1) The balance outstanding as of April 21, 1996 represents the amount drawn
under the Company's bridge loan from Boston Chicken. In May 1996, the
Company repaid such indebtedness with proceeds from its secured revolving
credit facility.
13
<PAGE>
DILUTION
The net tangible deficit of the Company at April 21, 1996 was approximately
$108.7 million or $20.30 per share. Net tangible book value (deficit) per
share represents the amount of total tangible assets less total liabilities of
the Company, divided by the number of shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference between
the amount paid by purchasers of shares of Common Stock in the Offerings and
the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offerings. After giving effect to the Transactions and
the Offerings at an assumed initial public offering price of $16.00 per share
(being the mid-point of the proposed initial public offering price range), and
after deducting estimated underwriting discount and offering expenses, the pro
forma net tangible book value of the Company at April 21, 1996 would have been
approximately $99.0 million, or $3.60 per share. This represents an immediate
increase in such net tangible book value of $23.90 per share to stockholders
as of April 21, 1996 and an immediate dilution of $12.40 per share to
investors purchasing shares in the Initial Public Offering, as illustrated in
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $16.00
Net tangible deficit per share before the Offerings.... $(20.30)
Increase in net tangible book value per share
attributable to the Transactions...................... 21.66
Additional increase in net tangible book value per
share attributable to investors in the Offerings...... 2.24
-------
Pro forma net tangible book value per share after the
Offerings............................................... 3.60
------
Net tangible book value dilution per share to investors
in the Initial Public Offering.......................... $12.40
======
</TABLE>
The following table summarizes on a pro forma basis at April 21, 1996 the
differences between existing stockholders, investors in the Concurrent
Offerings and investors in the Initial Public Offering with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 22,870,081 83.1% $174,665,000 71.0% $ 7.64
Investors in the Concurrent
Private Placement........... 2,000,000 7.3 29,760,000 12.1 14.88
Investors in the Concurrent
Public Offering............. 425,000 1.6 6,324,000 2.6 14.88
Investors in the Initial
Public Offering............. 2,200,000 8.0 35,200,000 14.3 16.00
---------- ----- ------------ -----
Total ..................... 27,495,081 100.0% $245,949,000 100.0% $ 8.95
========== ===== ============ =====
</TABLE>
- --------
(1) Includes 15,307,421 shares of Common Stock issued upon the Loan Conversion
and 488,282 shares of Common Stock issuable upon the Preferred Conversion
based on an assumed initial public offering price of $16.00 per share
(being the mid-point of the proposed initial public offering price range).
See "Relationship with Boston Chicken" and "Description of Capital Stock."
Excludes 4,895,594 shares of Common Stock subject to issuance upon
exercise of outstanding stock options (vested and unvested) and warrants.
The Average Price Per Share for investors in the Concurrent Offerings is
less than the Average Price Per Share for investors in the Initial Public
Offering because no underwriting discount will be paid on account of shares
sold in the Concurrent Offerings. The net proceeds per share to the Company,
however, will be identical for all shares sold in each of the Offerings.
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 quarter (16 weeks) ended April 21, 1996 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
MARCH 24, 1995 DECEMBER 26, QUARTER (16 WEEKS)
(INCEPTION) THROUGH 1994 THROUGH ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995 APRIL 21, 1996(1)
------------------- ----------------- -----------------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(3)
------------------- ----------------- ------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenue:
Company-operated
stores............... $ 25,685 $ 69,650 $18,397 $21,701
Royalties and
franchise related
fees................. 738 738 3,982 3,982
-------- -------- ------- -------
Total revenue........ 26,423 70,388 22,379 25,683
Cost of products sold... 8,239 25,085 5,490 6,608
Salaries and
benefits(4)............ 13,531 29,547 9,128 11,489
General and
administrative
expenses............... 21,230 35,550 9,031 10,039
Write-off of intangible
assets(5).............. 26,575 26,575 -- --
-------- -------- ------- -------
Loss from operations.... (43,152) (46,369) (1,270) (2,453)
Other income (expenses),
net.................... (564) (8,433) (2,047) 25
-------- -------- ------- -------
Net income (loss)....... $(43,716) $(54,802) $(3,317) $(2,428)
======== ======== ======= =======
Net income (loss) per
common and equivalent
share(6)............. $ (4.33) $ (2.16) $ (0.34) $ (0.10)
======== ======== ======= =======
Weighted average
number of common and
equivalent shares
outstanding during
the period........... 10,132 25,460 10,153 25,460
======== ======== ======= =======
STORE DATA (UNAUDITED):
Systemwide revenue(7)... $ 26,986 $ 71,263 $29,764 $33,088
======== ======== ======= =======
Number of stores in
operation at period
end:
Company-operated...... 47 84 61 61
Area developers....... 13 13 77 77
-------- -------- ------- -------
Total................ 60 97 138 138
======== ======== ======= =======
<CAPTION>
APRIL 21, 1996(1)
-----------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(8)
------------------- ------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 41 $ 643 $68,623
Notes receivable........ 7,267 38,298 38,298
Total assets............ 50,299 184,514 252,494
Long-term debt(9)....... 58,875 178,162 --
Stockholders' equity
(deficit).............. (20,994) (12,033) 195,612
</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.
15
<PAGE>
(2) Giving pro forma effect to the acquisition of Brackman, Bagel & Bagel,
Offerdahl's, Baltimore Bagel and Noah's and the Loan Conversion 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 quarter (16 weeks) ended April 21, 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 April 21, 1996, the Company had approximately $38.5 million of debt
outstanding; the net proceeds of the Offerings will be used to repay such
indebtedness. For the quarter (16 weeks) ended April 21, 1996, assuming
such debt had been repaid utilizing the proceeds from the sale of
2,587,164 shares of Common Stock ($14.88 per share), the net loss per
common and equivalent share would have been $0.21.
(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 Offerings at an assumed initial public
offering price of $16.00 per share (being the mid-point of the proposed
initial public offering price range) and the application of the net
proceeds therefrom and to give effect to the Transactions. See
"Capitalization."
(9) Includes at December 31, 1995, $11,062,000 attributable to the Repurchase
Shares and $7,813,000 attributable to the Preferred Shares. Includes at
April 21, 1996, $11,852,000 attributable to the Repurchase 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.
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>
16
<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. 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. 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 stores and
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. 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 $14.0 million, approximately
$13.5 million of which was outstanding as of July 8, 1996. Prior to the
consummation of the Offerings, the Company anticipates increasing the non-
convertible loan facility with Boston Chicken to permit the Company to borrow
up to $50.0 million. See "Relationship with Boston Chicken."
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.
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.
17
<PAGE>
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 APRIL 21, 1996 COMPARED TO THE PERIOD BEGINNING MARCH 24, 1995
(INCEPTION) AND ENDED APRIL 16, 1995
Results of Operations
Revenue. Total revenue increased $21.0 million to $22.4 million for the
quarter ended April 21, 1996 from $1.4 million for the period ended April 16,
1995. Revenue from Company-operated stores increased $17.0 million to $18.4
million for the quarter ended April 21, 1996 from $1.4 million for the period
ended April 16, 1995. The increase in revenue from Company-operated stores 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 current reporting period. There were 61 Company-operated stores at
April 21, 1996 compared to 24 stores at April 16, 1995.
Royalty and franchise-related fees were $4.0 million for the quarter ended
April 21, 1996. There were no such fees in the comparable period last year.
There were 77 stores operated by area developers as of April 21, 1996.
Cost of Products Sold. Cost of products sold increased $5.1 million to $5.5
million for the quarter ended April 21, 1996, compared with $0.4 million for
the comparable period last year. The increase 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 current reporting
period.
Salaries and Benefits. Salaries and benefits increased $8.5 million to $9.1
million for the quarter ended April 21, 1996, compared with $0.6 million for
the comparable period last year. The increase 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
current reporting period.
General and Administrative. General and administrative expenses increased
$8.5 million to $9.0 million for the quarter ended April 21, 1996, compared
with $0.5 million for the comparable period last year. The increase 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
current reporting period.
Included in general and administrative expenses for the quarter ended April
21, 1996 are depreciation and amortization charges of $1.9 million, including
amortization on $97.6 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 whether events and circumstances
occur which may warrant revising the estimated useful lives or writing down
all or part of the balance.
18
<PAGE>
Other Expense. The Company incurred other expense of $2.2 million for the
quarter ended April 21, 1996 compared to other expense of $0.1 million for the
comparable period last year. The increase reflects higher interest expense
attributable to the borrowings under the Company's loan agreement and bridge
loan with Boston Chicken, 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, and operation of, its corporate support center necessary to
support the increase in the number of stores in operation systemwide. For the
period ended December 31, 1995 and the quarter ended April 21, 1996, the
Company expended approximately $22.4 million and $48.5 million, respectively,
relating to store development and expended approximately $2.4 million and $0.1
million, respectively, on its corporate support center. In addition, in
February 1996, the Company acquired all of the outstanding capital stock of
Noah's 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 April 21,
1996, the Company had made secured loan commitments aggregating approximately
$16.0 million and $89.5 million, respectively, of which approximately $3.5
million and $32.6 million, respectively, had been advanced. These area
developers had contributed capital aggregating $4.0 million at December 31,
1995. The contributed capital at April 21, 1996 was $24.0 million, consisting
of $22.4 million in cash and $1.6 in promissory notes. The Company anticipates
fully funding its commitments pursuant to its loan agreements with these area
developers, increasing such loan commitments and entering into additional loan
commitments with other area developers. The Company is currently negotiating
such an agreement for the Philadelphia market. The Company anticipates its
current and future area developers will incur substantial net losses during
their expansion stage, which is anticipated to result in negative net worth
for its area developers. 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.
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 quarter ended
April 21, 1996, the Company sold an aggregate of 46 Company-operated stores
and related assets to Finest Bagels, L.L.C., Gulfstream Bagels, L.P. (formerly
Einstein Bros. America, 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 $25.1
million in the quarter ended April 21, 1996. There were no material gains or
losses recognized as a result of these sales. The Company is currently
negotiating such agreements for the Philadelphia market.
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 quarter ended April 21, 1996, the Company generated approximately
$13.0 million from the sale of shares of Common Stock, $80.0 million from
borrowings under its loan agreement with Boston
19
<PAGE>
Chicken and $38.5 million from borrowings under its bridge loan from Boston
Chicken. The aggregate amount available under the loan agreement with Boston
Chicken was increased from $80.0 million to $120.0 million in February 1996.
In March 1996, the bridge loan from Boston Chicken was increased from $25.0
million to $40.0 million. In May 1996, Boston Chicken and the Company amended
the loan agreement to add a $14.0 million non-convertible loan facility. See
"Relationship with Boston Chicken--Loan Agreement."
In May 1996, the Company and Bank of America Illinois, as agent for the
lenders, entered into a $45.0 million secured revolving credit facility. Loans
made under the secured revolving credit facility bear 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%. As of July 8, 1996, the Company had
approximately $42.5 million outstanding under the secured revolving credit
facility, the proceeds of which were primarily utilized to repay its bridge
loan from Boston Chicken and for store development. The borrowings under the
secured revolving credit facility are due in April 1998. In connection with
the consummation of the secured revolving credit facility, Boston Chicken
agreed to subordinate its loan to the Company to the loan under the secured
revolving credit facility and to release its security interest in the assets
of the Company. The secured revolving credit facility contains certain
financial covenants and restrictions on other borrowings, and prohibits the
payment of cash dividends on the Common Stock. See Note 7 to the Company's
Unaudited Financial Statements for the Quarter ended April 21, 1996 included
elsewhere herein.
On June 17, 1996, the Company's $120.0 million convertible loan facility
from Boston Chicken was converted into 15,307,421 shares of Common Stock.
At July 8, 1996, the Company had approximately $0.5 million available under
its non-convertible loan facility with Boston Chicken. Prior to the
consummation of the Offerings, the Company anticipates increasing the non-
convertible loan facility with Boston Chicken to permit the Company to borrow
up to $50.0 million.
The Company anticipates it will have a continuing need for additional
financing to continue systemwide expansion. The Company expects that, based
upon its and its area developers' current development schedules, cash
requirements through fiscal 1996 will be satisfied from net cash provided by
operating activities, amounts available under its secured revolving credit
facility and under its non-convertible loan facility with Boston Chicken and
the net proceeds from the Offerings remaining after repayment of debt.
However, 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.
20
<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 July 15, 1996, there were 187 stores in operation systemwide, of
which 17 were Company-operated and 170 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 July 15, 1996, the Company had entered into area
development agreements that provide for the development of 924 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.
BUSINESS STRATEGY
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. Key elements of the Company's strategy include:
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 in the future by Boston
Chicken allow the Company to focus its 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.
21
<PAGE>
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.
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.
As of July 15, 1996, in addition to 151 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 over the next 12 to 18 months. 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, including Noah's New York Bagels stores, 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 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
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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 July 15, 1996, the Company had entered into area development
agreements with nine entities for the development and operation of an
aggregate of 790 Einstein Bros. Bagels stores and an aggregate of 304 Noah's
New York Bagels stores over the next six years (as summarized below). Ninety-
two of such Einstein Bros. Bagels stores and 57 of such Noah's New York Bagels
stores were open as of July 15, 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 two additional entities 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 26
territories, and expect to have stores in all of the territories currently
covered by area developer agreements by the end of 1996.
<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,
L.L.C................. Tucson,
Albuquerque, Las Vegas, Colorado
Springs 31 80
Colonial Bagels, L.P... Boston, Cleveland, Pittsburgh,
Providence/New Bedford, Springfield,
MA 2 120
Finest Bagels, L.L.C... Kansas City, St. Louis, Minneapolis 19 49
Great Lakes Bagels, Milwaukee, Chicago, Detroit, Madison
L.L.C................. 27 148
Gulfstream Bagels, Miami, Fort Lauderdale, West Palm
L.P................... Beach,
Orlando, Tampa 24 71
Liberty Foods, L.L.C... New York City metropolitan area 6 144
Mayfair Bagels, L.L.C.. Washington, D.C., Baltimore 4 65
Noah's New York Bagels:
Noah's Bay Area Bagels, Sacramento, San Francisco/Oakland/
L.L.C. ............... San Jose 32 63
Noah's Pacific, L.L.C.. Los Angeles, Portland,
Seattle/Tacoma 25 184
--- ---
Total................. 170(2) 924
=== ===
</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 July 15, 1996, the Company operated 17 stores, two 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, 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
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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 this 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. As of July 15,
1996, the Company and its area developers had opened a total of 94 Einstein
Bros. Bagels stores in 16 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, 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
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<PAGE>
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 analyene-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 July 15, 1996, two of the Company's area developers
operated 57 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 14 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.
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
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<PAGE>
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
Under a short-term supply contract with the Company, Harlan Bakeries, Inc.
("Harlan Bakeries") currently supplies up to 700,000 dozen bagels per month to
the Company and its area developers from existing production capacity. In May
1996, the Company entered into a project and approved supplier agreement (the
"Harlan Supply Agreement") with Harlan Bakeries, Harlan Bagel Supply Company,
LLC ("Harlan") and the equity owners of Harlan Bakeries and Harlan. Under the
Harlan Supply Agreement, Harlan has agreed to complete the construction of a
new production facility in Avon, Indiana (the "New Facility"), which is
expected to become operational by late July 1996. The New Facility is designed
to produce frozen dough for approximately 1.4 million dozen bagels per month,
which is 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). Pursuant to the Harlan Supply Agreement,
Harlan Bakeries has changed the pricing of bagels under the existing short-
term supply contract from a cost-plus formula to the pricing described above,
effective June 1, 1996. Under certain circumstances, contract purchase amounts
may be increased, which would permit Harlan to double the New Facility's
capacity. The Harlan Supply Agreement also provides for the grant to the
Company of 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.
The Harlan Supply Agreement is subject to the receipt of financing for the
New Facility, including equipment financing, a mortgage loan and working
capital financing. The Company has financed the acquisition
26
<PAGE>
of certain equipment for the New Facility out of the Company's capital
resources, and the parties currently anticipate that approximately $7.2
million of equipment used in the New Facility will be owned by the Company and
leased to Harlan pursuant to an operating lease. The Company has been informed
by Harlan that Harlan has obtained a commitment from a lender for the mortgage
financing and working capital financing needed for the project, and Harlan
currently expects to close such financing by late July 1996.
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 evaluating its distribution strategies and distributor
relationships.
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 or operating issues stemming from one store or a
limited number of stores, whether or not the Company is liable. In addition,
factors such as increased costs of goods, labor and employee
27
<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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 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
July 15, 1996, the aggregate amount of investments by management of the
Company's nine area developers was approximately $0.9 million in cash and
approximately $4.0 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, $45.0 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. As of July 15, 1996, Bagel Funding had invested a total of
approximately $43.9 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)
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<PAGE>
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 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 the Company's Einstein's trademark
under laws governing trademarks or publicity rights.
31
<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 14,000 square feet and is located in Golden, Colorado, from an
unaffiliated third party. The Company has entered into a lease with Boston
Chicken for approximately 38,000 square feet of office space (and certain
common areas, including parking areas) that is nearing completion in Golden,
Colorado to meet its future needs. See "Relationship With Boston Chicken--
Other Relationships Between Boston Chicken and the Company." The Company also
leases office space in San Diego, California for use as a support center for
the operations of the Company in such location. The Company also intends to
establish an office in Los Angeles, California.
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.
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<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 July 8, 1996, the Company had approximately 1,175 employees, including
approximately 105 employed at its support center offices in Golden, Colorado,
approximately 40 employed at zone offices or commissaries and approximately
1,030 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 or operational
concerns. 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 34 President of Einstein Bros. Bagels Concept
Joel M. Alam 38 Vice President and Secretary
Paul A. Strasen 39 Vice President and General Counsel
Kyle T. Craig 48 Director
M. Laird
Koldyke(1)(2)(3) 35 Director
Gail A. Lozoff 46 Director and Vice President--Design and Merchandising
John H.
Muehlstein,
Jr.(3) 41 Director
John A.
Offerdahl(1) 31 Director and Vice President--Operations, Southeast Zone
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 or
will expire upon the consummation of an initial public offering of the Common
Stock. 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
34
<PAGE>
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.
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
35
<PAGE>
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.
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 Vice President--Design and Merchandising of
the Company in April 1995, after working with Bagel & Bagel, which she founded
in June 1988. 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 and Vice President--Operations, Southeast
Zone of the Company in March 1995, after working with Offerdahl's, which he
founded in 1989. Mr. Offerdahl served as the Chairman and Chief Executive
Officer of Offerdahl's 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."
36
<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
PERCENT OF TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION ----------------------
NAME GRANT GRANTED(1) IN FISCAL YEAR PRICE DATE 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."
1995 STOCK OPTION PLAN
General. The board of directors has adopted the 1995 Employee Stock Option
Plan, effective February 16, 1995, as subsequently amended (the "Plan"). On
May 28, 1996, the Plan was amended and restated by the board of directors and,
as amended and restated, was subsequently approved by the stockholders of the
Company. The board of directors adopted additional amendments to the Plan (as
so amended, the "Amended Plan"), to be effective August 15, 1996, to comply
with recent changes to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated thereunder.
The purpose of the Amended 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 Amended 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 1,775,000 shares of
Common Stock are currently available for option grants under the Amended 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 Amended Plan will be 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 will be "non-employee directors" (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").
37
<PAGE>
The Reporting Person Committee may grant options under the Amended Plan to
Reporting Persons and the Stock Option Committee may grant options under the
Amended Plan to other eligible employees, officers, and consultants of the
Company and its subsidiaries, in each case selected initially and from time to
time thereafter by the relevant Committee based on the importance of their
services; provided, however, that the maximum number of shares subject to all
options granted to any individual in any calendar year shall in no event
exceed 300,000. Eligible individuals may be selected individually or by groups
or categories, as determined by the relevant Committee in its discretion.
Options granted under the Amended Plan have a term of 10 years, subject to
earlier expiration if the optionee's service terminates, and no options under
the Amended Plan may be granted after February 1, 2005. Options may not be
transferred other than by will, by the laws of descent and distribution, or
pursuant to a qualified domestic relations order. The relevant Committee has
the discretion to permit the assignment or transfer of an option on such terms
and conditions as such Committee may deem necessary or appropriate or as
otherwise required by or deemed advisable under applicable law.
Options granted under the Amended Plan 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
relevant Committee has the discretion to accelerate the exercisability of any
option subject to such terms and conditions as such Committee deems necessary,
including a requirement that the optionee grant the Company an option to
repurchase all or a portion of the shares issued upon exercise of the
accelerated option for their fair market value on the date of grant. If an
option expires or is terminated or canceled unexercised as to any shares, such
shares may be optioned again. Shares subject to options may be made available
from unissued or reacquired shares of Common Stock.
In the event the relationship between the Company and an officer, employee
or consultant who is an optionee is terminated for any reason other than
death, permanent disability or retirement, such optionee's option shall expire
and all rights to purchase shares pursuant thereto shall terminate on the date
of termination, except that, to the extent any option or portion thereof is
exercisable on the date of termination, such option (or portion thereof) may
be exercised for a period of 15 days after such termination (or until the
scheduled termination of the option, if earlier); provided, however, that,
with respect to any option held by such optionee, the relevant Committee may,
in its sole discretion, accelerate exercisability, permit continued vesting in
accordance with the vesting schedule set forth in the Amended Plan or permit
exercisability beyond the 15-day period referenced above (but in no event
beyond its specified term), subject to such terms and conditions, if any, as
determined by such Committee in its sole discretion.
In the event of termination of said relationship because of death or
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), the option may be exercised in
full (to the extent not previously exercised) without regard to the vesting
schedule set forth in the Amended Plan, by the optionee or, if he or she is
not living, by his or her heirs, legatees or legal representative, as the case
may be, during its specified term prior to two years after the date of death
or permanent disability. In the event of termination of employment because of
early, normal or deferred retirement under an approved retirement program of
the Company (or other plan or arrangement as may be approved by the relevant
Committee, in its discretion, for this purpose), the option may be exercised
by the optionee (or, if he or she dies after such retirement, by his or her
heirs, legatees or legal representative, as the case may be), to the extent
that any portion thereof would be exercisable on the date of such retirement
(or with respect to such greater portion as determined by the relevant
Committee), at any time during its specified term prior to one year after the
date of such retirement.
Except as otherwise determined by the relevant Committee, upon the
termination of a relationship between the Company or any subsidiary and a
consultant who is an optionee, such optionee's option shall expire and all
rights to purchase shares pursuant thereto shall terminate.
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The exercise price of options granted under the Amended Plan is the fair
market value of the shares of Common Stock on the date of the grant. The
exercise price is payable in cash, by check, by a promissory note in a form
specified by the relevant Committee and payable to the Company no later than
15 business days after the exercise date, or, if approved by such Committee,
by shares of Common Stock or by a combination of these payment methods. In the
event that shares of Common Stock are changed by a stock dividend, split or
combination of shares, merger, consolidation or reorganization of the Company
with any other corporation or corporations in which holders of the Common
Stock receive other securities, or any other relevant change in the
capitalization of the Company, a proportionate or equitable adjustment will be
made to the number or kind of shares subject to the Amended Plan and to the
exercise price.
The relevant Committee may require an optionee to satisfy any tax
withholding obligation upon exercise and may permit an eligible participant
(or any beneficiary or person entitled to act) to elect to pay a portion or
all of the amount requested by the Company for such taxes with respect to such
option, at such time and in such manner as such Committee shall deem to be
appropriate (including, but not limited to, authorizing the Company to
withhold, or agreeing to surrender to the Company on or about the date such
tax liability is determinable, Common Stock, other securities or property, or
other forms of payment, or any combination thereof, owned by such participant,
or a portion of such forms of payment that would otherwise be distributed, or
has been distributed, as the case may be, pursuant to such option to such
participant, having a fair market value equal to the amount of such taxes).
The board of directors may amend or discontinue the Amended Plan at any
time, provided that no amendment or discontinuance may, without the consent of
the optionee, change or impair any option previously granted or, without the
approval of stockholders, materially increase the benefits accruing to
participants under the Amended Plan, materially increase the number of
securities which may be issued under the Amended Plan, or materially modify
the requirements as to eligibility for participation in the Amended Plan.
The Amended 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
Amended Plan as it was in effect during such period.
Federal Income Tax Consequences of the Amended Plan. The following is a
brief summary of the current federal income tax rules relevant to stock
options issued under the Amended Plan. These rules are subject to change in
the future.
Options granted or to be granted under the Amended Plan are, or will be,
non-qualified stock options ("NQO"). In general, an optionee will not
recognize any taxable income, and the Company will not be entitled to a
deduction, upon the grant of an NQO. Upon the exercise of an NQO where the
exercise price is paid in cash, the optionee will recognize ordinary income
(subject to wage and employment tax withholding) equal to the excess of the
fair market value of the shares acquired over the option exercise price. The
amount of such excess is generally determined by reference to the fair market
value of the Common Stock on the date of exercise. An optionee's basis in the
underlying stock received will equal such stock's fair market value on the
date of exercise. The Company will be entitled to a deduction (subject to the
$1 million cap described below, if applicable) equal to the ordinary income
taxable to the optionee in the year of exercise.
Upon the sale of shares acquired pursuant to the exercise of an NQO, such
optionee will recognize capital gain or loss equal to the difference between
the selling price of the shares and the optionee's basis in the shares. Such
capital gain or loss will be long-term gain or loss if the optionee has held
the shares for more than one year. The Company will not be entitled to any
deduction with respect to any capital gain recognized by the optionee.
If an optionee surrenders previously acquired shares of Common Stock,
however acquired, in payment of all or part of the option exercise price of an
NQO, the optionee will not, as a result of such delivery, recognize gain or
loss for federal income tax purposes on the shares surrendered. The optionee's
tax basis in, and holding period for, the previously acquired stock
surrendered will carry over to an equal number of the shares of Common Stock
received on a share-for-share basis. The fair market value of the shares
received in excess of the shares surrendered will constitute compensation
taxable to the optionee as ordinary income. The tax basis for
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such shares will equal their fair market value and such shares' holding period
for federal income tax purposes begins on the date of exercise. The Company
will be entitled to a tax deduction (subject to the $1 million cap described
below, if applicable) equal to the compensation income recognized by the
optionee.
A publicly held corporation may not, subject to certain exceptions, deduct
for federal income tax purposes in any taxable year certain compensation paid
to certain executives in excess of $1 million for each such executive (the "$1
million cap"). The Company believes that under recently promulgated
regulations the $1 million cap will be inapplicable to options granted under
the Amended Plan.
Options Granted under the Plan and the Amended Plan. As of July 8, 1996, the
Company had options outstanding for an aggregate of 3,423,173 shares of Common
Stock under the Plan at exercise prices ranging from $5.88 to $12.00 per
share, with a weighted average exercise price of approximately $6.46 per
share. As of such date, no shares of Common Stock had been issued under the
Amended Plan. The following table sets forth certain information with respect
to options granted under the Plan and the Amended Plan (whether or not
exercised) through July 8, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
OPTIONS GRANTED UNDER THE PLAN
NAME AND POSITION AND THE AMENDED PLAN
----------------- ------------------------------
<S> <C>
Daniel V. Colangelo, former President and Chief
Executive Officer............................. 88,910
All current executive officers as a group (9
persons)...................................... 578,351
All directors who are not executive officers as
a group (6 persons)........................... 257,322
All associates of all directors and executive
officers (2 persons).......................... 53,650
All eligible employees who are not executive
officers or associates thereof and consultants
as a group.................................... 2,763,594
</TABLE>
DIRECTORS PLAN
General. On May 28, 1996, the board of directors of the Company adopted a
1996 Stock Option Plan for Non-Employee Directors (the "Directors Plan"),
which has been 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. Scott Beck, 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. If an option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned. 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, which option grants are subject to
approval of the Directors Plan by the stockholders of the Company. The
exercise price is payable in cash, by check, by a promissory note in a form
specified by the board of directors and payable to the Company no later than
15 business days after the exercise date or, if approved by the board of
directors, by shares of Common Stock of the Company or by a combination of
these methods.
If tenure as a director with the Company or any of its subsidiaries is
terminated for any reason other than death, permanent disability or
resignation, such director's option shall expire and all rights to purchase
shares under it shall terminate 15 days after such termination (or until the
scheduled termination of the option, if earlier).
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In the event of death or permanent disability, an exercisable option may be
exercised in full by the optionee or, if he is not living, by his or her
heirs, legatees, or legal representative, as the case may be, during its
specified term prior to two years after the date of death or permanent
disability; provided, however, that in the event an optionee hereunder should
die or become permanently disabled prior to the end of one year of service as
a director of the Company, then such optionee's option shall become
immediately exercisable as of the date of such death or permanent disability
and shall be exercisable for a period of two years after such date. In the
event of resignation, an exercisable option may be exercised by the optionee
(or, if he or she dies within three months after such termination, by his or
her heirs, legatees, or legal representative, as the case may be), at any time
during its specified term prior to three months after the date of such
resignation.
No option is transferable by the optionee otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order, and each option shall be exercisable during an optionee's lifetime only
by him.
The board of directors may amend or discontinue the Directors Plan at any
time, provided, however, that the Directors Plan may not be amended more than
once every six months except to comport with relevant changes in the law, and
provided further that no such amendment or discontinuation shall (a) change or
impair any option previously granted without the consent of the optionee, or
(b) without the approval of stockholders, (i) increase the maximum number of
shares which may be purchased by all optionees, (ii) change the purchase price
of any option, or (iii) change the option period or increase the time
limitations on the grant of options.
Federal Income Tax Consequences of the Directors Plan. The federal income
tax consequences relating to stock options under the Directors Plan are the
same as those relating to stock options issued under the Amended Plan. See "--
1995 Stock Option Plan--Federal Income Tax Consequences of the Amended Plan."
Copies of the Amended Plan and the Directors Plan are exhibits to the
Registration Statement of which this Prospectus is 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, 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. Mr. Beck does not serve 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 amount that was
purchased, directly or indirectly, by officers and directors of each of the
Company and Boston Chicken). 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
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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.
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, Bacheller 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
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<PAGE>
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"). In addition, the
Company is obligated to file, within 13 months after the completion of an
initial public offering, a registration statement under the Securities Act
that would include the Registrable Securities then held by such stockholders
and Boston Chicken, permitting them to make public resales of the Registrable
Securities. The Company expects to file such registration statement shortly
after the completion of the Offerings. Pursuant to the Stockholder
Registration Agreement, each holder of Registrable Securities has agreed not
to sell, for a specified period of time, up to 30% of the Registrable
Securities held by such holder. See "Shares Eligible for Future Sale." The
Company expects to enter into the Boston Chicken Registration Agreement
(defined below) that will supersede the rights of Boston Chicken under the
Stockholder Registration Agreement. 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 is offering to certain
persons or entities, consisting primarily of officers, directors and employees
of each of the Company and Boston Chicken, the opportunity to purchase 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 are members of the committee of the Company's board of directors
who will negotiate the initial public offering price with the Representatives)
are expected to purchase an aggregate of 45,500 of such shares of Common Stock
as follows: Mr. Scott Beck--4,000; Mr. Alper--4,000; Mr. Goldston--4,000; Mr.
Carlborg--4,000; Mr. Stanchak--4,000; Mr. Beaudoin--4,000; Mr. Butler--4,000;
Mr. Alam--3,000; Mr. Strasen--2,500; Mr. Craig--4,000; Mr. Muehlstein--4,000;
and Mr. Ruth--4,000. Certain executive officers and directors of Boston
Chicken (other than Scott Beck) are expected to purchase in the Concurrent
Public Offering an aggregate of 27,500 shares of Common Stock. The
consummation of the Concurrent Public Offering is conditioned upon the
consummation of each of the Initial Public Offering and the Concurrent Private
Placement. In addition, any such sales are also conditioned upon participants
in the Concurrent Public Offering agreeing not to sell shares of Common Stock
purchased in such offering for a period of 365 days after the date of this
Prospectus, without the consent of Merrill Lynch.
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,
$45.0 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. 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 July 15, 1996, Bagel Funding had invested a total of approximately
$43.9 million in area developers of the Company. See "Business--Area Developer
Financing." No fees were paid to the Company in 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.
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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. 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 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
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<PAGE>
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.
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, L.L.C. ("BCE West") and Old BCE West was dissolved.
For the Company's 1995 fiscal year and the quarter ended April 21, 1996, BCE
West (together with its predecessor, Old BCE West) paid to the Company an
aggregate of $2,308,714 and $486,553, respectively, in development, franchise,
royalty, real estate, software license, software maintenance, miscellaneous
and accounting fees and deposits. For the quarter ended April 21, 1996, BCE
West paid $80,200 in national and $135,266 in local advertising fund
contributions. In addition, for such period, BCE West paid to the Company
$193,734 in interest on its loan from the Company.
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 first
quarter
45
<PAGE>
ended April 21, 1996, Finest paid to the Company an aggregate of $1,613,001 in
development, franchise, royalty, real estate, software license, software
maintenance, miscellaneous and accounting fees and deposits. For the quarter
ended April 21, 1996, Finest paid $54,350 in national and $109,830 in local
advertising fund contributions. In addition, for such period, Finest paid to
the Company $74,717 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. For the Company's first quarter ended April 21, 1996, EBA paid to the
Company an aggregate of $5,392,331 in development, franchise, real estate
fees, deposits and reimbursement of expenses.
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.
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 first quarter ended April 21, 1996, Mayfair paid to the
Company an aggregate of $860,000 in deposits and reimbursement of expenses.
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.
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. 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
46
<PAGE>
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. 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 $14.7 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. 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 $11.6 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.
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 follows: BCE SLC
(now named BCE West)-- 85,050 shares; Finest--77,175 shares; Great Lakes
Bagels, L.L.C. ("Great Lakes")--108,225 shares; Liberty--100,350 shares;
Mayfair--77,175 shares; NJ Rose Bagels, L.L.C. ("NJ Rose")--92,700 shares;
NNYB, L.L.C. ("NNYB")--270,000 shares; P&L Bagels, L.L.C. ("P&L")--100,350
shares; P&L II Bagels, L.L.C. ("P&L II")--156,150 shares; R&A Bagels ("R&A")--
92,700 shares; and Texas Bagels, L.L.C.--77,175 shares. The warrants issued to
Great Lakes and R&A were transferred to EBA in connection with EBA's
transactions with the Company. In addition, NNYB assigned warrants for 168,750
shares of Common Stock to Noah's Pacific in connection with Noah's Pacific's
transactions with the Company and P&L assigned all of the warrants issued to
it to Colonial in connection with Colonial's transactions with the Company.
See "--Interests in Area Developers by Certain Persons." Each warrant becomes
exercisable by the holder thereof during the five-day period commencing on the
date of entering into an area development agreement and secured loan agreement
with the Company, and is exercisable only in its entirety. If an area
development agreement and secured loan agreement are not entered into prior to
July 15, 1997, each warrant expires as of such date. Lawrence Beck owns a
majority equity interest in each of P&L and P&L II. As of July 8, 1996, each
of the warrants granted to BCE West, Finest, Great Lakes, Liberty, Mayfair,
P&L and R&A, as well as the warrants transferred to Noah's Pacific, had been
exercised.
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."
47
<PAGE>
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. The employment
agreement terminates August 1, 1998. Mr. Offerdahl receives an annual salary
of $125,000 per year and reimbursement of reasonable business expenses. In
addition, 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.
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. The one-year consulting agreement
is automatically renewed for additional one year periods unless terminated by
either party upon 60 days' prior written notice. Ms. Offerdahl receives a
monthly consulting fee of $5,000 and reimbursement of reasonable business
expenses. In addition, 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.
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.
48
<PAGE>
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 Kyle T. 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.
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."
49
<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 July 8, 1996 and as
adjusted for the sale by the Company of the shares in the Offerings. 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 125 record holders of Common Stock. See "Concurrent
Offerings" and "Capitalization."
<TABLE>
<CAPTION>
SHARES SHARES
SHARES BENEFICIALLY TO BE BENEFICIALLY OWNED
OWNED BEFORE THE PURCHASED AFTER
OFFERINGS(1) IN THE THE OFFERINGS(1)
----------------------CONCURRENT-------------------
NAMES(2) NUMBER PERCENT OFFERINGS NUMBER PERCENT
-------- ------------ ------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Boston Chicken, Inc.(3).... 15,307,421 66.9% 2,000,000 17,307,421 61.9%
Daniel V. Colangelo........ 351,354 1.5 -- 351,354 1.3%
Scott A. Beck(4)........... 99,576 * 4,000 103,576 *
Noah Alper................. 93,600 * 4,000 97,600 *
Mark R. Goldston(5)........ 145,697 * 4,000 149,697 *
David G. Stanchak.......... 25,491 * 4,000 29,491 *
Kyle T. Craig.............. 47,581 * 4,000 51,581 *
M. Laird Koldyke(6)........ 424,827 1.9 -- 424,827 1.5%
Gail A. Lozoff(7).......... 577,998 2.5 -- 577,998 2.1%
John H. Muehlstein, Jr.(8). 678,661 3.0 4,000 682,661 2.4%
John A. Offerdahl(9)....... 894,493 3.9 -- 894,493 3.2%
Lloyd D. Ruth(10).......... 212,414 * 4,000 216,414 *
All directors and executive
officers as a group
(excluding Mr.
Colangelo)(15 persons).... 3,351,073 14.6% 45,500 3,396,573 12.1%
</TABLE>
- --------
*Less than 1%.
(1) Includes shares subject to options granted by the Company which are
exercisable within 60 days of July 8, 1996 as follows: Mr. Craig--5,098;
Mr. Stanchak--4,248; Mr. Offerdahl--4,248; and all executive officers and
directors as group--29,057.
(2) Unless otherwise indicated, the address of such person is c/o
Einstein/Noah Bagel Corp., 1526 Cole Boulevard, Suite 200, Golden,
Colorado 80401. The address for each of Boston Chicken and Scott Beck is
14103 Denver West Parkway, Golden, Colorado 80401-4086.
(3) Includes 524,844 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 178,447 shares of Common
Stock are exercisable within 60 days of July 8, 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) Includes 117,189 shares of Common Stock subject to options from Boston
Chicken which were currently exercisable as of July 8, 1996.
(6) 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.
50
<PAGE>
(7) Includes 573,750 shares of Common Stock held by B&B (formerly Bagel &
Bagel), of which Ms. Lozoff's spouse is the sole stockholder.
(8) Represents 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.
(9) Includes 885,997 shares of Common Stock held by OBG and 4,248 shares
beneficially owned by Mr. Offerdahl's spouse, which are subject to
options from the Company that were exercisable as of July 8, 1996. OBG's
address is 1801 Clint Moore Road, Suite 215, Boca Raton, Florida 33487.
(10) 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.
51
<PAGE>
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 July 8, 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 10.3%
Mark R. Goldston............................................. 50,000 *
David G. Stanchak............................................ 427,730 *
Noah 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)................................. 7,934,946 12.4%
</TABLE>
- --------
*Less than 1%.
(1) Includes shares subject to options which are exercisable within 60 days of
July 8, 1996 as follows: Mr. Scott Beck--543,025; Mr. Craig--48,025; Mr.
Goldston--50,000; Mr. Stanchak--108,424; and all executive officers and
directors as a group (including such individuals)--901,060. 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.
52
<PAGE>
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. 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 July 8, 1996, approximately $13.5 million was 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 1.0%. Any
borrowings outstanding under the Company's non-convertible loan facility from
Boston Chicken are payable on June 15, 2003. Prior to the consummation of the
Offerings, the Company anticipates increasing the non-convertible loan
facility with Boston Chicken to permit the Company to borrow up to $50.0
million. 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.
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 July 8,
1996 Boston Chicken had issued to the Company, and the Company had sold in the
over-the-counter 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
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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 expects to enter into a concurrent
private placement agreement with Boston Chicken (the "Concurrent Private
Placement Agreement"), pursuant to which Boston Chicken would purchase
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 would permit 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 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.
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In connection with the Concurrent Private Placement Agreement, the Company
also expects to enter into a registration agreement with Boston Chicken (the
"Boston Chicken Registration Agreement"), pursuant to which the Company would
grant 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 will supersede 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 resale registration statement under the
Stockholder Registration Agreement or (ii) 13 months after the closing 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
"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 is currently 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.
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
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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 fees
aggregating $489,750.
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, 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
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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 fees aggregating $234,823.
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 Boston Chicken will provide certain
conversion assistance to Noah's Pacific and Noah's Bay Area, L.L.C. ("Noah's
Bay Area"), an entity which has entered into an area development agreement and
franchise agreements with the Company for the development and operation of
additional Noah's New York Bagels stores and for which Noah's Pacific performs
certain services. 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
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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 approximately 38,000 square feet of office space
(and certain common areas, including parking areas) located in Golden,
Colorado to which the Company intends to relocate its support center facility.
The lease commences 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 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
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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"). Upon completion of
the Offerings, approximately 27,981,000 shares of Common Stock and no shares
of Preferred Stock will be 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.
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.
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 has a
liquidation preference of $1,000 and pays annual dividends of $60.00. Upon
completion of the Offerings, each Preferred Share will automatically be
converted into that number of shares of Common Stock derived by dividing
$1,000 plus accrued and unpaid dividends by 80% of the initial public offering
price per share. The Preferred Shares are redeemable at the option of the
Company at
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any time after February 10, 1999, at a price per share equal to $1,250 plus
accrued and unpaid dividends. In addition, a majority of the holders of the
Preferred Shares may require the Company to redeem one-third of such shares on
each of February 28, 1998, May 1, 1998 and August 1, 1998, at a price per
share of $1,250 plus accrued and unpaid dividends. The Preferred Shares are
also redeemable by the holders in the event the Company has failed to pay
three consecutive quarterly dividends at a price of $1,250 per share plus
accrued and unpaid dividends.
The Company has no present plan to issue any additional 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
Prior to the Offerings, there has been no market for the Common Stock of the
Company. No predictions can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for future sale, will have on the market price for shares prevailing from time
to time. Sales of substantial amounts of Common Stock in the public market
following the Offerings could adversely affect the market price of the Common
Stock.
Upon completion of the Offerings, the Company will have approximately
27,981,000 shares of Common Stock outstanding (approximately 28,311,000 shares
if the Underwriters' over-allotment option is exercised in full). The shares
of Common Stock offered in the Initial Public Offering and the Concurrent
Public Offering will be freely tradable (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, except that the purchasers in the
Concurrent Public Offering will have agreed not to sell shares so purchased
for a period of 365 days from the date of this Prospectus, without the consent
of Merrill Lynch. The 2,000,000 shares of Common Stock offered to Boston
Chicken in the Concurrent Private Placement will be, and the approximately
22,870,000 shares of Common Stock acquired by the existing stockholders of the
Company were, issued and sold by the Company in private transactions
("Restricted Shares") and may not be resold unless registered under the
Securities Act (which registration is contemplated as described below in the
case of Restricted Securities held by certain existing stockholders) or sold
in accordance with an exemption therefrom, such as Rule 144, Rule 144A or Rule
701 thereunder. In addition, Boston Chicken will have agreed with the
Representatives not to sell shares of Common Stock purchased in the Concurrent
Private Placement for a period of 365 days from the date of this Prospectus,
without the consent of Merrill Lynch.
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 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 Securities will be
available for resale under such rule upon consummation of the Offerings, the
Company intends to file a
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registration statement under the Securities Act with respect to approximately
9,875,000 of such Restricted Securities as more fully described below.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally issued by the Company to its employees,
directors, officers, consultants or advisers prior to completion of the
Offerings, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. Securities issued in reliance on
Rule 701 are Restricted Shares and, beginning 90 days after the date of this
Prospectus (unless subject to the contractual lockup restrictions described in
"Underwriting"), may be sold by non-affiliates subject only to the manner of
sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirement.
Pursuant to the Stockholder Registration Agreement, certain stockholders of
the Company were granted piggyback registration rights under the Securities
Act with respect to shares of Common Stock owned by them (the "Registrable
Securities"). In addition, the Company is obligated to file, within 13 months
after the completion of an initial public offering, a registration statement
under the Securities Act which would include the Registrable Securities then
held by such stockholders, pursuant to which the holders thereof would be able
to make public resales of the Registrable Securities. The Company intends to
file such registration statement shortly after the completion of the Offerings
with respect to approximately 9,875,000 shares of Common Stock owned by such
stockholders and others (not including Boston Chicken), pursuant to which they
may resell such shares in the public market. The holders of approximately
9,000,000 of such shares have agreed that they will not sell any of such
shares for a period of 180 days from the date of this Prospectus, and holders
of an additional approximately 400,000 of such shares have agreed that they
will not sell any of such shares for a period of 30 days from the date of this
Prospectus, subject to certain exceptions, without the consent of Merrill
Lynch. Pursuant to the Stockholder Registration Agreement, each holder of
Registrable Securities has agreed not to sell up to 30% of the Registrable
Securities held by such holder, for a period ending on the earlier of (i) the
date that the Registrable Securities are permitted to be sold by the holders
thereof pursuant to Rule 144 under the Securities Act and (ii) the six-month
anniversary of the effective date of the registration statement filed by the
Company pursuant to which such holders may make public resales. The Company
has agreed to waive such provision of the Stockholder Registration Agreement
with respect to those stockholders who have agreed not to sell such shares as
described above.
Boston Chicken is a party to the Stockholder Registration Agreement.
However, in connection with the Concurrent Private Placement, the Company
expects to enter into the Boston Chicken Registration Agreement (which will
supersede Boston Chicken's rights under the Stockholder Registration
Agreement). Pursuant to the Boston Chicken Registration Agreement, the Company
will grant 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 intends to register under the Securities Act approximately
301,000 shares of Common Stock outstanding pursuant to the exercise of
options, approximately 3,441,000 shares of Common Stock subject to outstanding
options and approximately 1,858,000 shares of Common Stock reserved for
issuance under the
61
<PAGE>
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 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 for a
period of 180 days from the date of this Prospectus, subject to certain
exceptions, without the consent of Merrill Lynch.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom Merrill Lynch, Alex. Brown & Sons Incorporated and Montgomery
Securities are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company the respective number of shares
of Common Stock set forth opposite its name below at the initial public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. In the Purchase Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the shares of Common Stock offered hereby if any of such shares are
purchased. In the event of default by an Underwriter, the Purchase Agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting Underwriters may be increased or the Purchase Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Alex. Brown & Sons Incorporated.................................
Montgomery Securities...........................................
---------
Total...................................................... 2,200,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock in the Initial Public Offering
to the public initially at the price to the public set forth on the cover page
of this Prospectus, and to certain dealers (who may include the Underwriters)
at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the Initial Public
Offering contemplated hereby, the offering price and other selling terms may
be changed by the Representatives.
The Company and the Underwriters have agreed to reserve up to 220,000 shares
of Common Stock offered in the Initial Public Offering for sale by the
Underwriters to certain individuals and entities, including eligible employees
and area developers of the Company and Boston Chicken, and other entities or
persons related to the Company or such entities or persons, and members of
their families. The price of such shares to such persons will be the initial
public offering price set forth on the cover of this Prospectus. The number of
shares available to the general public will be reduced to the extent those
persons and entities purchase reserved shares. Any reserved shares of Common
Stock not purchased by such persons or entities will be offered by the
Underwriters to the public on the same basis as the other shares of Common
Stock offered in the Initial Public Offering. Participants in the reserved
share program have agreed not to make any disposition of such shares of Common
Stock for a period of 30 days after the date of this Prospectus without the
consent of Merrill Lynch.
The obligations of the several Underwriters to pay for and accept delivery
of the shares of Common Stock offered in the Initial Public Offering are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all the shares
of Common Stock offered in
63
<PAGE>
the Initial Public Offering (other than the shares of the Common Stock covered
by the over-allotment option described below) if any are taken. Purchasers in
the Initial Public Offering are purchasing shares of Common Stock from the
Underwriters subsequent to the Underwriters' purchase of such shares from the
Company and not directly from the Company.
Prior to the Offerings, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between a committee of the Company's board
of directors composed of members who have agreed not to purchase shares of
Common Stock in the Offerings and the Representatives. Among the factors to be
considered in such negotiations are the prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives believe to be comparable to the Company, estimates of
the business potential of the Company, the prospects for earnings, the present
state of the Company's development and other factors deemed relevant.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
330,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page hereof, less the underwriting discount. The
Underwriters may exercise such option only to cover over-allotments, if any,
made in connection with the sale of Common Stock offered in the Initial Public
Offering. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions,
to purchase approximately the same percentage thereof which the number of
shares of Common Stock to be purchased by it shown in the above table is of
the 2,200,000 shares of Common Stock offered in the Initial Public Offering.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which shares in the Initial Public Offering are being
offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.
The Company and its directors, executive officers and certain other
stockholders (including Boston Chicken) have agreed that they will not offer,
sell, contract to sell, or otherwise dispose of any shares of Common Stock or
any shares convertible or exchangeable into any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of Merrill Lynch, except that the Company may, without such consent,
(i) issue shares upon the exercise of options granted pursuant to the Amended
Plan and the Directors Plan and (ii) issue up to 1,000,000 shares pursuant to
potential acquisitions, which shares, when issued, will be subject to
restrictions on resale for a period of 180 days from the date of this
Prospectus. In addition, each of the foregoing persons (including Boston
Chicken) purchasing shares of Common Stock in the Concurrent Offerings has
agreed not to sell such shares for a period of 365 days from the date of this
Prospectus, without the prior written consent of Merrill Lynch. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Charles A. Lewis, Vice Chairman--Investment Banking of Merrill Lynch & Co.
and his family beneficially own 318,828 shares of Common Stock.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company by Bell, Boyd
& Lloyd, Chicago, Illinois. Mayer, Brown & Platt, Chicago, Illinois, is acting
as counsel for the Underwriters in connection with certain legal matters
relating to the sale of the shares of Common Stock offered hereby.
64
<PAGE>
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.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act
with respect to the Common Stock offered hereby. 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 offered hereby, 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. In each instance
such contract or other document has been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus is a part.
As a result of the Initial Public Offering and the Concurrent Public
Offering, the Company will become subject to the informational requirements of
the Exchange Act, and in accordance therewith will file reports and other
information with the Commission. Reports, registration statements, proxy
statements, and other information filed or to be 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.
65
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED 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 April 21, 1996..... F-19
Consolidated Statements of Operations for the period from March 24, 1995
(inception) through April 16, 1995 and for the quarter ended April 21,
1996................................................................... F-20
Consolidated Statements of Cash Flows for the period from March 24, 1995
(inception) through April 16, 1995 and for the quarter ended April 21,
1996................................................................... F-21
Notes to Unaudited Consolidated Financial Statements.................... F-22
NOAH'S NEW YORK BAGELS, INC.
Independent Auditors' Report.............................................. F-25
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and December 30, 1995.. F-26
Consolidated Statements of Operations for the fiscal years ended
December 31, 1993, December 31, 1994 and December 30, 1995............. F-27
Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal
years ended December 31, 1993, December 31, 1994 and December 30, 1995. F-28
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1993, December 31, 1994 and December 30, 1995............. F-29
Notes to Audited Consolidated Financial Statements...................... F-30
BAGEL & BAGEL, INC.
Report of Independent Public Accountants.................................. F-36
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-37
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-38
Notes to Audited Financial Statements................................... F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
Report of Independent Public Accountants.................................. F-41
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-42
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-43
Notes to Audited Combined Financial Statements.......................... F-44
BALTIMORE BAGEL CO.
Report of Independent Public Accountants.................................. F-45
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-46
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-47
Notes to Financial Statements........................................... F-48
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information of Einstein/Noah
Bagel Corp............................................................... F-49
Unaudited Pro Forma Consolidated Statement of Operations for the fiscal
year ended December 31, 1995............................................. F-50
Unaudited Pro Forma Consolidated Statement of Operations for the quarter
ended April 21, 1996..................................................... F-51
Notes to Unaudited Pro Forma Consolidated Financial Statements............ F-52
</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
=======
<CAPTION>
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........................... $ (4.33)
========
Weighted average number of common and equivalent shares
outstanding....................................................... 10,132
========
</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 Net Assets Acquired
The excess purchase price over the fair value of net assets acquired from
acquisitions is being amortized on a straight line basis over thirty-five
years. The Company continually evaluates whether later events and
circumstances have occurred that indicate if the remaining estimated useful
lives may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that the assets should be evaluated for
possible impairment, the Company uses an estimate of such assets' undiscounted
cash flows in measuring whether the assets are recoverable.
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
and liabilities based upon an evaluation of their fair values at the dates of
the acquisitions. The allocations resulted in $14.0 million of goodwill, which
is being amortized over 35 years on a straight-line basis. 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):
<TABLE>
<S> <C>
Revenue........................................................... $38,065
Net loss.......................................................... 43,540
Net loss per share................................................ $ 4.31
</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.
F-10
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-11
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, the Company wrote-
off $26.6 million of such assets (Note 4). The write-off resulted from the
discontinuation of the use of these assets and management's evaluation of the
lack of recoverability of the related costs.
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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 21,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 5,368 $ 2,912
Accounts receivable................................. 1,327 5,334
Inventory........................................... 883 1,408
Deposits............................................ 1,492 3,319
Prepaid expenses and other current assets........... 217 634
-------- --------
Total current assets.............................. 9,287 13,607
Property and Equipment, net........................... 19,410 34,564
Notes Receivable...................................... 7,267 38,298
Excess of Purchase Price Over Fair Value of Net Assets
Acquired, net........................................ 13,715 96,654
Other Assets, net..................................... 620 1,391
-------- --------
Total assets...................................... $ 50,299 $184,514
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable.................................... $ 5,633 $ 5,418
Accrued expenses.................................... 2,968 6,556
Deferred franchise revenue.......................... 645 990
-------- --------
Total current liabilities......................... 9,246 12,964
Convertible Debt...................................... 40,000 120,000
Long-term Debt........................................ -- 38,497
Deferred Franchise Revenue............................ 265 1,595
Other Noncurrent Liabilities.......................... 2,907 3,826
Repurchase Common Stock Shares--1,721,250 shares
issued and outstanding............................... 11,062 11,852
Series A Preferred Stock--6,250 shares issued and
outstanding.......................................... 7,813 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 issued and outstanding, 3,848,607 shares
in 1995 and 5,353,128 shares in 1996............... 38 54
Additional paid-in capital.......................... 22,684 34,946
Accumulated deficit................................. (43,716) (47,033)
-------- --------
Total stockholders' deficit....................... (20,994) (12,033)
-------- --------
Total liabilities and stockholders' deficit....... $ 50,299 $184,514
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-19
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 24, 1995)
THROUGH QUARTER ENDED
APRIL 16, 1995 APRIL 21, 1996
--------------------- --------------
<S> <C> <C>
Revenue:
Company-operated stores................. $1,423 $18,397
Royalties and franchise-related fees.... -- 3,982
------ -------
1,423 22,379
Costs and Expenses:
Cost of products sold................... 438 5,490
Salaries and benefits................... 643 9,128
General and administrative.............. 522 9,031
------ -------
Total costs and expenses.............. 1,603 23,649
------ -------
Loss from Operations...................... (180) (1,270)
Other Income (Expense):
Interest expense, net................... (80) (3,333)
Other income, net....................... -- 1,286
------ -------
Total other expense................... (80) (2,047)
------ -------
Net loss.................................. $ (260) $(3,317)
====== =======
Net loss per common and equivalent share.. $(0.03) $ (0.34)
====== =======
Weighted average number of common and
equivalent shares outstanding............ 9,906 10,153
====== =======
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-20
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION)
THROUGH QUARTER ENDED
APRIL 16, 1995 APRIL 21, 1996
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss......................................... $ (260) $ (3,317)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 67 1,914
Gain on sale of marketable equity securities... -- (1,267)
Changes in assets and liabilities, net of
effect of acquisitions:
Accounts receivable.......................... 454 (3,710)
Accounts payable and accrued expenses........ (1,673) (2,440)
Deferred franchise revenue................... -- 1,660
Other assets and liabilities................. 24 (2,923)
-------- ---------
Net cash used in operating activities........ (1,388) (10,083)
Cash Flows from Investing Activities:
Purchase of property and equipment............. (389) (17,557)
Proceeds from sale of property and equipment... -- 25,088
Acquisition of Noah's New York Bagels, Inc..... -- (100,902)
Net proceeds (purchases) from investment in
marketable equity securities.................. (21,465) 1,267
Purchase of other assets....................... (59) (744)
Issuance of notes receivable................... (2,041) (39,003)
Repayment of notes receivable.................. -- 7,972
-------- ---------
Net cash used in investing activities........ (23,954) (123,879)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock......... 20,183 13,009
Proceeds from debt............................. 34,637 208,929
Repayment of debt.............................. (26,533) (90,432)
-------- ---------
Net cash provided by financing activities.... 28,287 131,506
-------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 2,945 (2,456)
Cash and Cash Equivalents, beginning of period... -- 5,368
-------- ---------
Cash and Cash Equivalents, end of period......... $ 2,945 $ 2,912
======== =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-21
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 April 21, 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
the audited consolidated financial statements included elsewhere herein. The
consolidated results of operations for the quarter ended April 21, 1996 are
not necessarily indicative of the results expected for the full year.
2. 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 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 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 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 (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.
F-22
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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, APRIL 21,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Number of area developers receiving financing... 2 4
Loan commitments................................ $16,000 $89,500
Unused Loans.................................... 12,462 56,934
------- -------
Loans outstanding (included in Notes
Receivable).................................... $ 3,538 $32,566
======= =======
Allowance for loan losses....................... $ -- $ --
======= =======
</TABLE>
(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 and April 21,
1996.
3. STOCK SPLIT
On July 8, 1996, the board of directors of the Company approved a 225-for-
one stock 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.
4. 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
APRIL 21, 1996
--------------
(UNAUDITED)
<S> <C>
Royalties.................................................. $ 680
Initial franchise and area developer fees.................. 2,600
Interest income............................................ 423
Other...................................................... 279
------
$3,982
======
</TABLE>
5. ACQUISITION
In February 1996, the Company acquired Noah's New York Bagel's, Inc. for
approximately $100.9 million. The acquisition has been accounted for as a
purchase, and, accordingly, the purchase price was allocated to assets and
liabilities based upon a preliminary evaluation of their fair values at the
date of the acquisition. The preliminary allocation resulted in approximately
$56.3 million of excess purchase price over fair value of net assets acquired
and $22.1 million allocated to trademarks, which are being amortized over 35
years, and $5.2 million allocated to recipes, which are being amortized over
10 years. A final allocation will be determined in fiscal 1996.
F-23
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The following represents the unaudited pro forma results of operations as if
the combination had occurred at the beginning of the Company's fiscal year (in
thousands of dollars):
<TABLE>
<S> <C>
Revenue........................................................... $25,683
Net loss.......................................................... 5,199
Net loss per share................................................ $ 0.52
</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.
6. COMMITMENTS
In December 1995, Bagel Store Development Funding, L.L.C. ("Bagel Funding"),
formerly Einstein Bros. Equity Funding, L.L.C., ("Bagel Funding") was formed
to invest in existing and proposed area developers. Through April 21, 1996,
Bagel Funding had raised $90.0 million (including an aggregate of $45.0
million in subscriptions receivable) and had invested a total of $21.9 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. SUBSEQUENT EVENT
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 May 1996, the Company utilized $39.6 million to
repay the outstanding bridge loan from Boston Chicken, Inc. The Company's
balance sheet as of April 21, 1996, gives effect to this refinancing as if it
occurred as of the balance sheet date.
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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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.
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, 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-36
<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-37
<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-38
<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
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.
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-39
<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-40
<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-41
<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-42
<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-43
<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
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.
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-44
<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.
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
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-45
<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-46
<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-47
<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
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.
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-48
<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 quarter ended April 21, 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-49
<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. $ (4.33) $ (5.55)
======== ========
Weighted average
number of common
and equivalent
shares
outstanding...... 10,132 10,153 (4)
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
F-50
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 21, 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..... $18,397 $3,304 $21,701
Royalties and franchise-
related fees............... 3,982 -- 3,982
------- ------ -------
22,379 3,304 25,683
Costs and Expenses:
Cost of products sold....... 5,490 1,118 6,608
Salaries and benefits(5).... 9,128 2,361 11,489
General and administrative.. 9,031 795 213 (1) 10,039
------- ------ -------
Total costs and expenses.. 23,649 4,274 28,136
------- ------ -------
Loss from Operations.......... (1,270) (970) (2,453)
Other Income (Expense):
Interest expense, net....... (3,333) (4) (699)(2) (4,036)
Other income, net........... 1,286 4 1,290
------- ------ -------
Total other expense....... (2,047) -- (2,746)
------- ------ -------
Net Loss...................... $(3,317) $ (970) $(5,199)
======= ====== =======
Net loss per common and
equivalent share............. $ (0.34) $ (0.52)
======= =======
Weighted average number of
common and equivalent shares
outstanding.................. 10,153 10,153
======= =======
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
F-51
<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 1,959,152 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
10,474,596 shares of common stock pursuant to the issuance of stock options
and warrants issued, and shares of common stock sold, through April 21,
1996. 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.
F-52
<PAGE>
[Photograph depicting the exterior of a free-standing Einstein Bros. Bagels
store at dusk.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OF-
FERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 6
Risk Factors.............................................................. 7
Concurrent Offerings...................................................... 12
Use Of Proceeds........................................................... 12
Dividend Policy........................................................... 13
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Historical and Pro Forma Consolidated Financial and Store Data... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 21
Management................................................................ 34
Certain Transactions...................................................... 41
Principal Stockholders and Securities Ownership of Management............. 50
Relationship with Boston Chicken.......................................... 53
Description of Capital Stock.............................................. 59
Shares Eligible For Future Sale........................................... 60
Underwriting.............................................................. 63
Legal Matters............................................................. 64
Experts................................................................... 65
Additional Information.................................................... 65
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,625,000 SHARES
LOGO
COMMON STOCK
----------------
P R O S P E C T U S
----------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee, the
NASD filing fee, and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 20,380
NASD filing fee................................................. 6,410
Nasdaq listing fee.............................................. 50,000
Transfer agent and registrar's fee and expenses................. 10,000
Blue Sky fees and expenses...................................... 25,000
Printing and engraving expenses................................. 200,000
Legal fees and expenses......................................... 350,000
Accounting fees and expenses.................................... 150,000
Miscellaneous................................................... 28,210
--------
Total....................................................... $840,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees, and agents of the Company;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees, and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
The Company's Restated Certificate of Incorporation provides for
indemnification of the Company's officers and directors to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law. The Company
intends to obtain directors and officers insurance covering its executive
officers and directors.
The Company's Restated Certificate of Incorporation eliminates, to the
fullest extent permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for a breach of such
director's fiduciary duty of care except for liability where a director (a)
breaches his or her duty of loyalty to the Company or its stockholders, (b)
fails to act in good faith or engages in intentional misconduct or knowing
violation of law, (c) authorizes payment of an illegal dividend or stock
repurchase, or (d) obtains an improper personal benefit. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his or her responsibilities under any other law, including the federal
securities laws.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers, and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 24, 1995, in connection with the formation of the Company, the
Company issued to the shareholders of Brackman Bros., Inc. ("Brackman") and to
Bagel & Bagel, Inc. ("Bagel & Bagel") an aggregate of 573,750 and 573,750
shares of Common Stock, respectively, as partial consideration for all of the
outstanding shares of Brackman and substantially all of the assets of Bagel &
Bagel. On such date, the Company
II-1
<PAGE>
also sold to certain accredited investors an aggregate of 3,536,361 shares of
Common Stock for $20.8 million in cash. The above-mentioned securities were
sold without registration under the Securities Act in reliance on Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act.
On March 31, 1995, in connection with the formation of the Company, the
Company issued to Offerdahl's Bagel Gourmet, Inc. ("Offerdahl's") an aggregate
of 885,996 shares of Common Stock as partial consideration for substantially
all of the assets of Offerdahl's and a non-recourse promissory note in the
aggregate amount of $437,497. Such securities were sold without registration
under the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated under the Securities Act.
On August 10, 1995, the Company issued to the shareholder of Baltimore Bagel
Co. ("Baltimore Bagel") an aggregate of 6,250 shares of Series A Preferred
Stock in connection with the merger of Baltimore Bagel into a wholly owned
subsidiary of the Company. Such shares were issued without registration under
the Securities Act in reliance on Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act.
On December 29, 1995, the Company sold a warrant to purchase an aggregate of
1,012,500 shares of Common Stock to Bagel Store Development Funding, L.L.C.,
formerly known as Einstein Bros. Equity Funding, L.L.C., at an exercise price
of $6.47 per share. The cash purchase price for the warrant was $45,000. Such
warrant was sold without registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
under the Securities Act.
On January 15, 1996, the Company sold warrants to purchase an aggregate of
1,237,050 shares of Common Stock to certain accredited investors at an
exercise price of $6.47 per share. The aggregate purchase price for the
warrants was $1,100, which purchase price was paid by delivery of promissory
notes from the accredited investors. An aggregate of 809,775 shares of Common
Stock have been issued pursuant to the exercise of certain of such warrants
for an aggregate exercise price of $5,239,244. Such warrants, and the shares
of Common Stock issued upon exercise thereof, were sold without registration
under the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated under the Securities Act.
On February 1, 1996, the Company sold to certain accredited investors (all
of whom were former shareholders of Noah's New York Bagels, Inc.) an aggregate
of 855,225 shares of Common Stock for a cash purchase price of $10.52 per
share. Such shares were issued without registration under the Securities Act
in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act.
On April 5, 1996, the Company sold to Mark A. Goldston, President and Chief
Executive Officer and a director of the Company, 28,508 shares of Common Stock
for a cash purchase price of $10.52 per share. Such shares were sold without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act in reliance on Rule 506 of Regulation D promulgated under the
Securities Act.
On May 28, 1996, in connection with entering into its secured revolving
credit facility, the Company issued a warrant to purchase an aggregate of
15,375 shares of Common Stock to one accredited investor at an exercise price
of $11.58. Such warrant was issued without registration under the Securities
Act and Rule 506 of Regulation D promulgated under the Securities Act.
Since its inception, the Company has granted options for 3,741,827 shares of
Common Stock pursuant to its stock option plans at exercise prices ranging
from $5.88 to $12.00 per share, of which options to purchase 301,383 shares of
Common Stock have been exercised. Such options were issued without
registration under the Securities Act in reliance on Section 4(2) and Rule 701
promulgated under the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The exhibits to the Registration Statement are listed in the Exhibit
Index which appears elsewhere in this Registration Statement and is hereby
incorporated herein by reference.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts........................... II-6
</TABLE>
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action,
suit, or proceeding) is asserted against the Company by such director,
officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT, OR AMENDMENT THERETO, TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN GOLDEN,
COLORADO, ON JULY 17, 1996.
Einstein/Noah Bagel Corp.
/s/ Mark R. Goldston
By: _________________________________
Mark R. Goldston
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT, OR AMENDMENT THERETO, HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JULY 17, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Mark R. Goldston President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Mark R. Goldston
/s/ W. Eric Carlborg Senior Vice President--Finance (Principal
___________________________________________ Financial and Accounting Officer)
W. Eric Carlborg
/s/ Noah Alper Director
___________________________________________
Noah Alper
/s/ Scott A. Beck Director
___________________________________________
Scott A. Beck
/s/ Kyle T. Craig Director
___________________________________________
Kyle T. Craig
/s/ M. Laird Koldyke Director
___________________________________________
M. Laird Koldyke
/s/ Gail Lozoff Director
___________________________________________
Gail Lozoff
/s/ John H. Muehlstein, Jr. Director
___________________________________________
John H. Muehlstein, Jr.
/s/ John A. Offerdahl Director
___________________________________________
John A. Offerdahl
/s/ Lloyd D. Ruth Director
___________________________________________
Lloyd D. Ruth
/s/ David G. Stanchak Director
___________________________________________
David G. Stanchak
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Einstein/Noah Bagel Corp.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Einstein/Noah Bagel Corp. and
subsidiaries as of December 31, 1995 for the period from March 24, 1995
(inception) to December 31, 1995 included in this Registration Statement and
have issued our report thereon dated July 16, 1996. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The supplemental schedule listed in Part II, Item 16 of this
Registration Statement is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
supplemental schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Denver, Colorado
July 16, 1996
II-5
<PAGE>
SCHEDULE II
EINSTEIN/NOAH BAGEL CORP.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
CLASSIFICATIONS OF PERIOD EXPENSES DEDUCTIONS PERIOD
--------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period from March 24, 1995
(inception)
through December 31, 1995:
Allowance for Doubtful Accounts. $ -- $81,000 $ -- $81,000
</TABLE>
II-6
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(+) PAGE*
------- ------------------------- ----
<C> <S> <C>
1** Form of Purchase Agreement with Underwriters.
2.1(a)** Agreement to Contribute Shares dated February 17, 1995 among
the Company, Brackman Brothers, Inc. ("Brackman") and the
shareholders of Brackman (the "Brackman Agreement").
2.1(b)** Amendment to Agreement to Contribute Shares dated March 24,
1995 among the Company, Brackman and the shareholders of
Brackman (the "Amendment to Brackman Agreement").
2.2** Agreement to Contribute Assets dated March 2, 1995 among the
Company, Bagel & Bagel, Inc. and Richard Lozoff (the "Bagel
& Bagel Agreement").
2.3** Agreement to Contribute Assets dated March 23, 1995 among
the Company, Offerdahl's Bagel Gourmet, Inc.
("Offerdahl's") and the stockholders of Offerdahl's (the
"Offerdahl's Agreement").
2.4** Agreement and Plan of Merger dated August 10, 1995 among the
Company, Baltimore Bagel Co., BBC Acquiring Corporation and
Michael E. Brau and Rachel C. Brau, individually and as
trustees of the Brau Living Trust dated January 23, 1990
(the "Baltimore Bagel Agreement").
2.5** Merger Agreement dated as of January 22, 1996, as amended,
among the Company, NNYB Acquisition Corporation, Noah's New
York Bagels, Inc. ("Noah's"), and the shareholders and
optionholders of Noah's (the "Noah's Agreement").
3.1 Restated Certificate of Incorporation of the Company
("Certificate of Incorporation").
3.2** Amended and Restated Bylaws of the Company ("Bylaws").
4.1 Certificate of Incorporation (included in Exhibit 3.1).
4.2** Bylaws (included in Exhibit 3.2).
4.3 Certificate representing Common Stock.
4.4 Amended and Restated Registration Rights Agreement dated
February 1, 1996 by and among the Company and certain
stockholders of the Company.
4.5** Form of Concurrent Private Placement Agreement between
Boston Chicken, Inc. ("Boston Chicken") and the Company
("Concurrent Private Placement Agreement").
4.6** Form of Registration Agreement between Boston Chicken and
the Company.
5.1 Opinion of Bell, Boyd & Lloyd.
10.1** Amended and Restated Loan Agreement dated May 17, 1996
between Boston Chicken, Inc. ("Boston Chicken") and the
Company.
10.2** Form of Concurrent Private Placement Agreement (included in
Exhibit 4.5).
10.3(a)** Secured Demand Note of the Company dated January 30, 1996
payable to Boston Chicken ("Secured Demand Note")
(incorporated by reference to Exhibit 10.23(d) Boston
Chicken's 1995 annual report on Form 10-K).
10.3(b)** First Amendment to Secured Demand Note dated as of March 7,
1996.
</TABLE>
- --------
(+)In the case of incorporation by reference to documents filed by Boston
Chicken under the Securities Exchange Act of 1934, as amended, Boston
Chicken's file number under that Act is 0-22802.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
Exhibit-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(+) PAGE*
------- ------------------------- ----
<C> <S> <C>
10.4** Brackman Agreement and Amendment to Brackman Agreement
(included in Exhibits 2.1(a) and 2.1(b) hereof).
10.5** Bagel & Bagel Agreement (included in Exhibit 2.2 hereof).
10.6** Offerdahl's Agreement (included in Exhibit 2.3 hereof).
10.7** Baltimore Bagel Agreement (included in Exhibit 2.4 hereof).
10.8** Noah's Agreement (included in Exhibit 2.5 hereof).
10.9** Credit Agreement dated as of May 17, 1996 among the
Company, the Lenders named therein, and Bank of America
Illinois, as Agent.
10.10 Amended and Restated 1995 Stock Option Plan of the Company.
10.11** 1996 Non-Employee Director Stock Option Plan of the
Company.
10.12(a)** Amended and Restated Accounting and Administration Services
Agreement dated as of May 28, 1996 between Boston Chicken
and the Company.
10.12(b) First Amendment to Amended and Restated Accounting and
Administration Services Agreement dated as of June 17,
1996 between Boston Chicken and the Company.
10.13(a)** Financial Services Agreement dated as of March 24, 1995
between Boston Chicken and the Company ("Financial
Services Agreement") (incorporated by reference to Exhibit
10.15 to Boston Chicken's 1994 annual report on Form 10-
K).
10.13(b)** First Amendment to Financial Services Agreement dated as of
March 7, 1996.
10.13(c)** Financial Services Agreement Termination Agreement
effective as of May 20, 1996.
10.14(a)** Amended and Restated Real Estate Services Agreement dated
as of May 28, 1996 between Boston Chicken and the Company.
10.14(b) Amended and Restated Real Estate Services Agreement
Termination Agreement dated as of June 17, 1996 between
the Company and Boston Chicken.
10.15(a)** Amended and Restated Computer and Communications Systems
Services Agreement dated as of June 17, 1996 between
Boston Chicken and the Company.
10.15(b) First Amendment to the Amended and Restated Computer and
Communications Systems Services Agreement dated as of June
17, 1996 between Boston Chicken and the Company.
10.16** Assignment and Reimbursement Agreement dated March 24, 1995
between Boston Chicken and the Company.
10.17(a)** Employment Agreement dated March 24, 1995 between Daniel V.
Colangelo and the Company.
10.17(b)** Amendment to Employment Agreement and Transition and
Consulting agreement dated January 16, 1996 between Daniel
V. Colangelo and the Company, as amended March 6, 1996.
10.18** Letter Agreement dated April 5, 1996 between Mark R.
Goldston and the Company.
10.19** Employment Agreement dated March 24, 1995 between Gail
Lozoff and the Company.
10.20** Secured Loan Agreement dated October 2, 1995 between Doc's
Cheese Company, L.L.C. ("Doc's") and the Company.
</TABLE>
- --------
(+)In the case of incorporation by reference to documents filed by Boston
Chicken under the Securities Exchange Act of 1934, as amended, Boston
Chicken's file number under that Act is 0-22802.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
Exhibit-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE*
------- ---------------------- ----
<C> <S> <C>
10.21(++) Supply Agreement dated October 2, 1995 between Doc's and the
Company.
10.22** License Agreement dated October 2, 1995 between Doc's and
the Company.
10.23** Option agreement dated October 2, 1995 between Doc's and the
Company.
10.24(++) Project and Approved Supplier Agreement among Harlan Bagel
Supply Company, Harlan Bakeries, Inc. and the Company.
10.25 Option Agreement among Harlan Bagel Supply Company, Hal P.
Harlan, Hugh P. Harlan, Doug H. Harlan and the Company
(included in Exhibit 10.24).
10.26 Right of First Refusal Agreement among Harlan Bakeries,
Inc., Hal P. Harlan, Hugh P. Harlan, Doug H. Harlan and the
Company (included in Exhibit 10.24).
10.27** Aircraft dry leases dated January 16, 1996 between the
Company and Bowana Aviation, Inc.
10.28 Form of Fourth Amended and Restated Limited Liability
Company Agreement of Bagel Store Development Funding,
L.L.C. ("Bagel Funding") dated as of July 1, 1996.
10.29** Warrant Purchase Agreement dated as of December 29, 1995
between the Company and Bagel Funding (including form of
warrant to purchase 1,012,500 shares of Common Stock).
10.30** Form of agreement between the Company and Bagel Funding
relating to the Company's purchase of Bagel Funding's
interests in area developers.
10.31** Form of Area Development Agreement between the Company and
its Area Developers (included in Exhibit 99).
10.32** Form of Franchise Agreement between the Company and its Area
Developers (included in Exhibit 99).
10.33** Form of Secured Loan Agreement between the Company and its
Area Developers (included in Exhibit 99).
10.34** Employment Agreement dated March 31, 1995 between John A.
Offerdahl and the Company.
10.35 Office Lease Agreement dated as of July 1, 1996 between the
Company and Boston Chicken.
10.36 Consulting Agreement dated as of July 1, 1996 between Kyle
T. Craig and the Company.
10.37(a) Aircraft Dry Sublease and related Letter Agreement dated as
of July 9, 1996 between the Company and Boston Chicken.
10.37(b) Aircraft Dry Sublease and related Letter Agreement dated as
of July 9, 1996 between the Company and Boston Chicken.
11 Statement re: Computation of Loss Per Share.
21.1** Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP with respect to the Audited
Consolidated Financial Statements of the Company.
23.2 Consent of Deloitte & Touche LLP with respect to the Audited
Consolidated Financial Statements of Noah's New York
Bagels, Inc.
23.3 Consent of Mayer Hoffman McCann L.C. with respect to the
Audited Financial Statements of Bagel & Bagel, Inc.
</TABLE>
- --------
(++)Confidential treatment requested.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
Exhibit-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE*
------- ---------------------- ----
<C> <S> <C>
23.4 Consent of Arthur Andersen LLP with respect to the Audited
Combined Financial Statements of Offerdahl's Bagel Gourmet,
Inc.
23.5 Consent of Arthur Andersen LLP with respect to the Audited
Financial Statements of Baltimore Bagel Co.
23.6 Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1).
27** Financial Data Schedule
99** Uniform Franchise Offering Circular, as amended as of May 31,
1996.
</TABLE>
- --------
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
Exhibit-4
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
EINSTEIN BROS. BAGELS, INC.
Einstein Bros. Bagels, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The corporation's present name is that shown above. The corporation
was originally incorporated under the name Progressive Bagel Concepts, Inc. and
the original Certificate of Incorporation of the corporation was filed with the
Secretary of State of Delaware on February 2, 1995.
2. This Restated Certificate of Incorporation has been duly adopted
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware by the written consent of the holders of a majority of the outstanding
stock of the corporation entitled to vote thereon duly given in accordance with
Section 228 of said Law, and notice of such adoption has been duly given to
stockholders who did not consent in writing to the adoption of this Restated
Certificate of Incorporation as required by said Section 228. This Restated
Certificate of Incorporation restates and integrates and further amends the
provisions of the Certificate of Incorporation of the corporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of the corporation is Einstein/Noah Bagel Corp. (the
"Company").
SECOND: The address of the registered office of the Company in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at that address is The Corporation Trust
Company.
THIRD: The purpose of the Company is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of stock which the Company shall have
authority to issue is 220,000,000, 200,000,000 shares of which shall be Common
Stock, $.01 par value per share (the "Common Stock") and 20,000,000 shares of
which shall be Preferred Stock, $.01 par value per share ("Preferred Stock").
FIFTH: The Company may issue Preferred Stock from time to time in one or
more series as the Board of Directors may establish by the adoption of a
resolution or resolutions relating thereto, each series to have such voting
powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other special rights and
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the
<PAGE>
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors pursuant to authority to do so, which authority is hereby
granted to the Board of Directors.
SERIES A PREFERRED STOCK
1. Designation; Number of Shares. 6,250 shares of Preferred Stock shall be
designated Series A Preferred Stock (hereinafter sometimes referred to as the
"Series A Preferred Stock").
2. Dividend Rights.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive cumulative cash dividends, when and as declared by the Board
of Directors out of funds legally available therefor, at a rate of $60 per share
per annum and no more, before any dividend or distribution in cash or other
property (other than dividends payable in stock ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation, dissolution or winding-up)
on any class or series of stock of the Company ranking junior to the Series A
Preferred Stock as to dividends or on liquidation, dissolution or winding-up
shall be declared or paid or set apart for payment.
(b) Dividends on the Series A Preferred Stock shall be payable, when
and as declared by the Board of Directors, on February 15, May 15, August 15,
and November 15 of each year, with the first dividend payment on November 15,
1995 (each such date being herein sometimes referred to as a "Dividend Payment
Date"), except that if such date is a Saturday, Sunday or legal holiday then
such dividend shall be payable on the first immediately preceding calendar day
which is not a Saturday, Sunday or legal holiday, to holders of record as they
appear on the books of the Company 30 days prior to the applicable Dividend
Payment Date. Dividends in arrears may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to holders of record on
such date as may be fixed by the Board of Directors of the Company. The amount
of dividends payable per share of Series A Preferred Stock for each dividend
period shall be computed by dividing by four the $60 annual rate.
(c) Dividends on the Series A Preferred Stock shall be cumulative and
accrue from and after the date of original issuance thereof, whether or not
declared by the Board of Directors. Accruals of dividends shall not bear
interest.
(d) All dividends paid with respect to shares of the Series A
Preferred Stock shall be paid pro rata to the holders entitled thereto.
(e) No dividend may be declared on any other class or series of stock
ranking on a parity with the Series A Preferred Stock as to dividends in respect
of any dividend period unless there shall also be or have been declared on the
Series A Preferred Stock like dividends for all quarterly periods coinciding
with or ending before such quarterly period, ratably in proportion to the
respective annual dividend rates fixed therefor.
2
<PAGE>
3. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of each
share of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Company available for distribution to its stockholders,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any class or series of stock of the Company ranking
junior to the Series A Preferred Stock upon liquidation, dissolution or winding
up, an amount equal to $1000 per share plus an amount equal to all accrued and
unpaid dividends thereon, whether or not earned or declared, to and including
the date full payment shall be tendered to the holders of the Series A Preferred
Stock with respect to such liquidation, dissolution or winding up, and no more.
If upon any liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series A Preferred Stock and any class or series of stock of the Company ranking
on a parity with the Series A Preferred Stock upon liquidation, dissolution or
winding up shall be insufficient to permit the payment to such stockholders of
the full preferential amount payable to them, then all of such assets shall be
distributed ratably to the holders of the Series A Preferred Stock and the
holders of any class or series of stock of the Company ranking on a parity with
the Series A Preferred Stock upon liquidation, dissolution or winding up in
accordance with the amounts that would be payable in such distribution if the
amounts to which the holders of the Series A Preferred Stock and the holders of
any class or series of stock of the Company ranking on a parity with the Series
A Preferred Stock upon liquidation, dissolution or winding up were entitled were
paid in full.
4. Automatic Conversion.
(a) Each share of Series A Preferred Stock that remains outstanding on
any date that shares of Common Stock of the Company are sold in an underwritten
public offering shall automatically, and without any action on the part of the
holder thereof or the Company, be converted into the number of fully paid and
nonassessable shares of Common Stock of the Company that results from dividing
the sum of $1000, and, at the holder's option, any dividends on such share
accrued and unpaid prior to the Conversion Date, by 80% of the gross offering
price per share to the public of the common stock sold in such public offering
(the "Conversion Price"), such conversion to be effective immediately prior to
the close of business on the date of the closing of the public offering (the
"Conversion Date").
(b) All rights with respect to shares of Series A Preferred Stock
outstanding on the Conversion Date shall forthwith after the Conversion Date
terminate, except only the right of the holders of such shares to receive Common
Stock upon surrender of their certificates for the Series A Preferred Stock and
the right to receive payments of any dividends accrued and unpaid at the
Conversion Date which the holders have elected not to have converted into Common
Stock of the Company, which shall be a debt of the Company.
(c) The Company shall have no obligation to issue and deliver to any
holder of Series A Preferred Stock on such date a certificate for the number of
shares of Common Stock to which such holder shall be entitled until such time as
such holder has surrendered the certificate or certificates for such Series A
Preferred Stock, duly endorsed, at the office of the Company or any transfer
agent for the Common Stock.
3
<PAGE>
(d) If any fractional interest in a share of Common Stock would,
except for the provisions of this paragraph 4(d), be deliverable upon any
conversion of the Series A Preferred Stock, the Company, in lieu of delivering
such fractional share therefor, shall pay to the holder thereof an amount in
cash equal to such fractional interest multiplied by the Conversion Price.
(e) The Company shall, not later than the Conversion Date, reserve and
have available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of Series A Preferred
Stock, such number of its shares of Common Stock as shall be sufficient to
effect the conversion of all outstanding shares of Series A Preferred Stock.
(f) In the case of any consolidation or merger of the Company with or
into another corporation (other than a merger in which the Company is the
surviving corporation) in which shares of Common Stock of the Company are
converted into (i) cash, (ii) stock or other securities which are traded on an
established securities market, or a combination of the consideration described
in clauses (i) and (ii) of this sentence, any shares of Series A Preferred Stock
outstanding at the time of such merger or consolidation shall be automatically
converted into consideration of the same type as that received by holders of
Common Stock of the Company (and, in the event there is more than one type of
consideration, in the same proportions as received by holders of the Common
Stock) having an aggregate value equal to 125% of the aggregate liquidation
preference of such shares of Series A Preferred Stock.
(g) In the case of any consolidation or merger of the Company with or
into another corporation (other than a merger in which the Company is the
surviving corporation) in which the shares of Common Stock of the Company are
converted into shares of common stock of the surviving corporation which are not
traded on an established securities market, the corporation resulting from such
consolidation or surviving such merger shall make adequate provision so that any
shares of Series A Preferred Stock outstanding at the time of such merger or
consolidation shall be converted into shares of preferred stock of such
surviving corporation (i) that are convertible into shares of common stock of
such corporation on the same basis as the shares of Series A Preferred Stock are
convertible into Common Stock of the Company and (ii) having the same terms as
the Series A Preferred Stock. The provisions of this Section 4(g) shall apply
to successive consolidations and mergers.
5. Redemption.
(a) At any time after February 10, 1999, and from time to time
thereafter, the Company may redeem, out of funds legally available for such
purpose, any or all shares of the Series A Preferred Stock then outstanding at a
price per share equal to $1250 plus any accrued and unpaid dividends thereon as
of the date such redemption is effected. The Company shall mail written notice
of each redemption of Series A Preferred Stock pursuant to this paragraph 5(a)
to each holder of record as shown on the books of the Company 30 days prior to
the date fixed for redemption, specifying the redemption date, the number of
shares to be redeemed and the number of shares of such holder to be redeemed.
In the event the Company redeems less than all shares of the Series A Preferred
Stock then outstanding, the shares of the Series A Preferred
4
<PAGE>
Stock shall be redeemed from the holders of Series A Preferred Stock pro rata
(as nearly as practicable) in proportion to the number of shares of Series A
Preferred Stock held by each of them.
(b) Except to the extent prohibited by agreements governing
indebtedness or other financing of the Company, the Company shall redeem up to
one-third of the outstanding shares of the Series A Preferred Stock in the event
it receives, at any time after each of the following dates, a notice in writing
signed by the holder or holders of a majority of the outstanding shares of
Series A Preferred Stock requesting such a redemption, which redemption shall
occur on the date specified in the notice and at a price per share equal to
$1250 plus an accrued and unpaid dividends thereon as of the date such
redemption is effected: February 28, 1998, May 1, 1998 and August 1, 1998.
Except to the extent prohibited by agreements governing indebtedness or other
financing of the Company, Company shall also redeem all of the outstanding
shares of the Series A Preferred Stock in the event it receives, at any time
after the Company has failed to pay three consecutive quarterly dividends on the
Series A Preferred Stock, a notice in writing signed by the holder or holders of
a majority of the outstanding shares of Series A Preferred Stock requesting such
a redemption, which redemption shall occur on the date specified in the notice
and at a price per share equal to $1250 plus accrued and unpaid dividends
thereon as of the date such redemption is effected. If the funds of the Company
legally available for redemption of shares of the Series A Preferred Stock are
insufficient to redeem the total number of shares to be redeemed, those funds
which are legally available shall be used to redeem the maximum possible number
of shares, which shares shall be redeemed from the holders of Series A Preferred
Stock pro rata (as nearly as practicable) in proportion to the number of shares
of Series A Preferred Stock held by each of them. As and when additional funds
of the Company are legally available for the redemption of shares, such funds
shall immediately be applied in the same manner to redeem the balance of the
shares which the Company has become obligated to redeem.
(c) In case fewer than the total number of shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof, without cost to such
holder, promptly after surrender of the certificate representing the redeemed
shares.
(d) No share of Series A Preferred Stock is entitled to any dividends
accruing after the date such share has been redeemed. On such date dividends
will cease to accrue, all rights of the holder of such shares as such holder
will cease, and such shares will not be deemed to be outstanding.
6. Voting Rights. Except as required by law, the Series A Preferred Stock
shall have no voting rights.
7. Status. Shares of Series A Preferred Stock which have been issued and
reacquired in any manner by the Company shall, upon compliance with any
applicable provisions of the General Corporation Law of the State of Delaware,
have the status of authorized and unissued shares of Preferred Stock and may be
reissued as a part of the Series A Preferred Stock or as part
5
<PAGE>
of a new series of Preferred Stock or as part of any other series of Preferred
Stock the terms of which do not prohibit such reissue.
8. Changes in Capitalization. The creation, authorization or issuance of
any shares of any capital stock of the Company, whether ranking junior or senior
to, or on a parity with, the shares of Series A Preferred Stock as to dividends
or upon liquidation, dissolution or winding up (any such shares being herein
referred to as "Additional Shares"), the creation, authorization or issuance of
any obligation or security convertible into or evidencing the right to purchase
any Additional Securities, the creation of any indebtedness of any kind of the
Company, or the increase or decrease in the amount of authorized capital stock
of any class, including the Preferred Stock, or any increase, decrease or change
in the par value of any such class other than the Series A Preferred Stock,
shall not require the consent of the holders of Series A Preferred Stock and
shall not be deemed to alter or change the powers, preferences or special rights
of shares of Series A Preferred Stock so as to affect them adversely; provided,
however, that the Company shall not issue shares designated Series A Preferred
Stock after the initial issuance of shares designated Series A Preferred Stock
without the written consent of the holders of a majority of the outstanding
shares of Series A Preferred Stock.
__________________
SIXTH: The duration of the Company shall be perpetual.
SEVENTH: (a) Except as may be provided pursuant to resolutions of the Board
of Directors adopted pursuant to the provisions of this Certificate of
Incorporation establishing any series of Preferred Stock granting to holders of
shares of such series of Preferred Stock the right to elect additional directors
under specified circumstances, the number of directors of the Company shall be
determined from time to time, and directors of the Company shall be elected, in
the manner described in the Bylaws.
(b) Except as otherwise provided in a resolution of the Board of Directors
adopted pursuant to the provisions of this Certificate of Incorporation
establishing a series of Preferred Stock and creating in the holders of shares
of such series the right to elect directors under specified circumstances, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even if less than
a quorum of the Board of Directors, or by a sole remaining director. Any
director elected in accordance with the preceding sentence shall hold office
until the next annual meeting of stockholders, and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
EIGHTH: No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Company may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
6
<PAGE>
NINTH: Unless and except to the extent that the Bylaws of the Company shall
so require, the election of directors of the Company need not be by written
ballot.
TENTH: The Board of Directors may from time to time make, amend,
supplement, or repeal the Bylaws; provided, however, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors; and provided
further, that no amendment or supplement to the Bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.
ELEVENTH: The Company reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
TWELFTH: (a) A director of the Company shall not be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Company or its stockholders, (2) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (3) under Section 174 of the Delaware General Corporation Law, or (4)
for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this paragraph (a) shall apply to or have
any effect on the liability or alleged liability of any director of the Company
for or with respect to any acts or omissions of such director and occurring
prior to such amendment or repeal.
(b)(1) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Company, or is or was a
director or officer of the Company and is or was serving at the request of the
Company as a director, officer or employee of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity as such a director, officer,
or employee or in any other capacity while serving as such a director, officer
or employee, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the Delaware General Corporation Law as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be such a director, officer, or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in this paragraph (b), the Company shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The
7
<PAGE>
right to indemnification conferred in this paragraph (b) shall be a contract
right and shall include the right to be paid by the Company the expenses
incurred by defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director of officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director of officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Company may, by action of its Board of Directors, provide
indemnification to any person who is or was an employee or agent of the Company
and to any person who is or was serving at the request of the Company as a
director, officer, or employee of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan, with the same scope and effect as the foregoing
indemnification set forth in the first sentence of this paragraph (b)(1).
(2) If a claim under subparagraph (b)(1) is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Company) that the claimant has not met the standards of
conduct which made it permissible under the Delaware General Corporation Law for
the Company to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
paragraph (b) shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise.
(4) The Company may maintain insurance, at its expense, to protect itself
and any director, officer, employee, or agent of the Company or another
corporation, partnership, joint venture, trust, or other enterprise against any
such expense, liability, or loss, whether or not the
8
<PAGE>
Company would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law.
(5) Any repeal or modification of this paragraph (b) by the stockholders of
the Company shall not adversely affect any right or protection of a person with
respect to any act or omission occurring prior to the time of such repeal or
modification.
THIRTEENTH: The Company expressly elects not to be governed by Section 203
of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Company has caused this Restated Certificate
of Incorporation to be executed by its duly authorized officers this 26th day of
June, 1996.
/s/ Paul A. Strasen
-----------------------
Vice President
Attest:
/s/ Joel Alam
- -----------------
Secretary
9
<PAGE>
EXHIBIT 4.3
EINSTEIN/NOAH BAGEL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE EITHER IN CHICAGO, IL. OR IN NEW YORK, N.Y.
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
is the Owner of
CERTIFICATE OF STOCK
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
EINSTEIN/NOAH BAGEL CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all the provisions of the Certificate of Incorporation
and Bylaws of the Corporation and the amendments from time to time made
thereto, copies of which are on file at the principal office of the
Corporation, to all of which the holder of this Certificate by acceptance
hereof assents. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[CORPORATE SEAL OF EINSTEIN/NOAH BAGEL CORP. DELAWARE]
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
LA SALLE NATIONAL TRUST, N.A.
BY TRANSFER AGENT
AND REGISTRAR,
AUTHORIZED SIGNATURE.
<PAGE>
Einstein/Noah Bagel Corp.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT-_____Custodian_______
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _______________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------
| |
|-----------------------|-------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint____________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,_______________________
-----------------------
-----------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ("Agreement") is
made as of the 1st day of February, 1996, by and between EINSTEIN BROS. BAGELS,
INC., a Delaware corporation (the "Company"), and each owner of securities of
the Company (and each owner of securities of any subsidiary of the Company)
listed on Exhibit A hereto and each owner of securities of the Company who
executes, with the written agreement of the Company, a counterpart of this
Agreement (each referred to herein individually as a "Stockholder" and
collectively referred to herein as "Stockholders").
Witnesseth:
WHEREAS, the Company has agreed to provide Stockholders with certain
registration rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to and on the terms
and conditions herein set forth, the parties hereto agree as follows:
Article 1
Certain Definitions
1.1 "BUSINESS DAY" means any day on which The New York Stock Exchange is
open for trading.
1.2 "COMMON STOCK" means the common stock, $.01 par value, of the
Company.
1.3 "ELIGIBLE PIGGYBACK REGISTRATION" means any of the first four
occasions the Company proposes to register any shares of Common Stock in any
manner which would permit registration of Eligible Securities for public sale
under the Securities Act, other than any offering described in Sections 2.1(a)
through (f). If the Company terminates any Eligible Piggyback Registration prior
to its effectiveness or if the Stockholders are unable to sell at least 90% of
the Eligible Securities they had requested to sell in any Eligible Piggyback
Registration, that registration will not constitute an Eligible Piggyback
Registration.
1.4 "ELIGIBLE SECURITIES" means all or any portion of the Common Stock
owned by the Stockholders and all other securities issued with respect thereto
by reason of dividends, stock splits, combinations or similar transactions. As
to any proposed offer or sale of Eligible Securities, such securities shall
cease to be Eligible Securities with respect to such proposed offer or sale when
(i) a registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (ii) such
securities are permitted to be sold pursuant
<PAGE>
to Rule 144 (or any successor provision to such Rule) under the Securities Act,
(iii) such securities shall have been otherwise transferred pursuant to an
applicable exemption under the Securities Act, new certificates for such
securities not bearing a legend restricting further transfer shall have been
delivered by the Company and such securities shall be freely transferable to the
public without registration under the Securities Act, or (iv) a written opinion
of counsel of the Company addressed to the Stockholders to the effect that such
securities may be sold publicly without registration under the Securities Act
has been delivered.
1.5 "PERSON" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or other
form of business organization, whether or not regarded as a legal entity under
applicable law, a trust (inter vivos or testamentary), an estate of a deceased,
insane or incompetent person, a quasi-governmental entity, a government or any
agency, authority, political subdivision or other instrumentality thereof, or
any other entity.
1.6 "REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement including, without limitation, the following: (i) the fees,
disbursements and expenses of the Company's counsel(s), accountants and experts
in connection with the registration of Eligible Securities to be disposed of
under the Securities Act; (ii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivering of copies thereof to the underwriters and
dealers; (iii) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement(s) and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of Eligible Securities to be disposed of; (iv) SEC or
blue sky registration fees attributable to Eligible Securities; (v) all expenses
in connection with the qualification of Eligible Securities to be disposed of
for offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters in connection with such
qualification and in connection with any blue sky and legal investment surveys;
(vi) the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of Eligible
Securities to be disposed of; and (vii) fees and expenses incurred in connection
with the listing of Eligible Securities on each securities exchange on which
securities of the same class are then listed; provided, however, that
Registration Expenses with respect to any Eligible Registration pursuant to this
Agreement shall not include underwriting discounts or commissions attributable
to Eligible Securities or transfer taxes applicable to Eligible Securities.
1.7 "RESALE REGISTRATION" shall have the meaning set forth in Article 3
hereof.
1.8 "SEC" means the Securities and Exchange Commission.
1.9 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
2
<PAGE>
2.0 "SELLING STOCKHOLDER" means any Stockholder requesting the
registration of Eligible Securities registered pursuant to Article 2 or Article
3 hereof.
Article 2
Piggyback Registrations
2.1 NOTICE AND REGISTRATION. If the Company proposes to register any
shares of Common Stock for public sale under the Securities Act in an Eligible
Registration, it will give prompt written notice to Stockholders of its
intention to do so, and upon the written request of each Stockholder delivered
to the Company within ten (10) Business Days after the giving of any such notice
by the Company (which request shall specify the number of Eligible Securities
intended to be disposed of by the Selling Stockholder and the intended method of
disposition thereof) the Company will use all reasonable efforts to effect, in
connection with the registration of its Common Stock in such Eligible
Registration, the registration under the Securities Act of all Eligible
Securities which the Company has been so requested to register by the Selling
Stockholders, to the extent required to permit the public sale (in accordance
with the intended method or methods thereof as aforesaid) of Eligible Securities
so to be registered, provided that:
(a) if, at any time after giving such written notice of its intention
to register any Common Stock and prior to the effective date of the registration
statement filed in connection with such Eligible Registration, the Company shall
determine for any reason not to register the Common Stock, the Company may, at
its election, give written notice of such determination to Stockholders and
thereupon the Company shall be relieved of its obligation to register such
Eligible Securities in connection with the registration of such Common Stock
(but not from its obligation to pay Registration Expenses to the extent incurred
in connection therewith as provided in Section 2.2);
(b) The Company will not be required to effect any registration
pursuant to this Article 2 if the Company shall have been advised in writing by
a nationally recognized independent investment banking firm selected by the
Company to act as lead underwriter in connection with the public offering of the
Common Stock by the Company that, in such firm's opinion, a registration of
shares of Common Stock of the Stockholders pursuant to this Article 2 at that
time may materially and adversely affect the Company's own scheduled offering;
(c) The Company shall not be required to effect any registration of
Eligible Securities under this Article 2 incidental to the registration of any
of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock options or other
employee benefit plans;
(d) The Company shall not be required to effect any registration of
Eligible Securities under this Article 2 incidental to an initial public
offering of shares of Common Stock of the Company;
(e) The Company shall not be required to effect any registration of
Eligible Securities under this Article 2 incidental to the filing of a
registration statement for an offering to
3
<PAGE>
be made on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act or any similar rule that may be adopted by the SEC;
(f) In no event shall the Company be required to register Eligible
Securities if, in the reasonable judgment of the Company, the amount of Eligible
Securities for which registration has been requested does not justify the effort
and/or expense to the Company of effecting such registration.
2.2 REGISTRATION EXPENSES. The Company (as between the Company and the
Selling Investors) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 2.
Article 3
Resale Registration
3.1 NOTICE AND REGISTRATION. The Company hereby agrees to file under the
Securities Act, within the 13-month period immediately following its initial
public offering of shares of Common Stock ("Resale Registration Period"), a
registration statement on Form S-1 or any similar long-form registration
statement or Form S-3 or any similar short-form registration statement, at its
election, to register all Eligible Securities for which the Company has received
notice of intent to register by Selling Stockholders pursuant to this Article 3,
whether in connection with a primary registration of its Common Stock or
otherwise ("Resale Registration"). The Company shall have the right to select
the timing of the Resale Registration within the Resale Registration Period.
When the Company proposes to file a registration statement for the Resale
Registration, it will give written notice to Stockholders of its intention to do
so. Each Stockholder shall have ten (10) Business Days from the receipt of such
notice to notify the Company in writing of his intention to have the Company
include in the Resale Registration his Eligible Securities (which notice shall
specify the number of Eligible Securities intended to be disposed of by the
Selling Stockholder). The Company shall thereafter promptly prepare and file
with the SEC the registration statement to effect the Resale Registration and
shall use its reasonable best efforts to cause such registration statement to
become effective.
3.2 RESTRICTIONS ON RESALE REGISTRATION. The Company shall not be
obligated to effect the Resale Registration (i) in the event that the aggregate
offering value of the Eligible Securities to be registered in the Resale
Registration does not equal or exceed $2,000,000 or (ii) within three months
after the effective date of a previous Eligible Piggyback Registration in which
Eligible Securities were registered and the Selling Stockholders selling thereon
were able to sell at least 80% of the Eligible Securities they had requested to
sell in such Eligible Piggyback Registration. In the event that the Company does
not effect a Resale Registration because the value of the Eligible Securities to
be registered in the Resale Registration does not equal or exceed $2,000,000,
the Company's obligation to file a registration statement for a Resale
Registration shall be terminated. In addition, the Company may postpone for up
to three months the filing or effectiveness of a registration statement for a
Resale Registration if the Company believes that such Resale Registration could
reasonably be expected to have a material adverse effect on any proposal or plan
by the Company or any of its subsidiaries to engage in any
4
<PAGE>
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided, however,
that immediately following such postponement, the Company shall file or request
effectiveness of the Resale Registration notwithstanding the expiration of the
Resale Registration Period.
3.3 REGISTRATION EXPENSES. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 3.
3.4 HOLDBACK AGREEMENTS. Each of the Selling Stockholders in a Resale
Registration shall agree, at the request of the Company, not to effect the sale
of more than 70% of the Eligible Securities registered or to be registered by
such Selling Stockholder in the Resale Registration (such number of shares to be
determined by the Company) (collectively, "Holdback Securities") during the
period commencing on the effective date of the registration statement for the
Resale Registration and ending on the earlier of (i) the date that the Holdback
Securities are permitted to be sold pursuant to Rule 144 and (ii) the six month
anniversary of the effective date of the registration statement for the Resale
Registration.
Article 4
Registration Procedures
4.1 REGISTRATION AND QUALIFICATION.
(a) If and whenever the Company is required to use reasonable commercial
efforts to effect the registration of any Eligible Securities under the
Securities Act as provided in Article 2 hereof, the Company will as promptly as
is practicable register the Eligible Securities under the Securities Act and use
reasonable commercial efforts to cause the registration statement to become
effective;
(b) The Company shall prepare and file with the SEC such amendments and
supplements to any registration statement registering Eligible Securities and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective, and comply with the provisions of the
Securities Act with respect to the disposition of all Eligible Securities, until
the earlier of such time as all of such Eligible Securities have been disposed
of in accordance with the intended methods of disposition by the Selling
Stockholders as set forth in the registration statement or (i) with respect to
an Eligible Piggyback Registration, the expiration of thirty (30) days after
such registration statement has become effective (or, if such registration
statement relates to an underwritten offering, such longer period as in the
opinion of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Eligible Securities by an underwriter or
dealer), or (ii) with respect to the Resale Registration, the expiration of
three years after the date such registration statement has become effective;
provided, however, that in the event that the Company shall notify the Selling
Stockholders of the happening of any event which would cause the prospectus
included as part of such registration statement, as then in effect, to include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, such
Selling
5
<PAGE>
Stockholder shall thereafter sell no shares under such registration statement
until the Company has filed an amendment or supplement to the prospectus to
cause the prospectus not to include an untrue statement of a material fact or
omit to state any material facts required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and the Company shall be obligated to promptly amend or
supplement the prospectus so that the prospectus does not include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(c) The Company will use its reasonable best efforts to register or qualify
such Eligible Securities under the blue sky laws of such jurisdictions as any
Selling Stockholder reasonably requests and to do any and all other acts which
may be reasonably necessary to enable such Selling Stockholder to consummate the
disposition in such jurisdictions of the Eligible Securities owned by such
Selling Stockholder (provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction);
(d) The Company may require the Selling Stockholders to furnish to the
Company such information regarding the Selling Stockholders and the distribution
of the Eligible Securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
with any registration;
(e) The Company shall provide to each Selling Stockholder an opportunity to
review the registration statement and any amendments thereto prior to the filing
of the registration statement or such amendment with the SEC;
(f) The Company shall provide to each Selling Stockholder such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Stockholder may
reasonably request in order to facilitate the disposition of the Eligible
Securities registered pursuant to such registration statement.
(g) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement.
4.2 UNDERWRITING. In the event that any registration pursuant to Article
2 or Article 3 hereof shall involve, in whole or in part, an underwritten
offering, the Company may require Eligible Securities requested to be registered
pursuant to Article 2 or Article 3 to be included in such underwriting on the
same terms and conditions as shall be applicable to the Common Stock being sold
through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
6
<PAGE>
provided in Article 5. The representations and warranties in such underwriting
agreement by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Eligible Securities.
Article 5
Indemnification
5.1 INDEMNIFICATION.
(a) In the event of any registration of any Eligible Securities hereunder,
the Company will enter into the customary indemnification arrangements to
indemnify and hold harmless each Stockholder who exercises his registration
rights hereunder and, to the extent applicable, its directors and officers, its
partners, its trustees and each Person who controls any of such Persons, each
Person who participates as an underwriter in the offering or sale of any
Eligible Securities, and each Person, if any, who controls such underwriter
within the meaning of the Securities Act against any losses, claims, damages,
liabilities and expenses, joint or several, to which such Person may be subject
under the Securities Act or otherwise insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any final prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company will promptly reimburse
each such Person for any legal or any other expenses reasonably incurred by such
Person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any final prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company or such underwriter by such Selling
Stockholders expressly for use in the registration statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of Selling Stockholders or any such Person and shall survive the
transfer of such securities by the Selling Stockholders.
(b) The Selling Stockholders, by virtue of exercising their registration
rights hereunder, agree and undertake to enter into customary indemnification
arrangements to severally and not jointly indemnify and hold harmless (in the
same manner and to the same extent as set forth in clause (a) of this Article 5)
the Company, each director of the Company, each officer of the Company who shall
sign such registration statement, and each Person who participates as an
underwriter in the offering or sale of such securities, each Person, if any, who
controls the Company or any such underwriter within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any final prospectus included therein, or any amendment
or supplement thereto, but only to the extent that such statement or omission
was made in reliance upon and in conformity with written information
7
<PAGE>
furnished by such Selling Stockholders to the Company expressly for use in the
registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of the
registered securities by the Selling Stockholders and the expiration of this
Agreement
(c) Indemnification similar to that specified in the preceding subdivisions
of this Article 5 (with appropriate modifications) shall be given by the Company
and the Selling Stockholders with respect to any required registration or other
qualification of such Eligible Securities under any federal or state law or
regulation of governmental authority other than the Securities Act.
Article 6
Benefits
6.1 BENEFITS OF REGISTRATION RIGHTS. Subject to the limitations of
Section 2.1 hereof, Stockholders may severally or jointly exercise the
registration rights hereunder in such manner and in such proportion as they
shall agree among themselves.
6.2 QUALIFICATION FOR RULE 144 SALES. Upon the written request of any
Stockholder, the Company will deliver to such Stockholder a written statement as
to whether it has complied with the filing requirements described in Rule
144(c)(1).
Article 7
Miscellaneous
7.1 CAPTIONS. The captions or headings in this Agreement are for
convenience and reference only, and in no way define, describe, extend or limit
the scope or intent of this Agreement.
7.2 SEVERABILITY. If any clause, provision or section of this Agreement
shall be invalid or unenforceable, the invalidity or unenforceability of such
clause, provision or section shall not affect the enforceability or validity of
any of the remaining clauses, provisions or sections hereof to the extent
permitted by applicable law.
7.3 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware, without reference to
its rules as to conflicts or choice of laws.
7.4 MODIFICATION AND AMENDMENT. This Agreement may not be changed,
modified, discharged or amended, except by an instrument signed by the holders
of at least 75% of the Eligible Securities; provided, however, that the
provisions of Article 3 herein may not be changed, modified, discharged or
amended, except by an instrument signed by the holders of 100% of the Eligible
Securities.
8
<PAGE>
7.5 NO SUPERIOR REGISTRATION RIGHTS AGREEMENT. The Company has not
entered into, and will not hereafter enter into, any registration rights
agreement with respect to its Common Stock granting registration rights that are
superior to the registration rights granted hereby. The Company may grant
registration rights that are pari passu with the registration rights granted
hereby.
7.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
7.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding among the parties and supersedes any prior understandings and/or
written or oral agreements among them respecting the subject matter herein.
7.8 NOTICES. All notices, requests, demands, consents and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery service
or by certified mail, return receipt requested, postage prepaid. Notices shall
be deemed given when actually received, which shall be deemed to be not later
than the next Business Day if sent by overnight courier or after five (5)
Business Days if sent by mail. Notice to Stockholders shall be made to the
address listed on the stock transfer records of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
Einstein Bros. Bagels, Inc.
By: /s/ Joel M. Alam
-------------------------------------
Title: Vice President
----------------------------------
Stockholders Signature Pages Attached
9
<PAGE>
STOCKHOLDER SIGNATURE PAGES TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
/s/ Authorized Signatory /s/ Mark R. Goldston
- ------------------------------------- -------------------------------------
Bank of America Illinois, Mark R. Goldston
as trustee of the Hayden GST
Trust u/a dated 12/28/95
/s/ Mark W. Stephens
- ------------------------------------- -------------------------------------
Mark W. Stephens DNB, L.P.
/s/ David G. Wurfel /s/ Joel M. Alam
- ------------------------------------- -------------------------------------
David G. Wurfel Joel M. Alam
/s/ Bernadette M. Dennehy
-------------------------------------
Bernadette M. Dennehy
/s/ Authorized Signatory /s/ Albert S. Baldocchi
- ------------------------------------- -------------------------------------
Altgeld Management Corporation Albert S. Baldocchi
/s/ Anne M. Baldocchi
-------------------------------------
Anne M. Baldocchi
/s/ Authorized Signatory /s/ Authorized Signatory
- ------------------------------------- -------------------------------------
B.B. Investments. Ltd. B&B Holdings, Inc.
/s/ Michael J. Beaudoin /s/ Scott A. Beck
- ------------------------------------- -------------------------------------
Michael J. Beaudoin Scott A. Beck
/s/ Robert Bielinski /s/ Charles A. Brickman
- ------------------------------------- -------------------------------------
Robert Bielinski Charles A. Brickman
Trustee Under Trust dated 6/1/88
/s/ Daniel V. Colangelo /s/ Kyle T. Craig
- ------------------------------------- -------------------------------------
Daniel V. Colangelo Kyle T. Craig
/s/ Chris B. Dodge /s/ Craig J. Duchossois
- ------------------------------------- -------------------------------------
Chris B. Dodge Craig J. Duchossois
/s/ F. Warren Ellish /s/ Julius Frankel
- ------------------------------------- -------------------------------------
F. Warren Ellish Julius Frankel
/s/ Authorized Signatory /s/ Stuart Fullinwider
- ------------------------------------- -------------------------------------
Frontenac VI Limited Partnership Stuart Fullinwider
By: Frontenac Company,
its General Partner
/s/ Mark X. Hayden /s/ Theordore P. Heininger
- ------------------------------------- -------------------------------------
Mark X. Hayden Theodore P. Heininger
10
<PAGE>
STOCKHOLDER SIGNATURE PAGES TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
/s/ Barbara K. Huth /s/ Charles A. Lewis
- ------------------------------------- -------------------------------------
Barbara K. Huth Kathryn C. Lewis Trust UA 6/14/93
By: Trustee
/s/ Charles A. Lewis /s/ Jeffrey A. Klein
- ------------------------------------- -------------------------------------
Lisa A. Sebring Trust UA 6/14/93 Jeffrey A. Klein
By: Trustee
/s/ John W. Croghan /s/ Authorized Signatory
- ------------------------------------- -------------------------------------
John W. Croghan Trust dated 12/28/82 LaSalle National Trust, N.A.,
By: John W. Croghan, Trustee as Trustee for Bell, Boyd & Lloyd
Retirement Plan
Account FBO Paul A. Strasen
/s/ Lowell H. Lebermann /s/ Gerard Lewis
- ------------------------------------- -------------------------------------
Lowell H. Lebermann Gerard Lewis
/s/ Peter C. Lewis /s/ Fredrick W. Ley
- ------------------------------------- -------------------------------------
Peter C. Lewis Fredrick W. Ley
/s/ Mark Link /s/ Daniel C. Marino, Jr.
- ------------------------------------- -------------------------------------
Mark Link Daniel C. Marino, Jr.
/s/ Andrew J. Filipowski /s/ Authorized Signatory
- ------------------------------------- -------------------------------------
Andrew J. Filipowski Platinum Venture Partners II, L.P.
By: General Partner
/s/ Authorized Signatory /s/ Frederic C. Hamilton
- ------------------------------------- -------------------------------------
Platinum Venture Partners II, L.P. Frederic C. Hamilton
By: General Partner
Marquette Venture Partners /s/ Lewis Miller
II, L.P. -------------------------------------
Lewis Miller
By: Marquette General II, L.P.
its General Partner
By: JED, Limited Partnership
or LDR, Limited Partnership
its General Partners
/s/ Authorized Signatory
- -------------------------------------
a General Partner of one of the above
/s/ Authorized Signatory /s/ John Morlock
- ------------------------------------- -------------------------------------
Morgan Lewis Githens & Ahn, L.P. John Morlock
11
<PAGE>
STOCKHOLDER SIGNATURE PAGES TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
MVP II Affiliates Fund, L.P. /s/ Alfred G. Naddaff
by: Marquette General II, L.P. -------------------------------------
its General Partner Alfred G. Naddaff
By: JED, Limited Partnership
or LDR, Limited Partnership
its General Partners
/s/ Authorized Signatory
- -------------------------------------
a General Partner of one
of the above
/s/ Saad J. Nadhir /s/ Gary Thomas Naifeh
- ------------------------------------- -------------------------------------
Saad J. Nadhir Gary Thomas Naifeh
/s/ Jeffrey C. Neal /s/ Stephen A. Norman
- ------------------------------------- -------------------------------------
Jeffrey C. Neal Stephen A. Norman
/s/ John Offerdahl /s/ Edward M. Palms
- ------------------------------------- -------------------------------------
OBG Holdings, Inc. Edward M. Palms
/s/ Thomas H. Patrick /s/ John H. Muehlstein
- ------------------------------------- -------------------------------------
Thomas H. Patrick Pedersen Bagel Investment Joint Venture
/s/ Charles A. Lewis /s/ Joren C. Peterson
- ------------------------------------- -------------------------------------
Peter C. Lewis Trust U/A 6/14/93 Joren C. Peterson
By: Trustee
/s/ Paul A. Strasen /s/ Maurice Rowe
- ------------------------------------- -------------------------------------
PJS Bagel Investing, L.L.C. Maurice Rowe
By: Paul A. Strasen
Title: Member
/s/ Robert J. Schmiedeler /s/ Jeffry J. Shearer
- ------------------------------------- -------------------------------------
Robert J. Schmiedeler Jeffry J. Shearer
/s/ Thomas R. Sprague /s/ David G. Stanchak
- ------------------------------------- -------------------------------------
Thomas R. Sprague David G. Stanchak
/s/ Victoria B. Sprague
- -------------------------------------
Victoria B. Sprague
/s/ Mark G. Villalpando /s/ M. David White
- ------------------------------------- -------------------------------------
Mark G. Villalpando M. David White
12
<PAGE>
STOCKHOLDER SIGNATURE PAGES TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
/s/ Karen Rugen /s/ James W. Largay
- ------------------------------------- -------------------------------------
Karen Rugen James W. Largay
/s/ A.G. Rappaport /s/ Kathryn C. Lewis
- ------------------------------------- -------------------------------------
A.G. Rappaport Kathryn C. Lewis
/s/ Diane M. Rappaport
- -------------------------------------
Diane M. Rappaport
/s/ Mark A. Thomas /s/ Authorized Signatory
- ------------------------------------- -------------------------------------
Mark A. Thomas ALTHEO, Inc.
/s/ Nena M. Thomas
- -------------------------------------
Nena M. Thomas
/s/ Jeffrey L. Butler /s/ Shirley Morlock
- ------------------------------------- -------------------------------------
Jeffrey L. Butler Shirley Morlock
/s/ Rodney Rice /s/ Lisa A. Sebring
- ------------------------------------- -------------------------------------
Rodney Rice Lisa A. Sebring
/s/ Anthony J. Vinci /s/ Donald J. Bingle
- ------------------------------------- -------------------------------------
Anthony J. Vinci BOSTON CHICKEN, INC.
By Its: Vice President
/s/ Paula Vinci
- -------------------------------------
Paula Vinci
Triune Venture Partners, L.P. /s/ Michelle Boucher
By: Triune Venture Holdings, L.P. -------------------------------------
By: Triune, Inc. C&B Holdings, Ltd.
/s/ Kevin Shepherd By: Michelle Boucher, Secretary
- -------------------------------------
Kevin Shepherd, President
/s/ Steven R. Berrard /s/ Authorized Signatory
- ------------------------------------- -------------------------------------
Steven R. Berrard Maverick Fund USA, Ltd.
By: Maverick Capital, Ltd.
/s/ Robert D. Polsky /s/ Hope M. Alper/Noah C. Alper
- ------------------------------------- -------------------------------------
Dan and Lynne Alper, as Community The Alper Living Trust U/A/D
Property By: Hope M. Alper, Noah C. Alper
By: Robert D. Polsky, as attorney in
fact
13
<PAGE>
STOCKHOLDER SIGNATURE PAGES TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
/s/ Frederic M. Alper /s/ Michael L. Epstein
- ------------------------------------- -------------------------------------
Frederic M. Alper Michael L. Epstein
/s/ Glenn Bacheller /s/ Dan Berch
- ------------------------------------- -------------------------------------
Glenn Bacheller Dan Berch
/s/ Craig J. Foley /s/ Nancy Hauge
- ------------------------------------- -------------------------------------
Craig J. Foley Nancy Hauge
/s/ Matt Holmes /s/ William B. Hughson
- ------------------------------------- -------------------------------------
Matt Holmes The William B. Hughson &
Margaret A. Hsia
Revocable Trust
By: William B. Hughson, as trustee
/s/ Karen Klein /s/ James D. Mizes
- ------------------------------------- -------------------------------------
Karen Klein James D. Mizes
/s/ Barbara Musante /s/ George G.C. Parker
- ------------------------------------- -------------------------------------
Barbara Musante George G.C. Parker
/s/ John J. Fisher /s/ Byron K. Adams
- ------------------------------------- -------------------------------------
The Pisces Fund Rosewood Capital, L.P.
By: The 1989 Robert J. Fisher By: Byron K. Adams, Principal
Insurance Trust, General Partner
By: John J. Fisher, Trustee
/s/ William F. Schrader, Jr. /s/ Judith Smith
- ------------------------------------- -------------------------------------
William F. Schrader, Jr. Judith Smith
/s/ Martin M. Casey, Sr. /s/ Douglas E. Troy
- ------------------------------------- -------------------------------------
Starbucks Corporation Douglas E. Troy
By: Martin M. Casey, Sr.,
as Vice President
14
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BELL, BOYD & LLOYD]
July 17, 1996
Einstein/Noah Bagel Corp.
1526 Cole Boulevard, Suite 200
Golden, Colorado 80401
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), of a registration statement on Form S-1,
Registration No. 333-04725 (the "Registration Statement") relating to the
registration of 2,955,000 shares of common stock, par value $0.01 per share, of
the Company (the "Shares"). An aggregate of 2,200,000 of the Shares are proposed
to be issued and sold by the Company to a group of underwriters (the
"Underwriters") for resale pursuant to a purchase agreement (the "Purchase
Agreement"), and an additional 333,000 of the Shares may be issued and sold by
the Company pursuant to over-allotment options granted to the Underwriters in
the Purchase Agreement. Additionally, an aggregate of 425,000 of the Shares are
proposed to be issued and sold to certain additional investors in a concurrent
public offering (the "Concurrent Public Offering") to be made pursuant to
certain purchase agreements (the "Concurrent Public Offering Purchase
Agreements").
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Shares and have examined the Registration
Statement and such corporate and other records, documents, instruments,
certificates, and questions of law, and satisfied ourselves as to such matters
of fact, as we have considered relevant and necessary as a basis for this
opinion.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated in and validly
existing under the laws of the State of Delaware.
2. The Shares are legally authorized and, upon issuance and
delivery thereof to the Underwriters in accordance with the terms of the
Purchase Agreement and to certain additional investors in the Concurrent Public
Offering in accordance with the Concurrent Public Offering Purchase
Agreements, and the receipt by the Company, in each case, of the purchase price
therefor, will be legally issued, fully paid and non-assessable.
<PAGE>
Einstein/Noah Bagel Corp.
July 17, 1996
Page 2
Our opinion expressed herein is limited to the laws of the State of
Delaware and of the United States. We do not find it necessary for the purposes
of this opinion to cover, and accordingly we express no opinion as to, the
application of the securities or blue sky laws of the various states in the
United States or of any foreign jurisdiction to the sale of the Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement. In giving this consent, we do not admit
that we are within the category of persons whose consent is required by Section
7 of the Securities Act.
Very truly yours,
/s/ Bell, Boyd & Lloyd
<PAGE>
EXHIBIT 10.10
EINSTEIN/NOAH BAGEL CORP.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(as of August 15, 1996)
1. STATEMENT OF PURPOSE. The purpose of this Amended and Restated 1995
Stock Option Plan (the "Plan") is to benefit Einstein/Noah Bagel Corp. (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 the common stock of the Company ("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.
2. ADMINISTRATION. The Plan shall be administered (i) with respect to
individuals who receive options under the Plan and who are or become subject to
the reporting requirements and short-swing liability provisions of Section 16 of
the Securities Exchange Act of 1934 (the "Exchange Act") (hereinafter referred
to as "Reporting Persons"), by a committee which shall consist of at least two
members of the Board of Directors of the Company (the "Board"), each of whom is
a "non-employee director" (as such term is defined under Rule 16b-3 of the
Exchange Act (the "Reporting Persons Committee") and (ii) with respect to
individuals who receive options under the Plan who are not Reporting Persons by
a committee which shall consist of at least two members of the Board (the "Stock
Option Committee"). For purposes of this Plan, references to the "Committee"
shall mean the Reporting Persons Committee or the Stock Option Committee, as the
case may be, or both as the context may require.
3. ELIGIBILITY. Options may be granted to employees of the Company and
its subsidiaries, if any, who are employed on a full time basis, and to officers
and consultants of the Company and its subsidiaries, if any. The Committee may
grant options to eligible employees, officers and consultants of the Company and
its subsidiaries selected initially and from time to time thereafter by the
Committee based on the importance of their services; provided, however, that
notwithstanding any other provision of the Plan, the maximum number of shares
subject to all options granted to an individual in any calendar year shall in no
event exceed 300,000 (the "Individual Cap"), subject to adjustment as provided
in Section 11. Eligible individuals may be selected individually or by groups or
categories, as determined by the Committee in its discretion. No non-employee
director of the Company shall receive an award under the Plan.
4. GRANTING OF OPTIONS. Options may be granted under which up to a total
of not in excess of 5,500,000 shares of the Common Stock may be purchased from
the Company, subject to adjustment as provided in Section 11. No option shall be
granted under the Plan subsequent to February 1, 2005. Options granted under the
Plan are intended not to be treated as incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
<PAGE>
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company, or interfere in any way with the right of the Company to terminate
his or her employment at any time.
5. OPTION PRICE. The options shall be granted at an exercise price,
subject to the provisions of Section 11 hereof, equal to the fair market value
at the time the option is granted, of the shares of Common Stock subject to the
option.
6. DURATION OF OPTIONS, INCREMENTS, AND EXTENSIONS. Subject to the
provisions of Section 9 hereof, each option shall be for a term of ten years.
Each option shall 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 "Vesting Schedule"). Notwithstanding the
foregoing, the Committee may in its discretion accelerate the exercisability of
any option subject to such terms and conditions as the Committee deems necessary
and appropriate to effectuate the purpose of the Plan including, without
limitation, a requirement that the optionee grant to the Company an option to
repurchase all or a portion of the number of shares acquired upon exercise of
the accelerated option for their fair market value on the date of grant. Subject
to the foregoing, all or any part of the shares to which the right to purchase
has accrued may be purchased at the time of such accrual or at any time or times
thereafter during the option period.
7. RIGHT OF COMPANY TO REPURCHASE SHARES ISSUED AS A RESULT OF
ACCELERATED, EXERCISED OPTIONS. Notwithstanding any other provision in the Plan
to the contrary:
(a) in the event that (i) the Committee, in its sole discretion,
determines that all or some portion of the vesting of an option granted
pursuant to the Plan shall be accelerated so that all or some portion of
such option may be exercised prior to the date on which it would have been
exercised pursuant to the Vesting Schedule described in Section 6 hereof,
and (ii) such option is exercised for some or all of the shares of Common
Stock subject to such option, then that portion of shares under such option
(the "Excess Shares") equal to the total number of shares under such option
less the number of shares which would have been issued if the option had
been exercised pursuant to the Vesting Schedule may not, except as provided
in paragraph (b) of this Section 7, be sold or otherwise transferred to any
third party until such date as the option for any portion of the Excess
Shares would have been exercisable if the option had been exercised
pursuant to the Vesting Schedule; and
(b) in the event the employment of the optionee (or former optionee)
with the Company is terminated for any reason other than death, permanent
disability or retirement, the Company shall have the right to purchase from
the optionee, at the option price paid by him, the Excess Shares acquired
upon the exercise of an option granted under the Plan; provided, however,
that the Company shall not make any such purchase if such purchase would
give rise to short-swing profit liability as described in Section 16 of the
Securities Exchange Act of 1934 when matched with a bona fide market
transaction. If not sooner exercised, the Company's right to repurchase
shall expire with respect to any portion of the Excess Shares on the date
that the option for any such portion of the Excess Shares would have become
exercisable pursuant to the Vesting Schedule.
2
<PAGE>
8. EXERCISE OF OPTION. As a condition to the exercise of any option, the
fair market value of the Common Stock on the date of exercise must equal or
exceed the option price referred to in Section 5 hereof. An option may be
exercised by giving written notice to the Company, attention of the Secretary,
specifying the number of shares to be purchased, accompanied by the full
purchase price for the shares to be purchased either in cash, by check, by a
promissory note in a form specified by the Committee and payable to the Company
no later than 15 business days after the date of exercise of the option, or, if
so approved by the Committee, by shares of the Common Stock of the Company, or
by a combination of these methods of payment. For this purpose, the per share
value of Common Stock of the Company shall be the fair market value on the date
of exercise. The Committee may in its discretion permit an optionee to deliver a
promissory note in a form specified by the Committee and payable to the Company
no later than the fifteenth day of April in the year following the year of
exercise of any option in payment of any withholding tax requirements of the
Company with respect to such exercise.
9. TERMINATION OF RELATIONSHIP -- EXERCISE THEREAFTER.
(a) In the event the relationship between the Company and an officer
or employee who is an optionee is terminated for any reason other than
death, permanent disability, or retirement, such optionee's option shall
expire and all rights to purchase shares pursuant thereto shall terminate
on the date of termination of employment, except that, to the extent the
option is exercisable on the date of termination, such option may be
exercised for a period of fifteen days after termination of employment (or
until the scheduled termination of the option, if earlier); provided,
however, that with respect to all or any portion of any option held by such
optionee, the Committee may, in its sole discretion, accelerate
exercisability, permit vesting to continue in accordance with the Vesting
Schedule, or permit such option to remain exercisable for a term after the
fifteen-day period specified above (but in no event beyond its specified
term), subject to such terms and conditions, if any, as determined by the
Committee in its sole discretion. Temporary absence from employment because
of illness, vacation, and approved leaves of absence and transfer among the
Company and its subsidiaries shall not be considered to terminate
employment or to interrupt continuous employment.
(b) In the event of termination of said relationship because of death
or permanent disability (as that term is defined in Section 22(e)(3) of the
Code, as now in effect or as subsequently amended), the option may be
exercised in full (to the extent not previously exercised) without regard
to the Vesting Schedule, by the optionee or, if he or she is not living, by
his or her heirs, legatees, or legal representative, as the case may be,
during its specified term prior to two years after the date of death or
permanent disability. In the event of termination of employment because of
early, normal or deferred retirement under an approved retirement program
of the Company (or such other plan or
3
<PAGE>
arrangement as may be approved by the Committee, in its discretion, for
this purpose), the option may be exercised by the optionee (or, if he or
she dies after such retirement, by his or her heirs, legatees, or legal
representative, as the case may be), to the extent that any portion thereof
would be exercisable on the date of such retirement (or with respect to
such greater portion as determined by the Committee), at any time during
its specified term prior to one year after the date of such retirement.
(c) Except as otherwise determined by the Committee, upon the
termination of a relationship between the Company or any subsidiary and a
consultant who is an optionee, such optionee's option shall expire and all
rights to purchase shares pursuant thereto shall terminate.
10. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules or regulations
thereunder. The Committee, in its discretion, may permit the assignment or
transfer of an option on such terms and subject to such conditions as the
Committee may deem necessary or appropriate or as otherwise may be required by
applicable law or regulation.
11. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan (and the Individual Cap) shall be adjusted as follows:
(a) in the event that the outstanding shares of Common Stock of the Company are
changed by any stock dividend, stock split or combination of shares, the number
of shares subject to the Plan and to options granted thereunder and the
Individual Cap shall be proportionately adjusted; (b) in the event of any
merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted, on an equitable basis
as determined by the Committee, for each share of Common Stock then subject to
the Plan, whether or not at the time subject to outstanding options, and for
each share of Common Stock included in the Individual Cap the number and kind of
shares of stock or other securities to which the holders of shares of Common
Stock of the Company will be entitled pursuant to the transaction; and (c) in
the event of any other relevant change in the capitalization of the Company, the
Board shall provide for an equitable adjustment in the number of shares of
Common Stock then subject to the Plan, whether or not then subject to
outstanding options, and in the Individual Cap. In the event of any such
adjustment the purchase price per share shall be proportionately adjusted.
12. AMENDMENT OF PLAN. The Board may amend or discontinue the Plan at any
time; provided, however, that:
(a) no amendment or discontinuance shall change or impair any options
previously granted without the consent of the optionee; and
4
<PAGE>
(b) no amendment shall, without the affirmative vote of the holders
of a majority of the outstanding shares of all of the classes of stock of
the Company voting in person or by proxy, and entitled to vote at a duly
held stockholders meeting, or without the written consent of the holders of
a majority of the outstanding shares of all of the classes of stock
entitled to vote, (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of
securities which may be issued under the Plan, or (iii) materially modify
the requirements as to eligibility for participation in the Plan.
13. EXCHANGE ACT COMPLIANCE. With respect to Reporting Persons,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Reporting Persons Committee fails to
so comply, it may be deemed null and void to the extent permitted by law and
deemed advisable by the Reporting Persons Committee.
14. EMPLOYMENT AND CONSULTING AGREEMENTS. Anything contained in the Plan
to the contrary notwithstanding, in the event that an employment agreement or
consulting agreement entered into by the Company or a subsidiary of the Company
provides that options shall be granted under the Plan to an employee or
consultant on terms and conditions that differ from the terms and conditions set
forth herein, the terms and conditions set forth in such employment or
consulting agreement shall control.
15. EFFECTIVE DATE. The Plan was amended and restated by the Board to be
effective on August 15, 1996.
16. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an option under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly situated.
(b) No participant or other person shall have any right with respect to
the Plan, the Common Stock reserved for issuance under the Plan or any option,
contingent or otherwise, until all other terms, conditions and provisions of the
Plan and the option applicable to such recipient (and each person claiming under
or through him) have been met.
5
<PAGE>
(c) No shares of Common Stock shall be issued hereunder with respect to
any option unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
(d) With respect to Reporting Persons, it is the intent of the Company that
the Plan comply in all respects with Rule 16b-3 under the Exchange Act and that
any ambiguities or inconsistencies in construction of the Plan be interpreted to
give effect to such intention and that if any provision of the Plan is found not
to be in compliance with Rule 16b-3, such provision shall be deemed null and
void to the extent required to permit the Plan to comply with Rule 16b-3.
(e) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock, other securities or property,
or other forms of payment, or any combination thereof, upon exercise, settlement
or payment of any option under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue Common Stock,
other securities or property, or other forms of payment, or any combination
thereof. Notwithstanding anything in the Plan to the contrary, the Committee
may, in its discretion, permit an eligible participant (or any beneficiary or
person entitled to act) to elect to pay a portion or all of the amount requested
by the Company for such taxes with respect to such option, at such time and in
such manner as the Committee shall deem to be appropriate (including, but not
limited to, by authorizing the Company to withhold, or agreeing to surrender to
the Company on or about the date such tax liability is determinable, Common
Stock, other securities or property, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such option to such person, having a fair market value equal to
the amount of such taxes).
(f) The expense of the Plan shall be borne by the Company.
(g) By accepting any option or other benefit under the Plan, each
participant and each person claiming under or through such person shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Committee.
(h) Unless otherwise determined by the Committee in its sole discretion,
options granted prior to May 7, 1996 shall be governed by the Plan as in effect
prior to such date and options granted from May 7, 1996 through August 14, 1996
shall be governed by the Plan as in effect during such period.
6
<PAGE>
EXHIBIT 10.12(b)
FIRST AMENDMENT TO
AMENDED AND RESTATED
ACCOUNTING AND ADMINISTRATIVE SERVICES AGREEMENT
This First Amendment to Accounting and Administrative Services
Agreement ("First Amendment") is effective as of this 17th day of June, 1996
(the "Effective Date") by and between Einstein Bros. Bagels, Inc., a Delaware
corporation, (the "Company") and Boston Chicken, Inc., a Delaware corporation
("Boston Chicken").
RECITALS
--------
A. The Company and Boston Chicken are parties to that Amended and
Restated Accounting and Administrative Services Agreement dated as of May 28,
1996 (the "Services Agreement").
B. The Company and Boston Chicken mutually desire to amend certain
provisions of the Services Agreement as set forth herein.
COVENANTS
---------
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, as well as other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties agree as
follows:
1.1 Amendment. The Services Agreement shall be amended as of the date
hereof as follows:
(1) Section 1.1 is hereby amended by deleting the introductory
section thereof in its entirety and replacing it to read as follows:
"Upon the terms and subject to the conditions set forth in this
Agreement, BCI shall provide to EBBI for each retail bagel store
location owned, operated, or franchised by EBBI or any subsidiary of
EBBI (each a "Unit"), to EBBI as an entity, and to each area developer
or business unit of EBBI as an entity (each an "Entity"), the
following accounting services (the "Services"):"
(2) Section 1.3 is hereby amended by deleting the last sentence
thereof in its entirety and replacing it to read as follows:
<PAGE>
"In the event that EBBI or other Entities and Units deviate from such
policies, procedures, configurations, or standard chart of accounts,
EBBI shall reimburse, or cause such other Entity and Unit to
reimburse, BCI for all costs and expenses incurred as a result of such
deviation."
(3) Section 3.1 of the Services Agreement is hereby amended by
deleting it in its entirety and replacing it to read as follows:
3.1 In consideration of the Services and Admin. Items, EBBI
agrees to pay, or to cause each other Entity to pay, to BCI accounting and
administrative fees, as follows:
(a) a base fee for services to EBBI payable by EBBI for each
four-week accounting period of BCI ("Accounting Period") of $30,000 (the "Base
Fee") and a supplemental base fee for services to each other Entity payable by
each other Entity to BCI for each Accounting Period of $4,500 per such entity
(the "Supplemental Fee"), which fees may be increased cumulatively not more than
10% per fiscal year at the sole discretion of BCI effective upon written notice
thereof;
(b) a unit fee for each Unit open and operating during all
or any portion of such Accounting Period payable by EBBI or such other Entity,
which unit fee shall depend on the number of Units directly owned by EBBI or
such other Entity, and shall be equal to $850 per Accounting Period for each
such directly owned Unit open and operating during all or any portion of such
Accounting Period, until EBBI or the other Entity directly owning such Unit
opens and operates twelve or more Units;
(c) after EBBI or the other Entity directly owning such
Units opens its twelfth Unit and prior to the opening of the thirtieth Unit
directly owned by EBBI or such other Entity, the fee payable by EBBI or such
other Entity for each Accounting Period shall be the Base Fee or the
Supplemental Fee, as applicable, plus $750 for each such directly owned Unit
open and operating during all or any portion of such Accounting Period;
(d) after EBBI or the other Entity directly owning such
Units opens its thirtieth Unit and prior to the opening of the fiftieth Unit
directly owned by EBBI or such other Entity, the fee payable by EBBI or such
Entity for each Accounting Period shall be the Base Fee or the Supplemental Fee,
as applicable, plus $650 for each such directly owned Unit open and operating
during all or any portion of such Accounting Period;
(e) after EBBI or the other Entity directly owning such
Units opens its fiftieth Unit and prior to the opening of the hundredth Unit
directly owned by EBBI or such other Entity, the fee payable by EBBI or such
other Entity for each Accounting Period shall be the Base Fee or the
Supplemental Fee, as applicable, plus $550 for each such directly owned Unit
open and operating during all or any portion of such Accounting Period;
2
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(f) after EBBI or the other Entity directly owning such
Units opens its hundredth Unit and prior to the opening of the two hundredth
Unit directly owned by EBBI or such other Entity, the fee payable by EBBI or
such other Entity for each Accounting Period shall be the Base Fee or the
Supplemental Fee, as applicable, plus $450 for each such directly owned Unit
open and operating during all or any portion of such Accounting Period; and
(g) after EBBI or the other Entity directly owning such
Units opens its two hundredth Unit and for all Units opened thereafter directly
owned by EBBI or such other Entity, the fee payable by EBBI or such other Entity
for each Accounting Period shall be the Base Fee or the Supplemental Fee, as
applicable, plus $350 for each such directly owned Unit open and operating
during all or any portion of such Accounting Period.
In the event that the Units and EBBI or the other Entity directly owning such
Units meet certain reporting requirements, administrative procedure compliance
requirements, and timeliness deadlines as BCI may establish and announce from
time to time in its sole discretion, the unit fees set forth in (b) through (g),
above shall be reduced for such complying Entity to $700, $600, $500, $400,
$300, and $250, respectively.
(4) Section 3.2 of the Services Agreement is hereby amended by
deleting the first sentence thereof in its entirety and replacing it to read as
follows:
"In addition to the payment of fees as specified in Section 3.1 of
this Agreement, EBBI shall reimburse, or cause such other Entity or
Unit to reimburse, BCI for all non-ordinary, out-of-pocket expenses
incurred by BCI or its affiliates in connection with the Services and
Admin. Items rendered by BCI hereunder, including, but not limited to,
travel expenses, legal fees, fees of experts, audit fees, tax fees,
payroll service fees, etc."
2.1 Effect of Amendment. From and after the Effective Date,
reference in the Services Agreement and all other documents executed pursuant to
the Services Agreement (as each of the foregoing is amended hereby or pursuant
hereto) to the Services Agreement shall be deemed to be references to the
Services Agreement as amended hereby.
3.1 Representations. To induce Boston Chicken to enter into this
First Amendment, the Company represents to Boston Chicken as of the date hereof
that this First Amendment has been duly authorized by all required action on the
part of the Company, and this First Amendment has been duly executed and
delivered by the Company and constitutes the legal, valid, and binding
obligation of the Company enforceable in accordance with its terms.
4.1 Definitions; Ratification. Any term used but not defined herein
or in the exhibits hereto shall have the meaning ascribed thereto in the
Services Agreement. Except as expressly contemplated herein, the Services
Agreement and all related certificates and other documents, are hereby ratified
and confirmed and shall remain in full force and effect.
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5.1 GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
6.1 Counterparts. This First Amendment may be executed in
counterparts, each of which shall be deemed an original, but each of which
together shall constitute but one and the same instrument.
7.1 Headings. The headings of the sections of this First Amendment
are inserted for convenience only and shall not be deemed to constitute a part
of this First Amendment.
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IN WITNESS WHEREOF, the parties have executed this First Amendment to
be effective on the date provided herein.
BOSTON CHICKEN, INC. EINSTEIN BROS. BAGELS, INC.
By: /s/ Donald J. Bingle By: /s/ Paul A. Strasen
------------------------- ------------------------------
Title: Vice President Title: Vice President
------------------------- ------------------------------
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EXHIBIT 10.14(b)
AMENDED AND RESTATED REAL ESTATE SERVICES AGREEMENT
TERMINATION AGREEMENT
This agreement (the "Termination Agreement") is effective as of June
17, 1996 (the "Effective Date") by and between Boston Chicken, Inc., a Delaware
corporation ("Boston Chicken") and Einstein Bros. Bagels, Inc., a Delaware
corporation (the "Company").
RECITALS
A. The Company and Boston Chicken are parties to that Amended and
Restated Real Estate Services Agreement dated as of May 28, 1996 (the "Services
Agreement").
B. The parties mutually desire to terminate the Services Agreement as
of the date hereof.
COVENANTS
In consideration of the foregoing and the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
1. Upon the Effective Date, the Services Agreement shall terminate and
be of no further force or effect and except as provided in Section 3.2 of the
Services Agreement, neither the Company nor Boston Chicken shall have any
further obligation or rights thereunder, except for those provisions set forth
in the Services Agreement that expressly or by their nature survive termination.
2. This Termination Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
3. This Termination Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior understandings and agreements of the parties with respect thereto.
4. This Termination Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Termination
Agreement as of the date first above written.
BOSTON CHICKEN, INC.
By: /s/ Donald J. Bingle
-----------------------------
Donald J. Bingle
Vice President
EINSTEIN BROS. BAGELS, INC.
By: /s/ Paul A. Strasen
--------------------
Title: Vice President
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EXHIBIT 10.15(b)
FIRST AMENDMENT TO
AMENDED AND RESTATED
COMPUTER AND COMMUNICATION SYSTEMS SERVICES AGREEMENT
This First Amendment to Computer and Communication Systems Services
Agreement ("First Amendment") is effective as of this 17th day of June, 1996
(the "Effective Date") by and between Einstein Bros. Bagels, Inc., a Delaware
corporation (the "Company"), and Boston Chicken, Inc., a Delaware corporation
("Boston Chicken").
Recitals
A. The Company and Boston Chicken are parties to that Amended and
Restated Computer and Communication Systems Services Agreement dated as of May
28, 1996 (the "Services Agreement").
B. The Company and Boston Chicken mutually desire to amend certain
provisions of the Services Agreement as set forth herein.
Covenants
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, as well as other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties agree as
follows:
1.1 Amendment. The Services Agreements shall be amended as of the date
hereof as follows:
(1) Section 1 is hereby amended by deleting the definition of
"Support/Control Programs" in its entirety and replacing it to read as follows:
"Support/Control Programs" - The computer software programs
developed by or for BCI and designated during the term of this
Agreement by BCI from time to time as specified or required in
connection with support, supervision, reporting, or control of
the EBBI Units by EBBI, its subsidiaries, and its and their
franchisees, and in connection with real estate, analysis,
tracking, maintenance, feedback, and communication functions
related thereto or to the employees thereof, including, but not
limited to, Notes Databases, Structured Reporting, and related
software.
<PAGE>
(2) Section 3.B is hereby amended by deleting the second paragraph
and subsections (a), (b), and (c) thereof and the last sentence thereof in their
entirety.
(3) Section 3.E is hereby amended by deleting the reference to "Four
Hundred Dollars ($400.00)" in the first paragraph thereof and replacing it to
read "Three Hundred Twenty Three Dollars ($323.00).
(4) Section 21 is hereby amended by deleting the first sentence
thereof and replacing it to read as follows:
"This Agreement constitutes a separate license to use the Licensed
Program and the Support/Control Programs and all obligations hereunder
are in addition to and cumulative with the obligations of EBBI under
all other contractual relations with BCI."
2.1 Effect of Amendment. From and after the Effective Date, reference in
the Services Agreement and all other documents executed pursuant to the Services
Agreement (as each of the foregoing is amended hereby or pursuant hereto) to the
Services Agreement shall be deemed to be references to the Services Agreement as
amended hereby.
3.1 Representations. To induce Boston Chicken to enter into this First
Amendment, the Company represents to Boston Chicken as of the date hereof that
this First Amendment has been duly authorized by all required action on the
part of the Company, and this First Amendment has been duly executed and
delivered by the Company and constitutes the legal, valid, and binding
obligation of the Company enforceable in accordance with its terms.
4.1 Definitions; Ratification. Any term used but not defined herein or in
the exhibits hereto shall have the meaning ascribed thereto in the Services
Agreement. Except as expressly contemplated herein, the Services Agreement and
all related certificates and other documents, are hereby ratified and confirmed
and shall remain in full force and effect.
5.1 GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
6.1 Counterparts. This First Amendment may be executed in counterparts,
each of which shall be deemed an original, but each of which together shall
constitute but one and the same instrument.
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7.1 Headings. The headings of the sections of this First Amendment are
inserted for convenience only and shall not be deemed to constitute a part of
this First Amendment.
IN WITNESS WHEREOF, the parties have executed this First Amendment to be
effective on the date provided herein.
BOSTON CHICKEN, INC. EINSTEIN BROS. BAGELS, INC.
By: /s/ Donald J. Bingle By: /s/ Paul A. Strasen
____________________ ___________________
Title: Vice President Title: Vice President
________________ ________________
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Exhibit 10.21
SUPPLY AGREEMENT
This supply agreement (the "Agreement") is made and entered into this 2nd
day of October, 1995 by and between Progressive Bagel Concepts, Inc., a Delaware
corporation ("PBCI"), and Doc's Cheese Company, L.L.C., a Delaware limited
liability company ("DCC").
RECITALS
--------
PBCI desires to purchase from DCC and to arrange for its subsidiaries and
franchisees to purchase from DCC, and DCC desires to sell to PBCI and PBCI's
subsidiaries and franchisees, certain of the requirements of PBCI and such
subsidiaries and franchisees for cream cheese, cream cheese-related products,
and spreads, all on the terms and subject to the conditions hereinafter set
forth.
COVENANTS
---------
In consideration of the premises and the manual covenants and agreements
herein contained, the parties here to agree as follows:
ARTICLE 1.0 DEFINITIONS
1.1 DEFINITIONS. As used herein the following terms shall have the
meaning given them below:
"DCC [ ]"* shall mean DCC's [ ]* during
each Retail Quarter, determined in the manner set forth in Exhibit A hereto.
"PBCI Franchisee" shall mean a franchisee of PBCI.
"PBCI Subsidiary" shall mean a wholly-owned subsidiary of PBCI.
"Production Facility" shall mean DCC's production facility at 761 South 200
West, Richmond, Utah.
"Products" shall mean (i) cream cheese, (ii) cream cheese-related products
and (iii) spreads mutually agreed upon by PBCI and DCC.
"Retail Period" shall mean one of PBCI's 13 consecutive four-week
accounting periods used for accounting purposes.
"Retail Quarter" shall mean, for the first Retail Quarter of each fiscal
year, the four consecutive Retail Periods ending with the fourth Retail Period
and, for the second, third and fourth Retail Quarters of each fiscal year, the
three consecutive Retail Periods ending with each of the seventh, tenth and
thirteenth Retail Period, respectively.
* Confidential treatment requested.
<PAGE>
"Term" shall mean the period commencing on the date hereof and continuing
until the first to occur of (i) the fifth anniversary of the date hereof, (ii)
the date of the Closing of the exercise by PBCI of the option granted pursuant
to the option agreement of even date herewith between PBCI, DCC and the members
of DCC, or (iii) the agreement in writing of PBCI and DCC to terminate this
Agreement.
ARTICLE 2.0 PURCHASE AND SALE OF THE PRODUCTS
2.1 On the terms and subject to the conditions set forth herein, and
during the Term hereof, DCC agrees to sell to PBCI, PBCI Subsidiaries and PBCI
Franchisees, and PBCI agrees to purchase from DCC, and to arrange for PBCI
Subsidiaries and PBCI Franchisees to purchase from DCC, Products produced by DCC
at the Production Facility.
2.2 PBCI, PBCI Subsidiaries and PBCI Franchisees shall notify DCC from
time to time of the quantity of Products they wish to purchase from DCC by
placing purchase orders with DCC. Each order shall be filled by DCC within a
commercially reasonable time period specified in the order. PBCI, either on its
own or in combination with PBCI Subsidiaries and PBCI Franchisees, shall
purchase from DCC (a) in each Retail Quarter through and including the third
Retail Quarter in 1996 Products having a volume (measured in pounds) not less
than the lesser of (i) 60% of the requirements of PBCI, PBCI Subsidiaries and
PBCI Franchisees for the Products to be purchased during such Retail Quarter for
bagel stores operated by PBCI and PBCI Subsidiaries and PBCI Franchisees under
the EINSTEINS name or under the name of any other concept that may hereafter be
adopted by PBCI as its predominant concept ("Einsteins Stores"), excluding bagel
stores which may be subject to contractual commitments to purchase cream cheese,
cream cheese-related products, and spreads from other sources which commitments
are assumed by PBCI, PBCI Subsidiaries or PBCI Franchisees in connection with
the acquisition of such stores ("Cream Cheese Commitments"), or (ii) the product
of .16 million pounds of Products and the number of weeks in such Retail
Quarter, and (b) in each Retail Quarter commencing with the fourth Retail
Quarter in 1996 and thereafter Products having a volume (measured in pounds) not
less than the lesser of (i) 60% of the requirements of PBCI, PBCI Subsidiaries
and PBCI Franchisees for the Products to be purchased during such Retail Quarter
for bagel stores operated by PBCI, PBCI Subsidiaries and PBCI Franchisees,
excluding bagel stores which are subject to Cream Cheese Commitments and
excluding bagel stores acquired by PBCI, PBCI Subsidiaries or PBCI Franchisees
from third parties within the one-year period prior to the commencement of such
Retail Quarter, or (ii) the product of .16 million pounds of Products and the
number of weeks in such Retail Quarter.
2.3 DCC shall not be obligated to sell to PBCI, PBCI Subsidiaries and PBCI
Franchisees in any Retail Quarter Products having a volume (measured in pounds)
in excess of .16 million pounds of Products and the number of weeks in such
Retail Quarter; provided however, that prior to the end of the first Retail
Quarter in 1996, DCC shall not be obligated to sell to PBCI, PBCI Subsidiaries
and PBCI Franchisees an amount in excess of 57,600 pounds of Products per week.
2
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2.4 DCC may lease to Heart to Heart Foods, Inc., a Utah corporation
("HTH") production equipment located at the Production Facility, provided that
such equipment may be used by HTH only to the extent such use does not interfere
with DCC's performance of its obligations hereunder.
2.5 The Products shall be produced (a) using such formulations as PBCI
shall specify from time to time (the "Formulations"), (b) in accordance with
such size, weight and other specifications as PBCI shall establish from time to
time (the "Specifications"), and (c) in accordance with such manufacturing
procedures as PBCI shall specify from time to time (the "Procedures"). All
Formulations, Specifications and Procedures are subject to change upon notice
from PBCI to DCC at any time. PBCI agrees to use reasonable best efforts to
consult with DCC from time to time regarding any changes to the Formulations,
Specifications and Procedures that it may be considering. All Formulations,
Specifications and Procedures shall be owned by PBCI. PBCI also agrees that DCC
shall have a royalty-free, non-exclusive license to use any technology, know-how
or trade secrets developed for PBCI by C. Anthon Ernstrom, C. Reed Ernstrom or
Berkley J. Ward during the term hereof, which license shall be solely for use by
DCC in fulfilling its obligations under this Supply Agreement and which license
shall terminate upon the termination of this Agreement.
2.6 The Products shall be packaged using such packaging materials and
labeling as shall be determined by PBCI. DCC agrees to maintain an inventory of
such packaging materials and labels as directed by PBCI. All trademarks and
trade dress appearing on packaging and labeling (including without limitation
the trademark "Doc's") shall be the exclusive property of PBCI but DCC shall
have a royalty-free nonexclusive license to use such trademarks and trade dress
in packaging and labeling the Products for sale to PBCI hereunder.
2.7 Products supplied hereunder shall be shipped F.O.B. the Production
Facility, and ownership and risk of loss with respect to the Products supplied
hereunder shall pass to PBCI or the PBCI Subsidiary or PBCI Franchisee when
delivered to a carrier at the F.O.B. point.
2.8 Payment terms shall be as mutually agreed by DCC, on the one hand, and
PBCI and the PBCI Franchisees (or distributors referred to in Section 2.9), that
purchase Products from DCC, on the other hand. In no event shall PBCI be
construed as a guarantor of payment (or any other obligation) of any PBCI
Franchisee or any food service distributor to DCC.
2.9 Notwithstanding any other provision of this Agreement to the contrary,
PBCI may at any time arrange for the Products to be sold to PBCI, PBCI
Subsidiaries and PBCI Franchisees through one or more food service distributors.
In such event (i) orders may be placed with DCC by such distributors, rather
than by PBCI, PBCI Subsidiaries or PBCI Franchisees, and the obligation to pay
for the Products delivered to any distributor shall be solely that of the
distributor and not the obligation of PBCI or any PBCI Subsidiary or PBCI
Franchisee, (ii) orders placed by such distributors shall be taken into account
in determining whether the commitment in Section 2.2 has been satisfied, (iii)
the other provisions of Article 2.0 governing the purchase and sale of the
Products, including Sections 2.5, 2.6, 2.7 and 2.8, shall govern the production
and sale of such Products, (iv) the provisions of Article 3.0 shall govern the
pricing of
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<PAGE>
the Products to the distributor, and (v) the product warranties in Article 4.0,
the covenants in Article 5.0, and the indemnification and insurance provisions
in Article 6.0 shall be made for the benefit of PBCI or the PBCI Subsidiary or
PBCI Franchisee that ultimately purchases the Products, notwithstanding the
purchase and sale by a distributor.
ARTICLE 3.0 PRICING
3.1 The Products shall be sold to PBCI, PBCI Subsidiaries, PBCI Franchisees
and food service distributors referred to in Section 2.9 at DCC [ ]*
determined in the manner provided in Exhibit A and adjusted in the manner
provided for herein. Set forth in Exhibit B is DCC [ ]* of the Products as of
the date hereof. DCC [ ]* shall be redetermined as of the end of each Retail
Quarter during the Term, the prices based upon such redetermination shall take
effect beginning with the first invoice following such redetermination, and the
prices paid for Products invoiced during such preceding Retail Quarter shall be
redetermined, with an appropriate payment or credit to be made to reflect such
retroactive price adjustment.
3.2 DCC [ ]* shall be determined based upon a Statement of [ ]* for
each Retail Quarter which shall be prepared by the Company and accompanied by
the report of Cook & Dorigatti, or such other firm of independent accountants as
shall be selected from time to time by PBCI, which firm shall be reasonably
acceptable to DCC. Each Statement of [ ]* shall be delivered to PBCI within
fifteen business days after the end of the Retail Quarter to which it relates,
shall include the information required by Exhibit A and shall be accompanied by
a report of such accountants in the form set forth in Exhibit C.
3.3 DCC shall provide to PBCI and the accountants referred to in Section
3.2 all information requested by them in order to permit the preparation of the
report referred to in Section 3.2 and the determination of DCC [ ]*
therefrom. DCC shall also permit PBCI and such accountants to have access to its
books and records at any time upon reasonable notice during normal business
hours.
3.4 PBCI may charge DCC for various costs incurred by PBCI in connection
with research and development, product development, procurement or other costs
related to the development, production, distribution and sale of the Products,
and such costs shall be included in determining Total Expenses in DCC's Retail
Quarter income statements.
ARTICLE 4.0 PRODUCT WARRANTIES
4.1 DCC warrants to PBCI and all PBCI Subsidiaries and PBCI Franchisees
that purchase Products from DCC that:
4.1.1 each shipment of Products supplied hereunder shall be
manufactured in accordance with the provisions of Section 2.5 hereof, shall be
of good and merchantable quality and shall be fit for the purposes for which
they are intended to be used;
4
* Confidential treatment requested.
<PAGE>
4.1.2 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of the Federal Food Drug and Cosmetics Act, as
amended, except to the extent misbranding may arise from the use of PBCI's
Formulations or Specifications, and none of such products will be an article
which may not be introduced into interstate commerce under the provisions of
Section 404, 409 or 706 of that Act;
4.1.3 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of any applicable provision of any state or
municipal law, which provision is similar to any provision of the Federal Food,
Drug and Cosmetics Act, as amended, except to the extent misbranding may arise
from the use of PBCI's Formulations or Specifications;
4.1.4 all ingredients used in the manufacture of the Products
supplied hereunder will be permissible for use in the Products under applicable
laws and regulations;
4.1.5 the sale or use of the Products does not and will not infringe
any United States or foreign patent, trade secret or other similar right of any
third party.
The foregoing warranties shall survive inspection and acceptance of any of
the Products, and payment therefor, by PBCI, PBCI Subsidiaries and PBCI
Franchisees.
ARTICLE 5.0 COMPLIANCE WITH LAWS; INSPECTION
5.1 DCC agrees to comply with all governmental laws, regulations and
orders applicable to its operations under this Agreement, and to bear any and
all taxes, fees or other governmental charges applicable to such operations.
5.2 DCC agrees to permit representatives of PBCI to inspect the Production
Facility at any time to assure compliance with the terms of this Agreement,
provided that PBCI agrees to use reasonable best efforts to assure that such
inspections do not interfere with normal business operations.
ARTICLE 6.0 INDEMNIFICATION AND INSURANCE
6.1 DCC agrees to indemnify and hold PBCI and all PBCI Subsidiaries and
PBCI Franchisees that purchase Products harmless from and against all expenses,
losses, costs, deficiencies, liabilities and damages (including related counsel
fees) incurred or suffered by them resulting from: (a) any breach of any
representation or warranty made by DCC in or pursuant to this Agreement; (b) any
default in the performance of any of the covenants or agreements made by the DCC
in this Agreement; (c) any claim or action by any consumer or any other third
party arising out of the production or sale of the Products (including any
claims or actions for personal injury and any products liability claims or
action), provided, however, that DCC shall have no obligation to indemnify PBCI
or any PBCI Subsidiary or PBCI Franchisee with respect of any claim or action to
the extent with claim or action arises out of the alteration, handling or
misbranding of Products after they have been delivered to PBCI or any PBCI
Subsidiary or PBCI
5
<PAGE>
Franchisee; (d) any claim or action brought by any federal, state, local or
foreign governmental agency in connection with the production or sale of the
Products (including without limitation any claim or action under any law or
regulation relating to public health, the sale of food and drugs, and the safe
conduct of business), provided, however, that DCC shall have no obligation to
indemnify PBCI or any PBCI Subsidiary or PBCI Franchisee with respect to any
claim or action to the extent such claim or action arises out of the alteration,
handling or misbranding of Products after they have been delivered to PBCI or
any PBCI Subsidiary or PBCI Franchisee; or (e) any infringement or claim of
infringement by DCC of any patent, trade secret or any other similar right of
any third party.
6.2 PBCI agrees to indemnify and hold DCC harmless from and against all
expenses, losses, costs, deficiencies, liabilities and charges (including
related counsel fees) incurred or suffered by it resulting from any claim or
action by any consumer or other third party or any federal, state, local or
foreign governmental agency to the extent it arises out of the alteration,
handling or misbranding of Products by PBCI or PBCI Subsidiaries.
6.3 DCC represents and warrants that it carries policies of comprehensive
general liability insurance, including products liability insurance, with a
combined single limit of $20,000,000, and that PBCI has been named as an
additional insured on all such policies, that such policies maintained by DCC
contain an endorsement (a) providing that DCC's policies are primary relative to
PBCI or any PBCI Subsidiary or PBCI Franchisee, (b) providing that any other
insurance maintained by PBCI or any PBCI Subsidiary or PBCI Franchisee is excess
and non-contributing, and (c) waiving any and all rights of subrogation against
PBCI, PBCI Subsidiaries and PBCI Franchisees, that all premiums which have
become due on such policies have been paid, that such policies are in full force
and effect, and that such policies may not be canceled, changed or allowed to
lapse through non-renewal, failure to pay premiums or otherwise except upon not
less than 60 days' prior written notice to DCC and PBCI. DCC has previously
delivered to PBCI complete and accurate copies of such policies, together with
satisfactory evidence of the coverage of PBCI as an additional insured, and will
hereafter provide PBCI with copies of any renewal or replacement policies as
issued. DCC agrees to maintain such policies in full force and effect, in the
amount set forth above, throughout the term of this Agreement and for a period
of five years thereafter, and to maintain PBCI as an additional insured under
such policies.
ARTICLE 7.0 MISCELLANEOUS
7.1 PBCI and DCC may amend, modify and supplement this Agreement in such
manner as may be agreed upon by them in writing.
7.2 Each party to this Agreement shall pay all of the expenses incurred by
it in connection with this Agreement, including without limitation its legal and
accounting fees and expenses, and the commission, fees and expenses of any
person employed or retained by it to bring about, or to represent it in, the
transactions contemplated hereby.
6
<PAGE>
7.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. In addition, each of
the PBCI Subsidiaries and PBCI Franchisees shall be express third party
beneficiaries of the provisions hereof.
7.4 This instrument and the exhibits attached hereto contain the entire
agreement of the parties hereto with respect to the purchase and sale of the
Products and the other transactions contemplated herein, and supersede all prior
understandings and agreements of the parties with respect to the subject matter
hereof. Any reference herein to this Agreement shall be deemed to include the
exhibits attached hereto. In the event of any inconsistency between this
Agreement and any purchase order, confirmation or similar document or instrument
of PBCI, any PBCI Subsidiary or PBCI Franchisee or DCC, this Agreement shall
govern.
7.5 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
7.6 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
7.7 Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or the document
shall be deemed duly given three business days after it is sent by registered or
certified mail, postage prepaid, to the intended recipient, addressed as
follows:
If to DCC, addressed as follows:
Doc's Cheese Company, L.L.C.
761 South 200 West
Richmond, Utah 84333
Attention: C. Reed Ernstrom
with a copy to:
Parsons Behle & Latimer
201 South Main Street
Suite 1800
Salt Lake City, Utah 84111
Attention: William D. Holyoak, Esq.
If to PBCI, addressed as follows:
Progressive Bagel Concepts, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Chairman
7
<PAGE>
with a copy to:
Progressive Bagel Concepts, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice , request, information or other document shall be deemed duly given
unless and until it is actually received by the party for whom it is intended.
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice.
7.8 This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts made and to be
performed wholly therein.
7.9 No press release or other public announcement related to this
Agreement or the transactions contemplated hereby will be issued by DCC without
the prior approval of PBCI.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROGRESSIVE BAGEL CONCEPTS, INC.
By /s/ Paul A. Strasen
----------------------------------
DOC'S CHEESE COMPANY, L.L.C.
By /s/ C. Reed Ernstrom
-----------------------------------
8
<PAGE>
EXHIBITS
--------
Exhibit A Determination of DCC [ ]*
Exhibit B Initial DCC [ ]*
Exhibit C Form of Statement of Independent Accountants
* Confidential treatment requested.
<PAGE>
EXHIBIT A
---------
DETERMINATION OF
DCC [ ]*
----------
For each Retail Quarter, the DCC [ ]* shall be determined by the following
calculation:
[ ]* (as hereinafter defined) [
]* of Product produced during the Retail Quarter per DCC's Production
Log.
Total Cost shall mean:
1. [ ]* per the Retail Quarter Income Statement plus
Total Expenses per the Retail Quarter Income Statement (except that
extraordinary items (including without limitation the creation or increase
of any reserves or charges for bad debts on loans to Heart to Heart Foods,
Inc. or Berkley Ward) shall be included in Total Expenses only to the
extent agreed by PBCI);
2. Plus the Net Increase (or Minus the Net Decrease) in the Total Finished
Goods Inventory for the Retail Quarter per the Retail Quarter Balance
Sheet;
3. Plus the Total Net Cash Deficit (or Minus the Net Cash Surplus) obtained by
(a) crediting (i) principal payments received during the Retail Quarter by
DCC on its loans to Heart to Heart Foods, Inc. and Berkley J. Ward and (ii)
Total Depreciation Expense per the Retail Quarter Income Statement and (b)
debiting (i) principal payments made during the Retail Quarter by DCC on
its loans from PBCI and (ii) distributions made by DCC pursuant to Sections
6.2 or 6.3 of its limited liability company agreement of even date
herewith.
The Retail Quarter Income Statement shall be prepared in accordance with
generally accepted accounting principles applied in a manner consistent with the
income statements of Heart to Heart Foods, Inc. for periods ending prior to the
date hereof, and in accordance with the following principles:
1. Used fixed assets shall be depreciated over a period of five years and new
fixed assets shall be depreciated over a period of seven years.
2. Inventories shall be maintained at the lower of acquisition cost or market,
on a first-in, first-out (FIFO) basis.
* Confidential treatment requested.
<PAGE>
Exhibit B
---------
INITIAL DCC [ ]*
------------------
[ ]* per pound
* Confidential treatment requested.
<PAGE>
EXHIBIT C
---------
FORM OF STATEMENT
OF
INDEPENDENT ACCOUNTANTS
-----------------------
Managers
Doc's Cheese Company, L.L.C.
Board of Directors
Progressive Bagel Concepts, Inc.
Ladies and Gentlemen:
At your request, we have performed certain agreed upon procedures, as
enumerated below, with respect to the Statement of [ ]* of Doc's Cheese
Company, L.L.C. for the Retail Quarter ending Month xx, 19xx. These procedures,
which were specified by the Board of Directors of Progressive Bagel Concepts,
Inc. and the managers of Doc's Cheese Company, L.L.C., were performed solely to
meet the requirements of the supply agreement between Progressive Bagel
Concepts, Inc. and Doc's Cheese Company, L.L.C. It is understood that this
report is solely for your information and should not be used by those who did
not participate in determining the procedures.
a. We have compared the [ ]* as reported in the Statement of [ ]*
to the [ ]* as reflected in the general ledger of
Doc's Cheese Company, L.L.C., and reconciled any material differences.
b. We have compared the Statement of [ ]* to the listing of [ ]*
as per Exhibit A of the referenced Supply Agreement and noted any
material addition of [ ]* categories.
c. We have compared the total reported pounds produced with the
Production Log and reconciled any material differences
d. We have tested the Statement of [ ]* for mathematical accuracy.
Because the procedures described above do not constitute an examination of
financial statements in accordance with the Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants, we do not express an opinion on whether the financial
statement is presented in conformity with AICPA guidelines.
In connection with the procedures referred to above, no matters came to our
attention that caused us to believe that the Statement of [ ]* was not
reflective of the general ledger, that [ ]* categories were included that
were not reflected in Exhibit A of the Supply Agreement, that the
*Confidential treatment requested.
<PAGE>
pounds reported were materially different than those shown on the Production Log
or that the Statement of [ ]* is mathematically inaccurate. Had we performed
additional procedures or had we made an examination in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants, matters might have come to
our attention that would have been reported to you. We have no responsibility to
update this report for events and circumstances occurring after the date of this
report.
*Confidential treatment requested.
<PAGE>
Exhibit 10.24
PROJECT AND
APPROVED SUPPLIER AGREEMENT
MAY 24, 1996
AMONG
EINSTEIN BROS. BAGELS, INC.
HARLAN BAGEL SUPPLY COMPANY, LLC
HARLAN BAKERIES, INC.,
HAL P. HARLAN,
HUGH P. HARLAN
AND
DOUG H. HARLAN
<PAGE>
PROJECT AND
APPROVED SUPPLIER AGREEMENT
This agreement (the "Agreement") is made and entered into as of this 24th
day of May, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bagel Supply Company, LLC, an Indiana
limited liability company (the "Supplier"), Harlan Bakeries, Inc., an Indiana
corporation ("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan. The
Supplier and Harlan are herein sometimes collectively referred to as the "Harlan
Companies", and Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan are herein
sometimes collectively referred to as the "Harlans."
RECITALS
--------
Einstein Bros., directly and through its wholly-owned subsidiaries, owns
and operates retail bagel stores, and Einstein Bros. has also granted franchise
rights to own and operate retail bagel stores under trademarks owned by Einstein
Bros. and its subsidiaries and using Einstein Bros.' system. Concurrently with
the execution and delivery of this Agreement, (i) the Supplier is entering into
a lease agreement with Harlan, pursuant to which the Supplier is agreeing to
lease from Harlan a production facility that is currently being constructed by
Harlan adjacent to Harlan's existing production facility in Avon, Indiana, and
(ii) the Supplier is purchasing from Harlan and Einstein Bros. certain
production equipment, and contract rights to acquire certain production
equipment, owned by them. Harlan desires to complete the construction of such
production facility and the Supplier desires to complete the installation of a
bagel production line in such production facility. Subject to the completion of
the production facility and the installation of the bagel production line,
Einstein Bros. desires to designate Supplier as an approved supplier of Einstein
Bros., to supply frozen bagel dough products to Einstein Bros. and its
subsidiaries and franchisees, and the Supplier desires to sell such products to
Einstein Bros. and Einstein Bros.'s subsidiaries and franchisees, all on the
terms and subject to the conditions hereinafter set forth.
COVENANTS
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1.0 DEFINITIONS
1.1 As used herein the following terms shall have the meaning given them
below:
"Bagel Equipment" shall mean all of the equipment included in the Bagel
Line and all other equipment required for the operation of the Bagel Line.
2
<PAGE>
"Bagel Line" shall mean the Winkler bagel line that is being purchased by
the Supplier, together with the other components of the bagel production line
that is to be installed in the Production Facility, including without limitation
mixers, bagel cooking unit, proofer, retarder, blast freezer and packaging
equipment.
"Calendar Quarter" shall mean each three-month period ending on March 31,
June 30, September 30 or December 31 during the Term.
"Closing" shall have the meaning ascribed to it in Section 2.1.
"Einstein Bros. Allocated Charges" shall mean those costs of Einstein Bros.
charged to the Supplier as described in Section 7.8.
"Einstein Bros. Franchisee" shall mean a franchisee of Einstein Bros.
"Einstein Bros. Subsidiary" shall mean a subsidiary of Einstein Bros.
"Encumbrances" shall mean liens, mortgages, pledges, charges, encumbrances,
assessments, restrictions, covenants, easements or title defects of any nature
whatsoever.
"Equipment Financing" shall mean the lease of $6.5 million of equipment by
the Equipment Lender to Einstein Bros. and the sublease of equipment by Einstein
Bros. to the Supplier referred to in the letter dated April 12, 1996 from the
Equipment Lender to Einstein Bros. (which sublease shall result in all of the
costs and expenses, including all financing costs, incurred by Einstein Bros. in
connection with the lease of the equipment being passed through to the
Supplier).
"Equipment Financing Cost" shall have the meaning ascribed to it in the
Option Agreement.
"Equipment Financing Documents" shall mean the lease agreement between the
Equipment Lender and Einstein Bros. and the sublease agreement between Einstein
Bros. and the Supplier contemplated by the letter dated April 12, 1996 from the
Equipment Lender to Einstein Bros., together with all other agreements,
instruments and documents contemplated by such agreements.
"Equipment Lender" shall mean General Electric Capital Corporation, as
agent for itself and its participants and/or assignees.
"Financing Documents" shall mean the Equipment Financing Documents and the
Working Capital Financing Documents.
"Formulations" shall have the meaning ascribed to it in Section 6.5.
"Lease" shall have the meaning ascribed to it in Section 2.1.3.
3
<PAGE>
"Leasehold Premises" shall have the meaning ascribed to it in Section 3.6.
"Materials Cost" shall mean the Supplier's cost of ingredients and
packaging used in manufacturing the Products during each Calendar Quarter,
determined in the manner set forth in Exhibit G hereto. For this purpose,
ingredients shall include corn meal used in manufacturing the Products.
"Monthly Period" shall mean each calendar month during the Term.
"Mortgage" shall mean a mortgage loan on the land and buildings owned by
Harlan, consisting of the Production Facility and the facility adjacent thereto,
made by the Mortgage Lender.
"Mortgage Holder" shall mean LaSalle National Bank, Key Corp. or such other
lender as may be selected by Harlan.
"Occupancy Cost" shall have the meaning ascribed to it in the Option
Agreement.
"Option Agreement" shall have the meaning ascribed to it in Section 2.1.10.
"Procedures" shall have the meaning ascribed to it in Section 6.5.
"Production Facility" shall mean the 75,000 square foot production facility
under construction in Avon, Indiana as described in the Lease.
"Products" shall mean frozen bagel dough products.
"Proprietary Information" shall have the meaning ascribed to it in
Article 12.0.
"Short-Term Supply Agreement" shall mean the approved supplier agreement
dated November 1, 1995 between Einstein Bros. and Harlan.
"Specifications" shall have the meaning ascribed to it in Section 6.5.
"Term" shall mean the period commencing on the date hereof and continuing
until the date this Agreement expires or is terminated pursuant to Article 13.0
hereof.
"Title Policy" shall have the meaning ascribed to it in Section 2.1.4.
"Working Capital Financing" shall mean the loan by the Working Capital
Lender to the Supplier.
4
<PAGE>
"Working Capital Financing Documents" shall mean the revolving credit
agreement between the Working Capital Lender and the Supplier, together with all
other agreements, instruments and documents contemplated by such agreement.
"Working Capital Lender" shall mean LaSalle National Bank, Illinois, Key
Corp. or such other lender as may be selected by Harlan.
ARTICLE 2.0 THE CLOSING; CONDITIONS TO CLOSING; COVENANTS PENDING CLOSING;
TERMINATION PRIOR TO CLOSING
2.1 On the terms and subject to the conditions set forth in this
Agreement, the parties agree to close the Equipment Financing and the Working
Capital Financing at the offices of Einstein Bros., within three business days
after the satisfaction of the conditions set forth in Sections 2.2 and 2.3
hereof (the "Closing"). At the Closing:
2.1.1 The parties hereto and the Equipment Lender shall execute and
deliver the Equipment Financing Documents.
2.1.2 The Harlan Companies, the Harlans and the Working Capital
Lender shall execute and deliver the Working Capital Financing Documents.
2.1.3 Harlan and the Supplier shall execute and deliver a lease of
the Production Facility in the form set forth as Exhibit A hereto (the
"Lease"), and Harlan and the Supplier shall record a memorandum of lease within
45 days of the date of the Closing. The Lease shall provide for building rental
expense equivalent to that portion of the level-payment principal and interest
amortization on the Mortgage allocable to the Production Facility, with such
allocation being made based on the relative book values of the premises covered
by the Lease and the other premises covered by the Mortgage.
2.1.4 Harlan shall deliver to the Supplier a title insurance policy,
satisfactory in form and substance to Einstein Bros., insuring the Supplier's
interest in the Production Facility under the Lease (the "Title Policy").
2.1.5 Harlan shall deliver to the Supplier a currently dated survey
of the real estate being leased to the Supplier under the Lease, which survey
shall be satisfactory in form and substance to Einstein Bros.
2.1.6 The Supplier shall grant to Einstein Bros. a security interest
in all of its right, title and interest in and to the Lease, pursuant to a
leasehold mortgage satisfactory in form and substance to Einstein Bros.
2.1.7 Harlan shall execute and deliver to the Mortgage Holder the
Mortgage and the Mortgage Holder shall execute and deliver to the Supplier a
subordination and nondisturbance agreement satisfactory in form and substance to
Einstein Bros., the Equipment Lender and the Working Capital Lender (the
"Subordination and Nondisturbance Agreement").
5
<PAGE>
2.1.8 Einstein Bros. and Harlan shall each execute and deliver to the
Supplier, and the Supplier shall execute and deliver to each of Einstein Bros.
and Harlan, an assignment and assumption agreement, in the form of Exhibit B
hereto, and an assignment and bill of sale, in the form of Exhibit C hereto,
pursuant to which (a) the Supplier shall purchase from Einstein Bros. and Harlan
(i) all rights under contracts entered into by Einstein Bros. or Harlan for the
purchase of equipment for use in the Production Facility, including without
limitation the contracts identified in Schedule 2.1.8 hereof (the "Equipment
Contracts"), and (ii) all such equipment that has been purchased by Einstein
Bros. or Harlan, and (b) the Supplier shall assume any executory obligations
under the Equipment Contracts. The Supplier shall pay to each of Einstein Bros.
and Harlan in cash the amounts previously paid by each of them in respect of
such Equipment Contracts and equipment with interest thereon at a rate equal to
the rate of interest announced by Bank of America Illinois from time to time as
its reference rate, plus 1%.
2.1.9 The Harlans shall contribute to the Supplier, as an equity
contribution, $250,000 in cash, less any amounts previously contributed by them.
2.1.10 Einstein Bros. shall execute and deliver to the Supplier, and
the Supplier shall execute and deliver to Einstein Bros., an option agreement in
the form set forth as Exhibit D hereto (the "Option Agreement").
2.1.11 Harlan, and each of the Harlans shall execute and deliver an
agreement granting to Einstein Bros. a right of first refusal to acquire shares
of capital stock or assets of Harlan, which agreement shall be in the form set
forth as Exhibit E hereto (the "Right of First Refusal Agreement").
2.1.12 The Supplier shall deliver to Einstein Bros. (a) a certificate
of existence of the Supplier from the State of Indiana, certified as of a date
no earlier than 10 days prior to the Closing by the Secretary of State of
Indiana, and (b) resolutions of the board of managers of the Supplier approving
the execution and delivery by the Supplier of this Agreement, and the other
agreements contemplated hereby (including without limitation the Lease and the
Option Agreement), and the performance of the other transactions contemplated
hereby, certified by the secretary of the Supplier.
2.1.13 Harlan shall deliver to Einstein Bros. (a) a certificate of
existence from the State of Indiana, certified as of a date no earlier than 10
days prior to the Closing by the Secretary of State of Indiana, and (b)
resolutions of the board of directors of Harlan approving the execution and
delivery by Harlan of this Agreement and the other agreements contemplated
hereby (including without limitation the Lease and the Right of First Refusal
Agreement), and the performance of the other transactions contemplated hereby,
certified as of the date of the Closing by the secretary of Harlan.
2.1.14 Henderson, Daily, Withrow and DeVoe shall deliver to Einstein
Bros. its legal opinion in the form set forth as Exhibit F hereto.
6
<PAGE>
2.1.15 The Harlan Companies shall deliver to Einstein Bros.
certificates of insurance that satisfy the requirements of Section 11.5 hereof.
2.1.16 Einstein Bros. shall deliver to the Harlan Companies (a) a
good standing certificate from the State of Delaware, certified as of the date
of the Closing by the Secretary of State of Delaware, and (b) a resolution of
the board of directors of Einstein Bros. approving the execution and delivery by
Einstein Bros. of this Agreement and the performance of the other transactions
contemplated hereby, certified as of the date of the Closing by the secretary or
assistant secretary of Einstein Bros.
2.1.17 P&L II Bagels, L.L.C., a Delaware limited liability company
("P&L II"), or another entity identified by Einstein Bros., shall transfer to
Supplier a warrant to acquire 102.99 shares of common stock of Einstein Bros.
for a purchase price of $1,456.47 per share (which number of shares and per
share amount shall be appropriately adjusted to reflect any stock split, stock
dividend or other similar change in the capitalization of Einstein Bros.),
Einstein Bros. shall waive any restriction on the exercise of the warrant (other
than the adoption by Supplier of an option plan acceptable to Einstein Bros. for
the grant of options to acquire such shares of stock to employees of Supplier
other than the Harlans) and Supplier shall exercise such warrant.
2.2 The obligation of Einstein Bros. to consummate the transactions
contemplated hereby shall be subject to the fulfillment or waiver at or prior to
the Closing of each of the following conditions:
2.1.1 The representations and warranties of the Harlan Companies
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing with the same force and effect as
though made at and as of that time. The Harlan Companies and the Harlans shall
have performed and complied with all of their obligations required by this
Agreement to be performed or complied with at or prior to the Closing. The
Harlan Companies and the Harlans shall have delivered to Einstein Bros. a
certificate, dated as of the date of the Closing and signed by each of them,
certifying that such representations and warranties are thus true and correct
and that all such obligations have been thus performed and complied with.
2.2.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than Einstein Bros. shall have been executed and delivered.
2.2.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
2.2.4 The terms of the Equipment Financing Documents shall have been
approved under Einstein Bros.' secured credit agreement and the lenders
thereunder shall have
7
<PAGE>
released any security interest they may have in the Equipment Contracts or any
of the equipment to be transferred pursuant to Section 2.1.8.
2.3 The obligations of the Harlans and the Harlan Companies to consummate
the transactions contemplated hereby shall be subject to the fulfillment or
waiver at or prior to the Closing of each of the following conditions:
2.3.1 The representations and warranties of Einstein Bros. contained
in this Agreement shall have been true and correct in all material respects at
and as of the date hereof, and they shall be true and correct in all material
respects at and as of the Closing with the same force and effect as though made
at and as of that time. Einstein Bros. shall have performed and complied with
all of its obligations required by this Agreement to be performed or complied
with at or prior to the Closing. Einstein Bros. shall have delivered to the
Harlans and the Harlan Companies a certificate, dated as of the date of the
Closing and signed by an officer of Einstein Bros., certifying that such
representations and warranties are thus true and correct and that all such
obligations have been thus performed and complied with.
2.3.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than the Harlans and the Harlan Companies shall have been executed and
delivered.
2.3.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
2.4 Each of the parties hereto agrees to use reasonable best efforts to
cause to be satisfied as soon as practicable all of the conditions to the
Closing set forth in Sections 2.2 and 2.3 hereof that are in the control of such
party.
2.5 The Supplier agrees that pending the Closing it shall not, without the
prior written consent of Einstein Bros., (a) engage in any business other than
the manufacture of Products for sale under this Agreement, (b) sell, lease,
transfer or otherwise dispose of any of its assets, other than sales of the
Products hereunder, (c) redeem, purchase or otherwise acquire from any of its
members all or any part of their equity interest in the Supplier or pay any
dividends or make any other distributions or payments to such members, or
persons or entities related to them, (d) incur indebtedness other than the
Equipment Financing and the Working Capital Financing, (e) incur any material
obligations or liabilities (other than its obligations under this Agreement) or
enter into any material transaction (other than the transactions contemplated by
this Agreement) other than in the ordinary course of business, (f) merge or
consolidate with any other entity, effect any change in its capital structure,
make any investment in any other entity, liquidate or dissolve, (g) amend its
articles of organization or operating agreement, (h) issue additional equity
interests, (i) enter into any transaction with any Affiliate (as defined in
Section 6.2) except on terms at least as favorable as those that could be
obtained from an unrelated third party, or (j) agree to do any of the foregoing.
8
<PAGE>
2.6 This Agreement may be terminated by the Harlan Companies or by
Einstein Bros. in the event the Closing has not occurred by August 31, 1996. In
the event of such termination, Einstein Bros. and its agents and representatives
shall have the right to have access to the Leasehold Premises in order to remove
from the Leasehold Premises all assets owned by Einstein Bros.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF THE HARLAN COMPANIES
In order to induce Einstein Bros. to enter into this Agreement and to
perform its obligations hereunder, the Harlan Companies jointly and severally
represent and warrant to Einstein Bros. that:
3.1 Each of the Harlan Companies is duly organized and validly existing
under the laws of the jurisdiction of its incorporation, with full corporate
power and authority to enter into this Agreement and to carry out the
transactions and agreements contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of each of the Harlan Companies.
3.2 This Agreement has been duly executed and delivered by each of the
Harlan Companies and is a valid and binding obligation of each of them,
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement by the Harlan Companies nor the consummation of the transactions
contemplated hereby will: (a) conflict with or violate any provision of its
organizational documents, or of any law, ordinance or regulation or any decree
or order of any court or administrative or other governmental body which is
either applicable to, binding upon or enforceable against either of the Harlan
Companies or (b) result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under, any mortgage, contract,
agreement, indenture, will, trust or other instrument which is either binding
upon or enforceable against either of the Harlan Companies or the assets and
properties of either of them. No permit, consent, approval or authorization of,
or declaration to or filing with, any regulatory or other governmental authority
is required in connection with the execution and delivery of this Agreement by
the Harlan Companies and the consummation by them of the transactions
contemplated hereby, except for such of the foregoing as are identified in
Schedule 3.8 hereto, all of which have been obtained, and except for documents
the Harlan Companies have executed and which are to be recorded pursuant to the
Financing Documents.
3.3 Schedule 3.3 hereto accurately and completely sets forth, with respect
to each of the Harlan Companies: (a) the number of shares of each class of its
capital stock or other units of equity interest which are issued and outstanding
and (b) the name and address of, and the number of shares of each class of
capital stock or other units of equity interest owned by, each of its
shareholders or other equity owners. All voting rights in each of the Harlan
Companies are vested exclusively in its shares of capital stock, in the case of
Harlan, and in units of equity interest, in the case of the Supplier, and other
than shareholder agreements or operating agreements which have been provided to
Einstein Bros. (the "Shareholder Agreements"), there
9
<PAGE>
are no voting trusts, proxies or other agreements or understandings with respect
to the voting of the capital stock or other units of equity interest of either
of the Harlan Companies. Except pursuant to the Shareholder Agreements and the
right of first refusal to be granted pursuant to Section 2.1.11, there are no
outstanding warrants, options or rights of any kind to acquire from either of
the Harlan Companies, or from the shareholders or other equity owners of either
of the Harlan Companies, any shares of capital stock or other units of equity
interest of either of the Harlan Companies, and neither of the Harlan Companies
has any obligation to acquire any of its issued and outstanding shares of
capital stock or other units of equity interest from any holder thereof.
3.4 Set forth in Schedule 3.4 are the following financial statements of
the Harlan Companies:
3.4.1 balance sheets of Harlan at December 31, 1994 and
December 31, 1995;
3.4.2 statements of operations and cash flow of Harlan for the years
ended December 31, 1994 and December 31, 1995; and
3.4.3 a balance sheet of the Supplier at May 24, 1996.
Such financial statements present fairly in all material respects the financial
position of each of the Harlan Companies covered thereby at said balance sheet
dates and the results of operations and cash flows of Harlan for each of the
said periods covered, and they have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The balance sheet
of Harlan at December 31, 1995 is herein sometimes referred to as the "Harlan
Balance Sheet," and the balance sheet of the Supplier at May 24, 1996 is herein
sometimes referred to as the "Supplier Balance Sheet."
3.5 Neither of the Harlan Companies has any liabilities or obligations,
accrued, absolute, contingent or otherwise, except: (a) to the extent reflected
or taken into account in determining net worth in the Harlan Balance Sheet or
the Supplier Balance Sheet and not heretofore paid or discharged; (b)
contractual obligations of Harlan incurred in the ordinary course of business;
(c) liabilities of Harlan incurred in the ordinary course of business since the
date of the Harlan Balance Sheet; (d) obligations of the Harlan Companies under
this Agreement and the other documents now or hereafter executed in connection
therewith, and (e) obligations of the Harlan Companies under contracts
identified in Schedule 3.9.
3.6 The premises to be covered by the Lease (the "Leasehold Premises"):
(a) have direct access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
reasonably anticipated transportation requirements of the Supplier's business to
be conducted at the Leasehold Premises; and (b) are served by all utilities,
including but not limited to water, electricity, natural gas, sewer and
telephone, in such quantity and quality as are sufficient to satisfy the
reasonably anticipated production levels and business activities of the
Supplier's business to be conducted at the Leasehold Premises. Neither of the
Harlan Companies has received notice of: (a) any condemnation proceeding with
respect
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to any portion of the Leasehold Premises, and, to the best of their knowledge,
no proceeding is contemplated by any governmental authority; or (b) any special
assessment which may affect the Leasehold Premises and to the best of their
knowledge, no such special assessment is contemplated by any governmental
authority.
3.7 The Supplier has good and marketable title to all of its assets and
properties, free and clear of all Encumbrances, except as set forth in the
Financing Documents or the Title Policy.
3.8 The Harlan Companies possess all licenses and other required
governmental or official approvals, permits or authorizations, the failure to
possess which would have a material adverse effect on the business, financial
condition or results of operations of either of the Harlan Companies. All such
licenses, approvals, permits and authorizations are in full force and effect,
the Harlan Companies are in material compliance with their requirements, and no
proceeding is pending or to the best of the knowledge of the Harlan Companies,
threatened to revoke or amend any of them. Schedule 3.8 hereto contains an
accurate and complete list of all such licenses, approvals, permits and
authorizations. None of such licenses, approvals, permits and authorizations
are or will be impaired or in any way affected by the execution and delivery of
this Agreement, the Lease or the Financing Documents, or the consummation of the
transactions contemplated hereby.
3.9 Schedule 3.9 hereto accurately and completely lists each contract to
which either of the Harlan Companies is a party related to the construction of
the Production Facility, including without limitation the acquisition of raw
materials and supplies and the procurement of architectural, engineering or
construction management services, and each contract to which either of the
Harlan Companies is a party related to the acquisition of equipment for use in
the Production Facility. Except for change orders, if any, with respect to the
construction of the Production Facility, none of such contracts has been amended
or modified and each of them is in full force and effect. Neither of the Harlan
Companies is in breach of or default under any of such contracts, and no event
has occurred which with the passage of time or the giving of notice or both
would cause a material breach of or default under any such contract. Neither of
the Harlan Companies is aware of any breach of or default under any such
contract by the other party thereto.
3.10 There are no actions, suits, claims, governmental investigations or
arbitration proceedings ("Actions") pending or, to the best of the knowledge of
the Harlan Companies, threatened against or affecting either of the Harlan
Companies or any of their assets or properties and, to the best of the knowledge
of the Harlan Companies, there is no basis for any of the foregoing. Except for
Harlan's settlement agreement with the West Central Conservancy District, there
are no outstanding orders, decrees or stipulations issued by any federal, state,
local or foreign judicial or administrative authority in any proceeding to which
either of the Harlan Companies is or was a party.
3.11 Each of the Harlan Companies is in material compliance with all laws,
regulations and orders applicable to it, its assets, properties and business.
Neither of the Harlan Companies
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has received notification of any asserted past or present failure to comply with
any laws, and to the best of their knowledge, no proceeding with respect to any
such violation is contemplated.
3.12
3.12.1 Neither of the Harlan Companies has transported, stored,
treated or disposed, nor has either of them allowed or arranged for any
third parties to transport, store, treat or dispose of Hazardous Substances
or other waste to or at any location other than a site lawfully permitted
to receive such Hazardous Substances or other waste for such purposes, nor
has either of them performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in
contravention of any laws or regulations. Neither of the Harlan Companies
has disposed, or allowed or arranged for any third parties to dispose, of
Hazardous Substances or other waste upon the Leasehold Premises, except as
permitted by law. For purposes of this Section 3.12.1, the term "Hazardous
Substances" shall have the meaning given it in the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Sections
9601, et seq.), as amended, and the regulations promulgated pursuant
thereto ("CERCLA"), or any similar state law.
3.12.2 Since the acquisition of the Leasehold Premises, Harlan has
not permitted to occur, nor is there presently occurring, a Release of any
Hazardous Substance on, into or beneath the surface of the Leasehold
Premises, except that the parties acknowledge that Harlan discharges
wastewater into the sewage treatment plant of the West Central Conservancy
District. For purposes of this Section 3.12.2, the term "Release" shall
mean releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping.
3.12.3 Neither of the Harlan Companies has transported or disposed,
nor has it allowed or arranged for any third parties to transport or
dispose, any Hazardous Substance or other waste to or at a site which,
pursuant to CERCLA or any similar state law: (a) has been placed on the
National Priorities List or its state equivalent, or (b) the Environmental
Protection Agency or the relevant state agency has proposed or is proposing
to place on the National Priorities List or its state equivalent. Neither
of the Harlan Companies has received notice, or has any knowledge of any
facts which could give rise to any notice, that either of the Harlan
Companies is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA or any
other applicable law or regulation. Neither of the Harlan Companies has
submitted nor was either of them required to submit any notice pursuant to
Section 103(c) of CERCLA with respect to the real estate that is covered by
the Lease. Neither of the Harlan Companies has received any written or
oral request for information in connection with any federal or state
environmental cleanup site. Neither of the Harlan Companies has undertaken
(or been requested to undertake) any response or remedial actions or clean-
up action of any kind at the request of any federal, state or local
governmental entity, or at the request of any other person or entity.
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3.12.4 Neither of the Harlan Companies uses, or has used, any
Underground Storage Tanks, and, except as set forth in Schedule 3.12
hereto, the Harlan Companies are not aware of any Underground Storage Tanks
previously or currently on or under the Leasehold Premises. For purposes
of this Section 3.12.4, the term "Underground Storage Tanks" shall have the
meaning given it in the Resource Conservation and Recovery Act (42 U.S.C.
Sections 6901 et seq.).
3.12.5 Schedule 3.12 hereto identifies (a) all environmental audits,
assessments or occupational health studies relating to the assets,
properties or business of either of the Harlan Companies undertaken by
governmental agencies or either of the Harlan Companies or their agents;
(b) the results of any ground, water, soil, air or asbestos monitoring
undertaken with respect to the Leasehold Premises, except for tests of
sewage discharge, which are summarized in Schedule 3.12; (c) all written
communications between either of the Harlan Companies and any environmental
agencies within the past three years; and (d) all citations issued to
either of the Harlan Companies within the past three years under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF EINSTEIN BROS.
In order to induce the Harlan Companies to enter into this Agreement and to
perform their obligations hereunder, Einstein Bros. represents and warrants to
the Harlan Companies that:
4.1 Einstein Bros. is duly organized and legally existing under the laws
of the State of Delaware, with full corporate power and authority to enter into
this Agreement and to carry out the transactions and agreements contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Einstein Bros.
4.2 This Agreement has been duly executed and delivered by Einstein Bros.
and is a valid and binding obligation of Einstein Bros., enforceable in
accordance with its terms. Neither the execution and delivery of this Agreement
by Einstein Bros. nor the consummation of the transactions contemplated hereby
will: (a) conflict with or violate any provision of the certificate of
incorporation of bylaws of Einstein Bros. or of any decree or order of any court
or administrative or other governmental body which is either applicable to,
binding upon or enforceable against Einstein Bros.; or (b) assuming the approval
of, and release of security interests by, Einstein Bros.' lenders as set forth
in Section 2.2.4 hereof, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under, any mortgage,
contract, agreement, indenture or other instrument which is either binding upon
or enforceable against Einstein Bros. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Einstein Bros. and the consummation of the transactions
contemplated hereby.
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4.3 There are no Actions pending or, to the best of the knowledge of
Einstein Bros., threatened against or affecting Einstein Bros. or any of its
assets or properties which Actions are related to this Agreement or Einstein
Bros.' obligations hereunder and, to the best of the knowledge of Einstein
Bros., there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any federal, state, local or foreign
judicial or administrative authority in any proceeding to which Einstein Bros.
is or was a party related to this Agreement or Einstein Bros.' obligations under
this Agreement.
4.4 Einstein Bros. is in material compliance with all laws, regulations
and orders applicable to its performance under this Agreement. Einstein Bros.
has received no notification of any asserted past or present failure to comply
with any such laws, and to the best of its knowledge, no proceeding with respect
to any such violation is contemplated.
ARTICLE 5.0 CERTAIN COVENANTS OF THE HARLAN COMPANIES REGARDING THE PROJECT AND
THE PRODUCTION FACILITY.
5.1 Harlan agrees to complete the construction of the Production Facility.
Without limiting the generality of the foregoing, Harlan shall invest $750,000
in cash equity in the construction of the Production Facility. The Supplier
will complete the acquisition of the Bagel Equipment and the installation of the
Bagel Line, subject to the approval of Einstein Bros., with such changes therein
as may be reasonably requested by Einstein Bros. The Supplier agrees to consult
with Einstein Bros.' consultant, The Dennis Group, or such other consultant as
Einstein Bros. may engage, to the extent requested by Einstein Bros. during the
installation of the Bagel Line.
5.2 The Supplier will cause the Bagel Line to be installed and ready for
testing on or about July 1, 1996 and operational on or about August 1, 1996,
subject to events beyond the reasonable control of the Supplier.
5.3 The Harlan Companies agree that the use of any portion of the
Production Facility or the Bagel Line for production of any products for persons
other than Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients shall be subject to Einstein Bros.' prior
written approval, which shall not be unreasonably withheld. The parties agree
that it shall not be unreasonable for Einstein Bros.' approval to be subject to
(i) Einstein Bros. being satisfied that Proprietary Information of Einstein
Bros. will not be subject to a risk of unauthorized use or disclosure by reason
of such use of the Production Facility, (ii) Einstein Bros. being satisfied that
such use of the Production Facility will not interfere with or otherwise
adversely effect the use of the Production Facility to produce Products under
this Agreement, (iii) adjustment of the Toll Charge on terms mutually acceptable
to Einstein Bros. and Harlan, to permit sharing of the benefits of leveraging
Occupancy Cost, and (iv) adjustment of the manner in which the Shortfall Amount
is calculated pursuant to Section 7.5 hereof, on mutually acceptable terms.
ARTICLE 6.0 DESIGNATION OF THE SUPPLIER AS AN APPROVED SUPPLIER; PURCHASE AND
SALE OF THE PRODUCTS
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6.1 Einstein Bros. hereby designates the Supplier as an approved supplier
of Products to Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients (as hereinafter defined). On the terms
and subject to the conditions set forth herein, and during the Term hereof, the
Supplier agrees to sell to Einstein Bros., Einstein Bros. Subsidiaries, Einstein
Bros. Franchisees and Authorized Recipients Products produced by the Supplier at
the Production Facility.
6.2 Subject to the last sentence of this Section 6.2, Harlan Companies
jointly and severally agree that during the Term, and for a period of one year
thereafter, none of the Harlan Companies or any Affiliate of the Harlan
Companies shall, without the prior written consent of Einstein Bros., produce
any bagels or bagel dough for sale or distribution to any specialty bagel retail
establishment (which shall be defined for this purpose as any retail
establishment (including any retail delicatessen and any doughnut shop or other
specialty bakery store but excluding delicatessens located in supermarkets,
convenience stores or grocery stores that do not use a brand name of a specialty
bagel retailer) that derives a significant amount of its revenue from the sale
of bagels and bagel-related products). In addition, the Harlan Companies
jointly and severally agree that during the Term, none of the Harlan Companies
or any Affiliate of the Harlan Companies shall enter into any agreement to
produce pre-proofed raw frozen bagels for Maplehurst Bakeries, Inc.
("Maplehurst") or any Affiliate of Maplehurst unless Maplehurst has agreed in
writing that the restrictions set forth in Section 3.1 of the supply agreement
dated as of August 2, 1994 between Harlan and Maplehurst do not apply to the
supply of Products by the Harlan Companies under this Agreement or the Short-
Term Supply Agreement. For purposes of this Section 6.2 and Section 2.5, an
"Affiliate" shall mean any person or entity that controls or is controlled by,
or is under common control with, such person, and the term "control" (including
the terms "controlling," "controlled by" and "under common control with") shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise. The restriction set
forth in the first sentence of this Section 6.2 and the obligations of Einstein
Bros. under Section 8.1 shall terminate on September 30, 1997 if the parties
hereto have not on or before such date entered into an amendment to this
Agreement providing for the installation of a second bagel line in the
Production Facility.
6.3 Notwithstanding any other provision of this Agreement to the contrary,
Einstein Bros. may at any time arrange upon reasonable notice to the Supplier
for the Products to be sold to Einstein Bros., Einstein Bros. Subsidiaries and
Einstein Bros. Franchisees through one or more subsidiaries, affiliates, joint
ventures, area developers, franchisees, vendors, processors or other persons
("Authorized Recipients") or for the Products otherwise to be sold directly to
such other Authorized Recipients, subject to the Supplier's right to be
reasonably satisfied as to the creditworthiness of any Authorized Recipients.
In such event (a) orders may be placed with the Supplier by such Authorized
Recipients, rather than by Einstein Bros., Einstein Bros. Subsidiaries or
Einstein Bros. Franchisees, and the obligation to pay for the Products delivered
to any Authorized Recipient shall be solely that of the Authorized Recipient and
not the obligation of Einstein Bros. or any Einstein Bros. Subsidiary or
Einstein Bros. Franchisee, (b) the provisions of this Article governing the
purchase and sale of the Products shall continue to
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govern the purchase and sale of such Products, (c) the provisions of Article 7.0
shall govern the pricing of the Products to Authorized Recipient, and (d) the
product warranties in Article 9.0, the covenants in Sections 10.1 and 10.2, and
the indemnification and insurance provisions in Article 11.0 shall be made for
the benefit of Einstein Bros. or the Einstein Bros. Subsidiary or Einstein Bros.
Franchisee that ultimately purchases the Products, as well as for the benefit of
the Authorized Recipient. The Supplier may cease the supply of Products to
Einstein Bros. or any Einstein Bros. Subsidiary, Einstein Bros. Franchisee or
Authorized Recipient, as the case may be, if any balance owed to the Supplier by
such entity is not paid within 45 days after it has become due. Einstein Bros.
will cooperate with Supplier to resolve any disputes with Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees or Authorized Recipients.
6.4 Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients shall notify the Supplier from time to
time of the quantity of Products they wish to purchase from the Supplier by
placing purchase orders with the Supplier. Each order shall be filled by the
Supplier within seven days after the Supplier's receipt of the order. During
the term hereof, the Supplier shall sell to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients the Products
ordered by them, up to a maximum aggregate of 1,400,000 dozen bagels per Monthly
Period. Einstein Bros. agrees to use reasonable best efforts to provide the
Supplier, at the beginning of each Monthly Period, with rolling good faith
estimates of the volume of Products it expects to be ordered from the Supplier
under this Section 6.4 in such Monthly Period and the two succeeding Monthly
Periods, but such estimates shall be used for planning purposes only and shall
not be deemed orders or otherwise create any commitment whatsoever on the part
of Einstein Bros.
6.5 The Products shall be produced (a) using such formulations as Einstein
Bros. shall specify from time to time in writing (the "Formulations"), (b) in
accordance with such size, weight and other specifications as Einstein Bros.
shall establish from time to time in writing (the "Specifications"), and (c) in
accordance with such manufacturing procedures as Einstein Bros. shall specify
from time to time in writing (the "Procedures"), including the Formulations,
Specifications and Procedures set forth in the Schedule of Formulations,
Specifications and Procedures delivered concurrently with the execution and
delivery of this Agreement. The Formulations, Specifications and Procedures
that are not specified in writing as of the date hereof shall be committed to
writing by Einstein Bros. as soon as reasonably practicable and shall be in such
form as Einstein Bros. deems appropriate to minimize disclosure of Proprietary
Information (as defined in Section 12.1), and the Supplier agrees that it shall
not analyze or reverse engineer any such Formulations, Specifications and
Procedures or any ingredients supplied for use therein. All Formulations,
Specifications and Procedures are subject to change upon reasonable written
notice from Einstein Bros. to the Supplier at any time, except that (x) the
Supplier shall have such time as may be reasonably necessary for the Supplier to
implement such changed Formulations, Specifications and Procedures in its
production of the Products, and (y) certain changes in Formulations,
Specifications and
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Procedures may result in an adjustment to the Toll Charge, as provided in
Section 7.4. All Formulations, Specifications and Procedures shall be owned
exclusively by Einstein Bros. but the Supplier shall have a royalty-free
nonexclusive license, without the right to grant sublicenses, to use such
Formulations, Specifications and Procedures solely to produce Products for sale
to Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros. Franchisees and
Authorized Recipients under this Agreement.
6.6 Einstein Bros. shall have the right to have one or more of its
employees or representatives who are engaged in Einstein Bros.' product
development present at the Production Facility at any time that the Supplier is
producing the Products and all such individuals will comply with the Supplier's
established policies and procedures applicable to similarly situated employees
and will be bound by the confidentiality provisions of Article 12.0 hereof.
6.7 The Products shall be packaged using such packaging materials and
labeling as shall be determined by Einstein Bros. The Supplier agrees to
maintain an inventory of such packaging materials and labels which shall be
consistent with the quantity of Products estimated in the rolling good faith
estimates made by Einstein Bros. pursuant to Section 6.4 above or as otherwise
reasonably directed by Einstein Bros. All trademarks, trade names and trade
dress appearing on or in packaging and labeling shall be the exclusive property
of Einstein Bros. but the Supplier shall have a royalty-free nonexclusive
license, without the right to grant sublicenses, to use such trademarks and
trade dress solely to package and label the Products manufactured in accordance
with the provisions of this Agreement for sale to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients under this
Agreement.
6.8 Einstein Bros. shall be responsible for arranging for the procurement
of ingredients and raw materials used to produce the Products and, at Einstein
Bros.' option, Einstein Bros. may supply any ingredients or raw materials
directly to the Supplier (with Einstein Bros., at its option, owning such
ingredients or raw materials).
6.9 Products supplied hereunder shall be shipped F.O.B. the Production
Facility, and ownership and risk of loss with respect to the Products supplied
hereunder shall pass to Einstein Bros. or the Einstein Bros. Subsidiary,
Einstein Bros. Franchisee or Authorized Recipient when delivered to a carrier at
the F.O.B. point.
6.10 Payment terms shall be (a) net 15 days, together with interest at a
rate of 12% per annum from the date any amounts are past due or (b) such other
terms as are mutually agreed by the Supplier, on the one hand, and any of the
Einstein Bros. Subsidiaries or Einstein Bros. Franchisees or Authorized
Recipients that purchase Products from the Supplier, on the other hand. In no
event shall Einstein Bros. be construed as a guarantor of payment (or any other
obligation) of any Einstein Bros. Franchisee or Authorized Recipient, but
Einstein Bros. will be responsible for any obligation of any Einstein Bros.
Subsidiaries.
ARTICLE 7.0 PRICING
7.1 The Products shall be sold to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients at the
Materials Cost plus the Loss Factor, plus a toll charge of [ ]* per
bagel (the "Toll Charge"), which Toll Charge shall be subject to adjustment as
provided in Sections 7.3, 7.4, 7.5, 7.6 and 7.8 hereof. The Loss Factor will be
* Confidential treatment requested.
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equal to [ ]* multiplied by the Materials Cost, for the period from June 1,
1996 through July 31, 1996, [ ]* multiplied by the Materials Cost, for the
period from August 1, 1996 through September 30, 1996, [ ]* multiplied by the
Materials Cost, for the period from October 1, 1996 through December 31, 1996,
and [ ]* multiplied by the Materials Cost, during the remainder of the Term;
provided, however, that the parties agree to review the Loss Factor in January,
1997 and from time to time thereafter, if justified by actual experience using
Einstein Bros.' Formulations, Specifications and Procedures, and to adjust the
Loss Factor, if appropriate, which adjustments may be both prospective and
retroactive. Einstein Bros. agrees to share with the Supplier such information
available to it (and permitted to be disclosed by it) regarding the experience
of Einstein Bros. and any other suppliers of the Products to Einstein Bros.
using Einstein Bros.' Formulations, Specifications and Procedures as may be
relevant to such review.
7.2 The Materials Cost shall be determined based upon a Statement of
Materials Cost for each Monthly Period which shall be prepared by the Supplier
in accordance with the provisions of Exhibit G. The Materials Cost shall be
redetermined as of the end of each Monthly Period during the Term as set forth
in Section 7.2 hereof and the prices based upon such redetermination shall take
effect beginning with products shipped on or after the first business day of the
Monthly Period following the redetermination. Each Statement of Materials Cost
shall be delivered to Einstein Bros. within ten business days after the end of
the Monthly Period to which it relates and shall include the information
required by Exhibit G. Within 90 days after the end of each calendar year
during the Term, commencing with the calendar year ending December 31, 1996, the
Supplier shall cause to be delivered the Statement of Materials Cost for the
last Monthly Period in each of the Calendar Quarters during which this Agreement
was in effect during such calendar year, accompanied by a report of Ernst &
Young, or such other independent accountants as the Supplier may select from
time to time to do the regular annual review of its financial statements and who
may be approved by Einstein Bros. (such approval not to be unreasonably
withheld), in the form set forth in Exhibit H. The fees and expenses of such
independent accountants shall be borne by the Supplier. The Supplier
acknowledges that a copy of each Statement of Materials Cost (and each report of
independent accountants thereon) may be provided by Einstein Bros. to any
Einstein Bros. Franchisee.
7.3 The Toll Charge shall be adjusted, effective as of June 1 of each year
during the Term hereof, beginning on June 1, 1997, by multiplying the Toll
Charge in effect immediately prior to such adjustment by the product of (1-Fixed
Cost /Toll Charge) and a fraction the numerator of which is the CPI for the
calendar year and the denominator of which is the CPI for the prior calendar
year. For this purpose, (a) "Fixed Cost" shall mean the sum of the building
rental expense and Equipment Financing Cost for the 12-month period ending on
March 31 of such calendar year (or such lesser period commencing on the Closing
and ending on March 31, 1997) divided by 218,400,000 (or an amount equal to
1,400,000 dozen multiplied by the number of Monthly Periods in such shorter
period commencing on the Closing and ending on March 31, 1997), (b) the CPI for
any calendar year shall be equal to the average of the Consumer Price Index as
of the close of the 12-month period ending on March 31 of such calendar year,
and (c) the Consumer Price Index means the Consumer Price Index for the urban
area including Indianapolis, Indiana published by the Department of Labor, or in
the event such index ceases to
* Confidential treatment requested.
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be published for any reason, such other index designed to approximate as closely
as practicable the Consumer Price Index which the parties shall select.
7.4 In the event that changes in Formulations, Specifications or
Procedures result in additional costs or savings to Harlan or the Supplier that
are not reflected in Materials Cost, the parties shall make appropriate
adjustments in the Toll Charge to reflect such costs or savings. In addition,
the parties agree that Einstein Bros. shall bear as part of its research and
development, the cost of Product losses and production related costs that arise
from the development of Products or test runs of the Products. Costs associated
with such research and development shall be reimbursed within 30 days of
invoice.
7.5 In the event that orders are placed under Section 6.4 for fewer than
the following minimum amounts during the periods provided below, then the Toll
Charge shall be adjusted as provided in this Section 7.5:
(a) 2,520,000 dozen bagels, during the third Calendar Quarter of 1996;
(b) 3,150,000 dozen bagels, during the fourth Calendar Quarter of
1996; or
(c) 3,570,000 dozen bagels, during any consecutive twelve-week period
commencing after January 1, 1997.
In the event orders are placed under Section 6.4 for fewer than the minimum
amounts stated herein in any calendar quarter or twelve week period (the
"Shortfall Measuring Period"), then the Toll Charge applicable each Monthly
Period during the one-year period commencing on the first day after such
Shortfall Measuring Period or such shorter period remaining during the term of
this Agreement (the "Recovery Period") shall be increased by an amount
sufficient to result in the recovery over the Recovery Period, in equal amounts
during each Monthly Period in the Recovery Period, of the difference between the
minimum amounts stated herein and the amounts actually purchased during the
Shortfall Measuring Period multiplied by [ ]* per bagel (such amount
being herein sometimes referred to as the "Shortfall Amount").
7.6 In the event that Harlan accepts an offer of Einstein Bros. under
Section 8.1 to increase Harlan's capacity hereunder, then, commencing on the
Second Line Commencement Date (as defined in Section 8.1), the Toll Charge would
(a) be adjusted to the then current Toll Charge less [ ]* per bagel and
(b) be additionally adjusted by reducing the Toll Charge to confer upon Einstein
Bros. and the other purchasers of Products hereunder the savings realized from
the leveraging of Occupancy Cost (excluding utility costs that vary with
production volumes) and Equipment Financing Cost over a larger number of bagels,
with the Supplier to receive the benefit of any savings from operating
efficiencies (such as more efficient utilization of plant labor).
* Confidential treatment requested.
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7.7 The Supplier shall provide to Einstein Bros. and the accountants
referred to in Section 7.2 all information requested by them in order to permit
(a) the preparation of each report referred to in Section 7.2 and the
determination of the Materials Cost therefrom, and (b) each adjustment to the
Toll Charge provided for herein. The Supplier shall also permit Einstein Bros.
(and its representatives) and such accountants to have access to its books and
records, and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours. The Supplier shall also permit
accountants selected by Einstein Bros. to have access to its books and records,
and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours, provided, however, that (a) the
fees and expenses of such accountants shall be borne by Einstein Bros., and (b)
it shall be a condition to the covenant of the Supplier in this Section 7.7 to
give such accountants access to the Supplier's books and records that such
accountants shall agree in writing to be bound by the confidentiality provisions
of Article 12.0 hereof.
7.8 Einstein Bros. may charge the Supplier for various costs incurred by
Einstein Bros. in connection with research and development, product development,
procurement or other costs related to the development, production, distribution
and sale of the Products, and such costs shall result in an addition to the
purchase price for the Products over a negotiated period.
ARTICLE 8.0 ADDITIONAL BAGEL LINE
8.1 In the event Einstein Bros. decides to contract for the construction
or long-term continuous use east of the Rocky Mountains of an additional 16-
pocket bagel line for the production of raw frozen bagel dough products for the
dedicated use by Einstein Bros., Einstein Bros. Subsidiaries and Einstein Bros.
Franchisees, whether owned and operated by Einstein Bros., Einstein Bros.
Subsidiaries or an independent supplier, other than one 16-pocket-line to be
located in the Eastern United States and other than any bagel lines to be
located in New England (which shall consist of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island and Vermont) then, subject to the
satisfaction of the conditions hereinafter set forth in this Section 8.1,
Einstein Bros. will offer to the Supplier in writing (the "Offer") the right to
enter into an amendment to this Agreement pursuant to which the Supplier would
agree to cause a second bagel line to be installed in the Production Facility,
in accordance with plans approved by Einstein Bros., and to become operational
within 180 days of the Offer (the date on which such bagel line becomes
operational being herein referred to as the "Second Line Commencement Date").
The Offer will give Supplier a period of 45 days to accept the Offer and to
enter into the amendment. In any such amendment, Einstein Bros. and the
Supplier would agree to double the number of bagels specified in Section 6.4 and
7.6 (subject to a phase-in of the minimum amounts required under Section 7.5
similar to that provided in Section 7.5 with respect to the first bagel line)
and to adjust the Toll Charge in the manner provided in Section 7.6. Einstein
Bros.' obligation to make the Offer shall be subject to the satisfaction, on or
before the date (the "Determination Date") on which Einstein Bros. wishes to
commence negotiations for the construction of the additional bagel line, of each
of the following conditions: (a) the Supplier shall have achieved acceptable
levels of Product quality, as determined by Einstein Bros., (b) the Supplier
shall have achieved acceptable levels of customer service, as determined by
Einstein
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Bros., and (c) the Supplier's Profit (as hereinafter defined) for all monthly
periods in which orders have been placed under Section 6.4 for at least
1,190,000 dozen bagels shall not be less than .10 cents per bagel. For this
purpose, the "Supplier's Profit" for a period shall be equal to the Supplier's
Formula Profit (as defined in the Option Agreement) for such period divided by
the number of bagels sold in such period.
ARTICLE 9.0 PRODUCT WARRANTIES
9.1 The Supplier warrants to Einstein Bros. and all Einstein Bros.
Subsidiaries and Einstein Bros. Franchisees that purchase Products from the
Supplier that:
9.1.1 each shipment of Products supplied hereunder shall be
manufactured in accordance with the provisions of Section 6.5 hereof, shall be
of good and merchantable quality and shall be fit for the purposes for which
they are intended to be used, except to the extent any lack of merchantability
or lack of fitness for the intended purposes is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications;
9.1.2 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of the Federal Food Drug and Cosmetics Act, as
amended, except to the extent misbranding is attributable to the use of the
Formulations, Procedures or Specifications, and none of the Products will be an
article which may not be introduced into interstate commerce under the
provisions of Section 404, 409 or 706 of that Act; and
9.1.3 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of any applicable provision of any state or
municipal law, which provision is similar to any provision of the Federal Food,
Drug and Cosmetics Act, as amended, except to the extent misbranding is
attributable to the use of the Formulations, Procedures or Specifications.
The foregoing warranties shall survive inspection and acceptance of any of the
Products, and payment therefor, by Einstein Bros., Einstein Bros. Subsidiaries
and Einstein Bros. Franchisees.
ARTICLE 10.0 OTHER COVENANTS OF THE PARTIES
10.1 Each party agrees to comply with all governmental laws, regulations
and orders applicable to its operations under this Agreement, and to bear any
and all taxes, fees or other governmental charges applicable to its operations.
Harlan and the Supplier agree to comply with the Lease.
10.2 The Supplier agrees to permit representatives of Einstein Bros. to
inspect the Leasehold Premises at any time to assure compliance with the terms
of this Agreement and all such individuals will comply with the Supplier's
established policies and procedures applicable to similarly situated employees
and will be bound by the confidentiality provisions of Article 12.0 hereof.
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10.3 Harlan and the Supplier agree that they shall not, without the prior
written consent of Einstein Bros., amend or modify the Lease or the assignment
and assumption agreement between Harlan and the Supplier. The Supplier also
agrees that it shall not, without the prior written consent of Einstein Bros.,
agree to amend or modify the Subordination and Nondisturbance Agreement.
10.4 Harlan and Einstein Bros. agree that the Short-Term Supply Agreement
shall remain in effect in accordance with its terms, except that (a) commencing
June 1, 1996, the price of the products sold thereunder shall be equal to the
price determined in accordance with this Agreement, (b) commencing 60 days
after the Bagel Line has become fully operational, either Einstein Bros. or
Harlan may terminate the Short-Term Supply Agreement, effective on not less than
30 days' notice to the other party, and (c) Section 2.2 of the Short-Term Supply
Agreement shall no longer apply.
10.5 Harlan agrees that it will not sell the bagel cooker used under the
Short-Term Supply Agreement (the "Cooker") to any third party unless it has
first offered in writing to Einstein Bros. the right to purchase the Cooker for
the same purchase price and on the other terms that it proposes to sell the
Cooker to a third party, which offer shall remain open a period of not less than
30 days. Any offer hereunder may be accepted only in writing, which written
acceptance shall specify a place of closing and a closing date not later than 30
days following the date of such acceptance. Similarly, Harlan agrees that it
will not enter into any agreements or commitments with any third party that
require the use of the Cooker and that are not terminable on less than 30 days'
notice unless it has first given notice to Einstein Bros. of such proposed
agreement or commitment, which notice shall describe the term of such proposed
agreement or commitment and the economic terms thereof, including the expected
profit to Harlan from such proposed agreement or commitment and which notice
shall also include an offer to Einstein Bros. of the right to reserve the
availability of the Cooker for a term equivalent to the term of such proposed
third-party agreement or commitment and for an amount, payable in cash, equal to
the amount of depreciation expense allocable to the Cooker that would be
recognized during such term, using the method of depreciation used by Harlan in
preparing its regular financial statements.
10.6 Except as may be contemplated by the Option Agreement, each of
Einstein Bros., on the one hand, and the Supplier and Harlan, on the other
hand, agrees that they will not at any time prior to the first anniversary of
the expiration of the Lease, solicit or hire any employee of any other party,
unless such employee has been terminated by the other party, or unless such
employee terminated his or her employment with the other party at least one year
prior to the date of the first such solicitation or hiring.
10.7 Harlan agrees to devote to Supplier such of its resources as may be
necessary to assist Supplier in timely and completely performing all of the
Supplier's obligations under this Agreement.
ARTICLE 11.0 INDEMNIFICATION AND INSURANCE
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11.1 The Supplier agrees to indemnify Einstein Bros. and all Einstein Bros.
Subsidiaries and Einstein Bros. Franchisees for, and hold Einstein Bros. and all
Einstein Bros. Subsidiaries and Einstein Bros. Franchisees that purchase
Products harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
them resulting from: (a) any breach of any representation or warranty made by
the Supplier in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by the Supplier in this
Agreement; (c) any claim or action by any consumer or any other third party
arising out of the production or sale of the Products by the Supplier (including
any claims or actions for personal injury and any products liability claims or
action), provided, however, that the Supplier shall have no obligation to
indemnify Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros.
Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee or is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications; or (d) any claim or
action brought by any federal, state, local or foreign governmental agency in
connection with the production or sale of the Products by the Supplier
(including without limitation any claim or action under any law or regulation
relating to public health, the sale of food and drugs, and the safe conduct of
business), provided, however, that the Supplier shall have no obligation to
indemnify Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros.
Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee or is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications.
11.2 Einstein Bros. agrees to indemnify the Supplier for, and to hold the
Supplier harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
the Supplier resulting from: (a) any breach of any representation or warranty
made by Einstein Bros. in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by Einstein Bros. in this
Agreement; (c) any claim or action by any consumer, governmental agency or any
other third party, including any claim of infringement or violation of, or
conflict with, any patent or trade secret of any third party, to the extent such
claim or action is attributable to the use by the Supplier of the Formulations,
Procedures and Specifications or is attributable to the alteration, handling or
misbranding of Products after they have been delivered to Einstein Bros., or any
Einstein Bros. Subsidiary, Einstein Bros. Franchisee or Authorized Recipient; or
(d) any claim or action by any third party alleging infringement or violation
of, or conflict with, any trademarks, trade names or trade dress, to the extent
such claim or action is attributable to the use of trademarks, trade names or
trade dress used in accordance with Einstein Bros.' instructions pursuant to
Section 6.7.
11.3 The parties agree that each party shall have the exclusive right to
control the defense (and the right to establish the terms of any settlement) of
any claim or action by any third party that could result in such party having an
indemnification obligation under Section 11.1 or Section 11.2 with counsel of
such party's selection, that each party will promptly give the other
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party written notice of any claim or action of which it becomes aware that could
result in such other party having an indemnification obligation under Section
11.1 or Section 11.2, and that each party will fully cooperate with the other
party in the defense of any claim or action by the other party hereunder.
11.4 Einstein Bros. and the Supplier acknowledge and agree that Einstein
Bros., Einstein Bros. Subsidiaries and Einstein Bros. Franchisees, on the one
hand, and the Supplier, on the other hand, may be required to enter into
indemnity agreements with Authorized Recipients. Einstein Bros. and the
Supplier agree that (a) in the event Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee is obligated to make indemnity payments
under any such agreement resulting from any of the matters described in clauses
(a) through (d), inclusive, of Section 11.1 hereof, the Supplier shall indemnify
Einstein Bros. or such Einstein Bros. Subsidiary or Einstein Bros. Franchisee
for, and hold Einstein Bros. and such Einstein Bros. Subsidiary or Einstein
Bros. Franchisee harmless from and against, such payment in accordance with
Section 11.1 hereof, and (b) in the event the Supplier is obligated to make
indemnity payments under any such agreement resulting from any of the matters
described in clauses (a) through (d), inclusive, of Section 11.2 hereof,
Einstein Bros. shall indemnify the Supplier, and hold the Supplier harmless from
and against, such payment in accordance with Section 11.2 hereof.
11.5 The Supplier represents and warrants that it carries: (a) policies of
worker's compensation and employer's liability insurance that comply with all
state and federal laws, and (b) policies of comprehensive general liability
insurance covering the Supplier's premises and operations, including premises
and operations coverage, owner's and contractor's protective coverage, products
and completed operations coverage, full blanket contractual coverage and broad
form property damage coverage, with a combined single limit of $9,000,000 naming
Einstein Bros. as an additional insured and containing endorsements (i)
providing that the Supplier's comprehensive general liability coverage
(including products liability) (the "Supplier CGL Coverage") is primary relative
to Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros. Franchisee,
and that any other insurance maintained by Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee with respect to the risks covered by the
Supplier CGL Coverage is excess and non-contributing, and (ii) waiving any and
all rights of subrogation against Einstein Bros., Einstein Bros. Subsidiaries
and Einstein Bros. Franchisees with respect to the Supplier CGL Coverage, and
(iii) providing for a continuation of the Supplier CGL Coverage beyond the
expiration or termination of this Agreement for claims made following such
expiration or termination that are attributable to the manufacture of Products
by the Supplier during the term of this Agreement. The Supplier also represents
and warrants that all premiums which have become due on such policies have been
paid, that such policies are in full force and effect, and that such policies
may not be canceled, changed or allowed to lapse through non-renewal, failure to
pay premiums or otherwise except upon not less than 60 days' prior written
notice to the Supplier and Einstein Bros., except that such notice period need
not exceed 10 days in the case of failure to pay premiums. The Supplier has
previously delivered to Einstein Bros. evidence of the foregoing insurance
coverages by providing to Einstein Bros. a satisfactory Accord Certificate of
Coverage of Einstein Bros. as an additional insured, and will hereafter provide
Einstein Bros. with a satisfactory Accord Certificate of Coverage upon the
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issuance of any renewal or replacement policies. The Supplier agrees to
maintain such policies in full force and effect, in the amount set forth above,
throughout the term of this Agreement, and to maintain Einstein Bros. as an
additional insured under such policies.
ARTICLE 12.0 CONFIDENTIALITY
12.1 As used in this Agreement, the term "Proprietary Information" shall
mean any knowledge or information, written or oral, which relates in any manner
to the respective businesses of the Supplier and Einstein Bros. which is
confidential and proprietary information of the disclosing party, whether or not
disclosed prior to, on or after the date hereof, including, without limitation,
the business concepts, recipes, food preparation methods, equipment, operating
techniques, marketing methods, financial information, demographic and trade area
information, prospective site locations, market penetration techniques, plans,
or schedules, customer profiles, preferences, or statistics, menu breakdowns,
itemized costs, franchisee composition, territories, and development plans,
products, production techniques and all related trade secrets or confidential or
proprietary information treated as such by the disclosing party, whether by
course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary. As used in this Article 12.0, the term "disclosing
party" shall mean the party to this Agreement which discloses or makes available
Proprietary Information to the receiving party, and the term "receiving party"
shall mean the party to this Agreement to whom Proprietary Information is
disclosed or made available by the disclosing party.
12.2 Without limiting the generality of Section 12.1 hereof, the parties
acknowledge and agree that the Formulations, Specifications and Procedures are
the Proprietary Information of Einstein Bros. and will be treated as Proprietary
Information that does not become stale with the passage of time for purposes of
the last sentence of Section 12.3 hereof.
12.3 The receiving party shall hold all Proprietary Information in strict
confidence, shall use such Proprietary Information only for the benefit of the
disclosing party and shall disclose such Proprietary Information only to the
receiving party's employees and agents who have a need to know such Proprietary
Information in order to assist the receiving party in performing its obligations
under this Agreement provided such employees and agents each have individually
entered into a confidentiality agreement in form satisfactory to the disclosing
party or are otherwise obligated by a written agreement with the receiving party
to maintain the confidence of the Proprietary Information, which agreement the
parties hereby agree may be directly enforced by the disclosing party. The
receiving party shall not disclose Proprietary Information to any other person
or entity. The obligations hereunder to maintain the confidentiality of
Proprietary Information shall continue: (a) for five years from the date of
disclosure of the Proprietary Information, in the case of Proprietary
Information that by its nature becomes stale with the passage of time (e.g.,
financial information, development plans) and (b) indefinitely, in the case of
the Proprietary Information that by its nature does not become stale with the
passage of time (e.g. trade secrets, production techniques, recipes).
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12.4 The obligations of the parties specified in Section 12.3 shall not
apply to any Proprietary Information which (a) is disclosed in a printed
publication available to the public prior to the date of this Agreement, or
becomes known to the public through no act of the receiving party or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the receiving party, provided, however, that a
combination of ingredients or processes that has not been disclosed to, or
become known by, the public shall remain subject to Section 12.3 notwithstanding
the fact that the identity of such ingredients or processes may be known, (b) is
approved for release by written authorization of an officer of the disclosing
party, (c) can be established by the receiving party by documentary evidence to
have been in the legitimate and lawful possession of the receiving party at the
time revealed by the disclosing party to the receiving party, (d) is lawfully
received by the receiving party without restriction from a third party
subsequent to this Agreement, which third party did not obtain the Proprietary
Information through improper means or disclose the Proprietary Information
without authorization, or (e) is required to be disclosed by law or regulation
or by proper order of a court of applicable jurisdiction after adequate notice
to the disclosing party, sufficient to permit the disclosing party to seek a
protective order therefor, the imposition of which protective order the
receiving party agrees to approve and support. In addition, after consultation
with the disclosing party, the receiving party may disclose only that
Proprietary Information that the receiving party believes in good faith it is
required to disclose (x) in connection with any filing that is made or
disclosure document that is prepared for the purpose of complying with federal
or state securities or franchise laws, rules or regulations or (y) to comply
with the rules of any stock exchange or quotation system or any other regulatory
requirements; provided, however, that in any event trade secrets, production
techniques, recipes and similar Proprietary Information of a disclosing party
will not be disclosed by the receiving party without the written consent of the
disclosing party.
12.5 The receiving party (and each employee, agent, or other person or
entity which has received such Proprietary Information from or through the
receiving party) shall, upon the request of the disclosing party, return all
documents and other tangible manifestations of Proprietary Information received
from the disclosing party, including all copies and reproductions thereof. The
receiving party will thereafter certify in writing to the disclosing party that
all Proprietary Information has either been returned to the disclosing party or
destroyed.
ARTICLE 13.0 TERM
13.1 The initial term of this Agreement shall commence on the date hereof
and continue until June 1, 2003.
13.2 The provisions of Articles 9.0, 10.0, 11.0 and 12.0 and any other
provisions hereof requiring performance by a party following termination shall
survive the expiration or any termination of this Agreement.
13.3 Upon expiration or termination of this Agreement for any reason,
Einstein Bros. shall purchase from the Supplier all finished Products in
inventory, all packaging materials and
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labeling in inventory purchased by the Supplier pursuant to Section 6.7 hereof,
and the ingredients and raw materials in the Supplier's inventory, at the
Supplier's cost, F.O.B. the Production Facility, and Einstein Bros. shall pay to
the Supplier any Shortfall Amount that has not previously been recovered under
Section 7.5 and any amounts charged to, but not previously recovered by, the
Supplier under Section 7.8.
ARTICLE 14.0 MISCELLANEOUS
14.1 Einstein Bros., Harlan and the Supplier may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
14.2 Each party to this Agreement shall pay all of the expenses incurred by
it in connection with this Agreement, including without limitation its legal and
accounting fees and expenses, and the commission, fees and expenses of any
person employed or retained by it to bring about, or to represent it in, the
transactions contemplated hereby.
14.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Supplier may not assign its rights or delegate its duties hereunder without the
prior written consent of Einstein Bros.
14.4 This instrument and the exhibits attached hereto and the Short-Term
Supply Agreement contain the entire agreement of the parties hereto with respect
to the purchase and sale of the Products from the Supplier and Harlan and the
other transactions contemplated herein, and supersede all prior understandings
and agreements of the parties with respect to the subject matter hereof. Any
reference herein to this Agreement shall be deemed to include the exhibits
attached hereto. In the event of any inconsistency between this Agreement and
any purchase order, confirmation or similar document or instrument of Einstein
Bros., any Einstein Bros. Subsidiary or Einstein Bros. Franchisee or the
Supplier, this Agreement shall govern.
14.5 Except as expressly set forth in this Agreement or hereafter agreed in
writing by the Supplier and Einstein Bros., (a) Einstein Bros. is not promising,
committing to or guaranteeing that any business relationship with the Supplier
or the Supplier's status as an approved supplier will continue for any specified
time period, and (b) Einstein Bros. is not agreeing to reimburse the Supplier
for any costs, expenses, investments or other amounts incurred or expended by
the Supplier (and no such amounts have been or will be incurred or expended in
reliance on continued business from Einstein Bros. or Einstein Bros.
Subsidiaries or Einstein Bros. Franchisees).
14.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
14.7 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
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14.8 Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or the document
shall be deemed duly given three business days after it is sent by registered or
certified mail, postage prepaid, to the intended recipient, addressed as
follows:
If to the Supplier or Harlan, addressed to such party at the following
address:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P. O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and
Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may
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change the address to which notices hereunder are to be sent to it by giving
written notice of such change of address in the manner herein provided for
giving notice.
14.9 This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts made and to be
performed wholly therein.
14.10 In the event of a breach or threatened breach of any of the
provisions of Section 6.2 or Article 12.0 of this Agreement, the parties
acknowledge and agree that the non-breaching party will not have an adequate
remedy at law and therefore will be entitled to enforce any such provision by
temporary or permanent injunctive or mandatory relief as a remedy for any such
breach, and that such remedy shall not be deemed to be the exclusive remedy for
any such breach but shall be in addition to all other remedies, subject,
however, to the provisions of Section 14.11 hereof.
14.11 In no event shall either party hereto seek, or be liable to the
other party hereto for, speculative, exemplary or punitive damages.
14.12 No press release or other public or trade announcement or statement
related to this Agreement or the transactions contemplated hereby (or the
existence of any discussions or negotiations between the parties regarding any
other possible transactions) will be issued, and no disclosure of this Agreement
or the terms hereof will made, by either of the Harlan Companies without the
prior approval of Einstein Bros. Einstein Bros. agrees to use reasonable best
efforts to consult with the Harlan Companies prior to issuing any press release
or public or trade announcement or statement relating to this Agreement or the
transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By /s/ Paul A. Strasen, Vice President
--------------------------------------
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Doug H. Harlan, Vice President
--------------------------------------
HARLAN BAKERIES, INC.
By Hugh P. Harlan, President
--------------------------------------
/s/ Hal P. Harlan
-----------------------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
-----------------------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
-----------------------------------------
Doug H. Harlan
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Exhibits
--------
Exhibit A Form of Lease of Production Facility
Exhibit B Form of Assignment and Assumption Agreement
Exhibit C Form of Assignment and Bill of Sale
Exhibit D Option Agreement
Exhibit E Right of First Refusal Agreement
Exhibit F Opinion of Henderson, Daily, Withrow & DeVoe
Exhibit G Determination of Materials Cost
Exhibit H Form of Statement of Independent Accountants
<PAGE>
Schedules
---------
Schedule 2.1.8 Equipment Contracts
Schedule 3.4 Financial Statements of the Harlan Companies
Schedule 3.8 Licenses and Permits of the Harlan Companies
Schedule 3.9 Production Facility and Equipment Contracts
Schedule 3.12 Environmental Matters
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EXHIBIT A
---------
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made this _____ day of
___________, 1996 ("Lease Date"), by and between HARLAN BAKERIES, INC., an
Indiana corporation ("Landlord"), and HARLAN BAGEL SUPPLY COMPANY, LLC, an
Indiana limited liability company ("Tenant") (the words "Landlord" and
"Tenant" to include their respective legal representatives, successors and
permitted assigns where the context requires or permits).
WITNESSETH:
1. Basic Lease Provisions. The following constitute the "Basic Lease
Provisions" of this Lease:
(a) Demised Premises: As described in Section 2 of this Lease.
(b) Building Square Footage: Approximately 75,000 square feet.
(c) Annual Base Rent: $__________________.
(d) Monthly Base Rent Installments: $___________________.
(e) Lease Commencement Date: The date of this Lease.
(f) Base Rent Commencement Date: The Lease Commencement Date.
(g) Primary Term: Lease Commencement Date through June 1, 2003.
(h) Permitted Use: Production of bagel dough products, general
office and other related uses.
(i) Addresses for notice:
Landlord and Tenant:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Fax: (317) 272-1110
<PAGE>
With a copy to:
Hal P. Harlan
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Fax: (317) 894-4473
(j) Address for rental payments:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
2. Demised Premises.
(a) For and in consideration of the rent hereinafter reserved and
the mutual covenants hereinafter contained, Landlord does hereby lease and
demise unto Tenant, and Tenant does hereby lease and accept from Landlord,
that certain building consisting of approximately 75,000 square feet (the
"Building") and the land underlying such building (the "Demised Premises")
as depicted on Exhibit "A" attached hereto and by this reference made a
part hereof. Landlord also hereby grants to Tenant the right to use
throughout the Term, in common with others, the driveways, parking lots,
walkways, rest rooms, locker rooms, break rooms and offices located on the
land and improvements adjacent to the Demised Premises, as depicted on
Exhibit "A" (collectively, the "Common Areas"). This Lease and the rights
of Landlord and Tenant under this Lease are subject to the matters set
forth on Exhibit "B" attached hereto (herein referred to collectively as
"Permitted Encumbrances").
(b) Landlord represents and warrants that Tenant will have direct
vehicular and pedestrian access to Production Drive from the Demised
Premises.
3. Term. To have and to hold the Demised Premises for a primary
term (the "Primary Term") which shall commence on the Lease Commencement
Date and shall expire June 1, 2003 (the Primary Term, and any and all
renewals extensions thereof, are herein referred to collectively as the
"Term"). The Term of this Lease shall end on the final day thereof without
the requirement of notice from either party to the other. The term "Lease
Year", as used in this Lease, shall mean the 12-month period commencing on
the Lease Commencement Date, and each 12-month period thereafter during the
Term; provided, however, that if the Lease Commencement Date is a day other
than the first day of a calendar month, the first Lease Year shall also
include the period between the Lease Commencement Date and the end of the
calendar month in which the Lease Commencement Date occurs and, thereafter,
each Lease Year shall commence on the anniversary of the first calendar day
of the first full calendar month after the Lease Commencement Date. If this
Lease terminates in accordance with its terms on a day other than the last
day of the final Lease Year, Base Rent (as defined in Section 4) and
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Additional Rent (as defined in Section 5) for the Lease Year in which such
termination occurs shall be prorated as of the date of such termination.
4. Base Rent. Tenant shall pay to Landlord at the address set forth
in Section l(j) as base rent for the Demised Premises, commencing on the
Lease Commencement Date (herein, the "Base Rent Commencement Date") and
continuing throughout the Term in lawful money of the United States the
annual amount set forth in Section 1(c) payable in equal monthly
installments as set forth in Section l(d) (the "Base Rent"), payable in
advance, without demand and without abatement, reduction, set-off or
deduction (except as expressly provided in Section 23.1 of this Lease), on
the first day of each calendar month during the Term. If the Base Rent
Commencement Date shall fall on a day other than the first day of a
calendar month, the Base Rent shall be apportioned pro rata on a per diem
basis for the period between such Base Rent Commencement Date and the first
day of the following calendar month and such apportioned sum shall be paid
on the Base Rent Commencement Date.
5. Quiet Enjoyment. Landlord covenants that Tenant, upon performing
the terms, conditions and covenants of this Lease, shall have quiet and
peaceful possession of the Demised Premises as against Landlord, any person
claiming title to or an interest in the Demised Premises adverse to
Landlord, and any person claiming title to or an interest in the Demised
Premises by, through or under Landlord. In addition, Landlord shall not
interfere with Tenant's reasonable use of the Common Areas.
6. Additional Rent. Any amounts required to be paid by Tenant under
this Lease (in addition to Base Rent) and any charges or expenses incurred
by Landlord on behalf of Tenant pursuant to the terms of this Lease,
including, without limitation, any expenses incurred for taxes, insurance,
maintenance, repairs, replacements and utilities which are the obligation
of Tenant hereunder, shall be considered additional rent (herein,
"Additional Rent") payable in the same manner and upon the same terms and
conditions as Base Rent reserved hereunder except as expressly set forth
herein to the contrary. To the extent that Landlord incurs expenses on
behalf of Tenant pursuant to this Lease, to pay a cost or expense, the
amount of which is not fixed and is therefore within the reasonable control
of Landlord, such as, by way of example, maintenance or repairs which
Tenant has failed to perform pursuant to Section 11(a) of this Lease (and
as distinguished from property taxes and other costs which are fixed and as
to which Landlord has no control or discretion), such expenses shall be
reasonably incurred by Landlord. Any failure on the part of Tenant to pay
such Additional Rent when due shall entitle Landlord to the remedies
available to it for non-payment of Base Rent, including, without
limitation, late charges and interest thereon at the Interest Rate (as
herein defined) pursuant to Section 33 hereof. Tenant's obligations for
payment of Additional Rent shall begin to accrue on the Base Rent
Commencement Date.
7. Use of Demised Premises. The Demised Premises shall be used for
the Permitted Use set forth in Section l(h) and for no other purpose.
Landlord represents and warrants to Tenant that, as of the Lease Date, the
Permitted Use is a permitted use under
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the zoning classification pertaining to the Demised Premises, in accordance
with the local Zoning Ordinance applicable to the Demised Premises, without
any requirement for obtaining a special or conditional use permit or zoning
variance. As of the Lease Date, Landlord has no actual knowledge of any
proposed change in such Zoning Ordinance which would restrict the Permitted
Use. Until such time as Einstein Bros. exercises its option to purchase the
assets of Tenant and assumes Tenant's obligations under this Lease pursuant
to an Option Agreement dated ________, 1996 between Einstein Bros. Bagels,
Inc., a Delaware corporation ("Einstein Bros."), Tenant, Doug H. Harlan,
Hal P. Harlan and Hugh P. Harlan (the "Option Agreement"), Landlord shall
be entitled to non-exclusive use of warehouse storage space in the
Building, provided such use does not interfere with or pre-empt Tenant's
use of such storage space.
8. Insurance. Tenant covenants and agrees that from and after the
Lease Commencement Date, Tenant will carry and maintain, at its sole cost
and expense, the insurance described in Section 10.5 of that certain
Project and Approved Supplier Agreement dated as of ____________, 1996,
between Einstein Bros., Tenant, Landlord, Doug H. Harlan, Hal P. Harlan and
Hugh P. Harlan (the "Supply Agreement"), including insurance for all of
Tenant's personal property. If Einstein Bros. becomes the tenant under
this Lease, Einstein Bros. will carry similar insurance.
9. Utilities. Commencing on the Lease Commencement Date and
continuing through the remainder of the Term, Tenant shall be responsible
for maintaining the portion of the utility lines located within the Demised
Premises and shall pay as Additional Rent its prorata share of all rents
and charges for water and sewer services and all costs and charges for gas,
steam, electricity, fuel, light, power, telephone, heat and any other
utility or service used or consumed on and after the Lease Commencement
Date in or servicing the Demised Premises and all other costs and expenses
involved in the care, management and use thereof to the extent charged by
the applicable utility companies ("Tenant's Utility Cost"). Landlord and
Tenant shall cooperate and use reasonable efforts to have utility service
to the Demised Premises separately metered. With respect to utility
service to the Demised Premises that is not separately metered, Tenant's
Utility Cost shall be determined in a manner reasonably acceptable to
Landlord and Tenant.
10. Taxes and Other Impositions.
(a) Commencing on the Lease Commencement Date and continuing
through the remainder of the Term, Tenant shall (subject only to the
limitation set forth in subsection (b) of this Section 10) be obligated to
pay as Additional Rent its prorata share of the Real Estate Taxes and Other
Impositions (as hereinafter defined) assessed against the land owned by
Landlord of which the Demised Premises are a part and which accrue during
the Term. Tenant's prorata share shall be determined based on the square
footage of the Demised Premises (as to improvements subject to such Real
Estate Taxes and Other Impositions) and the square footage of the land
included in the Demised Premises (as to land subject to such Real Estate
Taxes and Other Impositions). Tenant acknowledges and agrees that Real
Estate Taxes and Other Impositions are payable by
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Tenant on an accrual basis and, accordingly, Tenant shall be liable for all
Real Estate Taxes and Other Impositions which accrue from and after the
Lease Commencement Date and thereafter throughout the Term, without regard
for the date or dates on which installments of Real Estate Taxes and Other
Impositions may, in fact, be due. With respect to any Real Estate Taxes or
Other Impositions, Tenant shall have the right to file with or against the
authority imposing such tax or imposition a protest or challenge of the
validity of any such sum provided that (i) Tenant shall timely file and
diligently pursue such protest or challenge and keep Landlord apprised in
writing of the status thereof, and (ii) the existence of the protest or
challenge will prevent the exercise by any taxing authority of any right or
remedy, affecting the Demised Premises or Landlord, which may be available
as a result of nonpayment of the sum being protested or challenged. If
Tenant does not pursue a protest or challenge of any Real Estate Taxes or
Other Impositions, Landlord shall have the right to do so provided that (x)
Landlord shall timely file and diligently pursue such protest or challenge
and keep Tenant apprised in writing of the status thereof, and (y) the
existence of the protest or challenge will prevent the exercise by any
taxing authority of any right or remedy, affecting the Demised Premises or
Tenant, which may be available as a result of nonpayment of the sum being
protested or challenged. Landlord or Tenant shall have the right, at their
option, to terminate or vacate any pending protest or challenge instituted
by said party, so long as the other party is provided with ten (10) days
prior written notice of the intent to terminate or vacate and provided an
opportunity to assume the protest or challenge. Landlord or Tenant shall,
as relevant and at no expense to said party, provide the other party with
such cooperation as may reasonably be required in connection with such
protest or challenge.
(b) The term "Real Estate Taxes and Other Impositions", as used
in this Lease shall mean all ad valorem taxes, bond payments assessed
against or payable with respect to the Demised Premises for public or
municipal improvements of any kind or any other public purpose permitted by
law, water and sanitary taxes, assessments, liens, licenses and permit fees
or any other taxes imposed, assessed or levied against the Demised
Premises, and all other charges, impositions or burdens of whatever kind
and nature, whether or not particularized by name, and whether general or
special, ordinary or extraordinary, foreseen or unforeseen, which accrue at
any time during the Term upon or with respect to the Demised Premises, or
on any part of the foregoing or any appurtenances thereto, or directly upon
this Lease or the rent payable hereunder or amounts payable by any
subtenants or other occupants of the Demised Premises, or upon this
transaction or any documents to which Tenant is a party or successor-in-
interest, or against Landlord because of Landlord's estate or interest
herein, by any governmental authority, or under any law, including among
others, all rental, sales, use, inventory or other similar taxes and any
special tax bills and general, special or other assessments and liens or
charges made on local or general improvements or any governmental or public
power or authority whatsoever. Notwithstanding the foregoing, if any Real
Estate Taxes or Other Impositions shall be created, levied, assessed,
adjudged, imposed, charged or become a lien with respect to a period of
time which commences before the Lease Commencement Date or ends after the
expiration date of the Term (other than an expiration date of the Term by
reason of breach of any of the terms hereof by Tenant),
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then Tenant shall only be required to pay that portion which accrues during
the Term. If Tenant is permitted to pay (by the assessing and collecting
governmental authorities) and elects to pay Real Estate Taxes or Other
Impositions in installments, Tenant shall nevertheless pay any and all
installments thereof which are due prior to the expiration of the Term or
sooner termination of the Term. Landlord agrees to deliver to Tenant,
promptly after receipt thereof by Landlord, copies of all notices of Real
Estate Taxes and Other Impositions which Landlord receives.
(c) Real Estate Taxes and Other Impositions (or a portion
thereof) which may accrue during the final Lease Year may not be payable
until a date after the end of the Term. At such time as the actual tax
bill or bills (to the extent that the tax year or years covered by such
bill or bills are within the final Lease Year) become available for the
final Lease Year, Landlord shall send to Tenant copies of such bills.
Tenant shall pay the amount payable by Tenant to Landlord within thirty
(30) calendar days after receipt of a copy of the tax bill from Landlord,
establishing the amount due. The provisions of this Section 10(c) shall
survive expiration or termination of this Lease.
(d) Tenant shall furnish Landlord, not later than thirty (30)
days after the last day upon which they may be paid without any fine,
penalty, interest or additional cost (subject, however, to Section 10(a),
above), evidence of the payment of all Real Estate Taxes and Other
Impositions.
11. Maintenance and Repairs.
(a) With respect to that portion of the Term during which Harlan
Bagel Supply Company, LLC is the Tenant, Tenant shall, at its own cost and
expense, but subject to the obligations of Landlord under this Section
11(a) and Section 11(c) of this Lease, maintain the Demised Premises,
exterior and interior, in good condition and repair. During such portion
of the Term, Landlord shall, using the services of the maintenance crew
employed by Landlord to maintain the improvements on the land owned by
Landlord of which the Demised Premises are a part, repair, maintain and
replace the electrical systems, heating, air conditioning and ventilation
systems, plate glass, windows and doors, sprinkler and plumbing systems,
sewage facilities within the Demised Premises, fixtures, interior walls,
ceilings, floor coverings, windows, doors, storefronts, plate glass,
skylights, lamps, fans and any exhaust equipment and systems, electrical
motors, and all other appliances and equipment of every kind and nature
located in, upon or about the Demised Premises including without
limitation, exterior lighting and fencing upon the Demised Premises.
Tenant shall pay as Additional Rent the reasonable cost of such services
provided to the Demised Premises, as determined by Landlord in its
reasonable judgment.
(b) With respect to that portion of the Term during which Harlan
Bagel Supply Company, LLC is not the Tenant, Tenant shall, at its own cost
and expense, but subject to the obligations of Landlord under Section 11(c)
of this Lease, maintain the Demised Premises, exterior and interior, in
good condition and repair, including without
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limitation repair, maintenance and replacement of electrical systems,
heating, air conditioning and ventilation systems, plate glass, windows and
doors, sprinkler and plumbing systems, sewage facilities within the Demised
Premises, fixtures, interior walls, ceilings, floor coverings, windows,
doors, storefronts, plate glass, skylights, lamps, fans and any exhaust
equipment and systems, electrical motors, and all other appliances and
equipment of every kind and nature located in, upon or about the Demised
Premises including without limitation, exterior lighting and fencing upon
the Demised Premises.
(c) Throughout the Term, Landlord shall, at its own cost and
expense, maintain in good condition and repair and replace as necessary the
footings, foundation, floor slab (but not floor coverings), structural
steel, exterior walls and roof of the Demised Premises. Landlord shall also
maintain in good condition and repair all Common Areas, for which Tenant
shall pay its prorata share as Additional Rent. Tenant's prorata share
shall be equal to a fraction, the numerator of which is the square footage
of the Demised Premises, and the denominator of which is the square footage
of all improvements on the land owned by Landlord of which the Demised
Premises are a part. Notwithstanding the foregoing provisions of this
subsection 11(c), the obligation of Landlord to perform maintenance,
repairs or replacements shall not extend to maintenance, repairs or
replacements of any Tenant Change (as defined in Section 19 of this Lease)
or maintenance, repairs or replacements to the extent made necessary as a
result of a failure by Tenant to perform its obligations under this Lease
or as a result of negligent or willful acts or omissions of Tenant or its
employees, agents or contractors.
12. Tenant's Personal Property, Indemnity. All of Tenant's personal
property in the Demised Premises, including Trade Fixtures, as hereinafter
defined, shall be and remain at Tenant's sole risk, and Landlord shall not
be liable for and Tenant hereby releases Landlord from any and all
liability for theft thereof or any damage thereto occasioned by any acts or
negligence of any third persons, or any act of God, except to the extent
caused by the negligence or willful misconduct of Landlord, its agents,
employees and contractors. As to personal injury or property damage
(including personal property of Tenant), Landlord shall not be liable for
any injury to the person or property of Tenant or other persons in or about
the Demised Premises, Tenant expressly agreeing to indemnify and save
Landlord harmless in all such cases, except to the extent occasioned by the
negligence or willful misconduct of Landlord, its agents, employees or
contractors. Tenant further agrees to reimburse Landlord for any
reasonable costs or expenses, including without limitation attorneys' fees,
which Landlord may actually and reasonably incur in investigating, handling
or litigating any claim against Landlord by a third person which is within
the scope of the indemnity by Tenant under this Section 12. Tenant shall
have the option to defend Landlord with counsel selected by Tenant and
reasonably acceptable to Landlord. In the event that Tenant selects counsel
to defend Landlord, said counsel will not have authority to settle the
litigation without Landlord's consent, which consent shall not be
unreasonably withheld. The provisions of this Section 12 shall survive the
expiration or termination of this Lease with respect to any damage, injury,
or death occurring before such expiration or termination.
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13. Trade Fixtures. Tenant shall have the right to install or to
have installed in the Demised Premises trade fixtures and equipment
required by Tenant or used by it in its business ("Trade Fixtures"). If
installed by Tenant, Tenant shall be obligated to remove any or all such
Trade Fixtures from time to time during and upon termination of this Lease,
which Trade Fixtures are and shall remain the personal property of Tenant;
provided, however, that Tenant shall repair and restore any damage or
injury to the Demised Premises (to the condition in which the Demised
Premises existed prior to such installation) caused by the installation
and/or removal of any such Trade Fixtures. Tenant shall be obligated to
remove prior to expiration of the Term all Trade Fixtures installed by
Tenant, unless Landlord otherwise consents to keeping the Trade Fixtures at
the Demised Premises.
14. Signs. No sign, advertisement or notice shall be inscribed,
painted, affixed, or displayed on the windows or exterior walls of the
Demised Premises or on any public area of the Building, except in
accordance with all applicable laws and/or ordinances, and with the written
approval of Landlord. Any and all permitted signs shall be installed,
maintained and removed by Tenant, at Tenant's sole expense. All signs
installed by Tenant shall be removed by Tenant prior to expiration of the
Term and all damage caused by such removal shall be repaired by Tenant, all
at Tenant's expense.
15. No Landlord's Lien. Tenant intends to store its personal
property, and to install Trade Fixtures, on the Demised Premises. Landlord
hereby expressly waives all interest in such personal property and Trade
Fixtures, including without limitation any interest under a common law or
statutory landlord's lien or distress for rent statute. Tenant shall have
full right and authority, at any time and from time to time, and
notwithstanding that an Event of Default (as defined in Section 23) may
have occurred and be continuing, to remove such personal property and Trade
Fixtures from the Demised Premises. Notwithstanding anything in this Lease
to the contrary, any personal property and Trade Fixtures of Tenant
remaining in the Demised Premises upon termination of this Lease by lapse
of time or otherwise shall remain the personal property of Tenant, and
Tenant shall have the right following such termination to remove such
personal property and Trade Fixtures from the Demised Premises. Those
items of Tenant's personal property and Trade Fixtures that Tenant has not
removed from the Demised Premises within forty-five (45) days after the
termination of this Lease by lapse of time or otherwise shall become the
property of Landlord.
16. Governmental Regulations.
(a) Tenant shall promptly comply throughout the Term of this
Lease, at Tenant's sole cost and expense, with all present and future laws,
ordinances and regulations of all applicable governing authorities relating
to all or any part of the Demised Premises, foreseen or unforeseen,
ordinary as well as extraordinary, or to the use or manner of use of the
Demised Premises or to the sidewalks, parking areas, curbs and access ways
adjoining the Demised Premises. In the event that such law, ordinance or
regulation requires a renovation, improvement or replacement to the Demised
Premises,
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then Tenant shall be required to make such renovation, improvement or
replacement at Tenant's sole cost and expense. Tenant shall also observe
and comply with the requirements of all policies of public liability, fire
and other policies of insurance at any time in force with respect to the
Demised Premises. If, from and after the Lease Commencement Date, any laws,
ordinances or regulations of any applicable governmental authority
(collectively, "Governmental Requirements") require any alteration,
renovation, improvement or replacement of all or any part of the Demised
Premises, and such work is not made necessary as a result of the specific
use being made by Tenant of the Demised Premises, the respective
obligations of Landlord and Tenant with respect to such occurrence shall be
governed by the provisions of Section 16.1 of this Lease.
(b) If, as a result of one or more Governmental Requirements, it
is necessary, from time to time during the Term, to perform an alteration
or modification of the Demised Premises (a "Code Modification") which is
not made necessary as a result of the specific use being made by Tenant of
the Demised Premises (as distinguished from an alteration or improvement
which would be required to be made by the owner of any warehouse-office
building comparable to the Building irrespective of the use thereof by any
particular occupant), Landlord shall have the obligation to pay the cost of
the work which is required to perform the Code Modification and Tenant
shall pay Additional Rent in the manner provided in this Section 16(b). If
Tenant receives a written notice from a governmental authority requiring a
Code Modification, Tenant shall promptly send a copy of such notice to
Landlord. Any Code Modification which is made necessary as a result of the
specific use being made by Tenant of the Demised Premises shall be the sole
and exclusive responsibility of Tenant in all respects; any such Code
Modification shall be promptly performed by Tenant at its expense in
accordance with the applicable Governmental Requirement. If a Code
Modification is not the responsibility of Tenant, Landlord shall, at the
expense of Landlord, promptly perform the Code Modification in accordance
with applicable Governmental Requirements. Upon completion of the Code
Modification, Landlord shall provide Tenant with a written certification of
the cost actually incurred by Landlord in performing the Code Modification,
together with documentation substantiating such cost as Tenant may
reasonably require. Tenant shall reimburse Landlord for a portion of the
cost of the Code Modification in the following manner:
(i) The useful life of the Code Modification shall
conclusively be fifteen (15) years.
(ii) Using such useful life, Tenant shall reimburse Landlord
for a portion of the cost of the Code Modification equal to the ratio
(stated as a percentage) which the remainder of the then current Term
(without regard for any unexercised renewals or extensions permitted by
this Lease), bears to the useful life of the Code Modification, as
determined in subsection (a), above (such portion of the cost of the Code
Modification being hereinafter called the "Reimbursable Cost"). Commencing
on the first day of the first full calendar month following the month in
which the Code
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Modification is completed, and continuing thereafter on the first day of
each remaining month of the then current Term, Tenant shall pay to
Landlord, as Additional Rent, an amount sufficient to amortize fully the
Reimbursable Cost at the Amortization Rate in equal monthly installments,
payable on the first day of the month, over the remainder of the then
current Term, without regard for unexercised extensions or renewals. If
installments are being paid by Tenant under this Section 16(b) and, at the
end of the then current Term, Tenant exercises its right to renew or extend
the Term of this Lease, the monthly installments by Tenant under this
Section 16(b) shall be recalculated (based on the new ratio which the
duration of the renewal or extension of the Term bears to the remaining
useful life of the Code Modification, as applied to the unamortized cost)
and, as so recalculated, shall continue without interruption or
modification during the extension or renewal of the Term, irrespective of
any adjustment which may be made in Base Rent under the provisions of this
Lease, until such time as the cost of the Code Modification has been fully
amortized.
17. Environmental Matters.
(a) For purposes of this Lease:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances (as
hereinafter defined) into any environmental media from, upon,
within, below, into or on any portion of the Demised Premises or
the Building so as to require remediation, cleanup or
investigation under any applicable Environmental Law (as
hereinafter defined).
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances
or other requirements, concerning protection of human health,
safety and the environment, in effect during the Term, all as may
be amended from time to time through the expiration or earlier
termination of the Term.
(iii) "Hazardous Substances" as used herein means any
hazardous or toxic substance, material, chemical, pollutant,
contaminant or waste as those terms are defined by any applicable
Environmental Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"))
and any solid wastes, polychlorinated
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biphenyls, urea formaldehyde, asbestos, radioactive materials,
radon, explosives, petroleum products and oil.
(b) Landlord represents and warrants that, except as set forth in
environmental reports delivered by Landlord to Tenant (i) Landlord has not
treated, stored or disposed of any Hazardous Substances upon or within the
Demised Premises and (ii) to Landlord's actual knowledge, no Hazardous
Substances are present on or under the Demised Premises as of the date of
this Lease. Landlord shall not cause any Hazardous Substances to be brought
upon, kept, stored or used in or about the Demised Premises.
(c) Tenant shall not cause or permit the release of any Hazardous
Substances by Tenant or its agents, contractors, employees or invitees into
any environmental media such as air, water or land, or into or on the
Demised Premises in any manner that violates any Environmental Laws. If
such release shall occur, Tenant shall (i) take all steps reasonably
necessary to contain and control such release and any associated
Contamination, (ii) clean up or otherwise remedy such release and any
associated Contamination to the extent required by, and take any and all
other actions required under, applicable Environmental Laws and (iii)
notify and keep Landlord reasonably informed of such release and response;
provided that Tenant shall have the right to contest in good faith the
validity or applicability of any actions taken by a governmental authority,
subject to the conditions that (A) the pursuit of such contest will stay
the enforcement of any sanction or penalty against Landlord or the Demised
Premises and (B) Tenant shall be obligated to pay and satisfy in full any
fines or penalties which may accrue and not be discharged by virtue of the
contest undertaken by Tenant.
(d) Tenant shall under no circumstances whatsoever (i) cause or
permit any activity on the Demised Premises which would cause the Demised
Premises to become subject to regulation as a hazardous waste treatment,
storage or disposal facility under RCRA or the regulations promulgated
thereunder; or (ii) install any underground storage tank or underground
piping on or under the Demised Premises.
(e) Tenant shall and hereby does indemnify Landlord and hold and
defend Landlord harmless from and against any and all reasonable and actual
expense, loss, and liability suffered by Landlord (with the exception of
those expenses, losses, and liabilities arising from Landlord's own
negligence or willful act), by reason of Tenant's storage, generation,
handling, treatment, transportation, disposal, or arrangement for
transportation or disposal, of any Hazardous Substances (whether
accidental, intentional, or negligent) or by reason of Tenant's breach of
any of the provisions of this Section 17. Such expenses, losses and
liabilities shall include, without limitation, (i) any and all reasonable
expenses that Landlord may incur to comply with any Environmental Laws as a
result of Tenant's failure to comply therewith; (ii) any and all reasonable
costs that Landlord may incur in
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studying or remedying any Contamination at or arising from the Demised
Premises as a result of a failure by Tenant to comply with this Section 17
or Environmental Laws; (iii) any and all reasonable costs that Landlord may
incur in studying, removing, disposing or otherwise addressing any
Hazardous Substances which are present at the Demised Premises as a result
of a failure by Tenant to comply with this Section 17 or Environmental
Laws; (iv) any and all fines, penalties or other sanctions assessed upon
Landlord by reason of Tenant's failure to comply with Environmental Laws;
and (v) any and all reasonable legal and professional fees and costs
incurred by Landlord in connection with the foregoing. Notwithstanding the
foregoing, Tenant shall have the right and obligation to undertake and
perform all such studying, remedying, removing, disposing or otherwise
addressing any Hazardous Substances which are the responsibility of Tenant
under this subsection (e), and Landlord shall not perform such acts unless
Tenant has failed or refused to perform such acts after having been
afforded reasonable written notice by Landlord and having had reasonable
opportunity to perform such acts. The indemnity contained herein shall
survive the termination or expiration of this Lease.
(f) Landlord shall have the right, but not the obligation, to
enter the Demised Premises at reasonable times during business hours
throughout the Term, after no less than twenty-four (24) hours prior
written notice to Tenant, to audit and inspect the Demised Premises for
Tenant's compliance with this Section 17.
(g) Landlord hereby agrees to indemnify Tenant and hold Tenant
harmless from and against any and all reasonable and actual expense, loss
and liability suffered by Tenant as a result of Landlord's breach of
Section 17(b), or by reason of storage, generation, handling, treatment,
transportation or disposal or arrangement for transportation or disposal of
any Hazardous Substances upon or within the Demised Premises by Landlord,
its agents or contractors. For purposes of such indemnity, Tenant's
permissible expenses shall include (i) any and all reasonable expenses
which Tenant may actually incur to comply with any Environmental Laws, (ii)
any and all reasonable expenses which Tenant may actually incur in studying
or remedying any Contamination, (iii) any and all reasonable costs which
Tenant may actually incur in studying, removing, disposing at the Demised
Premises or otherwise addressing any Hazardous Substances at the Demised
Premises, (iv) any and all fines, penalties or other sanctions assessed
upon Tenant, and (v) any and all reasonable legal and reasonable
professional expenses which Tenant may actually incur in connection with
the foregoing. Notwithstanding the foregoing, Landlord shall have the right
and obligation to undertake and perform all such studying, remedying,
removing, disposing or otherwise addressing any Hazardous Substances which
are the responsibility of Landlord under this subsection (g), and Tenant
shall not perform such acts unless (A) Tenant is specifically required by
Environmental Laws to perform such acts, and (B) Landlord has failed or
refused to perform such acts after having been afforded reasonable written
notice by Tenant and having had reasonable opportunity to perform such
acts. The indemnity contained herein shall survive the termination or
expiration of this Lease.
18. Landlord's Warranties. Landlord hereby warrants to Tenant that
the materials and equipment furnished by Landlord's contractors in the
construction of the Demised Premises were of first-class quality and new,
that during the one (1) year period
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following substantial completion of such construction such materials and
equipment and the work of such contractors shall be free from defects not
inherent in the quality required or permitted hereunder (the foregoing
referred to herein as "Landlord's Warranty"). This warranty shall exclude
damages or defects caused by abuse by Tenant, its employees, invitees,
licensees, contractors and agents, improper or insufficient maintenance,
improper operation, or normal wear and tear under normal usage. Upon
expiration of the Landlord's Warranty, Landlord will transfer and assign to
Tenant, without recourse, all assignable warranties covering any part or
component of the Demised Premises which is subject to maintenance and
repair by Tenant under the terms of this Lease.
19. Tenant Alterations and Additions. Tenant shall have the right to
make or permit to be made any alterations, improvements, or additions to
the Demised Premises (a "Tenant Change") that Tenant may deem reasonably
necessary for its operations following good faith discussions with the
Landlord. Tenant Changes shall not impair the structural strength of the
Building, and shall be in conformity with the initial construction
standards for the Building. Tenant shall pay the full cost of any Tenant
Change. Subject to the provisions of Section 13, Tenant shall remove all
Tenant Changes prior to the end of the Term, at the expense of Tenant, and
restore the Demised Premises to the condition in which it existed prior to
the Tenant Change which is so removed, normal wear and tear excepted,
unless the Landlord agrees otherwise.
20. Intentionally Omitted.
21. Fire and Other Casualty.
(a) If the Demised Premises or Tenant's means of ingress or
egress to and from the Demised Premises shall be damaged or destroyed by
fire or other casualty (a "Casualty"), Landlord shall, subject to the
limitations in subsection (c) of this Section 21, promptly and diligently
proceed to repair, rebuild or replace the Demised Premises and Tenant's
means of ingress or egress, so as to restore the Demised Premises and
Tenant's means of ingress and egress to the condition in which they existed
immediately prior to such damage or destruction as soon as practicable
under the circumstances. Upon the occurrence of a Casualty, Landlord and
Tenant shall cooperate to submit such notices and information to the
carriers (collectively the "Carrier") providing insurance coverage for the
Demised Premises as may be necessary to preserve fully all rights to obtain
insurance proceeds covering the loss. The net proceeds of any insurance
payable as a result of such fire or other casualty in excess of the
reasonable cost of adjusting the insurance claim and collecting the
insurance proceeds (such excess being referred to herein as the "Net
Insurance Proceeds") shall be held in an escrow ("Restoration Escrow"), in
an interest-bearing account, by Mortgagee (as defined in Section 25),
provided that such Mortgagee is a bank, savings association, insurance
company or other similar institutional lender ("Institutional Lender"), or,
if the Mortgagee is not an Institutional Lender, by any escrow agent
("Escrow Agent") which is reasonably acceptable to Landlord and Tenant.
The amount deposited with Escrow Agent in the Restoration Escrow pursuant
to this Section 21(a) is sometimes referred to herein as the "Restoration
Proceeds". The
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Restoration Proceeds shall be released to Landlord only for the purpose of
paying the fair and reasonable cost of restoring the Demised Premises in
accordance with the terms of this Lease. Such Restoration Proceeds shall be
released to Landlord in monthly disbursements from time to time as the work
progresses, pursuant to such requirements and limitations as may be
reasonably acceptable to Landlord and, if applicable, the Mortgagee,
including, without limitation, lien waivers from each of the contractors,
subcontractors, materialmen and suppliers performing the work. If
Restoration Proceeds are insufficient to restore the Demised Premises,
Landlord shall be obligated to pay such deficiency, including, without
limitation, the full amount of any deductible under any available
insurance; the amount of any such deficiency and, if applicable,
deductible, shall be paid by Landlord into the Restoration Escrow in
installments as needed during the construction process. If the amount so
deposited is not applied in full to restoration of the Demised Premises,
the unapplied portion, together with all interest actually earned thereon,
shall be promptly refunded to Landlord. If Restoration Proceeds exceed the
full cost of the repair, rebuilding or replacement of the damaged Building
or Tenant's means of ingress or egress, then the amount of such excess
Restoration Proceeds shall be paid to Landlord upon the completion of such
repair, rebuilding or replacement.
(b) Whenever Landlord shall be required to carry out any work or
repair and restoration pursuant to this Section 21, Landlord, prior to the
commencement of such work, shall deliver to Tenant for Tenant's prior
approval (which shall not be unreasonably withheld or delayed) a full set
of the plans and specifications therefor, a construction schedule, cost
estimates and copies of all approvals and permits which shall be required
from any governmental authority having jurisdiction. In the event the
construction schedule so provided to Tenant discloses that such
construction is not estimated to be completed within three (3) months from
the date the Casualty occurred, Tenant may, at its option and as its only
remedy terminate this Lease by giving written notice thereof to Landlord
within thirty (30) calendar days after Tenant's receipt of such
construction schedule. Upon such termination, Landlord and Tenant will
have no further duties or obligations under this Lease except obligations
which expressly survive termination. Tenant may not withhold approval of
any plans and specifications which are consistent with the original plans
and specifications for the Demised Premises. After Tenant renders such
approval, Landlord shall, after Restoration Proceeds are available,
promptly commence the necessary repair or restoration and, subject to
Permitted Delay (as defined in Section 21(f)), diligently pursue such
repair or restoration to completion in accordance with the approved
schedule (subject to extension for Permitted Delay). Without limiting the
foregoing, Landlord shall, as soon as reasonably possible, obtain and
deliver to Tenant a permanent certificate of occupancy (or amended
certificate of occupancy), and any other document, certificate or permit to
the extent required by applicable laws issued by the appropriate authority
with respect to the Demised Premises, as thus repaired and restored. Any
such work or repair and restoration, in all cases, shall be carried out by
Landlord in a good and workmanlike manner with materials and workmanship at
least equal in quality to the original materials used therefor prior to the
damage or destruction. In any event, any Casualty damage, irrespective of
its magnitude, must be fully restored within three (3) months from the date
the Casualty occurs, subject
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to extension of such three-month period for Permitted Delay. If restoration
has not been completed within such three-month period, as extended in
accordance with the foregoing provisions, Tenant may, at its option and its
only remedy, terminate this Lease by giving written notice thereof to
Landlord within sixty (60) calendar days after the expiration of such
three-month period, as extended; provided that if completion is achieved
prior to the giving of such notice, the right to give the notice will
automatically terminate. Upon such termination, Landlord and Tenant will
have no further duties or obligations under this Lease, except obligations
which expressly survive termination. If Landlord carries on any restoration
or repair at the Demised Premises pursuant to this Section 21 and Tenant
continues to occupy any other portion of the Demised Premises, Landlord
shall take all such steps as may be reasonable and practicable to prevent
interference with Tenant's use and enjoyment of the portion of the Demised
Premises which Tenant continues to occupy. Landlord shall perform its
obligations under this Section 21 in a manner which will achieve
restoration of any damage as soon as practicable, giving due regard to the
nature and scope of the damage, subject to the occurrence of Permitted
Delay.
(c) Any provision of this Section 21 to the contrary
notwithstanding, if the Demised Premises is damaged by Casualty within one
(1) year preceding the end of the Term (which includes any extension or
renewal of the Term then properly exercised by Tenant) to an extent
exceeding twenty-five percent (25%) of the then current value of the
Demised Premises, then Tenant or Landlord shall have the right, to be
exercised by giving written notice to Landlord within thirty (30) days
after the occurrence of the Casualty, to terminate this Lease; upon such
termination, Landlord shall have the sole and exclusive right to receive
the full amount of all insurance proceeds payable as a result of the
Casualty (and Tenant shall execute such assignment or other document as may
be necessary to acknowledge and confirm such right). Termination shall be
effective on a date specified in the written notice, which date shall be
not less than thirty (30) nor more than sixty (60) days after the date the
notice is given. Upon such termination, the term of this Lease shall end
as if the date of termination were the date originally specified for
expiration of the Term except that Tenant shall be relieved of its
obligations under Section 19 to restore the Demised Premises after any
Tenant Change. If Tenant timely gives a notice of termination pursuant to
this subsection (c), and Landlord disputes the basis on which the notice is
given, Landlord shall have the right for a period of ten ( 10) business
days after receipt of the termination notice, to give written notice of
such dispute to Tenant, which notice of dispute shall toll the running of
the time period for termination; provided, however, that if Landlord
disputes a notice of termination given by Tenant, and thereafter it is
determined, in the manner hereinafter provided, that the notice by Tenant
was properly given, the obligation of Tenant to pay any Base Rent or
Additional Rent shall terminate effective as of the date on which the
notice was given by Tenant. Such dispute shall be resolved by the Dispute
Resolution Procedure and, within ten ( 10) business days after the giving
of the notice of dispute, Landlord and Tenant shall initiate the Dispute
Resolution Procedure by appointing architects as duly licensed in the state
of Indiana as Officials.
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(d) Any Mortgage or other security interest or encumbrance must
expressly acknowledge that the provisions of this Section 21 shall govern
in the event of any inconsistency between the Mortgage and this Section 21
with respect to restoration of the Demised Premises after a Casualty and
application of insurance proceeds.
(e) The obligation of Tenant to pay Base Rent and Additional Rent
shall abate during the period that the Demised Premises remain untenantable
as a result of a fire or other casualty. There shall be an equitable
abatement of the Base Rent and Additional Rent based on the loss of use of
the Demised Premises caused by the Casualty. Determination of such loss of
use of the Demised Premises after a Casualty shall be mutually agreed to by
the parties within sixty (60) days from the date of the Casualty and if the
parties cannot so agree, then such loss of use shall be determined in
accordance with the Dispute Resolution Procedure, with real estate
appraisers having at least ten (10) years experience appraising commercial
real estate, including build-to-suit leases, serving as Officials. Pending
such determination, Tenant shall continue to pay the Base Rent and
Additional Rent as herein originally specified, and upon such
determination, if Tenant is entitled to a refund because of an overpayment
of Base Rent or Additional Rent, Landlord shall make the same promptly, or
in lieu thereof, credit the amount thereof to future installments of Base
Rent or Additional Rent as they become due.
(f) "Permitted Delay" means any delay due to strikes or other
labor troubles not specific to the Demised Premises, governmental
restrictions and limitations, war or other national emergency, non-
availability of materials and supplies, delay in transportation, accidents,
floods, fire, damage or other casualties, weather or acts or omissions of
Tenant, or delays by utility companies in bringing utility lines to the
Demised Premises, all beyond the reasonable control of Landlord.
22. Condemnation.
(a) If all of the Demised Premises is taken or condemned for a
public or quasi-public use, this Lease shall terminate as of the earlier of
the date title to the condemned real estate vests in the condemnor and the
date on which Tenant is deprived of possession of all of the Demised
Premises. In such event, the Base Rent herein reserved and all Additional
Rent and other sums payable hereunder shall be apportioned and paid in full
by Tenant to Landlord to that date, all Base Rent, Additional Rent and
other sums payable hereunder prepaid for periods beyond that date shall
forthwith be repaid by Landlord to Tenant, and neither party shall
thereafter have any liability hereunder, except that any obligation or
liability of either party, actual or contingent, under this Lease which has
accrued on or prior to such termination date shall survive.
(b) In the event of a taking of "Substantially All of the Demised
Premises" (as herein defined), Tenant may, at its option, upon thirty (30)
days' written notice to Landlord, which shall be given no later than sixty
(60) days following the taking, have the right to terminate this Lease. All
Base Rent and other sums payable by
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Tenant hereunder shall be apportioned and paid through and including the
date of termination, and neither Landlord nor Tenant shall have any rights
in any compensation or damages payable to the other in connection with such
condemnation. For purposes of this provision, "Substantially All of the
Demised Premises" shall mean (i) so much of the Demised Premises as, when
taken, leaves the untaken portion unsuitable, in the reasonable opinion of
Tenant, for the continued feasible and economic operation of the Demised
Premises by Tenant for the same purposes as immediately prior to such
taking or as contemplated herein, (ii) so many of the parking spaces in the
Common Areas as reduces the parking ratio below that which is required by
the zoning ordinance applicable to the land owned by Landlord of which the
Demised Premises are a part, and Landlord's failure to provide
substantially similar alternative parking reasonably acceptable to Tenant
within sixty (60) days after such taking, or (iii) so much of the Demised
Premises that access to the Demised Premises is materially impeded, as
reasonably determined by Tenant.
(c) In the event that the Base Rent is abated pursuant to Section
22(d) to less than 50% of the then prevailing Base Rent, Landlord may, at
its option, upon thirty (30) days written notice to Tenant, terminate this
Lease. All Base Rent and other sums payable by Tenant hereunder shall be
apportioned and paid through and including the date of taking, and neither
Landlord nor Tenant shall have any rights in any compensation or damages
payable to the other in connection with such condemnation
(d) If only part of the Demised Premises is taken or condemned
for a public or quasi-public use and this Lease does not terminate pursuant
to Section 22(b) above, Landlord shall, using all reasonable speed and
diligence, restore the Demised Premises to a condition and to a size as
nearly comparable as reasonably possible to the condition and size thereof
immediately prior to the taking. The entire award made by the condemning
authority as a result of the Taking (other than any Separate Award (as
hereinafter defined) which Tenant may seek and obtain), as reduced only by
the cost actually incurred by Landlord in collecting the award (herein, the
"Net Condemnation Proceeds") shall be paid to Landlord for the purpose of
enabling Landlord to carry out its restoration obligation under this
subsection (d). If any Net Condemnation Proceeds remain after Landlord
achieves restoration of the Demised Premises in accordance with this
subsection (d), such remaining Net Condemnation Proceeds shall be retained
by Landlord. The proposed plans for restoration of the Demised Premises and
a construction schedule shall be prepared by Landlord and submitted by
Landlord to Tenant for approval, such approval not to be unreasonably
withheld or delayed. In the event the construction schedule provided to
Tenant discloses that such construction is not estimated to be completed
within three (3) months from the date of the Taking, Tenant may, at its
option and as its only remedy, terminate this Lease by giving written
notice thereof to Landlord within thirty (30) days after Tenant's receipt
of such construction schedule. Upon such termination, Landlord and Tenant
will have no further duties or obligations under this Lease, except
obligations which expressly survive termination. The restoration shall be
pursued by Landlord in accordance with the approved schedule, subject to
extension thereof for Permitted Delay. In performing such restoration,
Landlord and its
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contractors shall take all such steps as may be reasonable and practicable
to prevent interference of such restoration with the use and enjoyment by
Tenant of the Demised Premises. Landlord shall perform its obligations
under this Section 22(d) in a manner which will achieve restoration as soon
as practicable, giving due regard to the nature and scope of the damage,
subject to the occurrence of Permitted Delay. In any event, damage
resulting from the Taking, irrespective of its magnitude, must be fully
restored within three months from the date of the Taking, subject to
extension of such three-month period for Permitted Delay. If restoration
has not been completed within such three-month period, as extended in
accordance with the foregoing provisions, Tenant may, at its option and as
its only remedy, terminate this Lease by giving written notice thereof to
Landlord within sixty (60) days after the expiration of such three-month
period, as extended; provided that if completion is achieved prior to the
giving of such notice, the right to give the notice will automatically
terminate. There shall be an equitable abatement of the Base Rent and
Additional Rent based on the loss of use of the Demised Premises caused by
the taking. Determination of such loss of use of the Demised Premises after
a partial taking shall be mutually agreed to by the parties within sixty
(60) days from the date of the taking and if the parties cannot so agree,
then such loss of use shall be determined in accordance with the Dispute
Resolution Procedure, with real estate appraisers having at least ten (10)
years experience appraising commercial real estate, including build-to-suit
leases, serving as Officials. Pending such determination, Tenant shall
continue to pay the Base Rent and Additional Rent as herein originally
specified, and upon such determination, if Tenant is entitled to a refund
because of an overpayment of Base Rent or Additional Rent, Landlord shall
make the same promptly, or in lieu thereof, credit the amount thereof to
future installments of Base Rent or Additional Rent as they become due.
(e) Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Section 22,
without deduction therefrom for any estate vested in Tenant by this Lease,
and Tenant shall receive no part of such award. Nothing herein contained
shall be deemed to prohibit Tenant from seeking a separate award ("Separate
Award") from the condemnor, to the extent permitted by law, for the value
of the unamortized tenant improvements (installed in accordance with
Section 19 at Tenant's expense), Tenant's moveable Trade Fixtures, personal
property moving expenses and loss of good will, provided that, in any case,
the making of such claim shall not and does not adversely affect or
diminish Landlord's award.
23. Tenant's Default
(a) The occurrence of any one or more of the following events
shall constitute an event of default (herein referred to as an "Event of
Default") of Tenant under this Lease:
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(i) if Tenant fails to pay Base Rent or any Additional Rent
hereunder as and when such rent becomes due and such failure shall continue
for more than ten (10) days after receipt of written notice from Landlord
of such failure;
(ii) if Tenant violates the provisions of Section 30 of this
Lease by attempting to make an unpermitted assignment or sublease;
(iii) if any petition is filed by or against Tenant or any
guarantor of this Lease under any present or future section or chapter of
the Bankruptcy Code, or under any similar law or statute of the United
States or any state thereof (which, in the case of an involuntary
proceeding, is not permanently discharged, dismissed, stayed, or vacated,
as the case may be, within ninety (90) days of commencement), or if any
order for relief shall be entered against Tenant or any guarantor of this
Lease in any such proceedings;
(iv) if Tenant becomes insolvent or makes a transfer in
fraud of creditors or makes an assignment for the benefit of creditors;
(v) if a receiver, custodian, or trustee is appointed for
the Demised Premises or for all or substantially all of the assets of
Tenant or of any guarantor of this Lease, which appointment is not vacated
within ninety (90) days following the date of such appointment; or
(vi) if Tenant fails to perform or observe any other term of
this Lease and such failure shall continue for more than thirty (30) days
after Landlord gives Tenant notice of such failure, or, if such failure
cannot be corrected exercising due diligence within such thirty (30) day
period, if Tenant does not commence to correct such default within said
thirty (30) day period and thereafter diligently prosecute the correction
of same to completion within a reasonable time and in any event prior to
the time a failure to complete such correction could cause Landlord to be
subject to criminal prosecution for violation of any law, rule, ordinance
or regulation or causes, or would result in a default under any mortgage or
other Permitted Encumbrance.
(b) Upon the occurrence of any one or more Events of Default,
Landlord, without any demand or notice whatsoever (except as expressly
required in this Section 23) shall have the immediate right to pursue the
following remedies (all of which shall be cumulative and in addition to any
other remedies available to Landlord at law or in equity):
(i) Landlord may terminate this Lease by giving Tenant
notice of termination, in which event this Lease shall expire and terminate
on the date specified in such notice of termination with the same force and
effect as though the date so specified were the date herein originally
fixed as the termination date of the Term, and all rights of Tenant under
this Lease and in and to the Demised Premises shall expire and terminate
and Tenant shall remain liable for all obligations under this Lease arising
up to the date of such termination, and Tenant shall surrender the Demised
Premises to
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Landlord on the date specified in such notice, and if Tenant fails to so
surrender Landlord shall have the right, upon prior notice and only to the
extent permitted by law, to enter upon and take possession of the Demised
Premises and to expel or remove Tenant and its effects without being liable
for prosecution or any claim for damages therefor. If Landlord elects to
terminate this Lease then, to the extent permitted under applicable law,
Landlord may recover from Tenant (A) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (B)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds
the amount of such rent loss that Tenant proves could have been reasonably
avoided; plus (C) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rent loss that Tenant proves could be reasonably avoided;
plus (D) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, results
therefrom including, but not limited to, to the extent permitted under
applicable law, attorneys' fees and costs; brokers' commissions; the costs
of refurbishment, alterations, renovation and repair of the Demised
Premises, and removal (including the repair of any damage caused by such
removal) and storage (or disposal) of Tenant's personal property,
equipment, fixtures, alterations and any other items which Tenant is
required under this Lease to remove but does not remove. As used in
Subsection 23(b)(i)(C) above, the "worth at the time of award" is computed
by discounting such amount at the Prime Rate (as defined in Section 32) at
the time of award.
(ii) Landlord will also have the right, with or without
terminating this Lease, to re-enter the Demised Premises pursuant to legal
proceedings or pursuant to any notice provided by law, and remove all
persons and property from the Demised Premises; such property may be
removed and stored in a public warehouse or elsewhere at Tenant's expense.
No re-entry or taking possession of the Demised Premises by Landlord
pursuant to this Subsection 23(b)(ii) will be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction.
Upon the occurrence of an Event of Default and abandonment of the Demised
Premises by Tenant or in the event that Landlord elects to re-enter the
Demised Premises or takes possession of the Demised Premises pursuant to
legal proceedings or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease, Landlord may from time to
time, without terminating this Lease, either recover all rent as it becomes
due or relet the Demised Premises or any part thereof on terms and
conditions as Landlord in its sole and absolute discretion may deem
advisable with the right to make alterations and repairs to the Demised
Premises in connection with such reletting. If Landlord elects to relet the
Demised Premises, then rents received by Landlord from such reletting will
be applied; first, to the payment of any cost of such reletting; second, to
the payment of the reasonable cost of any alterations and repairs to the
Demised Premises incurred in connection with such reletting; third, to the
payment of any indebtedness
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other than rent due hereunder from Tenant to Landlord; fourth, to the
payment of rent due and unpaid hereunder and the residue, if any, will be
held by Landlord and applied to payment of future rent as the same may
become due and payable hereunder. Should that portion of such rents
received from such reletting during any month, which is applied to the
payment of rent hereunder, be less than the rent payable during that month
by Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency will be
calculated and paid monthly.
(iii) If an Event of Default occurs as a result of a failure
by Tenant to pay any sum of money owed to any party other than Landlord,
for which it is liable under this Lease, or as a result of a failure by
Tenant to perform any other act on its part to be performed hereunder,
Landlord may, without waiving or releasing Tenant from its obligations, but
shall not be obligated to, make any such payment or perform any such other
act to be made or performed by Tenant. Tenant agrees to reimburse Landlord
upon demand for all reasonable sums so paid by Landlord and all necessary
incidental costs, together with interest thereon at the Interest Rate, from
the date of such payment by Landlord until reimbursed by Tenant.
(iv) Pursue such other remedies as are available at law or
in equity.
(c) Neither the commencement of any action or proceeding, nor the
settlement thereof, nor entry of judgment thereon shall bar Landlord from
bringing subsequent actions or proceedings from time to time, nor shall the
failure to include in any action or proceeding any sum or sums then due be
a bar to the maintenance of any subsequent actions or proceedings for the
recovery of such sum or sums so omitted.
(d) If any statute or rule of law shall limit any of Landlord's
remedies as hereinabove set forth, Landlord shall nonetheless be entitled
to any and all other remedies hereinabove set forth.
(e) No provision of this Lease shall be deemed to have been
waived by either party unless such waiver is in writing and signed by the
party making such waiver. Landlord's acceptance of Base Rent or Additional
Rent following an Event of Default hereunder shall not be construed as a
waiver of such Event of Default (except as to acceptance by Landlord of
payment in full of all Base Rent and Additional Rent past due at the time
of such acceptance). No custom or practice which may arise between the
parties in connection with the terms of this Lease shall be construed to
waive or lessen either party's right to insist upon strict performance of
the terms of this Lease, without a written notice thereof to the other
party.
(f) The rights granted to Landlord in this Section 23 shall be
cumulative of every other right or remedy provided in this Lease or which
Landlord may otherwise have at law or in equity or by statute, and the
exercise of one or more rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of other rights or remedies or
constitute a forfeiture or waiver of Base Rent, Additional Rent or
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damages accruing to Landlord by reason of any Event of Default. If an Event
of Default shall occur, Tenant shall pay to Landlord, on demand, all
reasonable expenses incurred by Landlord as a result thereof, including
reasonable attorneys' fees, court costs and expenses. Other than in
connection with a claim arising from the negligence or intentional
misconduct of Landlord, its employees, agents or representatives, if
Landlord shall be made a party to any litigation commenced against Tenant
as a result of this Lease, Landlord's ownership of the Demised Premises or
the relationship of Landlord and Tenant arising by virtue of this Lease,
Tenant shall pay all reasonable costs and reasonable attorneys' fees
incurred by Landlord in connection with such litigation. Notwithstanding
anything to the contrary contained herein, in the event any third party
prevails in any action to which Landlord is made a party and it is
ultimately determined that there was no negligence or intentional
misconduct on the part of Landlord, Tenant shall pay all reasonable costs
and reasonable attorneys' fees incurred by Landlord in connection with such
litigation.
(g) Nothing contained in this Lease will relieve Landlord of any
obligation which Landlord may have under the laws of the state of Indiana
to mitigate its damages resulting from an Event of Default.
23.1 Landlord Default. If Landlord fails to perform or observe or
otherwise breaches any term of this Lease and such failure shall continue
for more than thirty (30) days after Tenant gives Landlord written notice
of such failure, or, if such failure cannot be corrected within such 30-day
period, if Landlord does not commence to correct such default within such
30-day period and thereafter diligently prosecute the correction of same to
completion within a reasonable time, a "Landlord Event of Default" shall
exist under this Lease. Upon the occurrence of a Landlord Event of Default,
Tenant may at Tenant's option, cure the Landlord Event of Default and the
actual cost of such cure shall be payable by Landlord to Tenant within
thirty (30) calendar days after written demand and shall bear interest at
the Interest Rate until repayment in full by Landlord occurs; provided,
however, that if a failure by Landlord to perform or observe any term of
this Lease gives rise to circumstances or conditions which constitute an
emergency threatening human health or safety or materially impeding the
conduct of the business of Tenant at the Demised Premises, Tenant shall be
entitled to take immediate curative action to the extent necessary to
eliminate the emergency . If Landlord does not pay to Tenant the amount of
such cost and accrued interest, upon written demand, Tenant may set off
such cost against installments of Base Rent or other amounts due Landlord
under this Lease. Such cost must be reasonably incurred and must not exceed
the scope of the Landlord Event of Default in question; and if such costs
are chargeable as a result of labor or materials provided directly by
Tenant, rather than by unrelated third parties, the costs shall not exceed
the amount which would have been charged by a qualified third party
unrelated to Tenant. The quality of all work performed by Tenant must equal
or exceed the quality as exists in the Demised Premises. Such costs must
be reasonably documented and copies of such documentation must be delivered
to Landlord with the written demand for reimbursement. Tenant shall be
permitted to continue to set-off against succeeding installments of Base
Rent or other amounts due Landlord under this
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Lease until the total amount of such cost actually incurred by Tenant has
been recovered by Tenant. Once Tenant has fully set off all of such cost,
Landlord shall no longer be deemed to be in default under this Lease with
respect to the Landlord Event of Default that was the subject of the set
off. Nothing contained in this Section 23.1 shall create or imply the
existence of any obligation by Tenant to cure any Landlord Event of
Default.
24. Landlord's Right of Entry. Tenant agrees to permit Landlord and
the authorized representatives of Landlord and of the Mortgagee to enter
upon the Demised Premises at all reasonable times for the purposes of
inspecting them and making any necessary repairs thereto and performing any
work therein that may be necessary by reason of Tenant's failure to make
such repairs or perform any such work required of Tenant under this Lease;
provided that, except in the case of an emergency, Landlord shall give the
Tenant reasonable prior written notice not less than two (2) days in
advance of Landlord's intended entry upon the Demised Premises. Nothing
herein shall imply any duty upon the part of Landlord to do any such work,
and the performance thereof by Landlord shall not constitute a waiver of
Tenant's default in failing to perform it. Landlord shall not be liable for
inconvenience, annoyance, disturbance or other damage to Tenant by reason
of making such repairs or the performance of such work in the Demised
Premises or on account of bringing materials, supplies and equipment into
or through the Demised Premises during the course thereof, and the
obligations of Tenant under this Lease shall not thereby be affected;
provided, however, that Landlord shall use reasonable efforts not to annoy,
disturb or otherwise interfere with Tenant's operations in the Demised
Premises in making such repairs or performing such work. Landlord also
shall have the right to enter the Demised Premises at all reasonable times
to exhibit the Demised Premises to any prospective purchaser, mortgagee or
tenant, subject to the foregoing provisions.
25. Mortgagee's Rights.
(a) Except as provided in Subsection (b), below, this Lease will
automatically be superior to any "Mortgage". The term "Mortgage", as used
in this Lease, shall mean any and all mortgages, deeds to secure debt,
deeds of trust, or other instruments creating a lien or conveying a
security title at any time and from time to time, granted by Landlord and
affecting or encumbering the title of Landlord to the Demised Premises or
this Lease. The term "Mortgagee" refers to the holder of the Mortgage.
Landlord shall have no right to grant to any Mortgagee in any Mortgage any
rights which, if exercised, would violate the obligations of Landlord or
the rights of Tenant under this Lease. With respect to any Mortgage which
is subordinate to this Lease, any person who becomes the holder of the
interest of the Landlord by virtue of foreclosure of the Mortgage shall be
subject to and bound by all the provisions of this Lease.
(b) If a Mortgagee desires for this Lease to be subordinate to
its Mortgage, Tenant agrees that it shall subordinate this Lease by
execution and delivery of the Subordination, Non-Disturbance and Attornment
Agreement attached to this Lease as Exhibit "D" and by this reference made
a part hereof; provided, however, that to be
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effective such Agreement must be fully executed by all parties thereto and
properly recorded in the real estate records of Hendricks County, Indiana;
until such full execution and recording occurs, no subordination of this
Lease to any Mortgage will be effective. Tenant hereby waives its rights,
if any, under applicable law which gives or purports to give Tenant any
right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event of any foreclosure proceeding
or sale under any Mortgage.
26. Estoppel Certificate. Each party agrees, at any time, and from
time to time, within ten (10) days after written request from the other, to
execute, acknowledge and deliver to the requesting party (and/or its
designee), a statement in writing in recordable form certifying that: (i)
this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect, as modified)
and (ii) the dates to which Base Rent, Additional Rent and other charges
have been paid, (iii) whether or not, to the best knowledge of the signer
of such certificates, there exists any failure by the other party to
perform any term, covenant or condition contained in this Lease, and, if
so, specifying each such failure of which the signer may have knowledge,
(iv) (as to Tenant only, if such be the case) the Tenant has
unconditionally accepted the Demised Premises and is conducting its
business therein, (v) and as to such additional matters as may be
reasonably requested by the requesting party, it being intended that any
such statement delivered pursuant hereto may be relied upon by the
requesting party and by any purchaser of title to the Demised Premises or
by any Mortgagee or any assignee thereof or any party to any sale-leaseback
of the Demised Premises, or the landlord under a ground lease affecting the
Demised Premises.
27. Leasehold Mortgage.
27.1. Tenant's Financing. Landlord and Tenant acknowledge that the
Demised Premises may be encumbered by a mortgage on Tenant's leasehold
interest and other security device(s) to Einstein Bros. that may secure as
collateral, obligations of Tenant to Einstein Bros. under the Supply
Agreement. Such mortgage is hereinafter referred to as the "Leasehold
Mortgage," the mortgagee under the Leasehold Mortgage is hereinafter
referred to as the "Leasehold Mortgagee," and the obligations secured by
the Leasehold Mortgage are hereinafter referred to as the "Obligations."
27.2. Notice to Leasehold Mortgagee of Default by Tenant. Provided
Landlord has received from Tenant written notice of the existence of the
Leasehold Mortgage, Landlord shall give to the Leasehold Mortgagee a copy
of each notice of default for which provision is made under Section 23
hereof at the same time as and whenever such notice shall be given by
Landlord to Tenant, such copy to be addressed to such Leasehold Mortgagee
at the address last furnished to Landlord as provided hereinabove.
Landlord shall not be entitled to serve a notice of cancellation and
termination upon Tenant unless a copy of any prior notice of default shall
have been given to such Leasehold Mortgagee as hereinabove provided and the
time as hereinafter specified for the curing of such default shall have
expired without the same having been cured. The performance by the
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Leasehold Mortgagee of any condition or agreement on the part of Tenant to
be performed hereunder will be deemed to have been performed with the same
force and effect as though performed by Tenant. No notice of default shall
be effective unless a copy thereof has been delivered to the Leasehold
Mortgagee.
27.3. Cure by Leasehold Mortgagee. Landlord will accept performance
by the Leasehold Mortgagee, within the following periods (time being of the
essence) of any term, covenant or condition on Tenant's part to be
performed hereunder, with the same force and effect as though timely
performed by Tenant:
(a) As to any base rent and all other charges payable hereunder,
within ten (10) days after notice of such default; and
(b) As to all other defaults hereunder, within thirty (30) days
more than the applicable time period provided herein to the Tenant to
remedy such default or, if within such period such default cannot be cured,
or cannot be cured without entry into possession, to commence to so cure
within such period and diligently and continuously proceed therewith,
including, without limitation, diligent efforts to obtain possession, to
the completion of such cure.
If any default of the Tenant is not curable by the Leasehold Mortgagee,
including, without limitation, a default consisting of the bankruptcy of
the Tenant or other matter personal to the Tenant, such default shall be
deemed cured if the Leasehold Mortgagee (i) cures all curable defaults
within the aforesaid time periods, and (ii) agrees in writing to assume and
perform all of the terms and conditions of this Lease from and after the
date of such non-curable default. In the event Tenant rejects this Lease in
bankruptcy, the Leasehold Mortgagee shall be entitled to a new lease in
accordance with Section 27.5 hereof.
27.4. Standstill. The Landlord shall not exercise its right to
terminate this Lease (but this shall not be construed as precluding
Landlord from giving appropriate notices of default), as hereinabove
provided, during the time that the Leasehold Mortgagee shall require to
complete its remedies under such Leasehold Mortgage, provided, however:
(a) That the Leasehold Mortgagee proceeds, promptly and with due
diligence, with the remedies under the Leasehold Mortgage and thereafter
prosecutes and completes the same with all due diligence; and
(b) That the Leasehold Mortgagee shall pay to Landlord the base
rent and all other charges required to be paid by Tenant hereunder which
have accrued and which shall become due and payable during said period of
time, within the time period specified in Section 27.3 above.
Landlord shall also be obligated to give any notice of cancellation or
termination of this Lease by Tenant, including without limitation
cancellation or termination resulting from
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rejection of this Lease by Tenant in any bankruptcy proceeding, to the
Leasehold Mortgagee. The Leasehold Mortgagee shall then have the right to
notify Landlord in writing, within forth-five (45) days after receipt by
Leasehold Mortgagee of such notice of cancellation and termination, that
(i) Leasehold Mortgagee, or any designee or nominee which Leasehold
Mortgagee may designate or name in such notice, elects to lease the Demised
Premises from the date of cancellation or termination of this Lease (as
specified in the notice of cancellation and termination) for the remainder
of the term of this Lease, at the base rent and other payments and charges
herein reserved, and (except to the extent any of the same no longer runs
to the benefit of any successor Tenant) otherwise upon identical terms,
covenants and conditions as are herein set forth, with the same relative
priority in time and in right as this Lease and having the benefit of and
vesting in the Leasehold Mortgagee, its designee or nominee, of all of the
rights, title, interest, powers and privileges of the Tenant hereunder
(except to the extent any of the same do not run to the benefit of any
successor Tenant) and (ii) Leasehold Mortgagee further obligates itself,
within forty-five (45) after delivery to Landlord of such election: (x) to
cure the default upon which such cancellation or termination was based, or
in respect to any default not capable of curing within such forty-five (45)
days, or which cannot be cured without entry into possession, to proceed
and effect cure with due diligence, including, without limitation, diligent
efforts to obtain possession; (y) to pay to Landlord all base rent and
other payments and charges due under this Lease up to and including the
date of commencement of the term of such new lease; and (z) to pay to
Landlord all expenses and reasonable attorneys' fees incurred by Landlord
in connection with any such default and with the preparation, execution and
delivery of such new lease.
27.5. New Lease. Upon compliance by Leasehold Mortgagee, its
designee or nominee, within the time provided in Section 27.4, Landlord
shall thereupon execute and deliver such new lease to Leasehold Mortgagee,
its designee or nominee, having the same relative priority in time and in
right as this Lease and having the benefit of all of the right, title,
interest, powers and privileges of the Tenant hereunder (except to the
extent any of the same do not run to the benefit of any successor Tenant)
in and to the Demised Premises, including specifically assignment of
Landlord's interest in and to any then existing sublease where the
subtenant may have attorned to Landlord and may have been recognized by
Landlord and which, at the time of cancellation or termination of this
Lease, was prior in right to the Leasehold Mortgage or which by separate
agreement or by its terms had been granted non-disturber privileges.
Landlord hereby agrees with respect to any such sublease so assigned, that
it will not modify or amend any of the terms or provisions thereof, during
the period between the expiration or termination of this Lease and the
execution and delivery of the new lease.
Upon the execution and delivery of the new lease, the leasehold estate
shall automatically vest in the Leasehold Mortgagee until the expiration of
the term of the new lease, unless the new lease shall thereafter sooner be
terminated and Landlord shall execute and deliver and permit to be recorded
such documents as may be reasonably required by the Leasehold Mortgagee to
confirm the foregoing. Subject to such new lease having been effectuated
with the Leasehold Mortgagee, Landlord further agrees that, during the
period
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following the termination of this Lease until the date of the execution and
delivery of the new lease, it will do nothing which will give rise to any
liens thereon, but Landlord shall have all of the right, power and
privilege to operate, maintain and control the Demised Premises and shall
pay over to the Leasehold Mortgagee on the date of such execution and
delivery the net income, if any, after payment of all amounts accrued as if
this Lease had remained in full force and effect until the execution and
delivery of the new lease, derived from the Demised Premises from the date
of termination of this Lease, or the Leasehold Mortgagee shall pay over to
the Landlord the net deficit, including payment of all amounts accrued
under this Lease, from such operation, both determined in accordance with
generally recognized principles of accounting applied to the operation and
maintenance of a property of similar size and type.
Landlord shall not be obligated to deliver physical possession of the
Demised Premises to either the Leasehold Mortgagee or its designee or
nominee. In the event, however, that at the time the new lease is executed
the Tenant hereunder shall be in possession of the Demised Premises and of
the improvements, Landlord, at the request and expense of the Leasehold
Mortgagee, its designee or nominee, as the new Tenant, will take all
commercially reasonable and appropriate steps to remove the Tenant from the
Demised Premises and from the improvements, but shall not be liable to such
new Tenant for any damages resulting from any delay of the Tenant in
vacating the Demised Premises, or from any failure to vacate them, and
there shall be no abatement of rent by reason thereof.
In no event shall the Leasehold Mortgagee, its designee or nominee, be
under any obligation or liability whatsoever beyond the period for which it
is the Tenant under any such new lease.
27.6. Additional Covenants Regarding Leasehold Mortgage.
(a) No modification of this Lease shall be effective as to the
Leasehold Mortgagee unless consented to in writing by the Leasehold
Mortgagee, which consent shall not be unreasonably withheld, delayed or
conditioned.
(b) Subject to the provisions of Section 31, the Leasehold
Mortgagee or other acquirer of the interest of Tenant under this Lease (the
"Leasehold Estate") pursuant to foreclosure, assignment in lieu of
foreclosure or other proceedings may, upon acquiring the Leasehold Estate,
without further consent of Landlord, sell and assign the Leasehold Estate
on such terms and to such persons and organizations as are acceptable to
the Leasehold Mortgagee or acquirer and thereafter be relieved of all
obligations under this Lease, provided that such assignee has delivered to
Landlord its written agreement to be bound by all of the provisions of this
Lease.
(c) Notwithstanding any other provisions of this Lease to the
contrary, any sale of this Lease and of the Leasehold Estate in any
proceedings for the foreclosure of the Leasehold Mortgage, or the
assignment or transfer of this Lease and of the Leasehold Estate herein in
lieu of the foreclosure of the Leasehold Mortgage, shall be
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deemed to be a permitted sale, transfer or assignment of this Lease or the
Leasehold Estate.
(d) Nothing herein contained shall require any Leasehold
Mortgagee or its designee as a condition to its exercise of rights
hereunder to cure any default of Tenant (other than payment of amounts
owed) not reasonably susceptible of being cured by the Leasehold Mortgagee
or its designee, including but not limited to the defaults relating to
bankruptcy and insolvency and any other sections of this Lease which may
impose conditions of default not susceptible to being cured by the
Leasehold Mortgagee, or a subsequent owner of the Leasehold Estate through
foreclosure.
(e) So long as the Leasehold Mortgage is in existence, unless
otherwise consented to in writing by the Leasehold Mortgagee, the fee title
to the Demised Premises and the Leasehold Estate shall not merge but shall
remain separate and distinct, notwithstanding the acquisition of said fee
title and the Leasehold Estate by Landlord, by Tenant or by a third party,
by purchase or otherwise.
(f) If the Leasehold Mortgagee, its designee or other purchaser
which has acquired the Leasehold Estate pursuant to foreclosure, conveyance
in lieu of foreclosure or other proceedings, has entered into a new lease
with Landlord in accordance with Section 27.5 above, the Leasehold
Mortgagee, its designee or other purchaser (i) shall have no liability
under this Lease beyond the Leasehold Mortgagee's, designee's or other
purchaser's interest in the Demised Premises pursuant to this Lease, and
Landlord shall look exclusively to such interest for payment or discharge
of any obligations of Tenant under this Lease, (ii) shall have no liability
under this Lease except as an assignee pursuant to the provisions of this
Section, (iii) shall be obligated to perform the obligations of Tenant
under this Lease, but only for so long as it is the Tenant hereunder and
(iv) shall succeed to the rights of Tenant, if any, in and to any security
deposited or paid by Tenant to Landlord in connection with this Lease. In
such event, Tenant shall no longer have any rights to such security, and
Landlord shall hold such security for and on behalf of the Leasehold
Mortgagee, its designee or other purchaser.
(g) If the Leasehold Mortgagee, its designee or any other
purchaser of the Leasehold Estate shall become holder of the Leasehold
Estate and if the improvements on the Demised Premises shall have been or
become materially damaged on, before or after the date of such purchase and
assignment, the Leasehold Mortgagee, its designee or such purchaser shall
be obligated to repair, replace or reconstruct such improvements only to
the extent of the net insurance proceeds received by the Leasehold
Mortgagee, its designee or such purchaser. However, if such net proceeds
are insufficient to repair, replace or reconstruct such improvements to the
extent required by this Lease, and should the Leasehold Mortgagee, its
designee or such purchaser choose not to fully reconstruct such
improvements in accordance with such Section, such failure shall constitute
an Event of Default under this Lease.
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28. Option Agreement. Pursuant to the Option Agreement, Einstein
Bros. may, at its option, purchase the assets of Tenant, including, but not
limited to, Tenant's interest under this Lease. In the event that Einstein
Bros. exercises its option to purchase the assets of Tenant and assumes
Tenant's obligations under this Lease:
(a) The Term of the Lease shall be automatically extended for a
period of five (5) years commencing on the date of closing of the purchase
of Tenant's assets, and Tenant shall have the right and option to extend
the Term for one (1) successive additional period of five (5) years (the
"Renewal Term"), upon written notice to Landlord given no less than six (6)
months prior to the expiration date of the Term.
(b) The Base Rent for both the Term, as extended, and the Renewal
Term, shall not be as set forth in Section 1(c), but shall be based on the
fair market rental value of the Demised Premises as agreed to by Landlord
and Einstein Bros. In the event that Landlord and Einstein Bros. are
unable to agree upon the Base Rent to be paid by Einstein Bros. (i) as to
the remainder of the then current Term, within thirty (30) days of the date
of closing of Einstein Bros.'s purchase of Tenant's assets, or (ii) as to
the Renewal Term, within thirty (30) days prior to the commencement
thereof, the dispute shall be resolved by the Dispute Resolution Procedure,
as hereinafter defined. Within forty five (45) days of the date of closing
of Einstein Bros.'s purchase of Tenant, Landlord and Tenant shall initiate
the Dispute Resolution Procedure by appointing commercial real estate
brokers knowledgeable in the Indianapolis area industrial leasing market as
Officials, as hereinafter defined. If Einstein Bros. assumes Tenant's
rights and obligation under this Lease, Einstein Bros. shall, within ten
(10) days of the determination of Base Rent above, deposit with Landlord a
security deposit equal to a one month installment of Base Rent, and shall
pay the Base Rent determined in accordance with these provisions for the
time period commencing on the date of closing of the purchase of Tenant's
assets and ending on the day preceding the due date of the first monthly
installment of the Base Rent as so determined.
(c) Landlord shall have the option, with six (6) months prior
written notice to Einstein Bros., to relocate Einstein Bros.'s bagel
production facility to another site suitable to Einstein Bros.'s
requirements as set forth in this Lease. Einstein Bros. shall have the
right, at its sole discretion, to delay the proposed relocation up to four
(4) months after the relocation date proposed by Landlord. Landlord shall
bear all cost and expense associated with any such relocation of Einstein
Bros.
(d) Any Leasehold Mortgage held by Einstein Bros. shall be
extinguished.
29. Notices and Payments. Any notice or payment required or permitted
to be given or served by either party to this Lease shall be in writing and
deemed given when (a) personally delivered, (b) deposited with the United
States Postal Service, postage prepaid, to be mailed by certified or
registered mail, return receipt requested, or
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(c) delivered by overnight delivery service providing proof of delivery,
properly addressed to the address set forth in Section l(i) (as the same
may be changed to another address in the Continental United States by
giving written notice of the change not less than ten (10) days prior to
effective date of the change); provided, however, that the time period
allowed for a response to any notice so given shall not commence until the
date of actual receipt of the notice. Refusal to accept delivery or
inability to deliver as a result of a change of address as to which no
notice was properly given shall be deemed receipt.
30. Brokers. Neither Landlord nor Tenant has engaged any brokers who
would be entitled to any commission or fee based on the execution of this
Lease. Further, neither Landlord nor Tenant have had any conversations or
negotiations with any broker concerning the leasing of the Demised Premises
to Tenant. Landlord and Tenant hereby indemnify each other against and
from any claims for any brokerage commissions asserted against the
indemnified party and arising from the acts of the indemnifying party and
all costs, expenses and liabilities in connection therewith, including,
without limitation, reasonable attorneys' fees and expenses, for any breach
of the foregoing. The foregoing indemnification shall survive the
expiration or termination of this Lease for any reason.
31. Assignment and Subleasing.
(a) Tenant may not assign, mortgage, pledge, encumber or
otherwise transfer this Lease, or any interest hereunder, or sublet the
Demised Premises, in whole or in part, without on each occasion first
obtaining the prior express written consent of Landlord, which consent
shall not be unreasonably withheld. Permitted subtenants or assignees
shall become liable directly to Landlord for all obligations of Tenant
hereunder, without, however, relieving Tenant of any of its liability
hereunder arising from and after the effective date of the Sublease or
assignment; provided, however, that so long as no Event of Default has
occurred and is continuing, Landlord shall not collect any rent directly
from any subtenant of less than the entire Demised Premises or otherwise
unreasonably interfere with the exercise by Tenant of its rights as
sublandlord under the sublease. No assignment, mortgaging, subletting or
use or occupancy by others shall in any way be construed to relieve Tenant
from any of its liability hereunder to pay Base Rent, Additional Rent and
all other sums payable by Tenant hereunder or to perform its obligations
hereunder (which shall in every instance continue as the liability and
obligation of a principal and not a surety) or from thereafter obtaining
the express consent of Landlord to any other or further assignment,
mortgaging or subletting of this Lease.
(b) If Tenant should desire to assign this Lease or sublet the
Demised Premises (or any part thereof), Tenant shall give Landlord written
notice no later than thirty (30) days in advance of the proposed effective
date of any proposed assignment or sublease, specifying (i) the name and
business of the proposed assignee or sublessee, (ii) a detailed description
of the intended use of the Demised Premises by the proposed assignee or
sublessee, with particular detail regarding any Hazardous Substances which
will be used in any manner at the Demised Premises; (iii) the amount and
location of the
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space within the Demised Premises proposed to be so subleased, (iv) the
proposed effective date and duration of the assignment or subletting, and
(v) the proposed rent or consideration to be paid to Tenant by such
assignee or sublessee. Tenant shall promptly supply Landlord with financial
statements and other information as Landlord may reasonably request to
evaluate the proposed assignment or sublease.
(c) Landlord shall have a period of fifteen (15) days following
receipt of such notice and other information requested by Landlord within
which to notify Tenant in writing that Landlord elects: (i) to permit
Tenant to assign or sublet such space; or (ii) to refuse to consent to
Tenant's assignment or subleasing of such space and to continue this Lease
in full force and effect as to the entire Demised Premises; any such
refusal shall state with reasonable specificity the reasons for the
refusal. Landlord's refusal to consent to an assignment of this Lease or a
sublease of all or any part of the Demised Premises to a competitor of
Landlord or to an entity owned or controlled by or under contract with a
competitor of Landlord shall be deemed a reasonable refusal of such
consent. If Landlord should fail to notify Tenant in writing of such
election within the aforesaid fifteen (15) day period, Landlord shall be
deemed to have consented to such assignment or sublease. Tenant agrees to
reimburse Landlord for reasonable legal fees and any other reasonable costs
actually incurred by Landlord in connection with any requested assignment
or subletting, not to exceed $1000 in each instance. Tenant shall deliver
to Landlord copies of all documents executed in connection with any
permitted assignment or subletting, which documents shall be in form and
substance reasonably satisfactory to Landlord and which shall require such
assignee to assume performance of all terms of this Lease on Tenant's part
to be performed. No acceptance by Landlord of any rent or any other sum of
money from any assignee, sublessee or other category of transferee shall be
deemed to constitute Landlord's consent to any assignment, sublease, or
transfer.
(d) Any attempted assignment or sublease by Tenant in violation
of the terms and provisions of this Section 31 shall be void and such act
shall constitute a material breach of this Lease. In no event shall any
assignment, subletting or transfer, whether or not with Landlord's consent,
relieve Tenant of its primary liability under this Lease for the entire
Term, and Tenant shall in no way be released from the full and complete
performance of all the terms hereof. If Landlord takes possession of the
Demised Premises before the expiration of the Term of this Lease, Landlord
shall have the right, at its option to take over any sublease of the
Demised Premises or any portion thereof and such subtenant shall attorn to
Landlord, as its landlord, under all the terms and obligations of such
sublease occurring from and after such date, but excluding previous acts,
omissions, negligence or defaults of Tenant and any repair or obligation in
excess of available net insurance proceeds or condemnation award.
(e) Notwithstanding anything in this Lease to the contrary,
Tenant may at any time and from time to time sublet all or any part of the
Demised Premises, or assign this Lease, to Einstein Bros. or any Permitted
Entity without Landlord's consent. Einstein Bros., as either subtenant of
Tenant or assignee of Tenant's interest in this Lease,
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may at any time and from time to time sublet all or any part of the Demised
Premises, or assign this Lease, to any affiliate of Einstein Bros. without
Landlord's consent, provided that following such subletting or assignment
Einstein Bros. remains liable under the provisions of its sublease (in the
case of a subletting) or this Lease (in the case of an assignment).
Einstein Bros. may not assign, mortgage, pledge, encumber or otherwise
transfer this Lease, or any interest hereunder, or sublet the Demised
Premises, in whole or in part, to any party that is not an affiliate of
Einstein Bros. without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, subject to Section 31(c) above and
provided that following such subletting or assignment Einstein Bros.
remains liable under the provisions of its sublease (in the case of a
subletting) or this Lease (in the case of an assignment). For purposes of
this Section 31(e), a Permitted Entity is an entity that is not a
competitor of Landlord and that uses the Demised Premises primarily to
produce products for Einstein Bros., its subsidiaries, affiliates,
licensees, franchisees or distributors or leases the Demised Premises for
such use.
32. Termination or Expiration.
(a) No termination of this Lease prior to the normal ending
thereof, by lapse of time or otherwise, shall affect Landlord's right to
collect rent and other amounts owed or owing for the period prior to
termination thereof.
(b) At the expiration or earlier termination of the Term, Tenant
shall surrender the Demised Premises and all improvements, alterations and
additions thereto, and keys therefor to Landlord, clean and neat, and in
the same condition as at the commencement of the Term, ordinary wear and
tear, loss by fire or other casualty (which shall be governed by Section
21) and repairs or maintenance which are the duty of Landlord under Section
11(c) of this Lease excepted.
(c) If Tenant remains in possession of the Demised Premises after
expiration of the Term, without Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a tenant-at-sufferance at
one hundred twenty-five percent (125%) of the Base Rent in effect at the
end of the Term. Tenant shall also continue to pay all other Additional
Rent due hereunder, and there shall be no renewal of this Lease by
operation of law.
33. Late Payments. Any installment of Base Rent which is not paid
within fifteen (15) calendar days after the date when such rent is due
shall, after such 15-day period, bear interest at the Interest Rate. The
term "Interest Rate", as used in this Lease, shall mean a rate of interest
equal to the lower of (i) three percent (3%) in excess of the Prime Rate
(as herein defined) in effect from time to time and (ii) the highest legal
rate of interest permitted by applicable law to be charged by Landlord to
Tenant. The term "Prime Rate" as used herein shall mean the rate of
interest charged at the applicable time by Bank of America Illinois as its
"reference rate." If Bank of America Illinois ceases to publish or
announce a reference rate, Landlord shall designate a comparable reference
rate.
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34. Dispute Resolution Procedure.
(a) In the event that a dispute arises between Landlord and
Tenant under the Lease, and (i) the Lease specifically provides that the
dispute resolution procedure outlined in this Section 34 (herein referred
to as the "Dispute Resolution Procedure") shall be utilized or (ii) the
dispute does not involve a failure by Tenant to pay Base Rent or Additional
Rent, and the party desiring to utilize the Dispute Resolution Procedure
provides the other party with written notice of said intent within twenty
(20) days after the dispute arises, the parties shall proceed as follows:
(i) The party electing to proceed under the procedures
outlined herein (the "Electing Party") shall give written notice of such
election to the other party (the "Other Party"), and shall designate in
writing the Electing Party's selection of an individual with the
qualifications outlined in the section of the Lease giving rise to this
remedy (the "Official") who shall act on the Electing Party's behalf in
determining the disputed fact.
(ii) Within twenty (20) days after the Other Party's receipt
of the Electing Party's selection of an Official, the Other Party, by
written notice to the Electing Party, shall designate an Official who shall
act on the Other Party's behalf in determining the disputed fact.
(iii) Within twenty (20) days of the selection of the Other
Party's Official, the two (2) Officials shall render a joint written
determination of the disputed fact. If the two (2) Officials are unable to
agree upon a joint written determination within such twenty (20) day
period, each Official shall render his or her own written determination and
the two Officials shall select a third Official within such twenty (20) day
period. In the event the two Officials are unable to select a third
Official within such twenty (20) day period, then either party may apply to
a court of original jurisdiction in the State of Indiana for appointment by
such court of such third Official.
(iv) Within twenty (20) days after the appointment of the
third Official, the third Official shall render his or her own written
determination.
(v) If either Landlord or Tenant fails or refuses to select
an Official, the Official selected shall alone determine the disputed fact.
Landlord and Tenant agree that they shall be bound by the determination
rendered pursuant to the Dispute Resolution Procedure, and that such
determination shall be enforceable by a court of competent jurisdiction.
Landlord shall bear the fee and expenses of its Official, Tenant shall bear
the fee and expenses of its Official, and Landlord and Tenant shall share
equally the fee and expense of the third Official, if any.
35. Miscellaneous.
(a) The parties hereto hereby covenant and agree that any
present or
33
<PAGE>
future law to the contrary notwithstanding, this Lease shall not terminate,
except as herein specifically provided, and Landlord shall receive the Base
Rent and Additional Rent and all other sums payable by Tenant hereinabove
provided as net income from the Demised Premises, without any abatement,
reduction, set-off (except as expressly provided in this Lease),
counterclaim, defense or deduction and not diminished by (i) any imposition
of any public authority of any nature whatsoever during the Term,
notwithstanding any changes in the method of taxation or raising, levying
or assessing any imposition, or any changes in the name of any imposition,
or (ii) any expenses or charges required to be paid by Tenant to maintain,
restore or replace the Demised Premises or to protect Landlord's ownership
of the Demised Premises, other than payments under any Mortgage now
existing or hereafter created by Landlord. The obligations of Tenant
hereunder shall not be affected by reason of any damage to or destruction
of the Demised Premises except as expressly otherwise provided to the
contrary in this Lease. Tenant shall remain obligated under this Lease in
accordance with its terms and shall not take any action to terminate,
rescind or void this Lease, solely as a result of any bankruptcy,
insolvency, reorganization, liquidation, dissolution or other proceeding
affecting Landlord or any assignee of Landlord.
(b) If any clause or provision of this Lease is determined to be
illegal, invalid or unenforceable under present or future laws effective
during the Term, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and
that in lieu of such illegal, invalid or unenforceable clause or provision
there shall be substituted a clause or provision as similar in terms to
such illegal, invalid or unenforceable clause or provision as may be
possible and be legal, valid and enforceable. If such invalidity is
essential to the rights of either or both parties, then the affected party
shall have the right to terminate this Lease on written notice to the
other.
(c) All rights, powers, and privileges conferred hereunder upon
the parties hereto shall be cumulative, but not restrictive to those given
by law.
(d) Time is of the essence of this agreement.
(e) No failure of Landlord or Tenant to exercise any power given
Landlord or Tenant hereunder or to insist upon strict compliance by
Landlord or Tenant with its obligations hereunder, and no custom or
practice of the parties at variance with the terms hereof shall constitute
a waiver of Landlord's or Tenant's rights to demand exact compliance with
the terms hereof. This Lease may be amended only by a written instrument
duly executed by Landlord and Tenant.
(f) This Lease contains the entire agreement of the parties
hereto and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force
and effect. The masculine (or neuter) pronoun, singular number shall
include the masculine, feminine and neuter gender and the singular and
plural number.
34
<PAGE>
(g) In the event of litigation between Landlord and Tenant with
respect to this Lease or the performance of their respective obligations
under this Lease, the losing party shall pay all reasonable costs and
expenses incurred by the prevailing party in connection with such
litigation, including reasonable attorneys' fees actually incurred.
(h) Landlord and Tenant agree to execute, upon request of the
other, a short form memorandum of this Lease in recordable form and the
requesting party shall pay the costs and charges for the recording of such
short form memorandum of lease. Under no circumstances shall Tenant have
the right to record this Lease (other than a short form memorandum of
Lease, as approved by Landlord), and should Tenant do so, Tenant shall be
in default hereunder.
(i) The captions of this Lease are for convenience only and are
not a part of this Lease, and do not in any way define, limit, describe or
amplify the terms or provisions of this Lease or the scope or intent
thereof.
(j) This Lease may be executed in multiple counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute one and the same agreement.
(k) This Lease shall be interpreted under the laws of the state
of Indiana.
(l) The parties acknowledge that this Lease is the result of
negotiations between the parties, and in construing any ambiguity hereunder
no presumption shall be made in favor of either party. No inference shall
be made as to the striking of any item from this Lease.
35
<PAGE>
The parties have executed this Lease as of the date first above
written.
LANDLORD
HARLAN BAKERIES, INC., an Indiana
corporation
By:__________________________
Name:_________________
Title:________________
TENANT
HARLAN BAGEL SUPPLY COMPANY, LLC,
an Indiana limited liability company
By:__________________________
Name:_________________
Title:________________
36
<PAGE>
Exhibit B
ASSIGNMENT AND ASSUMPTION AGREEMENT
This assignment and assumption agreement (the "Agreement") is made
and entered into as of this ____ day of__________, 1996, by and between
__________ (the "Assignor"), and Harlan Bagel Supply Company, LLC, an Indiana
limited liability company ("Harlan").
RECITALS
--------
Assignor is a party to certain purchase orders and other agreements
pursuant to which it has agreed to purchase certain bagel equipment. Assignor
and Harlan desire that all of Assignor's rights under such purchase orders and
agreements and the equipment covered thereby be transferred and assigned to
Harlan, subject to the assumption by Harlan of the executory obligations of
Assignor under such purchase orders and agreements, all on the terms and subject
to the conditions provided for herein.
COVENANTS
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follow:
1. ASSIGNMENT. The Assignor hereby grants, bargains, sells, conveys and
assigns to Harlan all of Assignor's right, title and interest in and to the
purchase orders and agreements specified in Exhibit A hereto (the "Equipment
Agreements") and the equipment covered thereby. The Assignor represents to
Harlan that none of the Equipment Agreements have been amended or modified and
each of them is in full force and effect. Further, neither the Assignor nor, to
the best of the Assignor's knowledge, any of the other parties to the Equipment
Agreements is in breach of, or default under, any of the Equipment Agreements,
and to the best of the Assignor's knowledge, no event has occurred which, with
the passage of time or the giving of notice or both would constitute a breach
of, or default under, any of the Equipment Agreements.
2. PAYMENT; ASSUMPTION. In consideration for the assignment made by
Section 1 hereof, Harlan (a) is paying to Assignor, concurrently with the
execution and delivery of this Agreement, $__________ in cash, and (b) does
hereby assume, and agrees to pay, perform and discharge when lawfully due, all
of the obligations of Assignor under the Equipment Agreements.
3. EFFECT OF ASSIGNMENT. Notwithstanding anything in this Agreement to
the contrary, this Agreement shall not constitute an assignment of any of the
Equipment Agreements if an attempted assignment thereof, without the consent of
a third party thereto, would constitute a breach thereof or in any way adversely
affect the rights of Harlan thereunder. If such consent is not obtained, or if
an attempt at an assignment thereof would be ineffective or would affect the
rights of the Assignor thereunder so that
1
<PAGE>
Exhibit B
Harlan would not in fact receive all such rights, then Assignor will cooperate
with Harlan in any reasonable arrangement designed to provide for Harlan the
benefits under such Equipment Agreement including enforcement for the benefit of
Harlan of any and all rights of the Assignor against a third party thereto
arising out of the breach or cancellation by such third party or otherwise.
4. EFFECT OF ASSUMPTION. The assumption by Harlan of the obligations of
the Assignor provided for herein shall in way expand the rights or remedies of
any third party against Harlan as compared to the rights and remedies which such
third party would have had against Assignor had Harlan not assumed such
obligations. Without limiting the generality of the preceding sentence, the
assumption by Harlan of such obligations shall not create any third party
beneficiary rights.
5. FURTHER ASSURANCES. Each of the parties hereto further agrees to
execute such additional documents from time to time at request of the other
party as may be reasonably necessary to accomplish the assignment or assumption
made herein.
6. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
7. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts made
and to be performed wholly therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
[ASSIGNOR]
By________________________
HARLAN BAGEL SUPPLY COMPANY, LLC
By________________________
2
<PAGE>
Exhibit C
ASSIGNMENT AND BILL OF SALE
---------------------------
This assignment and bill of sale, (the "Assignment") is delivered by
___________ (the "Seller") to Harlan Bagel Supply Company, LLC, an Indiana
limited liability company.
KNOW ALL BY THESE PRESENTS, that for good and valuable consideration the
Seller does hereby sell, convey, transfer, assign, and deliver to Harlan the
Equipment specified in Exhibit A hereto (the "Purchased Equipment").
The Seller represents, warrants, and covenants to Harlan, its successors,
and assigns, that the Seller is the lawful owner of the Purchased Equipment and
has the right and authority to make the herein described transfer free and clear
of all liens, mortgages, pledges, encumbrances, claims, and charges of every
kind.
The Seller further agrees to execute such additional documents from time to
time at the request of Harlan as may be reasonably necessary to accomplish the
transfer made herein.
IN WITNESS WHEREOF, the Seller has executed this assignment and bill of
sale as of the day and year first written above.
[SELLER]
By _______________________________
<PAGE>
Exhibit D
OPTION AGREEMENT
dated ________________, 1996
among
EINSTEIN BROS. BAGELS, INC.,
HARLAN BAGEL SUPPLY COMPANY, LLC
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1.0 The Option.................................................................. 1
1.1 The Option.................................................................. 1
1.2 Exercise of the Option...................................................... 2
1.3 Regulatory Compliance....................................................... 3
1.4 Purchase Price upon Exercise of the Option.................................. 3
1.5 Allocation of Purchase Price Among Option Assets............................ 3
1.6 Valuation of Einstein Bros. Stock or BCI Stock.............................. 3
1.7 Closing of Option Exercise.................................................. 3
1.8 Procedure at each Closing................................................... 4
Article 2.0 Representations and Warranties of Supplier and the Members.................. 5
2.1 Organization, Power and Authority of Supplier............................... 5
2.2 Due Authorization; Binding Agreement of Supplier............................ 5
2.3 Binding Agreement of the Members............................................ 5
2.4 Membership Interests in Supplier............................................ 6
2.5 Ownership of Shares by the Members.......................................... 6
2.11 Good Title to and Condition of Supplier's Assets........................... 6
2.26 Accuracy of Information Furnished by Supplier and the Members.............. 6
2.27 Investment Bankers' and Brokers' Fees...................................... 6
Article 3.0 Representations and Warranties of Einstein Bros............................. 6
3.1 Organization, Power and Authority of Einstein Bros.......................... 6
3.2 Due Authorization; Binding Agreement of Einstein Bros....................... 6
3.3 Investment Bankers' and Brokers' Fees....................................... 7
Article 4.0 Additional Covenants of Supplier and the Prior to the Termination........... 7
4.1 Reasonable Best Efforts..................................................... 7
4.2 Conduct of Business......................................................... 7
4.3 Access to Supplier's Properties and Records................................. 8
4.4 Notice of Material Developments............................................. 8
4.5 No Disclosure............................................................... 8
4.6 No Other Discussions; Retention of Shares................................... 9
Article 5.0 Conditions to the Closing of the Option Exercise by Einstein Bros........... 9
5.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 9
5.2 HSR Act Waiting Period...................................................... 9
5.3 Receipt of Necessary Consents............................................... 9
5.4 No Adverse Litigation....................................................... 9
5.5 No Material Adverse Change.................................................. 9
Article 6.0 Certain Additional Covenants................................................ 10
6.1 Execution of Further Documents.............................................. 10
6.2 Cooperation of Supplier and the Members
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Subsequent Audited Financial Statements..................................... 11
6.4 Confidential Information.................................................... 11
6.5 Remedies Waiver............................................................. 12
6.6 Employment by Einstein Bros. of Supplier's Employees
6.7 No Obligation of Einstein Bros. to Employ.
Article 7.0 Indemnification............................................................. 13
7.1 Agreement by the Members to Indemnify....................................... 13
Article 8.0 Miscellaneous............................................................... 15
8.1 Amendment and Modification.................................................. 15
8.2 Payment of Expenses......................................................... 15
8.3 Binding Effect.............................................................. 15
8.4 Entire Agreement............................................................ 15
8.5 Headings.................................................................... 15
8.6 Execution in Counterpart.................................................... 15
8.7 Notices..................................................................... 15
8.8 Governing Law............................................................... 16
8.9 Publicity................................................................... 16
</TABLE>
ii
<PAGE>
OPTION AGREEMENT
This option agreement (the "Agreement") is made and entered into this ___ day
of _______, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bagel Supply Company, LLC, an Indiana
limited liability company ("Supplier"), and Hal P. Harlan, Hugh P. Harlan and
Doug H. Harlan (collectively, the "Members").
RECITALS
--------
Einstein Bros., the Supplier, and Harlan Bakeries, Inc. and the Members have
entered into a project and approved supplier agreement (the "Approved Supplier
Agreement"). Einstein Bros. desires to obtain an option to acquire all of the
assets of Supplier, and Supplier desires to grant such an option, all on the
terms and subject to the conditions set forth herein.
COVENANTS
---------
In consideration of the mutual representations, warranties and covenants and
subject to the conditions herein contained herein and in the Approved Supplier
Agreement, the parties hereto agree as follows:
ARTICLE 1.0 THE OPTION
1.1 THE OPTION. Upon the terms and subject to the conditions hereof,
Supplier hereby grants to Einstein Bros. an irrevocable option (the "Option") to
purchase, at the purchase price provided for in Section 1.4 hereof, all of the
assets of Supplier (the assets subject to the option being herein sometimes
referred to as the "Option Assets"). Without limiting the generality of the
foregoing, the Option Assets shall include:
1.1.1 all of Supplier's machinery, equipment, tools, supplies,
leasehold improvements, construction in progress, furniture and fixtures, and
other fixed assets ("Fixed Assets");
1.1.2 all inventories and raw materials of Supplier;
1.1.3 all receivables of Supplier including without limitation any
receivables under Sections 7.5 and 7.8 of the Approved Supplier Agreement;
1.1.4 all real estate owned by Supplier, if any, and all of the
interest of, and the rights and benefits accruing to, Supplier as lessee
under all leases of real property and all improvements thereto and buildings
thereon, and all leases or rental agreements covering machinery, equipment,
tools, supplies, vehicles, furniture and fixtures and other fixed assets or
personal property;
1.1.5 all of the rights and benefits accruing to Supplier under the
Approved Supplier Agreement and under all sales orders, sales contracts,
supply contracts, purchase orders and
<PAGE>
purchase commitments made by Supplier in the ordinary course of business, all
other agreements to which Supplier is a party or by which it is bound and all
other choices in action, causes of action and other rights of every kind, but
excluding contracts relating solely to the production or the sale of products
other than the Products (as defined in the Approved Supplier Agreement)
("Excluded Contracts");
1.1.6 all operating data and records of Supplier, including, without
limitation, customer lists, financial, accounting and credit records,
correspondence, budgets and other similar documents and records (although
Supplier may retain copies thereof at its own expense for its tax or other
legitimate business purposes);
1.1.7 all of the proprietary rights of Supplier, including, without
limitation, all trademarks, trade names (but expressly excluding the name
"Harlan" or any name including the name "Harlan"), patents, patent
applications, licenses, trade secrets, technology, know-how, formula, designs
and drawings, computer software, slogans, copyrights, processes, operating
rights, other licenses and permits, and other similar intangible property and
rights, if any; and
1.1.8 all cash and investments, and all prepaid and deferred items of
the Supplier, including, without limitation, prepaid rentals, insurance,
taxes and unbilled charges and deposits.
The Option shall be exercisable at any time on or after December 15, 1999 and
on or before June 1, 2002 ("Termination Date").
1.2 EXERCISE OF THE OPTION. In the event that Einstein Bros. elects to
exercise the Option it shall give written notice of such exercise to Supplier in
the manner provided herein for the giving of notice, which notice shall specify
the consideration which Einstein Bros. elects to deliver upon the Closing (as
hereinafter defined), which may consist of shares of common stock of Einstein
Bros. ("Einstein Bros. Stock") in the event Einstein Bros. has completed an
initial public offering of Einstein Bros. Stock, shares of common stock ("BCI
Stock") of Boston Chicken, Inc. ("BCI"), cash, or any combination of the
foregoing, having an aggregate value equal to the Supplier Value (as defined in
Section 1.4), provided, however, that such consideration may consist of Einstein
Bros. Stock or BCI Stock (the issuer of such stock being referred to herein as
the "Issuer") only if (a) the average closing sales price per share of such
stock of the Issuer as quoted on the NASDAQ National Market, as quoted on such
other market or exchange on which such shares are traded, for the ten
consecutive trading days ending on the second business day prior to the Closing
Date (as hereinafter defined) (the "Share Price") is at least $10, and (b) the
value of the Issuer (defined as the product of the Share Price and the total
number of outstanding shares of such stock of the Issuer) is at least $300
million. In the event Einstein Bros. elects to deliver upon the Closing shares
of Einstein Bros. Stock or shares of BCI Stock, such shares shall be registered
under the Securities Act of 1933, as amended, and shall be accompanied by a
written undertaking of Einstein Bros. to pay to the Supplier in cash the excess,
if any, of the value of the shares so delivered , determined in the manner
provided in Section 1.6 hereof, over the proceeds (net of commissions) from the
sale of the shares, assuming all shares are sold in accordance with such
reasonable conditions on the timing, daily volume and
2
<PAGE>
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by the Supplier to its members to the extent any such shares are
assigned to such members.
1.3 REGULATORY COMPLIANCE. Upon the exercise of the Option each of the
parties shall promptly prepare and file with the Federal Trade Commission
("FTC") and the United States Department of Justice ("Justice Department") any
notification required to be filed with respect to the transactions contemplated
hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
amended, or any rules or regulations thereunder (the "HSR Act"). Each party
represents and warrants to the other parties hereto that any such filing made by
it shall be true and accurate in all material respects and shall conform to the
requirements of the HSR Act. Each party shall promptly complete and file any
required responses to requests by the FTC or the Justice Department for
additional data and information. Each party shall also make available to the
other parties hereto such information relative to its business, assets and
property as may be required for the preparation of such notifications and
reports.
1.4 PURCHASE PRICE UPON EXERCISE OF THE OPTION. The purchase price payable
by Einstein Bros. upon the exercise of the Option shall consist of: (i)
Einstein Bros. Stock, BCI Stock, cash or any combination of the foregoing
(determined in accordance with Section 1.2) having an aggregate value equal to
the Supplier Value as of the Closing Date (as hereinafter defined) and (ii) the
assumption by Einstein Bros. of Supplier's accounts payable, accrued expenses,
outstanding indebtedness for money borrowed and contractual obligations, except
that Einstein Bros. shall not be obligated to assume any liability or obligation
under the Excluded Contracts or any liability or obligation the existence of
which constitutes a breach of any representation and warranty made by Supplier
or the Members in this Agreement or incurred in violation of any covenants or
agreements of Supplier made in this Agreement (such liabilities to be assumed by
Einstein Bros. being herein referred to as the "Assumed Liabilities"). For this
purpose, the "Supplier Value" as of the Closing Date shall be determined in the
manner set forth in Exhibit A.
1.5 ALLOCATION OF PURCHASE PRICE AMONG OPTION ASSETS. The purchase price
for the Option Assets shall be allocated among each item or class of the Option
Assets as determined by the parties. Supplier and Einstein Bros. agree that
they will prepare and file their federal and any state or local income tax
returns based on such allocation of the purchase price. Supplier and Einstein
Bros. agree that they will prepare and file any notices or other filings
required pursuant to Section 1060 of the Internal Revenue Code of 1986, as
amended, and that any such notices of filings will be prepared based on such
agreed allocation of the purchase price.
1.6 VALUATION OF EINSTEIN BROS. STOCK OR BCI STOCK. Einstein Bros. Stock or
BCI Stock delivered upon the Closing (as hereinafter defined) shall be deemed to
have a value equal to the average closing sales price per share of such stock as
quoted on the NASDAQ National Market, as reported in the Wall Street Journal
(Western Edition), or as quoted on such other market or exchange on which such
shares are traded, for the ten consecutive trading days ending on the second
business day prior to the Closing Date (as hereinafter defined).
1.7 CLOSING OF OPTION EXERCISE. The closing of the exercise of the Option
shall take place at the offices of Einstein Bros. at 9:00 A.M., local time, on
the fifth business day after the date of the notice of such exercise referred to
in Section 1.2, or, if later, the second business day after the
3
<PAGE>
satisfaction or waiver of all other conditions to the exercise of the Option
provided for in Articles 5.0 and 6.0 hereof. Throughout this Agreement, such
event is referred to as "Closing" and such date and time are referred to as
"Closing Date".
1.8 PROCEDURE AT THE CLOSING. At the Closing: (i) Supplier shall execute
and deliver to Einstein Bros. instruments of assignment in form and substance
satisfactory to Einstein Bros. sufficient to convey to Einstein Bros. all right,
title and interest of Supplier in and to the Option Assets, all necessary
consents or approvals of third parties (including any governmental entities) to
the transactions contemplated hereby, subscription agreements of Supplier and
the Members satisfactory in form and substance to Einstein Bros., in the event
Einstein Bros. has elected to deliver Einstein Bros. Stock or BCI Stock at the
Closing, and an opinion of Henderson, Daily, Withrow & DeVoe, or other counsel
reasonably acceptable to Einstein Bros., dated as of the Closing Date and in a
form reasonably acceptable to Einstein Bros., to the effect that: (A) Supplier
is a limited liability company duly organized and validly existing under the
laws of the State of Indiana with full power and authority to own or lease its
properties, to carry on its business as it is being conducted and to convey the
Option Assets to Einstein Bros. pursuant to this Agreement, (B) the sale of the
Option Assets has been duly authorized by all necessary action of Supplier under
Indiana law, its articles of incorporation and bylaws, (C) the sale of the
Option Assets will not conflict with or violate any provision of the articles of
organization or operating agreement of Supplier, conflict with or violate any
order, judgment or decree known to such counsel applicable to Supplier or the
Members or by which any of Supplier's properties are affected, or result in a
breach of, or constitute a default (or any event which with notice or lapse of
time would become a default) under, or give to others any rights of first
refusal, termination, amendment, acceleration or cancellation of, or result in
the creation of any lien or encumbrance on any of the Option Assets pursuant to,
any notice, bond, mortgage, indenture contract, agreement, lease or other
instrument or obligation known to such counsel by which Supplier or any of the
Members is bound or by which any of the Supplier's properties are affected, (D)
the sale of the Option Assets will not, require any consent, approval,
exemption, authorization or permit of, filing with or notification, or other
action by, any court, administrative agency or governmental or regulatory
authority, under any provision of Indiana or Federal law, except for such
consents and approvals as shall have been obtained and filings which shall have
been made, and (E) to such counsel's knowledge, there are no actions, suits,
proceedings or governmental inquiries pending or threatened against Supplier or
any of the Members seeking to prevent the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected to have a
material adverse effect on the Option Assets or the ability of Supplier and the
Members to perform their obligations under this Agreement, and (ii) Einstein
Bros. shall deliver to Supplier the purchase price, an instrument of assumption
in form and substance satisfactory to Supplier, assuming the Assumed
Liabilities, and releases of any guarantees made by the Members in connection
with the Assumed Liabilities, to the extent such releases may be obtained
through Einstein Bros.' reasonable efforts (which the parties agree shall not
require Einstein Bros. to expend money or provide security to the holder of any
of the Assumed Liabilities). Einstein Bros. acknowledges that the legal opinion
referred to above will be subject to review by Henderson, Daily's opinion
committee prior to the time of issuance of such opinion so that such opinion is
consistent with prevailing opinion letter practice at such time.
4
<PAGE>
ARTICLE 2.0 REPRESENTATIONS AND WARRANTIES OF SUPPLIER AND THE MEMBERS
In order to induce Einstein Bros. to enter into this Agreement and to
consummate the transactions contemplated hereunder, Supplier and the Members
jointly and severally make the following representations and warranties:
2.1 ORGANIZATION, POWER AND AUTHORITY OF SUPPLIER. The Company is a
limited liability company duly organized and validly existing under the laws of
Indiana, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby. Supplier is legally qualified to transact business, and is
in good standing, in any jurisdictions in which its business or property is such
as to require that it be thus qualified, except where the failure to be so
qualified would not have a material adverse effect on its business, properties
or financial condition.
2.2 DUE AUTHORIZATION; BINDING AGREEMENT OF SUPPLIER AND MEMBERS. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action of Supplier, including the approval of the Members of Supplier. This
Agreement has been duly executed and delivered by Supplier and the Members and
is a valid and binding obligation of Supplier and the Members, enforceable in
accordance with its terms. Neither the execution and delivery of this Agreement
by Supplier or the Members nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the articles of
organization or operating agreement of Supplier or of any decree or order of any
court or administrative or other governmental body which is either applicable
to, binding upon or enforceable against Supplier or the Members or the assets
and properties of Supplier or the Members; or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture or other instrument which is
either binding upon or enforceable against Supplier or the Members or the assets
and properties of Supplier or the Members. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Supplier or the Members and the consummation by it of the
transactions contemplated hereby, except pursuant to the HSR Act.
2.3 OWNERSHIP INTERESTS IN SUPPLIER. All voting rights in Supplier are
vested exclusively in its membership interests (the "Interests"), and there are
no voting trusts, proxies or other agreements or understandings with respect to
the voting of the Interests of Supplier, except for the operating agreement
among the Supplier and the Members (the "Operating Agreement"). Supplier has
previously furnished to Einstein Bros. copies of Supplier's articles of
organization and the Operating Agreement, and such copies are correct and
complete in all respects. There are no outstanding warrants, options or rights
of any kind to acquire from Supplier any interests or securities of any kind,
and there are no pre-emptive rights with respect to the issuance or sale of
interests of Supplier. Supplier has no obligation to acquire any of its issued
and outstanding interests or any other security issued by it from any holder
thereof, except pursuant to the Operating Agreement.
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2.4 OWNERSHIP OF INTERESTS BY THE MEMBERS. The Members are the lawful
owners of all of the outstanding Interests of Supplier and have valid marketable
title thereto, free and clear of all liens, pledges, encumbrances, security
interests, restrictions on transfer, claims and equities of every kind, other
than restrictions under federal and state securities laws. There are no
outstanding warrants, options or rights of any kind to acquire from the Members
any of the Interests.
2.5 TITLE TO SUPPLIER'S ASSETS. Supplier has good and marketable title to
all of its assets and properties, free and clear of all liens, mortgages,
pledges, encumbrances or charges of every kind, nature, and description
whatsoever, and upon the Closing Einstein Bros. will acquire good and marketable
title to the Option Assets, free and clear of all liens, mortgages, pledges,
encumbrances or charges of every kind, nature and description whatsoever, except
for (i) security interests securing any indebtedness for money borrowed or other
contractual obligations but only if such indebtedness or obligations are assumed
by Einstein Bros. or (ii) such liens, mortgages, pledges, encumbrances or
charges as shall have been approved by Einstein Bros. in writing.
2.6 ACCURACY OF INFORMATION FURNISHED BY SUPPLIER AND THE MEMBERS. No
representation, statement or information made or furnished by Supplier or the
Members to Einstein Bros., including without limitation those contained in this
Agreement and the various schedules attached hereto, when taken as a whole,
contains or shall contain any untrue statement of a material fact or omits or
shall omit any material fact necessary to make the information contained therein
not misleading.
2.7 INVESTMENT BANKERS' AND BROKERS' FEES. Neither the Members nor
Supplier have any obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF EINSTEIN BROS.
In order to induce Supplier and the Members to enter into this Agreement and
to consummate the transactions contemplated hereunder, Einstein Bros. makes the
following representations and warranties:
3.1 ORGANIZATION, POWER AND AUTHORITY OF EINSTEIN BROS. Einstein Bros. is
a corporation duly organized and validly existing under the laws of the State of
Delaware, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby.
3.2 DUE AUTHORIZATION; BINDING AGREEMENT OF EINSTEIN BROS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Einstein Bros. This Agreement has been duly executed and
delivered by Einstein Bros. and is a valid and binding obligation of Einstein
Bros., enforceable in accordance with its terms. Neither the execution and
delivery of this Agreement by Einstein Bros. nor the consummation of the
transactions contemplated hereby will: (i) conflict with or violate any
provision of the certificate of incorporation or bylaws of Einstein Bros. or of
any decree or order of any court or administrative or other governmental body
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which is either applicable to, binding upon or enforceable against Einstein
Bros., or its assets and properties; or (ii) result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
mortgage, contract, agreement, indenture or other instrument which is either
binding upon or enforceable against Einstein Bros., or its assets and
properties. No permit, consent, approval of authorization of, or declaration to
or filing with, any regulatory or other government authority is required in
connection with the execution and delivery of this Agreement by Einstein Bros.
and the consummation by it of the transactions contemplated hereby.
3.3 INVESTMENT BANKERS' AND BROKERS' FEES. Einstein Bros. has no
obligation to pay any fees or commissions to any investment banker, broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE 4.0 ADDITIONAL COVENANTS OF SUPPLIER AND THE MEMBERS PRIOR TO THE
TERMINATION DATE
4.1 REASONABLE BEST EFFORTS. Supplier and the Members will use reasonable
best efforts to cause to be satisfied as soon as practicable and prior to the
Closing Date all of the conditions set forth in Articles 5.0 and 6.0. Without
limiting the generality of the foregoing Supplier and the Members will not,
without Einstein Bros.' written consent, take any action that would result in a
requirement that any third party consent or approval be obtained in connection
with exercise of the Option.
4.2 CONDUCT OF BUSINESS. From and after the execution and delivery of this
Agreement and until the earlier of the Closing Date or the Termination Date,
except as otherwise provided by the prior written consent of Einstein Bros.:
4.2.1 Supplier will use reasonable best efforts to (i) preserve its
business organization intact, (ii) keep available the services of its
officers, employees, and agents, and (iii) preserve its relationships with
suppliers and others having dealings with Supplier;
4.2.2 Supplier will maintain all of its properties in customary repair,
order and condition, reasonable wear and use and damage by unavoidable
casualty excepted; and
4.2.3 Supplier will not (a) sell, lease, transfer or otherwise dispose
of assets other than in the ordinary course of business, (b) redeem, purchase
or otherwise acquire from any of its Members all or any part of their equity
interest in the Supplier or pay any dividends or make any other distributions
or payments to such Members, or persons or entities related to them, except
for (i) distributions to the Members to permit payment by them of income
taxes on income of Supplier allocated to them, which shall be based on a tax
rate equal to the highest effective combined statutory rate of federal and
state income tax (giving effect to the deductibility of state income taxes
for federal income tax purposes) imposed on taxable income of an individual
residing in the State of Indiana, and (ii) other cash distributions and
compensation payments that are permitted to be made by the Financing
Documents (as defined in
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the Approved Supplier Agreement), (c) incur indebtedness other than the
indebtedness provided for in the Financing Documents (as defined in the
Approved Supplier Agreement), (d) incur any material obligations or
liabilities (other than its obligations under this Agreement and the Approved
Supplier Agreement), or enter into any material transaction (other than
transactions contemplated by this Agreement or the Approved Supplier
Agreement) other than in the ordinary course of business, (e) merge or
consolidate with any other entity, effect any change in its capital
structure, make any investment in any other entity, liquidate or dissolve,
(f) amend its articles of organization or the Operating Agreement, (g) enter
into any transaction with any affiliate except on terms at least as favorable
as those that could be obtained from an unrelated third party or (h) agree to
do any of the foregoing.
4.3 ACCESS TO SUPPLIER'S PROPERTIES AND RECORDS. From and after the
execution and delivery of this Agreement and until the earlier of the Closing
Date or the Termination Date, Supplier will afford to the representatives of
Einstein Bros. access, during normal business hours and upon reasonable notice,
to Supplier's premises and books and records sufficient to enable Einstein Bros.
to inspect the assets and properties of Supplier and to determine the Supplier
Value (as defined in Exhibit A hereof), and Supplier will furnish to such
representatives during such period all such information relating to the
foregoing investigation as Einstein Bros. may reasonably request; provided,
however, that any furnishing of such information to Einstein Bros. and any
investigation by Einstein Bros. shall not affect the right of Einstein Bros. to
rely on the representations and warranties made by Supplier and the Members in
or pursuant to this Agreement, and provided further, that Einstein Bros. shall
maintain the confidentiality of any information so furnished to it in accordance
with the provisions of Article 12.0 of the Approved Supplier Agreement. Without
limiting the generality of the foregoing, Supplier shall furnish to Einstein
Bros. on or before the date on which the Option is first exercisable, within
fifteen business days after the end of each calendar quarter thereafter and
within fifteen business days after any notice of exercise of the Option, a
statement setting forth the Supplier Value (as defined in Exhibit A hereof)
determined as of the end of such calendar quarter (or as of the applicable date
under Exhibit A, in the event of the exercise of the Option), which statement
shall be prepared in accordance with Exhibit A and shall set forth with
specificity the calculation of Supplier Value.
4.4 NOTICE OF MATERIAL DEVELOPMENTS. From and after the execution and
delivery of this Agreement and until the earlier of the Closing Date or the
Termination Date, Supplier will give prompt written notice to Einstein Bros. of
any material development affecting the assets, properties, business, business
prospects, financial condition or results of operations of Supplier, including
without limitation any development which results in the inaccuracy of any of the
representations and warranties of Supplier and the Members made herein.
4.5 NO DISCLOSURE. Without the prior written consent of Einstein Bros.,
neither Supplier nor any of the Members will, prior to the earlier of the
Closing Date or the Termination Date, disclose the existence of or any term or
condition of this Agreement to any person or entity except that such disclosure
may be made (i) to any lender or financing source of Supplier or any person in a
business relationship with Supplier to whom such disclosure is necessary in
order to satisfy any of the conditions or obligations which are set forth in
this Agreement, and (ii) to the extent Supplier
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believes in good faith that such disclosure is required by law (in which case
Supplier will consult with Einstein Bros. prior to making such disclosure).
4.6 NO OTHER DISCUSSIONS; RETENTION OF INTERESTS. Neither the Members nor
Supplier will, prior to the earlier of the Closing Date or the Termination Date,
enter into discussions or negotiate with or entertain or accept the unsolicited
offer of any other party concerning the potential sale or exchange of all or any
part of the assets of or interests in Supplier to, or the merger or
consolidation of Supplier with, any person other than Einstein Bros. The
Members will not, prior to the earlier of the Closing Date or the Termination
Date, sell, assign, transfer, pledge, encumber or otherwise dispose of any of
the Interests owned by them, except for Exempt Transactions as permitted by the
Operating Agreement.
ARTICLE 5.0 CONDITIONS TO EINSTEIN BROS.' OBLIGATION TO CLOSE THE OPTION
EXERCISE.
The obligation of Einstein Bros. to purchase the assets of Supplier upon the
exercise of the Option shall be subject to the fulfillment or waiver by Einstein
Bros. at or prior to the Closing Date of each of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Supplier and the Members
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. Supplier and the Members shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Members
shall have delivered to Einstein Bros. a certificate, dated as of the Closing
Date and signed by each of the Members, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
5.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act with
respect to the exercise of the Option shall have expired or been terminated.
5.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Einstein Bros.
5.4 NO ADVERSE LITIGATION. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the purchase of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
5.5 NO MATERIAL ADVERSE CHANGE. Since the date of the exercise of the
Option, there shall have been no changes in the business or properties of
Supplier, or in its financial condition, other than changes which in the
aggregate shall not have had a material adverse effect.
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5.6 DELIVERY OF INFORMATION. Supplier shall have delivered to Einstein
Bros. any information required to have been delivered to Einstein Bros. pursuant
to Section 4.3 hereof.
ARTICLE 6.0 CONDITIONS TO THE SUPPLIER'S OBLIGATION TO CLOSE THE OPTION
EXERCISE
The obligation of Supplier to sell the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by Supplier at or
prior to the Closing Date of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Einstein Bros. contained in
this Agreement shall have been true and correct in all material respects at and
as of the date hereof, and they shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as though
made at and as of that time. Einstein Bros. shall have performed and complied
with all of its obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. Einstein Bros. shall have
delivered to Supplier a certificate, dated as of the Closing Date and signed by
Einstein Bros., certifying that such representations and warranties are thus
true and correct in all material respects and that all such obligations have
been thus performed and complied with.
6.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act with
respect to the exercise of the Option shall have expired or been terminated.
6.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Supplier.
6.4 NO ADVERSE LITIGATION. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the sale of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
ARTICLE 7.0 CERTAIN ADDITIONAL COVENANTS
7.1 EXECUTION OF FURTHER DOCUMENTS. From and after the Closing, upon the
reasonable request of Einstein Bros., Supplier and the Members shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to convey and
transfer to and vest in Einstein Bros. the Option Assets and as may be
appropriate otherwise to carry out the transactions contemplated by this
Agreement.
7.2 COOPERATION OF SUPPLIER AND THE MEMBERS. Each of the Members
acknowledges and agrees that Einstein Bros. may have need of information
concerning Supplier and the Members in order to comply with applicable
securities laws and regulations in connection with future public and private
debt and equity offerings by Einstein Bros. ("Offerings"). The Members jointly
and severally agree that they will cooperate with Einstein Bros. in connection
with any Offerings and that they will, at Einstein Bros.'s expense: (i) furnish
Einstein Bros. with such information
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concerning Supplier and the Members as Einstein Bros. may reasonably require to
comply with applicable securities laws and regulations (the "Company
Information"); (ii) use diligent efforts to review, comment on, and otherwise
assist Einstein Bros. as reasonably necessary for the preparation of,
descriptions concerning Supplier and the Members to be used in connection with
Offerings; and (iii) represent and warrant to Einstein Bros. in connection with
any Offerings that Company Information will not contain any untrue statement of
a material fact or omit any material fact necessary to make the information
contained therein not misleading.
7.3 SUBSEQUENT AUDITED FINANCIAL STATEMENTS. Each of the Members covenants
and agrees with Einstein Bros. that if Einstein Bros. shall determine that
audited financial statements of Einstein Bros. or Supplier for the periods prior
to the Closing are necessary or advisable in connection with an initial public
offering, another transaction or offering, or otherwise, each shall cooperate
fully with Einstein Bros.'s accountants in the preparation of such audited
financial statements, at Einstein Bros.'s expense, and each shall make such
reasonable representations and warranties to the applicable certified public
accountants as are customary in connection with the preparation of audited
financial statements.
7.4 CONFIDENTIAL INFORMATION.
7.4.1 The Members may possess certain confidential and proprietary
information and trade secrets including, but not limited to, information,
methods, techniques, procedures and knowledge developed by or for Supplier
respecting the business of Supplier (the "Confidential Information"). Each
of the Members acknowledges and agrees that neither such Shareholder nor any
other person or entity has acquired by or through such Members any interest
in or right to use the Confidential Information other than the right to
utilize it in the operation of the businesses of Supplier and Einstein Bros.,
and that the use or duplication of the Confidential Information in any other
business would constitute an unfair method of competition with Supplier and
Einstein Bros. Notwithstanding the foregoing, however, Einstein Bros.
acknowledges that the Members are actively involved as Members, officers and
directors of Harlan Bakeries, Inc. and that certain Confidential Information
may be shared with Harlan Bakeries, Inc. The foregoing is not intended to
prevent Harlan Bakeries from using such Confidential Information in its
business generally, but Confidential Information relating specifically to
Einstein Bros. or its Formulations, Specifications and Procedures (as defined
in the Approved Supplier Agreement) may not be used by Harlan Bakeries except
to the extent such use is solely for the benefit of Einstein Bros.
7.4.2 Subject to Section 7.4.1 hereof, each of the Members acknowledges
and agrees that the Confidential Information is confidential to and a
valuable asset of Supplier, is proprietary, and includes trade secrets of
Supplier and that such Member: (i) will not use the Confidential Information
in any other business or capacity; (ii) will maintain the absolute secrecy
and confidentiality of the Confidential Information; and (iii) will not make
unauthorized copies of any portion of the Confidential Information disclosed
in written or other tangible form.
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7.4.3 Notwithstanding the foregoing, the obligations of the Members
specified above shall not apply to any Confidential Information which (i) is
disclosed in a printed publication available to the public, or is otherwise
in the public domain through no act of any of the Members, their agents or
any person or entity which has received such Confidential Information from or
through any of the Members, (ii) is approved for release by written
authorization of an officer of Einstein Bros., (iii) is required to be
disclosed by proper order of a court of applicable jurisdiction after
adequate notice to Einstein Bros. to seek a protective order therefor, the
imposition of which protective order the Members agree to approve and
support, or (iv) in the written opinion of the disclosing Member's counsel,
is necessary to be made by such Member in order that the Member not violate
any law, rule or regulation applicable to him.
7.5 REMEDIES; WAIVER.
7.5.1 Each of the Members agrees that the provisions and restrictions
set forth above in Section 7.4 are necessary to protect Einstein Bros. and
its successors and assigns in the protection of the Option Assets Einstein
Bros. is entitled to acquire pursuant to this Agreement. Each of the Members
agrees that damages cannot compensate Einstein Bros. in the event of a
violation of the covenants contained in Section 7.4 hereof, and that
injunctive relief shall be essential for the protection of Einstein Bros. and
its successors and assigns. Accordingly, each of the Members agrees and
consents that, in the event he shall violate or breach any of said covenants
Einstein Bros. shall be entitled to obtain (and he hereby consents to) such
injunctive relief against such Shareholder, without bond, in addition to such
further or other relief as may appertain at equity or law. The exercise or
enforcement by Einstein Bros. of any right or remedy hereunder shall not
preclude the exercise or enforcement by Einstein Bros. of any other right or
remedy hereunder or which Einstein Bros. has the right to enforce under
applicable law.
7.5.2 Failure by any party to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of
any right or remedy hereunder at any one or more times be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
7.6 EMPLOYMENT BY EINSTEIN BROS. OF SUPPLIER'S EMPLOYEES. Supplier shall
use its reasonable best efforts to aid Einstein Bros. in engaging such of its
employees as are employed on the Closing Date, if any, whom Einstein Bros.
desires to engage after the Closing Date, and except with the written consent of
Einstein Bros., neither Supplier nor any Affiliate (as hereinafter defined) of
Supplier shall employ, for a period of one year after the Closing Date, any
person employed by Supplier at or at any time within six months prior to the
Closing Date unless such person was either not offered employment by Einstein
Bros. or was terminated by Einstein Bros. As used in this Agreement, the term
"Affiliate" means, with respect to a specified person, any other person which
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under
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common control with, the person specified, and the term "control" (including the
terms "controlling," "controlled by" and "under common control with") shall mean
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise.
7.7 NO OBLIGATION OF EINSTEIN BROS. TO EMPLOY. Einstein Bros. shall have no
obligation to employ any of the persons employed by Supplier at the time of the
Closing, if any, or to continue, or institute any replacement or substitution
for, any vacation, severance, incentive, bonus, profit sharing, pension or other
employee benefit plan or program of Supplier.
ARTICLE 8.0 INDEMNIFICATION
8.1 AGREEMENT BY SUPPLIER AND THE MEMBERS TO INDEMNIFY. Subject to the
qualifications and limitations set forth in this Section 8.1, Supplier and the
Members jointly and severally agree that from and after the Closing, if any,
they will indemnify and hold Einstein Bros. harmless in respect of the aggregate
of all Einstein Bros. Indemnifiable Damages (as hereinafter defined). For this
purpose, Einstein Bros. Indemnifiable Damages shall mean the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including
related counsel fees and expenses) incurred or suffered by Einstein Bros. (or
any successor to all or any part of the assets or business of Supplier) (i)
resulting from any inaccurate representation or warranty made by Supplier and
the Members in or pursuant to this Agreement, (ii) resulting from any default in
the performance of any of the covenants or agreements made by Supplier or the
Members in this Agreement, or (iii) resulting from the failure of Supplier to
pay, discharge or perform any liability or obligation that is not required to be
assumed by Einstein Bros. hereunder ("Excluded Liabilities"). Without limiting
the generality of the foregoing, with respect to the measurement of Einstein
Bros. Indemnifiable Damages, Einstein Bros. shall have the right to be put in
the same financial position as it would have been in had each of the
representations and warranties of Supplier and the Members been true and
correct, had each of the covenants and agreements of Supplier and the Members
been performed in full and had each of the Excluded Liabilities been paid or
performed in full. The foregoing obligation to indemnify Einstein Bros. shall be
subject to each of the following principles or qualifications:
8.1.1 Each of the representations and warranties made by the Supplier
and the Members in this Agreement or pursuant hereto, shall survive for a
period of eighteen (18) months after the exercise of the Option and
thereafter all such representations and warranties shall be extinguished,
provided, however, that the representations and warranties made in Sections
2.1, 2.2, 2.3, 2.4 and 2.7 hereof shall in each case survive forever. No
claim for the recovery of Einstein Bros. Indemnifiable Damages based upon the
inaccuracy of such representations and warranties may be asserted by Einstein
Bros. after such representations and warranties shall be thus extinguished;
provided, however, that claims first asserted in writing within the
applicable period (whether or not the amount of any such claim has become
ascertainable within such period) shall not thereafter be barred.
8.1.2 The Supplier and the Members shall be liable for any claim for
Einstein Bros. Indemnifiable Damages arising out of any inaccuracy of any
representation or warranty only to the extent the aggregate amount of all
such Einstein Bros. Indemnifiable Damages exceeds $25,000.
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8.1.3 The liability of the Supplier and the Members for claims for all
Einstein Bros. Indemnifiable Damages arising out of inaccuracies of
representations and warranties of the Supplier and the Members shall in no
event exceed the amount of the purchase price payable under Section 1.4.
8.2 AGREEMENT BY EINSTEIN BROS. TO INDEMNIFY. Einstein Bros. agrees that
from and after the Closing, if any, it will indemnify and hold Supplier and the
Members harmless in respect of the aggregate of all Supplier Indemnifiable
Damages (as hereinafter defined). For this purpose, Supplier Indemnifiable
Damages shall mean the aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees and expenses) incurred
or suffered by Supplier or the Members (i) resulting from any inaccurate
representation or warranty made by Einstein Bros. in or pursuant to this
Agreement, (ii) resulting from any default in the performance of any of the
covenants or agreements made by Einstein Bros. in this Agreement, (iii)
resulting from the failure of Einstein Bros. to discharge any Assumed
Liabilities (including any Assumed Liabilities that may have been guaranteed by
one or more of the Members) after Closing or (iv) resulting from the operation
of the business utilizing the Option Assets by Einstein Bros. after Closing
(except to the extent arising from any inaccurate representation or warranty
made by the Supplier and the Members herein). Without limiting the generality
of the foregoing, with respect to the measurement of Supplier Indemnifiable
Damages, Supplier and the Members shall each have the right to be put in the
same financial position as they would have been in had each of the
representations and warranties of Einstein Bros. been true and correct, had each
of the covenants and agreements of Einstein Bros. been performed in full and had
each of the Assumed Liabilities been paid or performed in full.
8.3 TAX EFFECT OF DAMAGES AND INDEMNITY PAYMENTS. In determining the amount
of Einstein Bros. Indemnifiable Damages payable under Section 8.1 and Supplier
Indemnifiable Damages payable under Section 8.2, there shall be taken into
account both tax benefits, if any, arising from the incurrence of damages and
tax detriments, if any, arising from the receipt of payments hereunder.
8.4 LEGAL PROCEEDINGS. In the event Supplier, the Members or Einstein Bros.
become involved in any legal, governmental or administrative proceeding which
may result in indemnification claims hereunder, such party shall promptly notify
the other parties in writing of such proceeding. The other parties may, at
their option and expense, defend any such proceeding if the proceeding could
give rise to an indemnification obligation hereunder. If any party elects to
defend any proceeding, such party shall have full control over the conduct of
such proceeding, although the party being indemnified shall have the right to
retain legal counsel at its own expense and shall have the right to approve any
settlement of any dispute giving rise to such proceeding, such approval not to
be withheld unreasonably by the party being indemnified; provided, that, in the
event the indemnifying party shall fail to initiate a defense of a claim within
twenty days of the notice to the indemnified party of a claim, the indemnified
party shall have the option to conduct the defense of such claim as it may in
its discretion deem proper. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
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ARTICLE 9.0 MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
9.2 PAYMENT OF EXPENSES. Each party to this Agreement shall pay all of the
expenses incurred by it in connection with this Agreement, including without
limitation its legal and accounting fees and expenses.
9.3 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and legal representatives.
9.4 ENTIRE AGREEMENT. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the option to
purchase the Option Assets and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto.
9.5 HEADINGS. The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.6 EXECUTION IN COUNTERPART. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original.
9.7 NOTICES. Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or other
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Supplier addressed as follows:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
with a copy to:
Henderson, Daily, Withrow & DeVoe
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2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice, request, information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed wholly therein.
9.9 PUBLICITY. No press release or other public announcement related to
this Agreement or the transactions contemplated hereby (or the existence of any
discussions or negotiations among the parties regarding any other possible
transactions) will be issued, and no disclosure of this Agreement or the terms
hereof will be made, by Supplier or any of the Members without the prior
approval of Einstein Bros. Einstein Bros. agrees to use reasonable best efforts
to consult with Supplier prior to issuing any press release or public or trade
announcement or statement relating to this Agreement or the transactions
contemplated hereby.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By____________________________________
Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By____________________________________
______________________________________
Hal P. Harlan
______________________________________
Hugh P. Harlan
______________________________________
Doug H. Harlan
17
<PAGE>
EXHIBITS
--------
Exhibit A Determination of Supplier Value
<PAGE>
"Supplier Value" as the Closing Date shall be equal to (A) the Applicable
Multiple (as hereinafter defined) multiplied by the Supplier Profit (as
hereafter defined), but, in the event the parties to the Approved Supplier
Agreement have not entered into an amendment pursuant to Section 8.1 thereof
providing for the installation of a second bagel line, not less than $2,350,000
minus (B) the outstanding long-term indebtedness of Supplier as of the Closing
Date, minus (C) $750,000, plus (D) any excess of Supplier's current assets over
its current liabilities as of the Closing Date or minus (E) any excess of
Supplier's current liabilities over its current assets as of the Closing Date
(with current assets including any receivables under Sections 7.5 and 7.8 of the
Approved Supplier Agreement and current liabilities including appropriate
accruals for real and personal property taxes, utilities and similar items for
purposes of such clauses (D) and (E)). The "Applicable Multiple" shall be 6, if
the Option is exercised on or after December 15, 1999 and before July 1, 2000
and 5.25 if the Option is exercised on or after July 1, 2000 until the
Termination Date. The "Supplier Profit" shall be equal to Supplier's Formula
Profit (as hereinafter defined) for the six-month period ending on the last day
of the last calendar month ending prior to the month in which the Option is
exercised multiplied by two. "Supplier's Formula Profit" for any period shall
be equal to Supplier's revenues from the sale of the Products during such period
(determined based on the price of the Products F.O.B. Supplier's Production
Facility, net of returns or allowances) less Supplier's Materials Cost (as
hereinafter defined) for such period, less Supplier's Production Cost (as
hereinafter defined) for such period, less Supplier's Equipment Financing Cost
(as hereinafter defined) for such period. For this purpose, (a) "Materials
Cost" shall have the meaning ascribed to it in the Approved Supplier Agreement,
(b) "Production Cost" shall mean the sum of direct labor, overhead, fixed
general and administrative expense and interest expense from indebtedness other
than its equipment financing, (c) "Occupancy Cost" shall mean building rental
expense, real estate taxes, utilities, maintenance and repair and
property/casualty insurance, and (d) "Equipment Financing Cost" shall mean
operating lease rentals and interest and principal amortization from all
equipment financing and depreciation expense on any equipment which has been
purchased, which shall be equal to the operating lease rentals that would have
been payable on such equipment under the Equipment Financing (as defined in the
Approved Supplier Agreement) if such equipment had been covered by the Equipment
Financing.
<PAGE>
Exhibit E
RIGHT OF FIRST REFUSAL AGREEMENT
This right of first refusal agreement (the "Agreement") is entered
into as of ______ ___, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bakeries, Inc., an Indiana corporation
("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan (collectively, the
"Harlans").
RECITALS
--------
The Harlans own all of the outstanding capital stock of Harlan.
Harlan is constructing a new production facility (the "Production Facility")
adjacent to its existing production facility in Avon, Indiana and, Harlan Bagel
Supply Company, LLC, an Indiana limited liability company (the "Supplier"),
Einstein Bros., Harlan and the Harlans have entered into a project and approved
supplier agreement dated as of May 24, 1996 (the "Approved Supplier Agreement"),
pursuant to which the Supplier has agreed to supply raw frozen bagel dough
products to Einstein Bros. and other approved purchasers.
Einstein Bros. desires to obtain a right of first refusal to obtain
the shares of capital stock or assets of Harlan, and Harlan and the Harlans have
agreed to grant such a right of first refusal, on the terms and subject to the
conditions set forth herein.
COVENANTS
---------
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. RESTRICTIONS ON TRANSFER. Subject to the provisions of Section 7
hereof, each of the Harlans agrees that he shall not, at any time prior to the
Termination Date (as hereinafter defined), sell, assign, transfer, pledge or
otherwise dispose of any shares of capital stock of Harlan ("Shares") owned by
him, except in accordance with the provisions of Section 2 hereof or in a
Permitted Transfer (as hereinafter defined). All certificates representing
Shares owned or hereafter acquired by the Harlans, or any transferee of the
Harlans bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
"The sale or other disposition of any of the shares represented by
this certificate is restricted by a Right of First Refusal
Agreement among the registered owner of this certificate, Einstein
Bros. Bagels, Inc. and the other shareholders of the Company, a
copy of which is available for inspection at the offices of the
Company."
1
<PAGE>
2. RIGHT OF FIRST REFUSAL TO PURCHASE SHARES OF CAPITAL STOCK.
Subject to the provisions of Section 7 hereof, in the event Harlan or any of the
Harlans (the "Seller") desires to sell any Shares, at any time prior to the
Termination Date, except in a Permitted Transfer, the Seller shall first give
written notice (a "Share Sale Notice") to Einstein Bros. of any such proposed
sale, which Notice shall state the name and address of the proposed purchaser,
the number of Shares to be sold and the price, terms of payment and conditions
of such proposed sale. Einstein Bros. shall thereupon have the right, for a
period of 45 days from the date of the Share Sale Notice, to purchase such
Shares at the price and, except as provided herein as to the medium of payment,
on the terms and conditions stated in the Share Sale Notice. Einstein Bros. may
exercise such right by giving a notice of exercise to the Seller, which notice
shall specify a place of closing, a closing date, which shall not be later than
30 days following the date of such notice of exercise, (or, if later, two
business days after the expiration or termination of any waiting period under
the HSR Act (as hereinafter defined)) and the consideration which Einstein Bros.
elects to deliver upon the closing, which may consist of the medium of payment
provided for in the Share Sale Notice, shares of common stock of Einstein Bros.
("Einstein Bros. Stock") in the event Einstein Bros. has completed an initial
public offering of Einstein Bros. Stock, shares of common stock ("BCI Stock") of
Boston Chicken, Inc. ("BCI"), cash, or any combination of the foregoing,
provided, however, that such consideration may consist of Einstein Bros. Stock
or BCI Stock (the issuer of such stock being referred to herein as the "Issuer")
only if (a) the average closing sales price per share of such stock of the
Issuer as quoted on the NASDAQ National Market, as reported in the Wall Street
Journal (Western Edition), or as quoted on such other market or exchange on
which such shares are traded, for the ten consecutive trading days ending on the
second business day prior to the Closing Date (as hereinafter defined) (the
"Share Price") is at least $10, and (b) the value of the Issuer (defined as the
product of the Share Price and the total number of outstanding shares of such
stock of the Issuer) is at least $300 million. In the event Einstein Bros.
elects to deliver upon closing shares of Einstein Bros. Stock or shares of BCI
Stock, such shares shall be registered under the Securities Act of 1933, as
amended (the "1933 Act"), and shall be accompanied by a written undertaking of
Einstein Bros. to pay to the Seller in cash the excess, if any, of the value of
the shares so delivered, determined in the manner provided in Section 6 hereof,
over the proceeds (net of commissions) from the sale of the shares, assuming all
shares are sold in accordance with such reasonable conditions on the timing,
daily volume and manner of sale as may be set forth in such undertaking. At the
closing, Einstein Bros. shall pay the purchase price for the Shares and the
Seller shall deliver to Einstein Bros. certificates evidencing the Shares
accompanied, in the case of a sale of Shares by any of the Harlans, by duly
executed stock powers together with a certificate signed by the Seller stating
that the Shares are being sold free and clear of all liens, claims,
encumbrances, charges and restrictions or transfer, except for restrictions on
transfer imposed by federal and state securities laws ("Encumbrances"). In the
event Einstein Bros. does not elect to purchase the Shares as provided in this
Section 2 the Seller may sell such Shares to the proposed third party purchaser
on the terms and conditions stated in the Share Sale Notice, but only if such
sale is consummated within 60 days after the expiration of the 45-day period
referred to above.
2
<PAGE>
3. PERMITTED TRANSFERS. The provisions of Section 2 hereof shall not
apply to (i) sales of shares by Harlan or the Harlans in an initial public
offering, (ii) sales of shares by Harlan in a private placement (other than to
Permitted Transferees), provided that the Harlans own at least 51% by vote and
by value of the outstanding capital stock of Harlan after any such offering and
provided further that Harlan has first offered to Einstein Bros. the opportunity
to purchase the shares so offered on terms no less favorable to Einstein Bros.
than the terms offered in such private placement, and (iii) transfers of Shares
by any of the Harlans among themselves or to any of their spouses or
descendants, any trust solely for the benefit of one or more of the Harlans,
their spouses or descendants, or any corporation, partnership or limited
liability company all of the stockholders, partners or members of which consist
solely of one or more such persons or trusts ("Permitted Transferees"), provided
that the transferee in any such transfer agrees in writing to be bound by the
provisions of this Agreement ("Permitted Transfers").
4. RIGHT OF FIRST REFUSAL TO PURCHASE ASSETS. Subject to the
provisions of Section 7 hereof, n the event Harlan desires to sell all or
substantially all of its assets, then Harlan shall first given written notice
(the "Asset Sale Notice") to Einstein Bros. of any such proposed sale, which
Asset Sale Notice shall state the name and address of the proposed purchaser,
the assets to be sold and the price, terms of payment and conditions of such
proposed sale. Einstein Bros. shall thereupon have the right, for a period of
45 days from the date of the Asset Sale Notice, to purchase such assets at the
price and, except as provided herein as to the medium of payment, on the terms
and conditions stated in the Asset Sale Notice. Einstein Bros. may exercise
such right by giving a notice of exercise to Harlan, which notice shall specify
a place of closing and a closing date which shall not be later than 30 days
following the date of such notice of exercise (or, if later, two business days
after the expiration or termination of any waiting period under the HSR Act (as
hereinafter defined)), and the consideration which Einstein Bros. elects to
deliver upon the closing, which may consist of the medium of payment provided
for in the Asset Sale Notice, shares of Einstein Bros. Stock in the event
Einstein Bros. has completed an initial public offering of Einstein Bros. Stock,
shares of BCI Stock, cash, or any combination of the foregoing, provided,
however, that such consideration may consist of Einstein Bros. Stock or BCI
Stock (the issuer of such stock being referred to herein as the "Issuer") only
if (a) the average closing sales price per share of such stock of the Issuer as
quoted on the NASDAQ National Market, as reported in the Wall Street Journal
(Western Edition), or as quoted on such other market or exchange on which such
shares are traded, for the ten consecutive trading days ending on the second
business day prior to the Closing Date (as hereinafter defined) (the "Share
Price") is at least $10, and (b) the value of the Issuer (defined as the product
of the Share Price and the total number of outstanding shares of such stock of
the Issuer) is at least $300 million. In the event Einstein Bros. elects to
deliver upon closing shares of Einstein Bros. Stock or shares of BCI Stock, such
shares shall be registered under the 1933 Act, and shall be accompanied by a
written undertaking of Einstein Bros. to pay to Harlan in cash the excess, if
any, of the value of the shares so delivered, determined in the manner provided
in Section 6 hereof, over the proceeds (net of commissions) from the sale of the
shares, assuming all shares are sold in accordance with such reasonable
conditions on the timing, daily volume and manner of sale as may be set forth in
such undertaking. Such undertaking shall be
3
<PAGE>
assignable by Harlan to its shareholders to the extent any such shares are
assigned to such shareholders. At the closing, Einstein Bros. shall pay the
purchase price for the assets and Harlan shall execute and deliver to Einstein
Bros. instruments of transfer sufficient to convey to Einstein Bros. all right,
title and interest in and to the assets, free and clear of all Encumbrances,
except as may be specified in the Asset Sale Notice. In the event Einstein Bros.
does not elect to purchase the assets as provided in this Section 4 Harlan may
sell such assets to the proposed third party purchaser on the terms and
conditions stated in the Notice, but only if such sale is consummated within 60
days after the expiration of the 45-day period referred to above.
5. REGULATORY COMPLIANCE. Upon the exercise by Einstein Bros. of its
right to purchase Shares or its right to purchase assets of Harlan the parties
shall promptly prepare and file with the Federal Trade Commission ("FTC") and
the United States Department of Justice ("Justice Department") any notification
required to be filed with respect to the transactions contemplated hereby under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any
rules or regulations thereunder (the "HSR Act"). Each party represents and
warrants to the other parties hereto that any such filing made by it shall be
true and accurate in all material respects and shall conform to the requirements
of the HSR Act. Each party shall promptly complete and file any required
responses to requests by the FTC or the Justice Department for additional data
and information. Each party shall also make available to the other parties
hereto such information relative to its business, assets and property as may be
required for the preparation of such notifications and reports.
6. VALUATION OF EINSTEIN BROS. STOCK OR BCI STOCK. Einstein Bros.
Stock or BCI Stock delivered upon the closing of any transaction contemplated
hereby shall be deemed to have a value equal to the average closing sales price
per share of such stock as quoted on the NASDAQ National Market, as reported in
the Wall Street Journal (Western Edition), or as quoted on such other market or
exchange on which such shares are traded, for the ten consecutive trading days
ending on the second business day prior to the date of closing.
7. TERMINATION. This Agreement shall terminate upon the later of the
expiration of the Approved Supplier Agreement or the expiration of the Lease (as
defined in the Approved Supplier Agreement) (the "Termination Date"), provided,
however, that if the Approved Supplier Agreement expires prior to the expiration
of the Lease, then after the expiration of the Approved Supplier Agreement,
Einstein Bros. shall thereafter, until expiration of the Lease, have only a
right of first refusal to purchase the land and buildings owned by Harlan that
consist of the Production Facility, the adjacent building and the land on which
they are situated.
8. AMENDMENTS. The parties hereto may amend, modify and supplement
this Agreement in such manner as may be agreed upon by them in writing.
9. EXPENSES. Each party to this Agreement shall pay all of the
expenses incurred by such party in connection with this Agreement and the
transactions
4
<PAGE>
contemplated hereby, including without limitation legal and accounting fees and
expenses, and the commissions, fees and expenses of any person employed or
retained by such party to bring about, or to represent it in, the transactions
contemplated hereby.
10. BINDING AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior understandings and agreements of the parties with respect to the
subject matter hereof.
12. HEADINGS. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14. NOTICES. Any notice, request, information or other document to
be given hereunder shall be in writing. Any notice, request, information or the
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Harlan, or any of the Harlans, addressed to such party at the
following address:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
5
<PAGE>
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and
Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed wholly therein.
16. INJUNCTIVE RELIEF. In the event of a breach or threatened breach
of any of the provisions of this Agreement, the parties acknowledge and agree
that the non-breaching party will not have an adequate remedy at law and
therefore will be entitled to enforce any such provision by temporary or
permanent injunctive or mandatory relief as a remedy for any such breach, and
that such remedy shall not be deemed to be the exclusive remedy for any such
breach but shall be in addition to all other remedies.
17. PUBLICITY. No press release or other public or trade
announcement or statement related to this Agreement or the transactions
contemplated hereby (or the existence of any discussions or negotiations between
the parties regarding any other possible transactions) will be issued, and no
disclosure of this Agreement or the terms hereof will be made, by Harlan or any
of the Harlans without the prior approval of Einstein Bros. Einstein Bros.
agrees to use reasonable best efforts to consult with Harlan and the Harlans
prior to issuing any press release or public or trade announcement or statement
relating to this Agreement or the transactions contemplated hereby.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By ____________________________
HARLAN BAKERIES, INC.
By_____________________________
_______________________________
Hal P. Harlan
_______________________________
Hugh P. Harlan
_______________________________
Doug H. Harlan
7
<PAGE>
Exhibit F
---------
Opinion of Henderson, Daily, Withrow & DeVoe
1. Harlan is a corporation duly organized and validly existing under the laws of
the State of Indiana with full power and authority to own or lease its
properties, to carry on its business as it is being conducted and to enter
into the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which it is a party).
2. Supplier is a limited liability company duly organized and validly existing
under the laws of the State of Indiana with full power and authority to own
or lease its properties, to carry on its business as it is being conducted
and to enter into the Approved Supplier Agreement (and each of the other
agreements, instruments and documents contemplated thereby to which it is a
party).
3. The execution, delivery and performance by Harlan and the Supplier of the
Approved Supplier Agreement (and each of the other agreements, instruments
and documents contemplated thereby to which either of them is a party) have
been duly authorized by all necessary action of Harlan and the Supplier under
Indiana law, the articles of incorporation and bylaws of Harlan and the
articles of organization and operating agreement of Supplier.
4. The Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby) have been duly executed and
delivered by each of Harlan, the Supplier and the Harlans which or who is a
party thereto, and each such agreement, instrument or document is a valid and
binding obligation of each of Harlan, the Supplier and the Harlans which or
who is a party thereto, enforceable in accordance with its terms.
5. The execution, delivery and performance by Harlan, the Supplier and the
Harlans of the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which any such person is a
party) will not conflict with or violate the articles of incorporation or
bylaws of Harlan, the articles of organization or operating agreement of
Supplier or any order, judgment, or decree known to such counsel applicable
to any of such persons or by which any of their properties are affected, or
result in a breach of, or constitute a default (or any event which with
notice or lapse of time would become a default) under, or give to others any
rights of first refusal, termination, amendment, acceleration or cancellation
of, or result in the creation of any lien or encumbrance on any of their
properties pursuant to, any notice, bond, mortgage, indenture contract,
agreement, lease or other instrument or obligation known to such counsel by
which any of such persons is bound or by which any of their properties are
affected.
1
<PAGE>
6. The execution, delivery and performance by Harlan, the Supplier and the
Harlans of the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which any such person is a
party) will not require any consent, approval, exemption, authorization or
permit of, filing with or notification, or other action by, any court,
administrative agency or governmental or regulatory authority, under any
provision in Indiana or Federal law, except for such consents and approvals
as shall have been obtained and filings which shall have been made.
7. To such counsel's knowledge, there are no actions, suits, proceedings or
governmental inquiries pending or threatened against Harlan, the Supplier or
any of the Harlans seeking to prevent the consummation of the transactions
contemplated by the Approved Supplier Agreement or which could reasonably be
expected to have a material adverse effect on the ability of any of such
persons to perform their obligations under the Approved Supplier Agreement.
Einstein Bros. acknowledges that the legal opinion referred to above will be
subject to review by Henderson, Daily's opinion committee prior to the time of
issuance of such opinion so that such opinion is consistent with prevailing
opinion letter practice at such time.
2
<PAGE>
Exhibit G
---------
Determination of
Materials Cost
--------------
<PAGE>
Exhibit G-1
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Material Costs
(Ingredient and Packaging)
By Bagel Flavor (4.0 oz)
<TABLE>
<CAPTION>
-------------------------------------
Total costs
- --------------------------------------------------------------------------------
Ingredient Packaging
Costs per Costs per Per Case
Bagel Flavor Bagel Bagel Per Bagel Per Dozen (90 Bagels)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
================================================================================
Average Cost
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit G-2
Harlan Bagel Supply Company, LLC
Summary of Ingredient costs
By Bagel Flavor
Einstein Bros. Bagels, Inc. -4.0 Ounce
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Current Costs Total Costs of
Ingredient % of Ingredient Ingredient
Flavor Ingredient Quantity of Total Flour per Unit (lbs) Used
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Total Mix Weight Total Cost -
Ingredient Cost per Dozen ( Dozen Yield) -
Ingredient Loss Factor/Dozen* -
Total cost per Dozen
Total Cost per Bagel (4.0 Ounce)
Total Cost per Case (90 - 4.0 Ounce)
- --------------------------------------------------------------------------------
</TABLE>
*As determined pursuant to Section 7.1 of the Agreement
<PAGE>
Exhibit G-3
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Packaging Costs
(Based on 90 bagels per case)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
# Req. Per Cost Per Cost Per Cost Per Cost Per
Item Case Item Case Dozen Bagel
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Box 1 - - -
Tape 50" - -
Bag Liner 3 - - -
Label 1 - - -
Shrink Wrap 1 - - -
Tie 3 - - -
- --------------------------------------------------------------------------------
Total Cost - - - -
================================================================================
</TABLE>
<PAGE>
Exhibit G-4
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Harland Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Current Ingredient Costs
- ---------------------------------------------------------------------------------------------------------------
Total Date of Last Invoice Amount
lbs. on Last ------------------------------ Cost per
Ingredient Current Vendor Order Invoice Ingredient Freight Total Pound
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Gluten Flour -
Bagel Eze - 5 -
Sugar -
Yeast -
Calcium Propionate -
Water -
Cinnamon -
Midget Raisin -
White Pepper -
Poppy Seeds -
Dry Onions - Toasted -
Onion Powder -
Liquid Whole Eggs -
Double Spice -
Blueberry Gumbits -
Frozen Blueberries -
Blueberry Flavoring -
Caraway Seeds -
Heart of Rye -
Caramel Color -
Sesame White Hulled Seeds -
Dehydrated Apple Bits -
Ground Nutmeg -
Spice Apple (Liquid) -
Apple Gumbits -
Sweet n' Neat -
Cornmeal -
- - -
- - -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit H
---------
Form of Statement
of
Independent Accountants
-----------------------
Board of Directors
Einstein Bros. Bagels, Inc.
Ladies and Gentlemen:
At your request, we have performed certain agreed upon procedures, as
enumerated below, with respect to the Statements of Materials Cost of Harlan
Bagel Supply Company, LLC, for each of the Calendar Quarters in the year ended
December 31, 19__. These procedures, which were specified by the Board of
Directors of Einstein Bros. Bagels, and the Board of Managers of Harlan Bagel
Supply Company, LLC were performed solely to meet the requirements of the
Project and Approved Supplier Agreement among Einstein Bros. Bagels, Harlan
Bagel Supply Company, LLC, and Harlan Bakeries, Inc., Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (the "Approved Supplier Agreement"). It is
understood that this report is solely for your information and should not be
used by those who did not participate in determining the procedures.
a. We have compared the costs as reported in the Statements of Materials
Cost to the costs and expenses as reflected in the general ledger of
Harlan Bagel Supply Company, LLC, and reconciled any material
differences.
b. We have compared the Statements of Materials Cost to the listing of
costs as per Exhibit G of the referenced Approved Supplier Agreement
and noted any material addition of cost categories.
c. We have compared the total reported number of bagels produced with the
Production Log and reconciled any material differences.
d. We have tested the Statements of Materials Cost for mathematical
accuracy.
Because the procedures described above do not constitute an examination of
financial statements in accordance with the Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants, we do not express an opinion on whether the financial
statement is presented in conformity with AICPA guidelines.
In connection with the procedures referred to above, no matters came to our
attention that caused us to believe that the Statements of Materials Cost were
not reflective of the general ledger, that cost categories were included that
were not reflected in Exhibit G of the Approved Supplier Agreement, that the
number of bagels reported was materially different than those
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shown on the Production Log or that any of the Statements of Materials Cost is
mathematically inaccurate. Had we performed additional procedures or had we made
an examination in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants, matters might have come to our attention that would have been
reported to you. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
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Exhibit 10.28
FORM OF FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BAGEL STORE DEVELOPMENT FUNDING, L.L.C.
(FORMERLY KNOWN AS
EINSTEIN BROS. EQUITY FUNDING, L.L.C.)
This Fourth Amended and Restated Limited Liability Company Agreement
of Bagel Store Development Funding, L.L.C. (formerly known as Einstein Bros.
Equity Funding, L.L.C.) (the "Company") is made as of July 1, 1996, among the
Persons whose names and signatures are set forth on the signature pages hereto.
RECITALS
The Company was formed pursuant to the Delaware Limited Liability
Company Act, 6 Del.C. (S)18-101, et seq., as amended from time to time (the
"Delaware Act"), on December 7, 1995. Additional Members were admitted to the
Company on December 29, 1995 and March 8, 1996 pursuant to an Amended and
Restated Limited Liability Company Agreement dated as of December 29, 1995 and a
Second Amended and Restated Limited Liability Company Agreement dated as of
March 8, 1996. The Members entered into a Third Amended and Restated Limited
Liability Company Agreement dated as of March 29, 1996 to provide for certain
changes in the manner and time of making additional Capital Contributions by the
Members.
The parties hereto desire to continue the Company as a limited
liability company under the Delaware Act and to provide for certain changes in
the governance and operations of the Company.
COVENANTS
In consideration of the agreements and obligations set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1 DEFINITIONS. Unless the context otherwise requires, the
terms defined in this Article I shall, for the purposes of this Agreement, have
the meanings herein specified.
"Additional Funding" has the meaning given it in Section 4.1.1.
"Additional Funding Obligation" has the meaning given it in Section
4.1.1.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified Person. As used in this definition, the term "control"
means the possession, directly or indirectly, of the
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Power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreement" means this Limited Liability Company Agreement, as
amended, modified, supplemented or restated from time to time.
"Area Developer" means a Person who has entered into an area
development agreement with Bagel Corp. and in whom Bagel Corp. has made an
investment in the form of convertible debt.
"Assignee" means any Person who is an assignee of a Member's interest
in the Company, or part thereof, and who does not become a Member pursuant to
Section 13.1 hereof.
"Bagel Corp." means Einstein/Noah Bagel Corp., a Delaware
corporation.
"Bankruptcy" has the meaning given it in Section 18-101 of the
Delaware Act.
"BCI" means Boston Chicken, Inc., a Delaware corporation.
"Capital Account" means, with respect to any Member or Assignee, the
account maintained for such Member or Assignee in accordance with the provisions
of Section 4.4 hereof.
"Capital Contribution" means, with respect to any Member, the
aggregate amount of money actually contributed to the Company pursuant to
Section 4.1 hereof with respect to the Units held by such Member. In the case
of a Member or Assignee who acquires an interest in the Company by virtue of an
assignment in accordance with the terms of this Agreement, "Capital
Contribution" has the meaning set forth in Section 4.4.1 hereof.
"Cause" for the removal of Bagel Corp. as Manager means (i) a failure
by Bagel Corp. as Manager to make any distribution when required by the terms of
this Agreement, (ii) a failure by Bagel Corp. as Manager to deliver to the
Members the financial statements and other information required to be delivered
by Section 10.1.2 or (iii) any other violation of this Agreement by Bagel Corp.
as Manager.
"Certificate" means the Certificate of Formation and any and all
amendments thereto and restatements thereof filed on behalf of the Company with
the office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section of the Code refers not only to
such specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"Company" means Bagel Store Development Funding, L.L.C., the limited
liability company heretofore formed under the name Einstein Bros. Equity
Funding, L.L.C. and continued under and pursuant to the Delaware Act and this
Agreement.
"Covered Person" means a Member, any Manager, any Affiliate of a
Member or of any Manager, any officers, directors, shareholders, partners,
employees, representatives or agents of a Member, any Manager or their
respective Affiliates, any member of the Advisory Committee or designated
alternate to the Advisory Committee, or any officer, employee or agent
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of the Company or its Affiliates, including without limitation Bagel Corp. and
its officers, directors, shareholders and employees at any time that Bagel Corp.
is providing services to the Company.
"Delaware Act" means the Delaware Limited Liability Company Act, 6
Del.C. (S) 18-101, et seq., as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Member" means a Member which is (i) an "Employee Benefit Plan"
within the meaning of and subject to the provisions of ERISA, (ii) a "Plan"
within the meaning of and subject to Section 4975 of the Code or (iii) an entity
the assets of which constitute assets of an Employee Benefit Plan or a Plan
under Department of Labor Regulations 29 C.F.R. Section 2510.3-101.
"Fiscal Year" means the accounting period selected by the Manager or
Managers or any portion of such period for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to Article VIII hereof.
"Gross Asset Value" means, with respect to any asset, such asset's
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as
agreed to by the contributing Member and the Manager or Managers;
(ii) the Gross Asset Value of all Company assets shall be adjusted to
equal their respective gross fair market values, as determined by the
Manager or Managers, as of the following times: (a) the acquisition of an
additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member or Assignee of more than a de
minimis amount of Company assets as consideration for an interest in the
Company; and (c) the liquidation of the Company within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g); provided, however, that
adjustments pursuant to clause (a) and clause (b) of this sentence shall be
made only if the Manager or Managers reasonably determine that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members and Assignees in the Company; and
(iii) the Gross Asset Value of any Company asset distributed to any
Member or Assignee shall be the gross fair market value of such asset on
the date of distribution, as determined by the distributee Member or
Assignee and the Manager or Managers.
"Liquidating Trustee" has the meaning set forth in Section 14.3
hereof.
"Majority Vote" means, with respect to any group of Members as of any
particular time, the vote of Members in such group whose Units at such time
exceed one-half of the outstanding Units of all Members in such group at such
time and whose Capital Account balances at such time exceed one-half of the
outstanding Capital Account balances of all Members in such group at such time,
in each case ignoring any Units or Capital Account balances held by Assignees.
"Manager" or "Managers" means the Person or Persons designated by the
Members in Article VI hereof as the manager of the Company within the meaning of
the
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Delaware Act and shall include all successors appointed pursuant to the
provisions of this Agreement. References to the "Manager", the "Managers" or the
"Manager or Managers" shall all be construed to refer to the Person or Persons
then serving as Managers of the Company.
"Member" means any Person named as a member of the Company on Schedule
A hereto and includes any Person admitted as a Substitute Member pursuant to the
provisions of this Agreement, and "Members" means two or more of such Persons
when acting in their capacities as members of the Company. For purposes of the
Delaware Act, the Members shall constitute one class or group of members.
"Other Business Entity" has the meaning given it in Section 18-209 of
the Delaware Act.
"Permitted Temporary Investments" means Treasury securities, bank
certificates of deposit and time deposits, in each case having a maturity of one
year or less, commercial paper or money-market instruments.
"Person" includes any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company, or other legal entity or organization.
"Profits" and "Losses" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such Fiscal Year, determined in
accordance with Section 703(a) of the Code (but including in taxable income or
loss, for this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to Section 703(a)(1) of the Code), with the
following adjustments:
(i) any income of the Company exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be added to such taxable income or loss;
(ii) any expenditures of the Company described in Section 705(a)(2)(B)
of the Code (or treated as expenditures described in Section 705(a)(2)(B)
of the Code pursuant to Treasury Regulation Section 1.704-1 (b)(2)(iv)(i))
and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be subtracted from such taxable income or
loss;
(iii) in the event the Gross Asset Value of any Company asset is
adjusted in accordance with paragraph (ii) or paragraph (iii) of the
definition of "Gross Asset Value" above, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses; and
(iv) gain or loss resulting from any disposition of any asset of the
Company with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value.
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 13.1 hereof, and who is named as a Member on Schedule
A to this Agreement.
"Tax Matters Partner" has the meaning set forth in Section 11.1
hereof.
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"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Unit" means an interest in the Company representing such fractional
part of the interest of all Members and Assignees pursuant to this Agreement as
is equal to one divided by the total number of Units.
ARTICLE II
CONTINUATION AND TERM
SECTION 2.1 CONTINUATION.
2.1.1 The Members hereby agree to continue the Company as a
limited liability company under and pursuant to the provisions of the
Delaware Act and agree that the rights, duties and liabilities of the
Members and the Managers shall be as provided in the Delaware Act,
except as otherwise provided herein.
2.1.2 The name and mailing address of each Member and Assignee
shall be listed on Schedule A attached hereto. The Manager or
Managers shall update Schedule A from time to time as necessary to
accurately reflect the information therein. Any amendment or revision
to Schedule A made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this
Agreement to Schedule A shall be deemed to be a reference to Schedule
A as amended and in effect from time to time.
SECTION 2.2 NAME. The name of the Company continued hereby is Bagel
Store Development Funding, L.L.C. The business of the Company may be conducted
upon compliance with all applicable laws under any other name designated by the
Managers. The Managers may amend the Certificate to change the name of the
Company to any name designated by the Managers.
SECTION 2.3 TERM. The term of the Company commenced on the date the
Certificate was filed in the office of the Secretary of State of the State of
Delaware and shall continue until December 31, 2005, unless dissolved before
such date in accordance with the provisions of this Agreement.
SECTION 2.4 REGISTERED AGENT AND OFFICE. The Company's registered
agent and office in Delaware shall be The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. At any time, the
Managers may designate another registered agent and/or registered office.
SECTION 2.5 PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Company shall be at 1526 Cole Boulevard, Suite 200, Golden, CO
80401-4086. Upon ten days notice to the Members, the Managers may change the
location of the Company's principal place of business.
SECTION 2.6 QUALIFICATION IN OTHER JURISDICTIONS. The Managers may
cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or
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similar laws in any jurisdiction in which the Company transacts business. Any
Manager, as an authorized person, within the meaning of the Delaware Act, may
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
SECTION 3.1 PURPOSE. The Company is formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Company is, (i) investing in equity securities of Area Developers, (ii)
investing in warrants to purchase shares of Bagel Corp. and (iii) engaging in
any and all activities necessary or incidental to the foregoing and any other
legal business.
SECTION 3.2 POWERS OF THE COMPANY. The Company shall have the power
and authority to take any and all actions necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purpose set
forth in Section 3.1, including, but not limited to, the power:
(a) to conduct its business, carry on its operations and have and
exercise the powers granted to a limited liability company by the
Delaware Act in any state, territory, district or possession of the
United States, or in any foreign country that may be necessary,
convenient or incidental to the accomplishment of the purposes of the
Company;
(b) subject to the provisions of Section 3.1, to purchase, take,
receive, subscribe for or otherwise acquire, own, hold, vote, use,
employ, sell, mortgage, lend, pledge or otherwise dispose of, and
otherwise use and deal in and with, shares or other interests in or
obligations of Area Developers and Bagel Corp., or rights to acquire
any of the foregoing;
(c) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge or
otherwise dispose of, and otherwise use and deal in and with Permitted
Temporary Investments;
d) to enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with any Manager or any
Member or any Affiliate of any of them, or any agent of the Company
necessary to, in connection with, convenient to, or incidental to the
accomplishment of the purpose of the Company;
(e) to lend money;
(f) to sue and be sued, complain and defend, and participate in
administrative or other proceedings, in its name;
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(g) to elect and designate one or more managers of the Company in
accordance with Article VI hereof and to appoint officers, employees
and agents of the Company, and define their duties and fix their
compensation;
(h) to indemnify any Person in accordance with the Delaware Act;
(i) to cease its activities and cancel its Certificate;
(j) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any contract or security agreement in
respect of any assets of the Company;
(k) to borrow money and issue evidences of indebtedness, and to
secure the same by a mortgage, pledge or other lien on the assets of
the Company;
(l) to take actions to protect and preserve the Company's assets,
including insuring the business and assets of the Company against
risks;
(m) to hold Company assets in the name of the Company or in the
name of one or more nominees;
(n) to open one or more bank accounts in the name of the Company
or in any other name in which the Company's funds are to be held, make
deposits therein, draw funds therefrom and deal in or with the
Company's funds;
(o) to make distributions of the Company's funds or assets to the
Members as provided for by this Agreement;
(p) to make such income tax elections as may be appropriate or
desirable, as contemplated by the Code and the Treasury Regulations;
prepare and file tax returns for the Company with federal, state and
local authorities; file amendments to such returns; participate in
audits of such returns; consent to extensions relating to such
returns; execute documents relating to the settlement of tax
proceedings involving the Company or its tax returns; participate in
administrative and judicial proceedings, including appeals, relating
to the Company's tax returns or its tax liabilities; and settle issues
relating to the Company's federal and, to the extent required, state
and local income tax returns even though the Members rather than the
Company shall be subject to tax as so determined;
(q) to pay, collect, compromise, litigate, arbitrate or otherwise
adjust or settle any and all other claims or demands of or against the
Company or to hold such proceeds against the payment of contingent
liabilities; and
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(r) to make, execute, acknowledge and file any and all documents
or instruments necessary, convenient or incidental to the
accomplishment of the purposes of the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS,
UNITS, CAPITAL ACCOUNTS AND ADVANCES
SECTION 4.1 CAPITAL CONTRIBUTIONS.
4.1.1 Each Member has contributed to the capital of the Company
the amount set forth opposite the Member's name on Schedule A attached
hereto. In addition, each Member agrees to contribute to the Company
in the future the aggregate amount set forth opposite such Member's
name on Schedule A under the heading Additional Capital Subscription
at the time or times called for by the Manager or Managers on not less
than 30 days written notice (a "Capital Call"). The Manager or
Managers may not require that any portion of the Additional Capital
Subscription be paid on a date earlier than October 1, 1996 or later
than December 31, 1998 and may not require that the total amount of
the Additional Capital Subscription be paid in more than two
installments, each of which shall be for at least 20% of the Members'
aggregate Additional Capital Subscriptions. The making of each such
additional Capital Contribution is referred to herein as an
"Additional Funding" and the amount each Member is obligated to
contribute at an Additional Funding is referred to as such Member's
"Additional Funding Obligation."
4.1.2 Until March 31, 1996, the Manager may admit additional
Members or accept increased Capital Contributions from Members;
provided that all Capital Contributions shall be on the same terms.
No revaluation of the Company's assets shall be made in connection
with such admission or increase, it being the intention to treat all
such Members as if admitted on the date of this Agreement.
4.1.3 The Members agree that the prompt payment of each
Additional Funding Obligation is of the essence of this Agreement,
that failure of any Member to make such payments will cause injury to
the Company and the other Members and that the amount of damages
caused by such injury will be extremely difficult to calculate.
Accordingly, the Members agree that if a Member fails to pay any of
such Member's Additional Funding Obligations within three days of the
date it is due, or such longer period as the Manager or Managers may
in its or their sole discretion determine (but in no event longer than
45 days), the Company shall treat such defaulting Member's interest in
future Profits of the Company as terminated; and such defaulting
Member shall be entitled to receive from the Company 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), such amount to be
payable without interest at the expiration of the term of the Company.
Upon
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such default, the defaulting Member shall cease to have any rights as
a Member except as described in the preceding sentence.
4.1.4 Notwithstanding Section 4.1.3, if at any time before a
date on which any Additional Funding Obligation is payable any ERISA
Member shall obtain and deliver to the Managers an opinion of
independent legal counsel, which counsel and opinion are acceptable to
the Managers (which acceptance the Managers shall not unreasonably
withhold) to the effect that such Member is an ERISA Member and there
is a material likelihood that the payment of such Additional Funding
Obligation would either (i) cause or constitute a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code or
(ii) cause the assets of the Company to constitute plan assets for
purposes of ERISA, then such Member shall be released from any further
obligation to pay such Additional Funding Obligation.
4.1.5 Upon any default described in Section 4.1.3 or any release
described in Section 4.1.4, the Managers may designate any person to
assume the entire unpaid balance of the Additional Funding Obligation
(and the future Additional Funding Obligation, if any) of the
defaulting or released Member and become a Member entitled to share in
the profits and losses of the Company as determined pursuant to this
Agreement. The Managers agree to offer the opportunity to pay such
Additional Funding Obligation to the Members who are not in default or
released, pro rata to their Capital Contributions, prior to offering
such opportunity to third parties. Any Member who fails to accept
such offer in writing within fifteen (15) days after it is made shall
be deemed to have rejected the offer.
4.1.6 The remedies provided in this Section 4.1 are in addition
to and not in limitation of any other right or remedy of the Company
provided by law or under this Agreement. In the event of any legal
proceedings relating to default by a Member, if the Company shall
prevail, such Member shall pay (i) all costs and expenses incurred by
the Company, including attorneys' fees, and (ii) interest on the
unpaid Additional Funding Obligation at a per annum rate equal to the
lesser of the maximum interest rate permitted by law or the rate of
interest publicly announced from time to time by Bank of America
Illinois, Chicago, Illinois (or its successor in interest), as its
Prime Rate (or its equivalent) for United States Dollar loans, plus
4%.
SECTION 4.2 UNITS. A Member or Assignee's interest in the Company
shall be represented by the "Unit" or "Units" held by such Member or Assignee.
Each Member or Assignee's respective Units shall be set forth on Schedule A
attached hereto. Each Member hereby agrees that its interest in the Company and
in its Units shall for all purposes be personal property. A Member or Assignee
has no interest in specific Company property.
SECTION 4.3 STATUS OF CAPITAL CONTRIBUTIONS.
4.3.1 No Member or Assignee shall have the right to withdraw its
Capital Contribution or Capital Account or to receive any interest,
salary or drawing with respect to its Capital Contributions or its
Capital Account or for
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services rendered on behalf of the Company or otherwise in its
capacity as a Member or Assignee, except as otherwise specifically
provided in this Agreement.
4.3.2 Except as otherwise provided herein and by applicable
state law, the Members shall be liable only to make their Capital
Contributions (including the Additional Funding Obligations) pursuant
to Section 4.1 hereof, and no Member or Assignee shall be required to
lend any funds to the Company or, after a Member's Capital
Contributions (including the Additional Funding Obligations) have been
fully paid pursuant to Section 4.1 hereof, to make any additional
Capital Contributions to the Company. No Member or Assignee shall
have any personal liability for the repayment of any Capital
Contribution of any other Member or Assignee.
SECTION 4.4 CAPITAL ACCOUNTS.
4.4.1 An individual Capital Account shall be established and
maintained for each Member. The original Capital Account established
for any Member or Assignee who acquires an interest in the Company by
virtue of an assignment in accordance with the terms of this Agreement
shall be in the same amount as, and shall replace, the Capital Account
of the assignor of such interest, and, for purposes of this Agreement,
such Member or Assignee shall be deemed to have made the Capital
Contributions made by the assignor of such interest (or made by such
assignor's predecessor in interest) and to have assumed the
obligation, if any, to pay the Additional Funding Obligations of the
assignor of such interest (or the obligation of such assignor's
predecessor in interest); provided, however, that the assignor of such
interest shall not be relieved of the obligation to pay the Additional
Funding Obligations until such Additional Funding Obligations are in
fact paid by such Member or Assignee. To the extent such Member or
Assignee acquires less than the entire interest in the Company of the
assignor of the interest so acquired by such Member or Assignee, the
original Capital Account of such Member or Assignee and its Capital
Contributions and obligation to pay the Additional Funding Obligations
shall be in proportion to the interest it acquires, and the Capital
Account of the assignor who retains a partial interest in the Company,
and the amount of its Capital Contributions shall be reduced in
proportion to the interest it retains.
4.4.2 The Capital Account of each Member or Assignee shall be
maintained in accordance with the following provisions:
(a) to such Member or Assignee's Capital Account there shall
be credited such Member or Assignee's Capital Contributions, such
Member or Assignee's distributive share of Profits and the amount
of any Company liabilities that are assumed by such Member or
Assignee or that are secured by any Company assets distributed to
such Member or Assignee;
(b) to such Member or Assignee's Capital Account there shall
be debited the amount of cash and the Gross Asset Value of any
Company assets distributed to such Member or Assignee pursuant to
any provision
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of this Agreement, such Member or Assignee's distributive share
of Losses and the amount of any liabilities of such Member or
Assignee that are assumed by the Company or that are secured by
any property contributed by such Member or Assignee to the
Company; and
(c) in determining the amount of any liability for purposes
of this Section 4.4.2, there shall be taken into account Section
752(c) of the Code and any other applicable provisions of the
Code and the Treasury Regulations.
SECTION 4.5 ADVANCES. If any Member or Assignee shall advance any
funds to the Company in excess of its Capital Contributions, the amount of such
advance shall neither increase its Capital Account nor entitle it to any
increase in its share of the distributions of the Company. The amount of any
such advance shall be a debt obligation of the Company to such Member or
Assignee and shall be repaid to it by the Company with interest at a per annum
rate equal to the lesser of (i) the rate of interest publicly announced from
time to time by Bank of America Illinois, Chicago, Illinois (or its successor in
interest), as its Prime Rate (or its equivalent) for United States Dollar Loans,
plus 1%, and (ii) the maximum rate permitted by applicable law, and upon such
other terms and conditions as shall be mutually determined by such Member or
Assignee and the Manager or Managers. Any such advance shall be payable and
collectible only out of Company assets, and the other Members and Assignees
shall not be personally obligated to repay any part thereof.
ARTICLE V
MEMBERS
SECTION 5.1 POWERS OF MEMBERS. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement. The Members shall also have the power to
authorize the Manager or Managers, by Majority Vote of the Members, to possess
and exercise any right or power not already vested in the Managers pursuant to
Section 6.4 or any other provision of this Agreement. The Members shall not
have the power to bind the Company.
SECTION 5.2 PARTITION. Each Member waives, until termination of the
Company, any and all rights that it may have to maintain an action for partition
of the Company's property.
SECTION 5.3 RESIGNATION OF MEMBERS. A Member may not resign from the
Company without the written consent of the Manager or Managers.
SECTION 5.4 ADVISORY COMMITTEE.
5.4.1 The Company shall have an Advisory Committee consisting of
three persons, as determined by the Manager, none of whom shall be an
officer, director or employee of Bagel Corp. or BCI. The members of
the Advisory Committee shall be nominated by the Manager and approved
by a Majority Vote of Members. Replacement members of the Advisory
Committee shall be selected in the same manner. The Members hereby
agree that the members of the Advisory Committee on the date of this
Agreement shall be Perry J. Lewis, J. Christopher Reyes and Alberto
Finol. The Advisory Committee shall (i)
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determine, at the time such right becomes exercisable, whether the
Company should exercise any right held by it to cause an Area
Developer to purchase from the Company the Company's equity interest
in such Area Developer, (ii) determine, at the time such right becomes
exercisable, whether the Company should exercise any right held by it
to require an Area Developer to undertake an underwritten public
offering, (iii) determine, at the time such right becomes exercisable,
whether the Company should exercise any right held by it to require an
Area Developer to seek to terminate its area development agreement and
franchise agreements with Bagel Corp., (iv) determine whether the
Company should sell its equity interest in an Area Developer to such
Area Developer or Bagel Corp. at a price different from the "Put
Price" as defined in the governing documents of the Area Developer at
the time the Company acquired its equity interest, (v) consult with
the Manager with respect to any matters requested by the Manager
concerning the Company's investments, (vi) resolve any questions with
respect to potential conflicts of interest between the Company, on the
one hand, and the Manager, on the other hand, as may be presented by
the Manager to the Advisory Committee, (vii) whenever the Company
holds equity interests in an Area Developer which entitle the Company
to vote with respect to (a) the election of the Manager of the Area
Developer, (b) the approval or disapproval of any merger,
consolidation or sale of substantially all of the assets of such Area
Developer or (c) an amendment to the governing documents of the Area
Developer, determine the manner in which the Company should vote such
equity interests and (viii) perform such other functions and have such
other powers as are expressly provided for in this Agreement.
5.4.2 The Advisory Committee shall have the authority to adopt
rules and procedures, not inconsistent with this Agreement, relating
to the conduct of its affairs. All actions taken by the Advisory
Committee shall be authorized by a majority of the Advisory Committee
members then serving as members. Each member of the Advisory
Committee shall be entitled to 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 the place and stead of
such member with the same authority and effect as such member.
Members of the Advisory Committee and their alternates shall receive
no fees from the Company for their services, but shall be entitled to
reimbursement from the Company for reasonable travel, lodging and
similar expenses incurred in connection therewith.
5.4.3 The members of the Advisory Committee shall exercise their
best judgment in carrying out their functions for the Company. The
members of the Advisory Committee shall not be liable to the Company
or any Member for any mistakes of judgment or for losses due to such
mistakes or by reason of any act or omission performed or omitted in
good faith and in a manner reasonably believed to be within the scope
of authority conferred on such Advisory Committee by this Agreement.
5.4.4 From and after the time that Bagel Corp. ceases to be the
Manager pursuant to Article VI hereof, the Advisory Committee shall be
disbanded and shall have no further authority with respect to the
Company.
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ARTICLE VI
MANAGERS
SECTION 6.1 DESIGNATION OF MANAGERS. The management of the Company's
business shall be vested in one or more Managers designated by the Members as
hereinafter provided. A Manager may be but need not be a Member. The Members
hereby agree to continue Bagel Corp. as the initial Manager, and Bagel Corp.
agrees to be bound by the terms and conditions of this Agreement. Bagel Corp.
shall be the Manager for a term ending on April 20, 1997.
SECTION 6.2 DESIGNATION OF SUCCESSOR MANAGERS. The Members hereby
agree that, effective April 21, 1997 or at such earlier time as Bagel Corp.
ceases to be the Manager of the Company as a result of its removal or
resignation as provided in this Agreement, the members of the Advisory Committee
immediately prior to the time it is disbanded pursuant to Section 5.4.4 hereof
shall each become, without further action by the Members, a Manager of the
Company and a member of the Board of Managers. The Board of Managers shall act
as provided in Section 6.3 hereof. Each of the members of the Advisory Committee
named in Article V has executed a copy of this Agreement accepting and agreeing
to the terms and conditions of this Agreement and to serve as a Manager and a
member of the Board of Managers as provided herein. In the event that any
replacement members of the Advisory Committee are selected as provided in
Article V, each such member shall be required as a condition of becoming a
member of the Advisory Committee to execute a copy of this Agreement accepting
and agreeing to the terms and conditions of this Agreement and to serve as a
Manager and a member of the Board of Managers as provided herein. On or about
April 1 of each year commencing in 1998, the Board of Managers will submit the
names of its nominees for Managers to the Members. Each nominee who is elected
by a Majority Vote of the Members shall serve as a Manager and a member of the
Board of Managers until he dies, resigns, is removed as provided herein or
becomes unable to fulfill the duties of a Manager and member of the Board of
Managers or (if such Manager is not renominated by the Board of Managers or
fails to be elected by a Majority Vote of the Members) until a successor is
elected by a Majority Vote of the Members. In the event of a vacancy as the
result of the death, resignation, removal or incapacity of a member of the Board
of Managers, the remaining members of the Board of Managers shall promptly
submit the name of its nominee as a successor Manager to the Members. Such
nominee shall become a Manager and a member of the Board of Managers if he
receives a Majority Vote of the Members. If any nominee at any time fails to
receive a Majority Vote of the Members, the Board of Managers shall submit the
name of a different nominee to the Members. No Manager may be an officer,
director or employee of Bagel Corp. or of BCI.
SECTION 6.3 ACTION BY THE BOARD OF MANAGERS. After Bagel Corp.
ceases to be the Manager of the Company, the successor Managers shall act
collectively as the Board of Managers, which shall consist of three Managers.
The Board of Managers may act by a majority vote of its members at a meeting
(which may be conducted by conference telephone) or by a written consent signed
by a majority of its members. Notice of any action taken by a consent signed by
less than all of the members of the Board of Managers shall be given to any
member who did not sign such consent. Each member of the Board of Managers and
any officer of the Company shall be authorized to execute any document or take
any action on behalf of the Company if such document or action has been approved
by the Board of Managers. The Board of Managers may make additional rules to
facilitate its management of the Company.
SECTION 6.4 POWER AND AUTHORITY OF THE MANAGERS. Subject to the
limitations expressly set forth in this Agreement, the business and affairs of
the Company shall be managed by the Managers, and, except as provided in Section
5.4 hereof, the Managers shall have full authority to act for and to bind the
Company in all matters in connection with or
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relating to the Company's business, including, without limitation, directing the
investment of the Company's assets in Area Developers in the sole discretion of
the Managers. No Person dealing with the Company shall be required to inquire as
to the authority of any Manager or any officer of the Company to take any action
on behalf of the Company.
SECTION 6.5 LIMITATIONS ON THE MANAGERS' POWERS. Notwithstanding the
provisions of Section 6.4, the Managers shall not have the power to take any of
the following actions unless such actions have been approved by a Majority Vote
of the Members (and, in the case of an amendment to this Agreement, such
additional approvals as are required by Section 7.2 hereof):
(a) to make investments other than (i) Permitted Temporary
Investments, (ii) shares or other interests in or obligations of Area
Developers and Bagel Corp. or (iii) rights to acquire any of the
foregoing;
(b) to cause the Company to merge with, or consolidate into,
another Delaware limited liability company or Other Business Entity;
(c) to amend this Agreement; or
(d) to dissolve the Company except as provided in Section 14.2
hereof.
SECTION 6.6 MANAGEMENT FEES AND REIMBURSEMENT.
6.6.1 While Bagel Corp. is the Manager it shall receive from the
Company a one-time fee in the amount of $500,000 payable in four equal
quarterly installments not later than the end of each 1996 fiscal
quarter of the Manager and a management fee of $50,000 for the first
calendar quarter of 1997, payable not later than the end of such
quarter.
6.6.2 Beginning at the time that the members of the Board of
Managers become the successor Managers, each member of the Board of
Managers shall receive an annual management fee equal to $33,333 or
such lesser amount for any Manager as the Board of Managers may
approve, payable in equal quarterly installments not later than the
end of each calendar quarter.
6.6.3 The Company shall reimburse each Manager for all ordinary
and necessary out-of-pocket expenses incurred by the Manager on behalf
of the Company, including without limitation any fees and expenses (i)
incurred in connection with the organization of the Company, (ii)
incurred in connection with any investment made by the Company or
(iii) paid to Bagel Corp. for services rendered to the Company after
Bagel Corp. has ceased to be the Manager.
6.6.4 Management fees paid pursuant to Section 6.6.1 or Section
6.6.2 and amounts reimbursed pursuant to Section 6.6.3 shall be
treated as expenses of the Company and shall not be deemed to
constitute a distributive share of Profits or a distribution to any
Manager.
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SECTION 6.7 REMOVAL OF MANAGER. While Bagel Corp. is the Manager it
may be removed with Cause at any time by a vote of Members holding more than
two-thirds of the outstanding Units, ignoring for this purpose any Units held by
Assignees. Bagel Corp. may be removed as the Manager without Cause at the end
of any Fiscal Year upon not less than 90 day prior written notice by a vote of
Members holding more than four-fifths of the outstanding Units. If the removal
of Bagel Corp. is for Cause, the removal shall not be effective unless and until
the Members voting to remove Bagel Corp. as the Manager shall have given Bagel
Corp. a written notice specifying the basis for the removal and Bagel Corp.
shall not have acted to remedy such basis within 60 days after such notice is
given. Once Bagel Corp. has ceased to be the Manager, any member of the Board
of Managers may be removed at any time, with or without Cause, by a vote of
Members holding more than two-thirds of the outstanding Units.
SECTION 6.8 RESIGNATION OF MANAGER. Any Manager may resign at any
time upon notice to the Members.
SECTION 6.9 OFFICERS. The Company shall have a president, one or
more vice presidents, a secretary and such assistant secretaries and other
officers as shall be determined by the Managers, and the authority and duties of
each officer shall be determined by the Managers. All officers shall be
appointed by the Managers and may be removed at any time by the Managers with or
without cause. Officers shall not be entitled to receive compensation from the
Company for serving as officers. The initial officers of the Company shall be:
Michael Beaudoin, President; David White, Vice President; Mark Hayden, Vice
President; Paul Strasen, Vice President and Assistant Secretary; and Joel Alam,
Vice President and Secretary.
ARTICLE VII
MEETINGS; AMENDMENTS; MERGER
OR CONSOLIDATION
SECTION 7.1 MEETINGS OF THE MEMBERS.
7.1.1 Meetings of the Members may be called by the Managers and
shall state the location of the meeting and the nature of the business
to be transacted. Notice of any such meeting shall be given to all
Members not less than seven business days nor more than thirty days
prior to the date of such meeting. Members may vote in person or by
proxy at such meeting. Whenever a vote, consent or approval of
Members is permitted or required under this Agreement, such vote,
consent or approval may be given at a meeting of Members or may be
given in accordance with the procedure prescribed in Section 7.1.5.
Except as otherwise expressly provided in this Agreement, the Majority
Vote of the Members shall be required to constitute the act of the
Members.
7.1.2 For the purpose of determining the Members entitled to
vote on, or to vote at, any meeting of the Members or any adjournment
thereof, the Managers may fix, in advance, a date as the record date
for any such determination. Such date shall not be more than thirty
days nor less than ten business days before any such meeting.
7.1.3 Each Member may authorize any Person to act for it by
proxy on all matters in which a Member is entitled to participate,
including waiving notice of any meeting, or voting or participating at
a meeting. Every proxy must be
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signed by the Member or its attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Member executing it.
7.1.4 Each meeting of Members shall be conducted by the Managers
or by such other Person that the Managers designate.
7.1.5 Any action which may be taken at a meeting of Members may
be taken without a meeting, without prior notice and without a vote,
if a consent or consents in writing, setting forth the action so
taken, shall be signed by Members having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting and shall be delivered to the Company by delivery
to its registered office, its principal place of business or to an
officer or agent of the Company having custody of the books in which
proceedings of Members are recorded. Delivery made to the Company's
registered office shall be by hand or by certified or registered mail,
return receipt requested.
SECTION 7.2 AMENDMENTS. Except as provided in Section 14.2, any
amendment to this Agreement shall be adopted and be effective as an amendment
hereto only if it receives the approval of the Manager or Managers and a
Majority Vote of the Members; provided, however, that no such amendment shall
(i) extend the term of the Company beyond that permitted by Section 2.3, (ii)
change the purpose of the Company from that set forth in Section 3.1, (iii)
alter the Capital Account of any Member, (iv) change the allocation provisions
of Article VIII hereof, (v) alter the respective interests of the Members in
distributions made by the Company, (vi) increase the liabilities of any Member
beyond those provided for in Section 12.1, (vii) cause the Company to cease to
qualify as a limited liability company under the Delaware Act or (viii) amend
this Section 7.2 to delete or alter any of clauses (i) through (viii), in each
case without the consent of any Member adversely affected thereby, and, in the
case of an amendment described in clause (i), (ii) or (vii), without the consent
of all of the Members and, in the case of an amendment affecting the provisions
of Sections 4.1, 6.7 or 9.1, without the consent of Members owning two-thirds of
the Units.
SECTION 7.3 MERGER OR CONSOLIDATION. The Company may merge with, or
consolidate into, one or more other Delaware limited liability companies or
Other Business Entities only with the approval of the Managers and a Majority
Vote of the Members.
ARTICLE VIII
ALLOCATIONS
SECTION 8.1 PROFITS AND LOSSES. Subject to the allocation rules of
Section 8.2 hereof, Profits and Losses for any Fiscal Year shall be allocated
among the Members and Assignees in proportion to the number of Units held by
each of them; provided, however, that if any Member's interest in Profits has
been terminated pursuant to Section 4.1.3, Profits shall be allocated among the
Members other than the defaulting Member in accordance with their respective
Units and Losses shall be allocated among all of the Members, including the
defaulting Member, in accordance with their respective Units.
SECTION 8.2. ALLOCATION RULES.
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8.2.1 In the event Members are admitted to the Company pursuant
to this Agreement after March 31, 1996, the Profits or Losses
allocated to the Members and Assignees for each Fiscal Year during
which Members are so admitted shall be allocated among the Members and
Assignees in proportion to the number of Units each holds from time to
time during such Fiscal Year in accordance with Section 706 of the
Code, using any convention permitted by law and selected by the
Managers.
8.2.2 For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such
other items shall be determined on a daily, monthly or other basis, as
determined by the Managers using any method that is permissible under
Section 706 of the Code and the Treasury Regulations thereunder.
8.2.3 Except as otherwise provided in this Agreement, all items
of Company income, gain, loss, deduction and any other allocations not
otherwise provided for shall be divided among the Members and
Assignees in the same proportions as they share Profits and Losses for
the Fiscal Year in question.
SECTION 8.3 TAX ALLOCATIONS.
8.3.1 In accordance with Section 704(c) of the Code and the
Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company
shall, solely for income tax purposes, be allocated among the Members
and Assignees so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax
purposes and its initial Gross Asset Value (computed in accordance
with Section 1.1 hereof).
8.3.2 In the event the Gross Asset Value of any Company asset is
adjusted pursuant to paragraph (ii) of the definition of "Gross Asset
Value" contained in Section 1.1 hereof, subsequent allocations of
income, gain, loss and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same
manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder.
8.3.3 Any elections or other decisions relating to allocations
under this Section 8.3, including the selection of any allocation
method permitted under proposed Treasury Regulation Section 1.704-
1(c), shall be made by the Managers in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations
pursuant to this Section 8.3 are solely for purposes of federal, state
and local taxes and shall not affect, or in any way be taken into
account in computing, any Member or Assignee's Capital Account or
share of Profits, Losses, other items or distributions pursuant to any
provision of this Agreement.
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ARTICLE IX
DISTRIBUTIONS
SECTION 9.1 DISTRIBUTIONS. Except as otherwise provided in Article
XIV (relating to the dissolution of the Company) or in this Section 9.1, all
distributions shall be made at such times and in such amounts as shall be
determined by the Managers. All distributions shall be made to the Members and
Assignees in proportion to the number of Units held by each of them. Any
distribution of Capital Contributions that have never been invested in any Area
Developer may be made only if the Managers have received written notice from
Bagel Corp. that no further opportunities to invest in any Area Developer will
be available for a period of at least six months. Except as provided in the
next sentence, any distributions of cash received by the Company with respect to
its equity interest in any Area Developer, whether or not denominated as tax
distributions, shall be promptly distributed by the Company to the Members. The
proceeds (whether in the form of cash or capital stock of Bagel Corp. or BCI) of
any redemption or sale (net of any expenses of such redemption or sale and after
payment of any expenses described in Section 6.6) of any equity interest in an
Area Developer owned by the Company shall be distributed promptly to the
Members; provided, however, that, to the extent that they do not exceed the
amount of capital invested by the Company in the redeeming Area Developer, the
net proceeds of any such redemption or sale occurring on or before June 30, 1997
may be re-invested in accordance with the provisions of Section 3.1 if the
Managers determine to do so. Any warrant or other right held by the Company to
acquire stock of Bagel Corp. shall be distributed to the Members and Assignees
on the later of the date that is (i) six months after the closing of the initial
underwritten public offering of shares of common stock of Bagel Corp. or any
successor to Bagel Corp. or (ii) four months after the payment of the last
Additional Funding Obligation, but in no event later than the date that is six
months prior to the expiration date of such warrant or other right.
SECTION 9.2 WITHHELD TAXES. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any Member
or Assignee shall be treated as a Distribution to the respective Member or
Assignee pursuant to this Article IX for all purposes of this Agreement, except
to the extent such amount exceeds the amount distributed (or treated as
distributed) pro rata to the Members and Assignees in accordance with their
Units, which excess shall be treated as a loan to the respective Member or
Assignee and shall be repaid by the respective Member or Assignee receiving such
loan at the time that the Company is required to pay over such amount to any
federal, state or local government. The Managers are authorized to withhold
from distributions, or with respect to allocations, to the Members or Assignees
and to pay over to any federal, state or local government any amounts required
to be so withheld pursuant to the Code or any provision of any other federal,
state or local law and shall allocate such amounts to those Members or Assignees
with respect to which such amounts were withheld. If the Managers conclude that
the Company is required to withhold any amount as described in the preceding
sentence, it shall provide prompt written notice to the Members and Assignees of
the reasons it believes that the Company is required to so withhold and an
explanation of the calculation of the amounts withheld or to be withheld. For
purposes of this Section 9.2, the Company may assume that any Member or Assignee
who fails to provide to the Company satisfactory evidence of his tax status for
United States federal income tax purposes is a foreign person. Each Member
agrees to provide written notice to the Company within sixty days of any change
in such Member's tax status for United States federal income tax purposes.
SECTION 9.3 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member or Assignee on account of its interest in the
Company if such distribution would violate Section 18- 607 of the Delaware Act
or other applicable law.
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ARTICLE X
BOOKS AND RECORDS
SECTION 10.1 BOOKS, RECORDS AND FINANCIAL STATEMENTS.
10.1.1 At all times during the continuance of the Company, the
Company shall maintain, at its principal place of business, separate
books of account for the Company that shall show a true and accurate
record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with
the operation of the Company's business. Such books of account,
together with a copy of this Agreement and of the Certificate, shall
at all times be maintained at the principal place of business of the
Company and shall be open to inspection and examination at reasonable
times by each Member and its duly authorized representative for any
purpose reasonably related to such Member's interest in the Company.
The books of account and the records of the Company shall be examined
by and reported upon as of the end of each Fiscal Year by a firm of
independent certified public accountants selected by the Managers.
10.1.2 The Managers shall prepare and maintain, or cause to be
prepared and maintained, the books of account of the Company and shall
use their best efforts to cause the following documents to be
transmitted to each Member at the times hereinafter set forth:
(a) Within four months after the close of each Fiscal Year,
the following financial information:
(i) an audited balance sheet of the Company as of the
beginning and close of such Fiscal Year;
(ii) an audited statement of operations of the Company
for such Fiscal Year; and
(iii) a statement of such Member's Capital Account as
of the close of such Fiscal Year, and changes therein during
such Fiscal Year.
(iv) a statement showing the Store Level Cash Flow (as
defined in the confidential private placement memorandum of
the Company and Bagel Corp. dated December 13, 1995 and the
supplement thereto dated January 31, 1996) of each of the
Area Developers in which the Company has an equity
investment, based upon information received by the Company
from the Area Developers.
(b) Within three months after the close of each Fiscal Year,
a statement indicating such Member's share of each item of
Company
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income, gain, loss, deduction or credit for such Fiscal Year for
income tax purposes.
10.1.3 All information contained in any statement or other
document distributed to any Member pursuant to Section 10.1.2 shall be
deemed accurate, binding and conclusive with respect to such Member
unless written objection is made thereto by such Member to the Company
within 20 business days after the receipt of such statement or other
document by such Member.
SECTIONS 10.2 ACCOUNTING METHOD. For both financial and tax
reporting purposes and for purposes of determining Profits and Losses, the books
and records of the Company shall be kept on the accrual method of accounting
applied in a consistent manner and shall reflect all Company transactions and be
appropriate and adequate for the Company's business.
SECTION 10.3 CONFIDENTIALITY. Each Member and each Manager hereby
covenant and agree that so long as such Member holds Units, or so long as such
Manager serves as a Manager, and for a period of three years thereafter, such
Member or Manager will hold in confidence all financial and other information
concerning the Company, Bagel Corp. and the Area Developers in which the Company
is an investor and will not, without the prior consent of Bagel Corp., disclose
any of such information to any person. The preceding sentence shall not apply
to information which (i) is disclosed in a printed publication available to the
public, or is otherwise in the public domain through no act of such Member or
Manager or the employees or agents of such Member or Manager or other person or
entity which has received such information from or through such Member or
Manager or (ii) is required to be disclosed by proper order of a court of
applicable jurisdiction after adequate notice to Bagel Corp. sufficient to
permit Bagel Corp. to seek a protective order therefor, the imposition of which
protective order such Member or Manager agrees to approve and support. Each
Member or Manager acknowedges that Bagel Corp. and the Area Developers are
intended third party beneficiaries of the covenants in this Section 10.3 and can
enforce such covenants directly against such Member and Manager.
ARTICLE XI
TAX MATTERS
SECTION 11.1 TAX MATTERS PARTNER.
11.1.1 The Managers are hereby authorized to designate a Member
of the Company to serve as the tax matters partner of the Company for
purposes of Section 6231(a)(7) of the Code (the "Tax Matters
Partner"). The Tax Matters Partner shall have the power to manage and
control, on behalf of the Company, any administrative proceeding at
the Company level with the Internal Revenue Service relating to the
determination of any item of Company income, gain, loss, deduction or
credit for federal income tax purposes. The Tax Matters Partner may
be a Manager if the Manager is a Member.
11.1.2 The Tax Matters Partner shall, within ten days of the
receipt of any notice from the Internal Revenue Service in any
administrative proceeding at the
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Company level relating to the determination of any Company item of
income, gain, loss, deduction or credit, mail a copy of such notice to
each Member and Assignee.
11.1.3 The Managers may at any time hereafter designate a new
Tax Matters Partner; provided, however, that only a Member may be
designated as the Tax Matters Partner of the Company.
SECTION 11.2 RIGHT TO MAKE TAX ELECTIONS. The Managers may, in their
discretion, make or revoke, on behalf of the Company, any tax election under the
Code or the Treasury Regulations, or under state, local or foreign law.
ARTICLE XII
LIABILITY, EXCULPATION AND INDEMNIFICATION
SECTION 12.1 LIABILITY.
12.1.1 Except as otherwise provided by the Delaware Act, the
debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Covered Person shall be
obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Covered Person.
12.1.2 Except as otherwise expressly required by law, a Member,
in its capacity as such, shall have no liability in excess of (i) the
amount of its Capital Contributions, (ii) its share of any assets and
undistributed profits of the Company, (iii) its obligation to make
other payments expressly provided for in this Agreement, and (iv) the
amount of any distributions wrongfully distributed to it.
SECTION 12.2 EXCULPATION.
12.2.1 No Covered Person shall be liable to the Company or any
other Covered Person for any loss, damage or claim incurred by reason
of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably
believed to be within the scope of authority conferred on such Covered
Person by this Agreement, except that a Covered Person shall be liable
for any such loss, damage or claim incurred by reason of such Covered
Person's gross negligence or willful misconduct.
12.2.2 A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any Person
(including any tax advisor) as to matters the Covered Person
reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or
on behalf of the Company, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities,
Profits or Losses or any other facts pertinent
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to the existence and amount of assets from which distributions to
Members might properly be paid.
SECTION 12.3 DUTIES OF COVERED PERSONS.
12.3.1 In accordance with Section 18-1101(c)(2) of the Delaware
Act the duties and liabilities of the Managers and the Members, in
their capacities as such, shall be limited to those set forth in this
Agreement.
12.3.2 To the extent that a Covered Person has duties and
liabilities relating to the Company or its Members or to any other
Covered Person, a Covered Person acting under this Agreement shall not
be liable to the Company or its Members or to any other Covered Person
for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the
duties and liabilities of a Covered Person otherwise existing at law
or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Covered Person.
12.3.3 The Members expressly acknowledge that Bagel Corp. and
its Affiliates have or will have area development, franchise, lending,
real estate and other relationships with the Area Developers in which
the Company will invest and that Bagel Corp. will have a conflict of
interest in making determinations as Manager as to the Area Developers
in which the Company will invest, the amount of any such investment
and any negotiated terms of such investment. The Members hereby (i)
agree that Bagel Corp. may act in its own interest in making
determinations as Manager in any situation in which such a conflict is
present, (ii) ratify and approve all such determinations made by Bagel
Corp. as Manager, (iii) waive any rights they have or may receive by
reason of such conflicts of interest or such determinations made by
Bagel Corp. as Manager and any right to receive notice of or
disclosure concerning any such conflicts of interest or
determinations, and (iv) covenant not to sue Bagel Corp. in connection
with any such determinations or any matter or thing based upon or
arising out of any such determinations.
12.3.4 Whenever in this Agreement a Covered Person is permitted
or required to make a decision (i) in its "discretion" or under a
grant of similar authority or latitude, the Covered Person shall be
entitled to consider any such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the
Company or any other Person, or (ii) in its "good faith" or under
another express standard, the Covered Person shall act under such
express standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law.
SECTION 12.4 INDEMNIFICATION. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except
that no Covered Person shall be entitled to be indemnified in respect of any
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<PAGE>
loss, damage or claim incurred by such Covered Person by reason of gross
negligence or willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 12.4 shall be provided
out of and to the extent of Company assets only, and no Covered Person shall
have any personal liability on account thereof.
SECTION 12.5 EXPENSES. To the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by a Covered Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Covered Person to repay such amount if it shall be determined
that the Covered Person is not entitled to be indemnified as authorized in
Section 12.4 hereof.
SECTION 12.6 OUTSIDE BUSINESSES. Any Member, Manager or Affiliate
thereof may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Company, and the Company, the Members and the Managers shall
have no rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Company, shall not be deemed
wrongful or improper. No Member, Manager or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Company even
if such opportunity is of a character that, if presented to the Company, could
be taken by the Company, and any Member, Manager or Affiliate thereof shall have
the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment opportunity.
ARTICLE XIII
ASSIGNABILITY AND SUBSTITUTE MEMBERS
SECTION 13.1 ASSIGNABILITY OF UNITS.
13.1.1 No Member may assign the whole or any part of its Units
or other interests in the Company without the approval of the Managers
and a Majority Vote of all Members other than the assigning Member,
which approval and favorable vote may be given or withheld in the sole
and absolute discretion of the Managers and each such other Member.
If the required approval and favorable vote is obtained for any such
assignment, such assignment shall, nevertheless, not entitle the
Assignee to become a Substitute Member or to be entitled to exercise
or receive any of the rights, powers or benefits of a Member other
than the right to receive distributions to which the assigning Member
would be entitled, unless the assigning Member designates, in a
written instrument delivered to the other Members, its Assignee to
become a Substitute Member and such designation is approved by the
Managers and a Majority Vote of all Members other than the Assignee,
which approval and favorable vote may be given or withheld in the sole
and absolute discretion of the Managers and each such other Member;
and provided further, that such Assignee shall not become a Substitute
Member without having first executed an instrument reasonably
satisfactory to the other Members accepting and agreeing to the terms
and conditions of this Agreement, including a counterpart signature
page to this Agreement, and without having paid to the Company a fee
sufficient to cover all reasonable expenses of the Company in
connection with such Assignee's admission as a Substitute Member. If
a Member assigns all of its interest in the Company and the Assignee
of such interest is entitled to become a Substitute Member pursuant to
this Section, such Assignee shall be admitted to the Company effective
immediately prior to the
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<PAGE>
effective date of the assignment, and, immediately following such
admission, the assigning Member shall cease to be a member of the
Company. In such event, the Company shall not dissolve if the business
of the Company is continued without dissolution in accordance with
Section 14.2(iii) hereof.
13.1.2 Notwithstanding anything to the contrary herein, (i) the
Managers shall not cause or permit Units to become traded on an
established securities market and (ii) the Managers shall withhold
their consent to any Transfer that, to the Managers' knowledge after
reasonable inquiry, would otherwise be accomplished by a trade on a
secondary market (or the substantial equivalent thereof). For
purposes of this subsection the terms "traded on an established
securities market" and "secondary market (or the substantial
equivalent thereof)" shall have the meanings set forth in Sections
469(k)(2) and 7704 of the Code and any regulations promulgated
thereunder that are in effect at the time of the proposed Transfer.
SECTION 13.2 RECOGNITION OF ASSIGNMENT BY COMPANY. No assignment, or
any part thereof, that is in violation of this Article XIII shall be valid or
effective, and neither the Company nor the Members shall recognize the same for
the purpose of making distributions pursuant to Section 9.1 hereof with respect
to such Company interest or part thereof. Neither the Company nor the
nonassigning Members shall incur any liability as a result of refusing to make
any such distributions to the assignee of any such invalid assignment.
SECTION 13.3 INDEMNIFICATION. In the case of an assignment or
attempted assignment of an interest in the Company that has not received the
consents required by Section 13.1 hereof, the parties engaging or attempting to
engage in such assignment shall be liable to indemnify and hold harmless the
Company, the Managers, the other Members and the respective Covered Persons of
the Company, the Managers and the other Members from all costs, liabilities and
damages that any of such indemnified Persons may incur (including, without
limitation, incremental tax liability and lawyers' fees and expenses) as a
result of such assignment or attempted assignment and efforts to enforce the
indemnity granted hereby.
SECTION 13.4 EFFECTIVE DATE OF ASSIGNMENT. Any valid assignment of a
Member's interest in the Company, or part thereof, pursuant to the provisions of
Section 13.1 hereof shall be effective as of the close of business on the last
day of the calendar month in which the other Members give their written consent
to such assignment (or the last day of the calendar month in which such
assignment occurs, if later). The Company shall, from the effective date of such
assignment, thereafter pay all further distributions on account of the Company
interest (or part thereof) so assigned, to the Assignee of such interest, or
part thereof. As between any Member and its Assignee, Profits and Losses for
the Fiscal Year of the Company in which such assignment occurs shall be
apportioned for federal income tax purposes in accordance with any convention
permitted under Section 706(d) of the Code and selected by the Managers in their
discretion.
ARTICLE XIV
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 14.1 NO DISSOLUTION. The Company shall not be dissolved by
the admission of Substitute Members in accordance with the terms of this
Agreement.
24
<PAGE>
SECTION 14.2 EVENTS CAUSING DISSOLUTION. The Company shall be
dissolved and its affairs shall be wound up only upon the occurrence of any of
the following events:
(i) the expiration of the term of the Company, as provided in
Section 2.3 hereof;
(ii) the approval of the Managers and a Majority Vote of the
Members to dissolve the Company;
(iii) the Bankruptcy of a Member, unless, within 90 days after
the occurrence of such an event, there is given the approval of the
Managers and there is obtained a Majority Vote of the Members other
than such Member to continue the business of the Company;
(iv) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act; or
(v) by the Managers at any time that the assets of the Company
consist only of cash, Permitted Temporary Investments, a warrant to
purchase stock of Bagel Corp., stock of Bagel Corp., stock of BCI or
any combination of the foregoing.
Each Member shall give to the Company prompt written notice of the Bankruptcy of
such Member. From and after the time that the Company receives an opinion of
counsel to the Managers to the effect that the provisions of clause (iii) above
are no longer necessary to cause the Company to be classified as a partnership
for federal income tax purposes, this Section 14.2 shall be amended without
further action of the Members to eliminate such clause (iii) and to renumber
clauses (iv) and (v) as clauses (iii) and (iv).
SECTION 14.3 NOTICE OF DISSOLUTION. Upon the dissolution of the
Company, the Person or Persons approved by a Majority Vote of the Members to
carry out the winding up of the Company (the "Liquidating Trustee") shall
promptly notify the Members of such dissolution.
SECTION 14.4 LIQUIDATION. Upon dissolution of the Company, the
Liquidating Trustee shall immediately commence to wind up the Company's affairs;
provided, however, that a reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the satisfaction of liabilities to
creditors so as to enable the Members to minimize the normal losses attendant
upon a liquidation. The Members and Assignees shall continue to share Profits
and Losses during liquidation in the same proportions, as specified in Article
VIII hereof, as before liquidation. Each Member shall be furnished with a
statement prepared by the Company's certified public accountants that shall set
forth the assets and liabilities of the Company as of the date of dissolution.
The proceeds of liquidation shall be distributed, as realized, in the following
order and priority:
(i) to creditors of the Company, including the Managers or
Members or Assignees who are creditors, to the extent otherwise
permitted by law, in satisfaction of the liabilities of the Company
(whether by payment or the making
25
<PAGE>
of reasonable provision for payment thereof), other than liabilities
for distributions to Members or Assignees; and
(ii) to distribute to the Members and Assignees the remaining
proceeds of liquidation in accordance with their Capital Account
balances, after giving effect to all Capital Contributions,
distributions and allocations for all periods. If any Member is owed
a Capital Account balance pursuant to Section 4.1.3, such Member shall
share in the remaining proceeds of liquidation in the proportion that
such Member's Capital Account balance determined in accordance with
Section 4.1.3 compares to the aggregate Capital Account balances of
all of the other Members, but such Member shall not be entitled to
receive more than the amount determined in accordance with Section
4.1.3.
SECTION 14.5 TERMINATION. The Company shall terminate when all of
the assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
Members and Assignees in the manner provided for in this Article XIV, and the
Certificate shall have been canceled in the manner required by the Delaware Act.
SECTION 14.6 CLAIMS OF THE MEMBERS. The Members and Assignees shall
look solely to the Company's assets for the return of their Capital
Contributions, and if the assets of the Company remaining after payment of or
due provision for all debts, liabilities and obligations of the Company are
insufficient to return such Capital Contributions, the Members and Assignees
shall have no recourse against the Company or any other Member or the Manager.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 NOTICES. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
sent by Federal Express or other reliable overnight courier, sent by fax or
mailed by registered or certified mail, return receipt requested, as follows:
(i) if given to the Company, in care of the Managers at the
address of the Company's principal place of business, with a copy to
Bagel Corp. at its mailing address set forth on Schedule A attached
hereto;
(ii) if given to the Managers, at their mailing addresses set
forth on Schedule A attached hereto, with a copy to Bagel Corp.; or
(iii) if given to any Member at the address set forth opposite
its name on Schedule A attached hereto, or at such other address as
such Member may hereafter designate by written notice to the Company.
Each such notice shall be deemed to have been given upon the earlier of the
receipt of such notice by the intended recipient thereof, two days after it is
sent by Federal Express or other reliable overnight courier or sent by fax, or
five days after it is mailed by registered or certified mail, return receipt
requested.
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<PAGE>
SECTION 15.2 FAILURE TO PURSUE REMEDIES. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
SECTION 15.3 CUMULATIVE REMEDIES; LIMITATION ON DAMAGES. The rights
and remedies provided by this Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive its right to use any or
all other remedies. Said rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
Notwithstanding anything to the contrary herein, no party hereto shall be liable
for consequential, indirect, incidental, special, speculative, exemplary or
punitive damages (including, but not limited to, loss of revenue or profit)
whether such claim alleges breach of contract, tortious conduct including, but
not limited to, negligence, or any other theory.
SECTION 15.4 BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of all of the parties and, to the extent permitted by
this Agreement, their successors, legal representatives and assigns.
SECTION 15.5 CAPTIONS. The captions herein are inserted for
convenience of reference only and shall not affect the construction of this
Agreement.
SECTION 15.6 PRONOUNS AND PLURALS. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
SECTION 15.7 SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
SECTION 15.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one instrument.
SECTION 15.9 INTEGRATION. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
SECTION 15.10 GOVERNING LAW. This Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MANAGER:
__________________________
By: ______________________
Its: _____________________
MEMBER:
__________________________
By: ______________________
Its: _____________________
ADVISORY COMMITTEE MEMBERS:
__________________________
By:
__________________________
By:
__________________________
By:
<PAGE>
EXHIBIT 10.35
OFFICE LEASE
------------
THIS OFFICE LEASE ("LEASE") MADE AND ENTERED INTO AS OF JULY 1, 1996, BY
AND BETWEEN BOSTON CHICKEN, INC., A DELAWARE CORPORATION ("LANDLORD") AND
EINSTEIN/NOAH BAGEL CORP., A DELAWARE CORPORATION ("TENANT").
1. FUNDAMENTAL TERMS AND ATTACHMENTS.
----------------------------------
(a) FUNDAMENTAL TERMS. THE FOLLOWING IS A SUMMARY SCHEDULE OF CERTAIN
FUNDAMENTAL TERMS OF THIS LEASE AND WHERE APPROPRIATE THE DEFINITION OF
CERTAIN DEFINED TERMS CONTAINED IN THIS LEASE:.
(i) Landlord: Boston Chicken, Inc.
Address: 14103 Denver West Parkway
Golden, CO 80401
ATTN: Legal Department
Prior to September 1, 1996:
(ii) Tenant: Einstein/Noah Bagel Corp.
Address: 1526 Cole Blvd. Suite 200
Golden, CO 80401
ATTN: Legal Department
After September 1, 1996:
14123 Denver West Parkway
Golden, CO 80401
ATTN: Legal Department
(iii) Address of
Building: 14123 Denver West Parkway
Golden, CO 80401
(iv) Address of
Premises: 14123 Denver West Parkway
Second Floor
Golden, CO 80401
(v) Gross Square Footage of Premises: 37,960 square feet.
Gross Square Footage of the Building: 94,794 square feet
(approximately)
<PAGE>
(vi) Rent:
<TABLE>
<CAPTION> Lease Years Annual Rent Monthly Rent
----------- ----------- ------------
<S> <C> <C>
1-5 $455,520.00 $37,960.00
6-10 $523,848.00 $43,654.00
11-15 $602,424.00 $50,202.00
</TABLE>
(vii) Commencement Date: September 1, 1996
(viii) Expiration Date: August 31, 2011
(ix) Term: Fifteen (15) Years
(x) Extension(s): Two (2) of Five (5) Years each
(xi) Rent for Extension(s):
<TABLE>
<CAPTION>
Lease Years Annual Rent Monthly Rent
----------- ----------- ------------
<S> <C> <C>
16-20 $692,784.00 $57,732.00
21-25 $796,692.00 $66,391.00
</TABLE>
(xii) Lease Year: Shall be defined as that twelve (12) month
period during the Term or any Extension commencing on the
Commencement Date or the anniversary thereof, as may be
applicable; provided, however, that if the Commencement
Date is a day other than the first day of a calendar
month, then the first Lease Year shall include that period
of time from the Commencement Date up to the first day of
the next calendar month and the following twelve (12)
months, and any subsequent Lease Year shall be the twelve
(12) month period beginning on the anniversary of the
first day of the next calendar month following the
Commencement Date.
(xiii) Lease Month: Shall be defined as those successive calendar
month periods beginning with the Commencement Date and
continuing through the Term or any Extension; provided,
however, if the Commencement Date is a day other than the
first day of a calendar month, then the first Lease Month
shall include that period of time from the Commencement
Date up to the first day of the next calendar month, and
each subsequent Lease Month shall be a calendar month
period beginning on the first day of each succeeding
calendar month.
2
<PAGE>
(xiv) Property: That certain parcel of land together with the
Building and Common Areas, as hereinafter defined, all
buildings, structures, improvements and fixtures located
thereon from time to time together with any rights, right
of ways (public or private) easements and servitudes
appurtenant thereto owned by Landlord and legally
described on Exhibit A, attached hereto and incorporated
herein by this reference.
(xv) Building: The three-story plus basement office building
consisting of approximately 94,794 square feet of space
located on the Property in which the Premises is located.
(b) EXHIBITS. The following exhibits are attached here to and, by this
reference, incorporated herein:
Exhibit A - Legal Description of the Building
Exhibit B - Floor Plan of the Premises
Exhibit C - Term Commencement Agreement
Exhibit D - Landlord's Work
Exhibit E - Tenant's Work
2. DEMISE OF PREMISES. In consideration of the mutual covenants
contained herein, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord that certain Premises located within the Building which Premises is
more particularly depicted and outlined in red on Exhibit B attached hereto and
made a part hereof. Landlord and Tenant agree that it is the intention of the
parties hereto that this Lease is to be a triple net "care free" Lease. Except
as specifically set forth herein, all cost and expenses associated with the
Premises are to be borne by Tenant.
3. TERM. The term shall commence on the Commencement Date and expire
on the Expiration Date. Landlord and Tenant agree within thirty (30) days
following the Commencement Date to enter into the term Commencement Agreement,
attached hereto as Exhibit C and made a part hereof, confirming the term, rent
and charges. If landlord is unable to deliver possession of the Premises to the
Tenant on the Commencement Date this Lease shall not terminate but the
Commencement Date shall be adjusted to reflect the actual date possession is
delivered to the Tenant.
4. EXTENSIONS. The term of this Lease may be extended for two (2)
additional periods of five (5) years each ("Extension(s)"), commencing at
midnight on the date on which the Term or the preceding Extension expires, under
the same terms and conditions set forth herein except the rent shall increase as
set forth in Section 1(a) (xi) hereof. Each Extension shall be automatic and the
parties shall be bound by this Lease for such Extension unless Tenant gives
Landlord notice, at least one hundred eighty (180) days prior to the expiration
of the Term or preceding extension, that Tenant does not intend any
3
<PAGE>
further Extension to occur, in which case the Term or the Extension shall expire
at the end of the Term or the current Extension.
5. RENT. From and after the Commencement Date, during the Term, Tenant
agrees to pay to Landlord Office Space Rent in the amounts set forth in Section
1(a)(vi) or, if during an Extension, the amount set forth in Section 1(a)(xi)
(collectively, "Rent"). Tenant shall pay the Rent to Landlord in equal monthly
installments in advance, without setoff, deduction or abatement, making the
first monthly installment payment no later than five (5) days following the
Commencement Date and each subsequent installment thereafter on the first day of
each and every calendar month during the Term and Extension(s), if exercised.
If Landlord maintains the books and records of Tenant, Landlord at its option
may elect to make automatic transfers of all Rent, additional rent and charges
hereunder and utilize its thirteen (13) period fiscal year accounting schedule
for all payments hereunder. In the event Landlord enters into a "so called"
Sale/Leaseback transaction, Tenant agrees at Landlord's option to amend the
Office Space Rent so that it will be equal to forty percent (40%) of the rent,
additional rent and other charges paid by Landlord to the purchaser under the
terms of the Sale/Leaseback transaction.
6. IMPROVEMENT TO THE PREMISES. The obligations of Landlord and Tenant to
perform the work and supply the necessary materials and labor to prepare the
Premises for occupancy are set forth in detail in Exhibits D and E attached
hereto and made a part hereof. Landlord and Tenant shall expend all funds and
complete all work promptly, diligently and in a good and workmanlike manner.
Tenant shall be permitted to install signage identifying Tenant's occupancy of
the Premises, subject to the approval of Landlord.
7. USE OF COMMON AREAS. TAX, ADMINISTRATIVE, INSURANCE AND BUILDING
OPERATING COSTS. During the Term and Extension(s), if exercised, Tenant shall
have a non-exclusive easement to use the common areas of the Building and
Property ("Common Areas") designated as such by Landlord from time to time.
Such use of the Common Areas by Tenant shall be subject to the use thereof by
Landlord and Landlord's Tenants and its and their officers, directors,
employees, shareholders, customers, invitees, agents and contractors, the
exclusive control and management of Landlord and the rules and regulations
promulgated from time to time by Landlord in its discretion.
The term "Common Areas" as used in this Lease shall mean those areas and
facilities designated from time-to-time by Landlord for the use and benefit of
Tenant in common with Landlord, the other tenants and occupants of the Building
and such other persons Landlord may designate from time-to-time. The exterior
Common Areas shall include the curb cuts, driveways, parking areas, walkways,
service drives and loading docks and the interior Common Areas shall include the
entrances and exits, public hallways, reception area, stairways, elevator, break
rooms, eating areas, conference rooms, storage areas, public rest rooms and work
out facilities excluding areas intended for the exclusive use of the Landlord
and other tenants or occupants in the building.
4
<PAGE>
Landlord shall operate, repair, replace and maintain the Common Areas.
Landlord reserves the right to make changes to the Common Areas, construct and
install temporary or permanent improvements and make such use of the Common
Areas from time to time in Landlord's sole discretion.
Tenant agrees to reimburse Landlord for its pro rata share of all costs
involved in the ownership, operation, upkeep, maintenance, repair and
replacement of the Building, Premises and Common Areas and all services and
goods supplied to Tenant by Landlord ("Building Operating Costs") during the
Term and Extension(s), if exercised. Building Operating Costs shall mean: All
costs and expenses of ownership, operation upkeep, repair, replacement and
maintenance of the Building, Premises, Common Areas and all services and goods
supplied to Tenant by Landlord including by way of illustration but not limited
to: real and personal property taxes and assessments and any tax in addition to
or in lieu thereof, whether assessed against Landlord or Tenant, insurance
including the cost of casualty and liability coverage for the Property,
Building, Common Areas and all other improvements and such other coverages
deemed appropriate by Landlord in its reasonable judgment or required under the
terms of any financing arrangements made by Landlord including a so called
"Sale/Leaseback" transaction, ("Financing") utilities, electrical, gas, water,
sewer, lighting, telephone, wiring, cabling, heating, air-conditioning, and
ventilating services, supplies, license, permit and inspection fees, cost of
services of independent contractors, property management fees, cost of
compensation (including employment taxes and fringe benefits) of all persons who
perform regular and recurring duties connected with the day-to-day operation,
maintenance, management and repair of the Building, Premises and Common Areas,
its equipment and the walks, malls and landscaped areas; maintenance, repair,
replacement and operating expense related to the Building, Premises and Common
Areas, landscaping, parking areas, lighting, signage, drives and truck docks,
kitchen and conference areas, health and recreation facilities,
telecommunication, computer, data and cabling lines and services, administrative
services and facilities including receptionists, secretarial, clerical,
coordination and administrative services and personnel, postal, courier,
delivery and mail facilities and mail distribution, storage and office supplies,
copying and fax services, also including janitorial, trash removal, gardening,
security, parking, operating engineer, elevator, painting, plumbing, electrical,
carpentry, heating, ventilation, air conditioning, window washing, signage and
advertising, reserves for replacement, and rental expenses or a reasonable
allowance for depreciation of personal property used in the maintenance,
operation and repair of the Building, together with an administrative and
management fee not to exceed fifteen percent (15%) of the Building Operating
Costs. "Tenant's Proportionate Share" of the Building Operating Costs shall be
forty percent (40%) of the Building Operating Costs.
Tenant's Proportionate Share of Building Operating Costs shall be paid by
Tenant in equally monthly installments, as additional rent hereunder, at the
times and in the manner of the payment of Rent, in such amounts as are estimated
by Landlord from time to time during the Term and Extension(s), if exercised.
Landlord's estimates of Building Operating Costs shall be reconciled within
ninety (90) days of the end of each Lease Year. If the total estimated payments
of Building
5
<PAGE>
Operating Costs paid by Tenant for the Lease Year are less than Tenant's
Proportionate Share of Building Operating Costs Tenant shall pay the difference
to Landlord within twenty (20) days of notice from Landlord. If the total
estimated payments of Building Operating Costs paid by Tenant for the Lease Year
are greater than Tenant's Proportionate Share of Building Operating Costs
Landlord shall credit the difference toward the next estimated payment(s) of
Building Operating Costs.
The following costs shall be excluded from Building Operating Costs: the
cost of work performed exclusively for other tenants or prospective tenants, the
cost of work covered by insurance proceeds or a condemnation award, leasing and
brokerage commissions, depreciation, amortization of principal and interest
expense with respect to Landlord's financing.
Subject to the reimbursement of Tenant's Proportionate Share, Landlord
shall maintain fire, property, sprinkler, boiler and casualty insurance,
including vandalism, malicious mischief and all other extended coverage
endorsements on the Property, Common Areas, Building and all other improvements
on the Property for the full replacement cost thereof with no deduction for
depreciation. Landlord shall maintain comprehensive general public liability
insurance against claims for personal injury, death or property damage occurring
in or about the Property, Building and Common Areas in the following minimum
amounts:
$1,000,000.00 with respect to the injury to or death of a single
person.
$2,000,000.00 with respect to the injury or death of more than one
person.
$250,000.00 with respect to property damage.
or such additional coverages and such increased amounts of coverage as
Landlord in its reasonable judgment shall determine from time-to-time or
required by any person or entity providing financing to the Landlord including
the requirements of any purchaser providing Sale/Leaseback financing. At
Tenant's request Landlord shall provide Tenant with a Certificate of Insurance
naming Tenant as a coinsured with respect to the general liability coverage as
to the Common Areas.
8. USE
8.1 USE. The Premises shall be used and occupied by Tenant for general
office purposes and an approximately 3,600 square foot test kitchen and for no
other purpose without the prior written consent of Landlord.
8.2 SUITABILITY. Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty with respect to the
Premises, Building and Common Areas or with respect to the suitability of or for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
this Lease. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises, Building and Common Areas are fully
satisfactory and acceptable to Tenant.
6
<PAGE>
8.3 USES PROHIBITED.
(a) Tenant shall not do or permit anything to be done in or about the
Premises, Building or Common Areas nor bring or keep anything therein which will
in any way increase the existing rate or affect any fire or other insurance upon
the Premises, Building, Common Areas or any of its contents, or cause a
cancellation of any insurance policy covering Premises, Building Common Areas or
any part thereof or any of its contents, nor shall Tenant sell or permit to be
kept, used or sold in or about said Premises any articles which may be
prohibited by a standard form policy of fire insurance.
(b) Tenant shall not do or permit anything to be done in or about the
Premises which will any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them or use or allow the
Premises to be used for any unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in or about the Premises. Tenant shall
not commit or suffer to be committed any waste in or upon the Premises.
(c) Tenant shall not knowingly use the Premises or knowingly permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation or requirement of
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may be in force hereafter and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises, excluding structural changes not relating to or affecting the
condition, use or occupancy of the Premises, or not related or afforded by
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant, in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinances and governmental rules, regulations or requirements now in force or
which may be in force hereafter and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not relating to or affecting the condition, use or occupancy of the
Premises, or not related or afforded by Tenant's improvement or acts, shall be
conclusive of the fact as between Landlord and Tenant.
9. SERVICE AND UTILITIES.
9.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the Premises,
subject to reimbursement by Tenant as set forth herein, during reasonable hours
of generally recognized business days, to be determined by Landlord and subject
to the Rules and Regulations of the Building, water, gas and electricity
suitable for the intended use of the Premises, heat and air conditioning
required in Landlord's judgment for the comfortable use and occupancy of the
Premises, scavenger, janitorial and window washing service and elevator service.
Such utilities shall be available on a 24-hour, 7-day basis upon Tenant's
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request. Landlord shall also maintain and keep lighted the common stairs,
entries and toilet rooms in the Building.
9.2 TENANT'S OBLIGATIONS. Tenant shall pay for, prior to delinquency, all
telephone services and all other materials and services, not included in
Building Operating Costs, which may be furnished to or used in, on or about the
Premises during the Term of this Lease and Extension(s), if exercised.
9.3 NON-LIABILITY. Landlord shall not be liable for, and Tenant shall not
be entitled to, any abatement or reduction of Rent by reason of Landlord's
failure to furnish any of the foregoing services or utility services. Landlord
shall not be liable under any circumstances for loss of or injury to property or
persons occurring, through or in connection with or incidental to the failure to
furnish any of the foregoing, unless due to the negligent or intentional acts of
Landlord, its agents and employees.
10. MAINTENANCE AND REPAIRS (a) Landlord's obligations. Landlord shall
maintain in good order, condition and repair the building, Premises and Common
Areas, Subject to Reimbursement by Tenant as set forth herein. (b) Tenant's
Obligation.
(1) Tenant at Tenant's sole cost and expense, except for services
furnished by Landlord as set forth herein, shall maintain the Premises in good
order, condition and repair including the interior surfaces of the ceilings,
walls, windows and floors, all doors, partitions, plumbing, pipes, electrical
wiring, switches, fixtures, furniture and equipment.
(2) Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises in the same condition as received, ordinary wear
and tear excepted, and shall promptly remove or cause to be removed at Tenant's
expense from the Premises and the Building, all articles of personal property,
business and trade fixtures, machinery, equipment, furniture and movable
partitions owned by and installed by Tenant and approved by Landlord at its
expense.
(3) Tenant agrees to repair any damage to the Premises, Building and
Common Areas caused by or in connection with the removal (whether or not such
removal is requested by Landlord) of any articles of personal property, business
or trade fixtures, machinery, equipment, furniture, movable partitions,
alterations, improvements or additions, including without limitation thereto,
repairing the floor and patching and painting the walls where required by
Landlord to Landlord's reasonable satisfaction, all at Tenant's sole cost and
expense. Tenant shall indemnify the Landlord against any loss or liability
resulting from failure or delay by Tenant in so surrendering the Premises,
including without limitation any claims made by any succeeding tenant founded on
such failure or delay.
(4) In the event Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant written notice to do such acts
as are reasonably required to commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant
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as are reasonably required to perform such work. Any amount so expended by
Landlord shall be paid by Tenant promptly after demand with interest at ten
percent (10%) per annum from the date of such work. Landlord shall have not
liability to Tenant for any damage, inconvenience or interference with the use
of the Premises by Tenant as a result of performing any such work.
(c) Compliance with Law. Tenant shall at its sole expense do all acts
required to comply with all applicable laws, ordinances, regulations and rules
of any public authority relating to their respective maintenance obligations as
set forth herein.
11. ALTERATIONS AND ADDITIONS
(a) Tenant shall make no alterations, additions or improvements to the
Premises or any part thereof other than as specified in this Lease, without in
each instance obtain the prior written consent of Landlord. Such consent shall
not be unreasonably withheld, but will be contingent upon submission to and
approval by Landlord of plans and specifications and contractor. If Tenant makes
any alterations, additions or modifications, then Landlord at its option and in
its sole discretion may accept and retain all or any part of those alterations,
additions or modifications or require Tenant to remove the same in whole or in
part and to repair or restore at Tenant's expense the Premises to the same
conditions as they were in at the time they were accepted by Tenant. Tenant
hereby expressly waives any argument Tenant may have or make, that Landlord
consented to, or waived its right or is estopped by reason of actual or
constructive knowledge to object to or challenge, any alteration, addition or
modification made without such prior written consent.
(b) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion, including
without limitation thereto, the manner in which the work is done, a right of
approval of the contractor by whom work is to be performed, and the times during
which it is to be accomplished.
(c) All alterations, additions or improvements shall at the expiration
or earlier termination of the Lease become the property of Landlord and remain
upon and be surrendered with the Premises, unless Landlord elects prior to the
termination or earlier expiration of this Lease to require Tenant to restore the
Premises pursuant to Paragraph 11(a) above or to remove promptly upon the
termination or earlier expiration of this Lease all or certain specified
alterations, additions or improvements made to the Premises, and to repair any
damage to the Premises from such removal. Tenant shall indemnify the Landlord
against any loss or liability resulting from delay by Tenant in so surrendering
the Premises, including without limitation any claims made by any succeeding
Tenant founded on such delay above.
(d) All articles of personal property and all business and trade
fixtures, all movable machinery, equipment, furniture and partitions (excluding
items affixed to walls, ceilings, or floors) owned and installed by Tenant at
its expense and approved by Landlord in the Premises shall be and remain the
property of Tenant, and must be removed by Tenant at Tenant's expense upon the
termination or earlier expiration of this Lease. Tenant shall
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reimburse Landlord upon demand for the cost of any loss, liability or damage
caused by or resulting from such removal or from Tenant's failure to so remove.
12. ENTRY BY LANDLORD
Landlord, its employees, agents and contractors reserve and shall have
the right to enter the Premises to inspect the same, to supply janitor service
and any other service to be provided by Landlord to Tenant hereunder, to submit
said Premises to prospective purchasers, lenders or tenants, to post notices of
non-responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing that the
entrance to the Premises shall not be blocked unreasonably thereby, and further
providing that the business of Tenant shall not be interfered with unreasonably.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times retain a key with which to unlock all of
the doors in, upon and about the Premises and Landlord shall have the right to
use any and all means which Landlord may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises and any entry to the
Premises obtained by Landlord by any of said means, or otherwise shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainment of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof.
13. LIENS
Tenant shall keep the Premises and any Building and Common Areas of
which the Premises are a part free from any liens arising out of work performed,
materials furnished, or obligations incurred by Tenant and shall indemnify, hold
harmless and defend Landlord from any liens and encumbrances arising out of any
work performed or materials furnished by or at the direction of Tenant. In the
event that Tenant shall not, within twenty (20) days following the imposition of
any such lien, cause such lien to be released of record by payment or posting of
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation to cause the same to be released
by such means as it shall deem proper, including payment of the claim giving
rise to such lien. All such sums paid by Landlord and all expenses incurred by
it in connection therewith including attorney's fees and costs shall be payable
to Landlord by Tenant on demand with interest at the rate of ten percent (10%)
per annum. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by Law, or which Landlord shall
deem proper, for the protection of Landlord, the Building, Premises, Common
Areas and any other person or entity having an interest therein, from mechanics'
and materialmen's liens, and Tenant shall give to Landlord at least ten (10)
business days prior written notice of the expected date of commencement of any
work relating to alterations or additions to the Premises and Landlord's prior
written consent thereto.
14. INDEMNITY.
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14.1 INDEMNITY. Tenant shall indemnify and hold Landlord harmless from and
defend Landlord against any and all claims of liability for any injury or damage
to any person or property whatsoever; (1) occurring in, on or about any
facilities (including, without prejudice to the generality of the term
"facilities," rest rooms, elevators, stairways, passageways, hallways and
parking areas), the use of which Tenant may have in conjunction with other
Tenants of the Building including the Common Areas, when such injury or damage
is caused in part or in whole by the act, neglect, fault or omission of any duty
with respect to the same by Tenant, its agents, contractors, officers,
directors, shareholders, customers, employees or invitees. Tenant shall further
indemnify and hold Landlord harmless from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of Tenant, or any of its agents, contractors, employees, officers and
directors and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any claim or any action or proceeding
brought thereon. In case any action or proceeding is brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord,
provided, however, that Tenant shall not be liable for damage or injury
occasioned by the negligence or intentional acts of Landlord and its designated
invitees, agents or employees.
14.2 INDEMNITY. Landlord shall indemnify and hold Tenant harmless from and
defend Tenant against any and all claims of liability for any injury or damage
to any person or property whatsoever; (1) occurring in, on or about any
facilities (including, without prejudice to the generality of the term
"facilities," rest rooms, elevators, stairways, passageways, hallways and
parking areas), the use of which Landlord may have in conjunction with other
Tenants of the Building including the Common Areas, when such injury or damage
is caused in part or in whole by the act, neglect, fault or omission of any duty
with respect to the same by Landlord, its agents, contractors, officers,
directors, shareholders, customers, employees or invitees. Landlord shall
further indemnify and hold Tenant harmless from and against any and all claims
arising from any breach or default in the performance of any obligation on
Landlord's part to be performed under the terms of this Lease, or arising from
any act or negligence of Landlord, or any of its agents, contractors, employees,
officers and directors and from and against all costs, attorney's fees, expenses
and liabilities incurred in the defense of any claim or any action or proceeding
brought thereon. In case any action or proceeding is brought against Tenant by
reason of any such claim, Landlord, upon notice from Tenant shall defend the
same at Landlord's expense by counsel reasonably satisfactory to Tenant,
provided, however, that Landlord shall not be liable for damage or injury
occasioned by the negligence or intentional acts of Tenant and its designated
invitees, agents or employees.
Tenant, as a material part of the consideration of Landlord, hereby assumes
all risk of damage to property or injury to persons in, upon or about the
Premises, Building and Common Areas from any cause and Tenant hereby waives all
claims in respect thereof
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against Landlord, except where such damage or injury is due to the negligence of
Landlord, its agents and employees.
14.3 EXEMPTION OF LANDLORD. Notwithstanding anything to the contrary
contained in Section 14.2 of this Lease to contrary, Landlord shall not be
liable for injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Tenant, its employees, officers, directors,
shareholders, agents, invitees, or customers, or any other person in or about
the Premises, Building or Common Areas caused by or resulting from fire, steam,
electricity, gas, water or rain, acts of God, casualty loss or matters beyond
Landlord's control which may leak or flow from or into any part of the Premises,
or from the breakage, leakage, destruction, or other defects of the pipes,
sprinklers, wires, appliances, plumbing, air conditioning, heating, lighting
fixtures or other damage, whether the damage by injury from conditions arising
upon the Premises or upon other portions of the Building or Common Areas of
which the Premises are a part, or from other sources, except where such injury
or damage is due to the negligent or intentional acts of Landlord, its agents
and employees. Landlord shall not be liable for any damages arising from acts of
neglect of any other Tenant(s), its, or their officers, directors, employees,
invitees, customers, agents and contractors of the Building.
15. INSURANCE
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15.1 COVERAGE. Tenant shall, at all times during the term of this
Lease, and at its own cost and expense procure and continue in force the
following insurance coverage:
(a) Bodily injury and property damage comprehensive
commercial general liability insurance with a combined single limit for bodily
injury and property damage of not less than $2,000,000, or such higher amounts
and coverages as Landlord may reasonably require.
(b) Property Damage, and fire Insurance including vandalism
malicious mischief, and all extended coverage endorsements an amount equal to
the full replacement value (no deduction for depreciation) of all fixtures,
furniture and improvements installed and/or owned by Tenant.
15.2 INSURANCE POLICIES. The aforementioned minimum limits of policies
shall in no event limit the liability of Tenant hereunder. The aforesaid
insurance shall name Landlord and Landlord's lender(s) as an additional insured.
Said insurance shall be with companies having a rating of not less than a Class
A in "Best's Key Rating Guide". Tenant shall furnish from the insurance
companies or cause the insurance companies to furnish certificates of coverage.
No such policy shall be cancelable or subject to reduction of coverage or other
modifications or cancellation except after thirty (30) days prior notice in
writing to Landlord by the insurer. All such policies shall be written as
primary policies, not contributing with and not in excess of the coverage which
Landlord may carry. Tenant shall, at least twenty (20) days prior to the
expiration of such policies, furnish Landlord with renewals or binders. Tenant
agrees that if Tenant does not take out and maintain such
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insurance, Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge Tenant the premium together with a twenty-five
percent (25%) handling charge, payable upon demand. Tenant shall have the right
to provide such insurance coverage pursuant to blanket policies obtained by
Tenant provided such blanket policies expressly afford coverage to the Premises
and to Tenant as required by this Lease.
15.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any
and all rights of recovery against the other or against the officers, directors,
shareholders, employees, agents, contractors and representatives of the other,
on account of loss or damage occasioned to such waiving party or its property or
the property of others under its control to the extent that such loss or damage
is insured against in any fire and extended coverage insurance policy which
either party may have in force at the time of such loss or damage. Tenant shall,
upon obtaining the policies of insurance required under this Lease, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
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16. DAMAGE OR DESTRUCTION.
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16.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the
Building are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Landlord, then Landlord shall restore such damage
provided insurance proceeds are available to the cost of restoration and
provided such restoration can be completed within sixty (60) days after the
commencement of the work in the opinion of a registered architect or engineer
appointed by Landlord. In such event this Lease shall continue in full force and
effect.
16.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the
Building are damaged by a risk not covered by Landlord's insurance, or if the
restoration cannot be accomplished within sixty (60) days after the commencement
of work in the opinion of the registered architect or engineer appointed by
Landlord, then Landlord shall have the option either to (1) repair or restore
such damage, this Lease continuing in full force and effect, or (2) give notice
to Tenant at any time within sixty (60) days after such damage terminating this
Lease as of date to be specified in such notice, which date shall be not less
than thirty (30) nor more than sixty (60) days after giving such notice. In the
event of the giving of such notice, this Lease shall expire and all interest of
Tenant in the Premises shall terminate on such date so specified in such notice.
16.3 TOTAL DESTRUCTION. In the event the Premises are totally
destroyed or the Premises cannot be restored as required herein under applicable
laws and regulations, notwithstanding the availability of insurance proceeds,
this Lease shall be terminated effective thirty (30) days after the date of the
damage.
16.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the
contrary contained in this Section 16, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Section 16 occurs during the last
twelve (12) months of the term of this Lease or any Extension, if exercised.
16.5 LANDLORD'S OBLIGATIONS. The Landlord shall not be required to
repair any injury or damage by fire or other cause, or to make any restoration
or replacement of any paneling, decorations, partitions, railings, floor
covering, office fixtures, furniture or equipment or any other improvements or
property installed in the Premises and owned by Tenant. Tenant shall be required
to restore or replace same in the event of damage. Tenant shall have no claim
against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration; nor shall Tenant have the right to terminate
this Lease as the result of any statutory provision now or hereafter in effect
pertaining to the damage and destruction of the Premises or the Building, except
as expressly provided herein.
17. CONDEMNATION.
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If all or any part of the Premises shall be taken or appropriated for
public or quasi-public use by right of eminent domain with or without litigation
or transferred by agreement in connection with such public or quasi-public use,
either party hereto shall have the right at its option exercisable within thirty
(30) days of receipt of notice of such taking to terminate this Lease as of the
date possession is taken by the condemning authority, provided, however, that
before Tenant may terminate this Lease by reason of taking or appropriation as
provided hereinabove, such taking or appropriation shall be of such an extent
and nature as to substantially handicap, impede or impair Tenant's use of the
Premises. If any part of the Building other than the Premises shall be so taken
or appropriated Landlord shall have the right at its option to terminate the
Lease. No award to any partial or entire taking shall be apportioned, and Tenant
hereby assigns to Landlord any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof; provided, however, that nothing
contained herein shall be deemed to give Landlord any interest in or require
Tenant to assign to Landlord any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant and/or for the interruption of or
damage to Tenant's business and/or for Tenant's unamortized cost of leasehold
improvements and any sums prepaid by Tenant. In the event of a partial taking
which does not result in a termination of this Lease, rent shall be abated in
the proportion which the part of the Premises taken bears to net rented area of
the Premises depicted on Exhibit B immediately prior to the taking. No temporary
taking of the Premises and/or of Tenant's rights therein or under this Lease
shall terminate the Lease or give Tenant any right to any abatement of rent.
18. ASSIGNMENT AND SUBLETTING.
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18.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest therein,
and shall not sublet the Premises or any part hereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease.
18.2 NO RELEASE OF TENANT. No consent by Landlord to any assignment,
transfer or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment, transfer or subletting. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
assignment, subletting or other transfer. Consent to one assignment, subletting
or other transfer shall not be deemed to constitute consent to any subsequent
assignment, subletting or other transfer.
18.3 ATTORNEY'S FEES. In the event Landlord shall consent to a
sublease or assignment under this Section 18, Tenant shall pay Landlord's
reasonable attorney's fees incurred in connection with giving such consent.
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19. SUBORDINATION
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19.1 SUBORDINATION. This Lease at Landlord's option shall be subject
and subordinate to all ground or underlying leases which now exist or may
hereafter be executed affecting the Premises or land upon which the Premises are
situated or both, and to the lien of any mortgages or deeds of trust in any
amount or amounts whatsoever now or hereafter placed on or against the land or
improvements or either thereof, of which the Premises are a part, or on or
against Landlord's interest or estate therein, or on or against any ground or
underlying lease without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination,
provided Tenant receives a Nondisturbance Agreement from each lessor, mortgagee
or holder of a deed of trust If the holder of any mortgage, deed of trust or
ground lease shall elect to have this Lease prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Tenant,
this Lease shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust, or ground lease or the date of the recording thereof,
provided that Tenant's right under this Lease shall remain in effect so long as
Tenant is not in default.
19.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to
execute and deliver upon demand without charge therefor, such further
instruments evidencing such subordination of this Lease to such ground or
underlying leases and to the lien of any such mortgages or deeds of trust as may
be required by Landlord, provided that such lessor, mortgagee or holder of the
deed of trust agrees to recognize the rights of Tenant under this Lease and
agrees so long as Tenant is not in default of this Lease beyond any applicable
cure periods not to disturb Tenant's possession and occupancy of the Premises.
19.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that
upon Tenant paying rent and other monetary sums due under the Lease, performing
its covenants and conditions under the Lease and upon Tenant recognizing any
future purchaser as Landlord pursuant hereto, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises for the term, subject, however, to the
terms of the Lease and of any of the aforesaid ground leases, mortgages or deeds
of trust described above and matters of record.
19.4 ATTORNMENT. In the event any proceedings are brought for
default under any ground or underlying lease or in the event of foreclosure or
the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
19.5 Tenant agrees to amend this Lease except for the provisions
relating to Rent, Term and Extension(s) upon the request of any Lender providing
financing to Landlord or any purchaser of the Premises. Landlord upon the sale
of the Premises shall be released from any and all liability hereunder arising
after the closing of the sale. Landlord's liability under this Lease is limited
solely to its interest in the Premises.
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20. RIGHTS RESERVED TO LANDLORD. Landlord shall have the following
rights, each of which Landlord may exercise without liability to Tenant for
damage or injury to property, person, or business due to the exercise of those
rights, and the exercise of those rights shall not be deemed to constitute an
eviction or disturbance of Tenant's use or possession of the premises and shall
not give rise to any claim for setoff, deduction or abatement of rent or any
other claim:
1. to change the name of the Building or the Building's street
address;
2. to install, affix, and maintain any and all signs on the
exterior and on the interior of the Building;
3. to remodel, construct additions, relocate, enlarge, reduce,
replace or change lobbies, exits, or entrances and other Common Areas in or to
the Building, to remodel, construct additions, relocate, enlarge, reduce,
replace or change any other portion or portions of the Building other than the
Premises and to decorate and to make repairs, alterations, additions, and
improvements, structural or otherwise, in or to the Building. Property and
Common Areas to remodel, construct additions, change, reduce, enlarge,
reconfigure, relocate, replace and restripe the Common Areas outside the
Building including without limitation curb cuts, driveways, parking areas,
walkways, service drives and loading docks, to build additional buildings,
structures and improvements including above and/or below ground parking decks
and structures and to subdivide, resubdivide, plat or replat, including for the
purpose of connection with or entrance into or use of the Building and Common
Areas in conjunction with any adjoining or adjacent building or buildings and
structures, now existing or to be constructed and may for those purposes erect
scaffolding and other structures required by the character of the work to be
performed and during those operations may enter upon the Premises and take into
and upon or through any part of the Building or Property, including the
Premises, all materials contractors, agents, consultants and workmen that may be
required to make those repairs, alterations, improvements, replacements or
additions, and in that connection Landlord may temporarily close public entry
ways, other public spaces, or Common Areas, stairways, or corridors and
interrupt or temporarily suspend any services or facilities agreed to be
furnished by Landlord, all without the same constituting an eviction of Tenant
in whole or in part and without abatement of rent by reason of loss or
interruption of the business of Tenant or otherwise and without in any manner
rendering Landlord liable for damages or relieving Tenant from performance of
Tenant's obligations under this Lease. Landlord agrees to use reasonable efforts
to minimize interference with Tenant's normal business operations and not to
make any permanent alteration or modification to the Property which would
materially interfere with the rights granted Tenant under the Lease;
4. to retain at all times, and to use in appropriate instances, keys
to all doors within and into the Premises. Notwithstanding the provision for
Landlord's access to the Premises, Tenant relieves and releases Landlord of all
responsibility and liability arising out of theft, robbery, or pilferage. Upon
the expiration of the term or of Tenant's right to possession, Tenant shall
return all keys to Landlord and shall disclose to Landlord the combination of
any safes, cabinets, or vaults left in the Premises;
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5. to approve the weight, size, and location of safes, vaults,
books, files, and other heavy equipment and personal property and fixtures in
and about the Premises and the Building so as not to exceed the design live load
per square foot designated by the structural engineer for the Building, and to
require all such items and furniture and similar items to be moved into or out
of the Building and the Premises only at times and in a manner as Landlord shall
direct in writing (Tenant shall not install or operate machinery or any
mechanical devices of a nature not directly related to Tenant's ordinary use of
the Premises without the prior written consent of Landlord, Movement of Tenant's
property into or out of the Building or premises and within the Building are
entirely at the risk and responsibility of Tenant;
6. to establish controls for the purpose of regulating all
property and packages, both personal or otherwise, to be moved into or out of
the building and Premises and to establish controls for all persons using the
Building;
7. to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building;
8. to regulate delivery of supplies, food, other goods and
services in order to ensure the cleanliness and security of the Premises and the
Building and to avoid congestion of the loading docks, receiving areas, and
elevators;
9. to show the Premises to prospective tenants at reasonable
hours during the last twelve (12) months of the Term or to prospective
mortgagees, ground lessors, or purchasers of the Property at any time and, if
vacated or abandoned, to show the Premises to prospective tenants at any time
and to prepare the Premises for reoccupancy;
10. to erect, use, repair, replace, and maintain concealed pipes,
ducts, wiring, and conduits and appurtenances thereto, in and through the
Property including without limitation walls, below the floor and above the
suspended ceiling;
11. to enter the Premises at any reasonable time upon prior
notice (except no notice shall be required in the event of an emergency) to
inspect the Premises; and
12. to exercise and enjoy any rights and perform any acts with
respect to the Property not specifically reserved to Tenant.
21. ENVIRONMENTAL PROVISIONS. Tenant shall not, without the prior written
consent of Landlord, cause or permit any hazardous substances (defined below) to
be brought or remain upon, kept, used, discharged, leaked, or emitted in or
about, or treated, at the Property. As used in this Lease, "Hazardous
Substances" means any hazardous, etiological, toxic, or radioactive substance,
material, matter, or waste that is or becomes during the Lease Term regulated by
any applicable federal, state, or local law, ordinance, order, rule, regulation,
code, or any governmental restriction or requirement, and shall include but not
be limited to asbestos, petroleum products, polychlorinated biphenyls and the
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terms "Hazardour Substance" and "Hazardous Waste" as defined in the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C.(S)9601, et seq., and the Resources Conservation and Recovery
Act, as amended, 42 U.S.C. (S)6901, et seq.
In addition to, and in no way limiting, Tenant's duties and obligations as
set forth in this Lease, should Tenant breach any of its duties and obligations
as set forth in this section, or if the presence of any Hazardous Substances on
the Property results in contamination of the Property or any other property,
the atmosphere, or any water or waterway (including groundwater) or if
contamination of the Property by any Hazardous Substances otherwise occurs for
which Tenant is otherwise legally liable to Landlord for damages resulting
therefrom, Tenant shall indemnify, hold harmless and, at Landlord's option,
defend Landlord, and its successors, assigns, contractors, agents, employees,
shareholders, partners, officers, directors, affiliates and any entity or
persons providing financing to the Landlord, from any and all claims, demands,
damages, expenses, fees, costs, fines, penalties, suits, proceedings, actions,
causes of action, and losses of any and every kind and nature, including,
without limitation, diminution in value of the Property , damages for the loss
or restriction on use of the rentable or usable space or of any amenity of the
Premises or the Building, damages arising from any adverse impact on marketing
space in the Building, and sums paid in settlement of claims and for attorneys'
fees, consultant fees, and expert fees that may arise during or after the Lease
Term or any Extensions, if exercised, as a result of that contamination. This
includes, without limitation, costs and expenses incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of the presence of Hazardous Substances on or
about the Property, or because of the presence of Hazardous Substances anywhere
else that came or otherwise emanated from Tenant or the Property. Without
limiting the foregoing, if the presence of any Hazardous Substances on or about
the Property caused or permitted by Tenant results in any contamination of the
Property Tenant shall, at its sole expense, promptly take all actions and
expense as are necessary to return the Premises and the Building to the
condition existing prior to the introduction of any Hazardous Substances to the
Property; provided, however, that Landlord's written approval of these actions
shall first be obtained.
22. DEFAULT: REMEDIES
------------------
22.1 DEFAULT. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or any other monetary sums
required to be paid hereunder (where such failure continues for five (5)
business days after written notice by Landlord to Tenant);
(b) The abandonment or vacation of the Premises by Tenant;
(c) A failure by Tenant to observe and perform any other provision of
this Lease to be observed by Tenant, where such failure continues for ten (10)
days after
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written notice thereof, by Landlord to Tenant; provided, however,
that if the nature of the default is such that the same cannot reasonably be
cured within said ten (10) day period, Tenant shall not be deemed to be in
default if Tenant shall within such period commence such cure and thereafter
diligently prosecute the same to completion, within thirty (30) days thereafter.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy [unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days];
the appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days.
22.2 REMEDIES. In the event of any such material default or breach by
Tenant, Landlord may, at any time thereafter without limiting Landlord in the
exercise of any right or remedy at law or in equity which Landlord may have by
reason of such default or breach:
(a) Maintain this Lease in full force and effect and recover the Rent,
additional rent and other monetary charges as they become due, without
terminating Tenant's right to possession irrespective of whether Tenant shall
have abandoned the Premises. In the event Landlord elects not to terminate the
Lease, Landlord shall have the right to attempt to re-let the Premises at such
rent and upon such conditions and for such a term, and to do all acts necessary
to maintain or preserve the Premises as Landlord deems reasonable and necessary
without being deemed to have elected to terminate the Lease, including removal
of all persons and property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Tenant. In the event any such re-letting occurs, this Lease shall terminate
automatically upon the new Tenant taking possession of the Premises.
Notwithstanding that Landlord fails to elect to terminate the Lease initially,
Landlord at any time during the term of this Lease may elect to terminate this
Lease by virtue of such previous default of Tenant.
(b) Terminate Tenant's right to possession by any lawful means, in
which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default; including without limitation thereto, the following: (1) any
unpaid rent which has been earned at the time of such termination; plus (2) the
amount by which the unpaid rent which would have been earned after termination
until the time of a judicial award exceeds the amount of such rental loss, that
is proved could have been reasonably avoided; plus (3) the amount by which the
unpaid rent for the balance of the term after the time of a judicial award
exceeds the amount of such rental loss that is proved could be reasonably
avoided, discounted to its net present value at ten percent (10%); plus (4) any
other amount necessary to compensate Landlord for all the
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detriment, loss, cost and damage, proximately caused by Tenant's failure to
perform its obligations under this Lease including, but not limited to, Rent,
additional rent and other monetary obligations as they become due, attorney's
fees, costs to re-let and remodel the Premises, costs of regaining possession,
real estate brokers' commissions and interest on all such sums accruing at a
maximum lawful rate from the date of default until paid in full or which in the
ordinary course of events would be likely to result therefrom; plus (5) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law. Upon any such
re-entry Landlord shall have the right to make any reasonable repairs,
alterations or modifications to the Premises which Landlord in its sole
discretion deems reasonable and necessary. The term Rent as used in this Section
22, shall be deemed to be and to mean the Rent and additional rent to be paid
pursuant to this Lease and all other monetary obligations required to be paid by
Tenant pursuant to the terms of the Lease. Landlord agrees to take reasonable
actions to mitigate damages caused by Tenant's default hereunder.
22.3 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within five (5) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
three and three quarters percent (3.75%) of such overdue amount each and every
month (or any portion thereof) until said late payment is paid in full. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the cost Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder.
23. ESTOPPEL CERTIFICATE. Tenant and Landlord agree at any time and from
time to time, upon not less than ten (10) business days' prior written request
from the other party to execute, acknowledge and deliver to the requesting party
a statement in writing, in form and content reasonable acceptable to both
parties, an estoppel certificate certifying that this lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), the dates to
which Rent, additional rent and charges have been paid and certifying that it is
not in default (or if a default is alleged, stating the nature of the alleged
default), and further certifying such other matters as the requesting party
shall require. It is intended that any such statement delivered pursuant to
this section may be relied upon by any purchaser, owner, lender, subtenant,
assignee or any entity which is a party to a potential merger, consolidation
with or to the acquisition of substantially all of the assets or stock of
Landlord or Tenant. In the event either party shall fail to execute and deliver
any such instrument within the foregoing time period as requested, such party
hereby irrevocably appoints the requesting party as its attorney-in-fact to
execute such instrument in its name, it being agreed that such appointment is
one coupled with an interest and the statements
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contained in such instrument shall be deemed to be true and correct and binding
on such party, who shall be estopped from denying or contesting the facts
contained in such instrument.
24. MISCELLANEOUS.
--------------
(a) Any and all discussions and negotiations between Landlord and
Tenant have been merged into this Lease. No rights are conferred upon Tenant
until this Lease has been executed by Landlord. Any and all representations and
agreements by either of the parties or their agents made during negotiations
prior to execution of this Lease and which representations and agreements are
not contained in this Lease shall not be binding upon either of the parties
hereto.
(b) Landlord and Tenant represent and warrant to each other that they
have not had any dealings with any real estate brokers, finders or agents in
connection with this Lease. Landlord and Tenant agree to indemnify, defend and
hold each other and their successors and assigns harmless from any and all
claims, costs, commissions, fees or damages by any person or firm claiming to
have negotiated, instituted or brought about this Lease.
(c) All terms and words used in this Lease, regardless of the number
and gender in which they are used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context or sense of this Lease or any portion of this Lease may
require, the same as if such words had been fully and properly written in the
number and gender.
(d) This Lease may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but such
counterparts together shall constitute but one and the same instrument.
(e) If any provision of this Lease or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
whose circumstances are other than those as to which it is held invalid or
unenforceable, shall not be affected thereby.
(f) No modification, alteration or amendment of this Lease shall be
binding unless in writing and executed by the parties hereto.
(g) The headings to the Sections of this Lease are inserted only as a
matter of convenience and for reference, and in no way confine, limit or
proscribe the scope or intent of any Section of this Lease, nor in any way
affect this Lease.
(h) This Lease is binding upon and shall inure to the benefit of the
parties, hereto and their respective heirs, administrators, executors,
successors and assigns.
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(i) Time is of the essence of this Lease and each provision; provided,
however, if the final (but not any interim) date of any period set forth herein
falls on a Saturday, Sunday or legal holiday under the laws of the United States
of America, the final date of such period shall be extended to the next business
day.
(j) This Lease shall be governed by and construed and interpreted in
accordance with the laws of the state of Colorado.
(k) Each party hereto has reviewed and revised (or requested revisions
of) this Lease, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Agreement or any
Exhibits hereto.
(l) Every notice, approval, consent or other communication authorized
or required by this Assignment shall be effective if given in writing and either
hand delivered, sent by recognized overnight delivery courier service, or sent
by United States Certified Mail, Return Receipt Requested, with postage prepaid,
and addressed to the Assignor at its principal office address as set forth above
and to Assignee at its principal office address as set forth above or at such
other address as any party shall from time to time designate to the other in
writing. Every notice shall be deemed to be effective upon delivery, if
delivered, the next business day, if sent by overnight courier service, or on
the second business day after mailing, if mailed.
IN WITNESS WHEREOF, LANDLORD AND TENANT HAVE CAUSED THIS LEASE TO BE
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN
LANDLORD:
BOSTON CHICKEN, INC.
a Delaware corporation
By: /s/ Randy Miller
----------------------------------
Name: Randy Miller
--------------------------------
Title: Vice President
-------------------------------
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TENANT:
EINSTEIN/NOAH BAGEL CORP.
a Delaware corporation
By: /s/ David Stanchak
-------------------------------
Name: David Stanchak
-----------------------------
Title: Vice President
----------------------------
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EXHIBIT A
---------
LEGAL DESCRIPTION OF THE PROPERTY
---------------------------------
<PAGE>
EXHIBIT B
----------
FLOOR PLAN OF THE PREMISES
--------------------------
1
<PAGE>
EXHIBIT C
---------
TERM COMMENCEMENT AGREEMENT
---------------------------
THIS AGREEMENT, MADE THIS ____ DAY OF ___________, 19____, BY AND BETWEEN
______________________________, A ________________ CORPORATION (HEREIN
"LANDLORD") AND _____________________________, A ________________ CORPORATION
(HEREIN "TENANT").
W I T N E S S E T H:
--------------------
WHEREAS, LANDLORD AND TENANT HAVE ENTERED INTO THAT CERTAIN OFFICE LEASE
DATED _______________, ______ ("LEASE") FOR THE PREMISES LOCATED AT 14123 DENVER
WEST PARKWAY, SECOND FLOOR, GOLDEN, CO 80401; AND
WHEREAS, LANDLORD AND TENANT WISH TO SET FORTH THEIR AGREEMENTS AS TO THE
COMMENCEMENT OF THE TERM OF THIS LEASE.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AS DESCRIBED IN THE LEASE
AND THE COVENANTS SET FORTH THEREIN. LANDLORD AND TENANT AGREE AS FOLLOWS:
The Term of the Lease commenced on __________, 19____.
The initial or base term of the Lease shall expire on __________, 19____.
Tenant has two (2) options of five (5) years each.
The Rent Commencement Date for purposes of paying Rent additional rent and
charges under the Lease is _____________, 19____.
Monthly rents payable during the first Lease Year are as follows:
(a) Rent: _______________________________
(b) Taxes: _______________________________
(c) Insurance: _______________________________
(d) Admin. Serv.
Charge: _______________________________
TOTAL MONTHLY: $______________________________
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
LANDLORD: TENANT:
__________________________________ __________________________________
__________________________________ __________________________________
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EXHIBIT 10.36
TRANSITION
AND
CONSULTING AGREEMENT
This transition and consulting agreement ("Agreement") is entered into this 1st
day of July 1996, by and between Kyle T. Craig ("Craig") and Einstein/Noah Bagel
Corp. (the "Company").
RECITALS
--------
Craig is a full-time employee of the Company and currently serves as
Chairman of the Board of the Company. On the date hereof, Boston Chicken, Inc.
("BCI") became the beneficial owner of a majority the outstanding shares of
common stock of the Company through the conversion of its $120 million loan to
the Company. Craig now desires to resign as Chairman of the Board and the
parties now mutually desire to provide for Craig's eventual transition from a
full-time employee of the Company to a part-time consultant to the Company.
COVENANTS
---------
1. EMPLOYMENT ARRANGEMENT.
(a) Subject to the provisions for termination set forth herein, Craig
shall continue as a full-time employee of the Company through June 30, 1997 (the
"Initial Term"), after which time Craig shall transition to a part-time
consultant to the Company in accordance with the provisions of Section 2 hereof.
(b) As compensation for Craig's services as a full-time employee
during the Initial Term, the Company shall pay or cause to be paid to Craig
$3,602.57 biweekly, commencing on the date hereof through and including
December 29, 1996 and $7,875.40 biweekly, commencing on December 30, 1996
through and including June 30, 1997. The Company acknowledges that Craig is a
party to a Consulting Agreement with BCI dated July 24, 1995 (the "BCI
Consulting Agreement"), pursuant to which he renders certain services to BCI.
The Company agrees that Craig's rendition of such services to BCI pursuant to
the BCI Consulting Agreement does not interfere with his employment with the
Company and is not a breach of this Agreement.
(c) As a regular, full-time employee of the Company, during the
Initial Term, Craig will continue to participate in the employee benefit plans
that the Company offers to similarly situated employees, except that Craig shall
not be eligible to receive option grants under any of the Company's stock option
plans.
2. CONSULTING ARRANGEMENT.
(a) Commencing on July 1, 1997 the Company shall engage Craig to
render certain consulting services to the Company, which services will include,
but not be limited to, advice and management assistance on human resource and
recruiting issues and projects and such other projects as senior management or
the board of directors of the Company requests. Subject to Section 3 below, the
term of consultation shall be for a period of one year ("Consulting Term"), and
shall continue thereafter upon the mutual agreement of the parties hereto for
such period on such
<PAGE>
modified terms as the parties may agree upon. During the Consulting Term, Craig
shall provide, or be available to provide, such consulting services for 40 hours
per calendar month. During the Consulting Term, Craig shall use his best efforts
to advance the business and welfare of the Company, its subsidiaries and
affiliates, and to discharge any other duties assigned to him. He shall not
intentionally take any action against the best interests of the Company or of
any subsidiary or affiliate of the Company. He shall perform faithfully and
competently such duties as may be assigned to him from time to time.
(b) The Company shall pay or cause to be paid to Craig for his
services hereunder during the Consulting Term an annual consultation fee to be
mutually agreed upon by the parties hereto. The consulting fee shall be paid to
Craig in arrears in substantially equal monthly installments. In addition, the
Company shall reimburse Craig for (i) reasonable business expenses incurred by
him in rendering the consulting services hereunder, including automobile
commuting expenses from Steamboat Springs, Colorado consistent with the
Company's travel and entertainment policy then in effect, upon receipt of
appropriate supporting documentation, and (ii) premium payments made by him
under COBRA to continue medical insurance on Craig and his family at the
coverage levels in effect on, and for a period of 18 months from, June 30, 1997.
Craig acknowledges that the Company may, at any time and without his consent,
modify or change the insurance plan under which Craig and his family are
covered.
(c) Craig shall be considered to be an independent contractor for
purposes of this Section 2 and shall not be deemed to be an agent or employee of
the Company.
3. TERMINATION
(a) During the Initial Term and the Consulting Term (together, the
"Term"), this Agreement, and all of the Company's obligations hereunder:
(i) shall terminate automatically, without notice or action,
upon the occurrence of Craig's death; and
(ii) may be terminated by the Company for "cause", which
shall be defined as Craig's (x) breach of any provision of the Confidentiality
and Non-Compete Agreement dated July 24, 1995, a copy of which is attached
hereto as Exhibit A, (y) breach of any provision of the BCI Consulting
Agreement, or (z) disparagement of the Company, or of officers and/or affiliates
of the Company.
(b) If during the Term the Company terminates Craig for cause, as that
term is defined in Section 3(a)(ii), the Company shall not be obligated to Craig
for any compensation or fees (including COBRA reimbursement payments) with
respect to any period after the date of such termination and all stock options
(vested and unvested) for shares of common stock of the Company ("Common Stock")
granted to Craig shall terminate and be of no further force and effect as of the
date of such termination.
(c) If Craig dies during the Term, if this Agreement is terminated by
the Company during the Term for any reason other than for cause, or if Craig
voluntarily terminates this Agreement, the Company shall not be obligated to
Craig for any compensation or fees (including COBRA reimbursement payments) with
respect to any period after the date of such termination,
2
<PAGE>
provided that for so long as Craig does not commit any act that would permit the
Company to terminate this Agreement (if it were in effect) for "cause" as
defined in Section 3(a)(ii) hereof (i) all stock options for shares of Common
Stock granted to Craig that are vested on the effective date of such termination
shall continue to be exercisable and (ii) all unvested stock options for shares
of Common Stock shall continue to vest in accordance with the Vesting Schedule
contained in the Plan, in each case until June 30, 1998, and options vested on
such date shall continue to be exercisable for a period of 30 days thereafter.
4. STOCK OPTIONS. It is understood and agreed by the parties that the
time during which this Agreement is in effect shall be credited toward
satisfying the requirements for the vesting of stock options for shares of
Common Stock pursuant to the terms of the Company's Amended and Restated 1995
Stock Option Plan ("Plan"), and shall be subject to all of the provisions, terms
and conditions of the Plan, as it may be amended or modified from time to time,
but that Craig shall not be entitled to any annual grants under the Plan during
the term of this Agreement. Craig currently has the options to purchase,
pursuant to the Plan, shares of the Company's common stock set forth on Exhibit
B hereto.
5. RESIGNATION. Craig hereby resigns as Chairman of the Board of the
Company effective on the date hereof.
6. RELEASE. Craig acknowledges and agrees that this Agreement is partial
consideration for the release of any and all claims, liabilities, demands, and
causes of action arising out of his employment or the termination of his
employment with the Company that he may have against the Company, all as
described more fully in the Release attached hereto as Exhibit C. As such,
Craig agrees to execute and deliver to the Company the Release within 30 days of
the date hereof and execute and deliver the same Release within 30 days after
June 30, 1997.
7. OWNERSHIP OF WORK PRODUCT. Craig agrees that any and all ideas,
improvements and inventions conceived, created, or first reduced to practice in
the performance of work for the Company shall be the sole and exclusive property
of the Company. Craig further agrees that the Company is and shall be vested
with all rights, title and interest, including patent, copyright, trade secret
and trademark rights, in such work product. Craig shall execute all papers
including patent applications, invention assignments and copyright assignments,
and otherwise shall assist the Company at the Company's expense and as
reasonably shall be required to perfect in the Company the rights, title and
other interests in his work product expressly granted to the Company under this
Agreement.
8. RETURN OF COMPANY PROPERTY. Craig agrees that upon termination of this
Agreement for any reason he shall keep no Company documents of any kind
whatsoever, and agrees to promptly return any such documents after such
termination upon the request of the Company.
9. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement.
3
<PAGE>
10. DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience only and do not constitute a part of this Agreement.
11. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be governed, construed and enforced in accordance with the
laws of the State of Colorado applicable to contracts made and to be performed
therein.
12. COMPLETE AGREEMENT. This Agreement embodies the complete agreement
and understanding between the parties with respect to the subject matter hereof,
and supersedes and preempts any prior understandings, agreement or
representations by or between the parties, written or oral, which may have
related to the subject matter.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
14. AMENDMENT. The parties hereto may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
15. NOTICES. Any notice, request, demand or other communication to be
delivered hereunder shall be in writing and shall be deemed to have been duly
given upon the earlier of actual delivery or three business days after being
mailed by certified or registered mail, return receipt requested and postage
prepaid, addressed to the appropriate party as follows (or to such other address
of the receiving party as shall be given to the sending party in the manner
provided herein for the giving of notices):
If to the Company:
Einstein Bros. Bagels, Inc.
1526 Cole Boulevard, Suite 200
Golden, Colorado 80401
Attention: General Counsel
If to Craig:
Kyle T. Craig
25088 Foothills Drive North
Golden, Colorado 80401
16. STOCK OPTION COMMITTEE APPROVAL. This Agreement and the Company's
obligations hereunder with respect to stock options shall be subject to the
approval of the Stock Option Committee of the Company's board of directors, with
Craig abstaining from such vote.
In witness whereof, the parties hereto have executed this Agreement as of
the date first above written.
4
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
By /s/ Joel Alam
--------------------------------
Title Vice President
-----------------------------
/s/ Kyle T. Craig
----------------------------------
Kyle T. Craig
5
<PAGE>
Exhibit 10.37(a)
AIRCRAFT DRY SUBLEASE
This Sublease of aircraft is made, dated as of July 9, 1996, by and
between Boston Chicken, Inc., a Delaware corporation, having its principal place
of business at 14103 Denver West Parkway, Golden, CO 80401, hereinafter referred
to as "BCI", and Einstein/Noah Bagel Corp., a Delaware corporation, with offices
at 1526 Cole Boulevard, Suite 200, Golden, Colorado 80401, hereinafter referred
to as "Sublessee".
RECITALS
The parties recite that:
A. BCI leases a 1979 Learjet Model 35A, Serial No. 35A-249 and
currently registered as N300DA and a 1981 Learjet Model 35A, Serial No. 35A-366
and currently registered as N350DA, hereinafter together referred to as the
"Aircraft". The Aircraft are available for use by a qualified Sublessee; and
B. Sublessee desires to lease the Aircraft under such terms and
conditions as are mutually satisfactory to the parties.
The parties agree as follows:
SECTION ONE
SUBLEASE OF AIRCRAFT
For One Dollar and No/100 ($1.00) and other valuable consideration,
BCI agrees to sublease the Aircraft to Sublessee on a nonexclusive basis. The
Aircraft shall be delivered to Sublessee at Jeffco Airport in Broomfield,
Colorado and this Sublease shall be effective on, July 11, 1996, at which time
Sublessee shall inspect the Aircraft to the extent deemed necessary. It shall
be conclusively presumed between the parties that Sublessee has fully inspected
the Aircraft having knowledge that they are in good condition and repair and
that Sublessee is satisfied with and has accepted the Aircraft in such condition
and repair.
1
<PAGE>
SECTION TWO
TERM
This Sublease shall commence on the date the Aircraft are delivered to
and accepted by the Sublessee (which such delivery and acceptance shall be
deemed to occur, if not sooner, on the date Sublessee first uses the Aircraft
after the date of this Agreement) and shall terminate upon termination of the
Basic Term of the Master Leases referred to in Section 14 of this Agreement.
This Sublease may, in any event, be terminated by either party upon thirty (30)
days written notice.
SECTION THREE
INSURANCE
At all times during the term of this Sublease, BCI shall cause to be
carried and maintained casualty insurance with respect to the Aircraft for the
actual fair market value thereof. BCI shall pay for the premium therefor. BCI
shall also cause to be carried and maintained public liability insurance with
respect to the Aircraft in amounts and against risk comparable to similar
insurance carried with respect to similar Aircraft.
BCI shall cause to be carried and maintained third party aircraft
liability insurance, passenger legal liability insurance and property damage
liability insurance during the term hereof in commercially reasonable amounts.
Sublessee shall bear the cost of paying any deductible amount on any policy of
insurance in the event of a claim or loss relating to Sublessee's use of the
Aircraft. Any policies of insurance carried in accordance with this Sublease:
(i) shall name or otherwise provide for Sublessee as an additional insured; and
(ii) the underwriter thereof shall agree to waive any right of subrogation
against Sublessee; and (iii) shall provide that in respect of the interests of
Sublessee, such policies of insurance shall not be invalidated by any action or
inaction of BCI or any other person and shall insure the Sublessee (subject to
the limits of liability and war risk exclusion set forth in such policies)
regardless of any breach or any
2
<PAGE>
violation of any warranty, declarations or conditions contained in such policies
by BCI or any other person; and (iv) shall provide that if the insurers cancel
insurance for any reason whatsoever, or the same is allowed to lapse for
nonpayment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
the Sublessee without thirty (30) days prior written notice. Each liability
policy shall be primary without right of contribution from any other insurance
which is carried by the Sublessee or BCI and shall expressly provide that all of
the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured. BCI shall
arrange for evidence of appropriate coverage as to the Aircraft and to the
satisfaction of the requirements set forth above to be given by its insurance
brokers to the Sublessee.
This Aircraft Dry Sublease Agreement shall be submitted for approval
to the insurance carrier for each policy on the Aircraft.
SECTION FOUR
RESTRICTIONS ON USE
Sublessee may operate the Aircraft only for the purposes and within
the geographical limits set forth in the insurance policy or policies obtained
in compliance with Section Three of this agreement and the respective Master
Leases. The Aircraft shall be operated at all times in accordance with the
flight manual and all manufacturer's suggested operating procedures.
Furthermore, Sublessee shall not use the Aircraft in violation of any foreign,
federal, state, territorial, or municipal law or regulation and shall be solely
responsible for any fines, penalties, or forfeitures occasioned by any violation
by Sublessee. If such fines or penalties are imposed on BCI and paid by BCI,
Sublessee shall reimburse BCI for the amount thereof within thirty (30) days of
receipt by Sublessee of written demand from BCI. Sublessee will not base the
Aircraft,
3
<PAGE>
or permit it to be based, outside the limits of the United States of America,
without the written consent of BCI.
The Aircraft shall be flown only by certificated and qualified pilots and
shall be maintained only by certificated and qualified mechanics. In the event
the insurance on the Aircraft would be invalidated because Sublessee is unable
to obtain certificated and qualified pilots and mechanics, Sublessee shall not
operate the Aircraft until such time as certificated and qualified pilots and
mechanics are obtained and insurance on the Aircraft is made valid.
Sublessee will not directly or indirectly create, incur, assume or suffer
to exist any lien on or with respect to the Aircraft. Sublessee will promptly,
at its own expense, take such action as may be necessary to discharge any lien
not excepted above if the same shall arise at any time.
SECTION FIVE
INSPECTION BY BCI
Sublessee agrees to permit BCI or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that BCI may reasonably request.
SECTION SIX
ALTERATIONS
Except in accordance with other written agreements entered into subsequent
to the date of this Agreement between Sublessee and BCI regarding maintenance of
the Aircraft, Sublessee shall not have the right to alter, modify, or make
additions or improvements to the Aircraft without the written permission of BCI
and C.I.T. Leasing Corporation ("CIT"). All such alterations, modifications,
additions, and improvements as are so made shall be subject to all of the terms
of this Sublease and none of which such alterations, modifications, additions,
and improvements shall become the property of Sublessor.
4
<PAGE>
SECTION SEVEN
TITLE
The registration of, and title to, the Aircraft shall be in the name of
CIT, and the Aircraft, at all times during the term of this agreement, or any
extension, shall bear United States registration markings. All responsibility
and obligations in regard to the operation of the Aircraft as above owned,
registered, and marked shall be borne by Sublessee for Sublessee's flight
operations during the term of this Sublease.
SECTION EIGHT
PAYMENT OF TAXES
Sublessee shall pay all taxes associated with Sublessee's use of the
Aircraft, including landing fees, fuel taxes, and any other taxes or fees which
may be assessed against a specific flight by Sublessee.
SECTION NINE
ASSIGNMENT
Sublessee shall not assign this Sublease or any interest in the Aircraft,
or sublet the Aircraft, without prior written consent of BCI. Subject to the
foregoing, this Sublease inures to the benefit of, and is binding on, the heirs,
legal representatives, successors, and assigns of the parties.
SECTION TEN
ACCIDENT AND CLAIM
Sublessee shall immediately notify BCI of any accident involving
Sublessee's use of the Aircraft, which notification shall specify the time,
place, and nature of the accident or damage, the names and addresses of parties
involved, persons injured, witnesses, and owners of properties damaged, and such
other information as may be known. Sublessee shall advise BCI of all
5
<PAGE>
correspondence, papers, notices, and documents whatsoever received by Sublessee
in connection with any claim or demand involving or relating to the Aircraft or
its operation, and shall aid in any investigation instituted by BCI and in the
recovery of damages from third persons liable therefor.
SECTION ELEVEN
RETURN OF AIRCRAFT TO BCI
On the termination of this Sublease by expiration or otherwise, Sublessee
shall return the Aircraft to BCI at Jeffco Airport in Broomfield, Colorado, in
as good operating condition and appearance as when received, ordinary wear, tear
and deterioration excepted.
SECTION TWELVE
MODIFICATION OF AGREEMENT; GOVERNING LAW
This Agreement constitutes the entire understanding between the parties,
and any change or modification must be in writing and signed by both parties.
This Agreement is entered into under, and is to be construed in accordance with,
the laws of the State of Colorado.
SECTION THIRTEEN
INDEMNIFICATION
Each party hereto agrees to indemnify and hold harmless the other against
all losses, including costs, attorney fees and expenses by reason of claims for
injury to or death of persons and loss of or damage to property arising out of
or in any manner connected with the possession, use, or operation of the
Aircraft by such party, or any breach by such party of any covenant or warranty
made herein, in each case to the extent not covered by insurance.
6
<PAGE>
SECTION FOURTEEN
SUBORDINATION TO MASTER LEASE
I. The rights of Sublessee shall hereby be effectively and expressly
subject and subordinate to all of the terms of the Lease Agreements
between Boston Chicken, Inc. and CIT each dated as of April 23, 1996,
attached hereto and incorporated herein by this reference (hereinafter
referred to as the "Master Leases"), including CIT's right of
repossession upon the occurrence of an Event of Default, as defined in
the Master Leases.
II. BCI and Sublessee shall execute and deliver such Uniform Commercial
Code financing statements, in form and substance satisfactory to CIT,
covering the interests of BCI and Sublessee under this Sublease.
III. Notwithstanding any other provision contained herein, this Sublease
shall be deemed to provide for benefits and protections to BCI, as
sublessor, which are (in respect of material terms and in the aggregate)
not less advantageous to BCI as sublessor, than the benefits and
protection provided to CIT by the provisions of the Master Leases;
IV. BCI shall provide evidence of insurance to CIT and Sublessee in
compliance with Section 16 of the Master Leases and Section 3 of this
Agreement;
7
<PAGE>
V. BCI shall:
A. Notify CIT of the terms of this Sublease (and provide copies of
the final drafts hereof) prior to the effective date of this
Sublease, and
B. Furnish the "Original" copy of this Sublease to CIT as soon as
possible after the execution hereof, but in any event prior to the
delivery of the Aircraft to the Sublessee.
VI. Notwithstanding any other provision of this Sublease, Sublessee shall
not sublease the Aircraft.
VII. Sublessee shall not take any action or fail to take any action that
would cause an Event of Default (as defined in the Master Leases) to
occur.
8
<PAGE>
SECTION FIFTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1979 LEARJET MODEL 35A, MANUFACTURER'S SERIAL NO. 35A-249,
CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N300DA, AND A
1981 LEARJET MODEL 35A, SERIAL NO. 35A-366 AND CURRENTLY REGISTERED AS N350DA,
HAVE BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD
PRECEDING THE DATE OF THIS AGREEMENT.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS SUBLEASE. DURING THE DURATION OF THIS
SUBLEASE, EINSTEIN/NOAH BAGEL CORP., A DELAWARE CORPORATION, WITH OFFICES AT
1526 COLE BOULEVARD, SUITE 200, GOLDEN, COLORADO 80401, IS CONSIDERED
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
I, THE UNDERSIGNED MR. MARK GOLDSTON, PRESIDENT AND CEO OF EINSTEIN/NOAH
BAGEL CORP., CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL OF THE
AIRCRAFT AND THAT IT UNDERSTAND ITS RESPONSIBILITIES FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
BOSTON CHICKEN, INC.
/s/ Robert Bielinski July 9, 1996 5:00 p.m.
- --------------------- --------------------------
Treasurer Date and Time of Execution
EINSTEIN/NOAH BAGEL CORP.
/s/ Mark R. Goldston July 9, 1996 5:00 p.m.
- ----------------------- --------------------------
Chief Executive Officer Date and Time of Execution
10
<PAGE>
INSTRUCTIONS FOR COMPLIANCE WITH "TRUTH IN LEASING"
REQUIREMENTS
1. Mail a copy of the Sublease agreement to the following address via
certified mail, return receipt requested, immediately upon execution of the
agreement (14 C.F.R.(S) 91.23 requires that the copy be sent within twenty-
four hours after it is signed):
Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125
2. Telephone the nearest Flight Standards District Office at least forty-eight
hours prior to the first flight under this Sublease agreement.
3. Carry a copy of the Sublease agreement in the aircraft at all times.
11
<PAGE>
July 9, 1996
Mr. Joel Alam
Einstein/Noah Bagel Corp.
1526 Cole Boulevard
Suite 200
Golden, Colorado 80401
Re: Consideration for Aircraft pursuant to Aircraft Dry Sublease
dated July 9, 1996, ("Sublease") by and between Boston Chicken,
Inc. ("Sublessor") and Einstein/Noah Bagel Corp. ("Sublessee")
relating to two Learjet 35A aircraft (the "Aircraft")
Dear Joel:
This letter is to set forth our understanding concerning the amounts
Sublessee will pay for the Aircraft pursuant to the above-referenced Sublease.
Sublessee will pay $1,900.00 for each hour of flight time the Aircraft are
used by Sublessee. The hourly rate paid by Sublessee will be used to offset
direct and indirect operating expenses attributable to the Aircraft, which
include, but are not limited to:
1. engine and propeller reserve allowances;
2. hot section reserve allowances;
3. air frame and systems maintenance;
4. fuel;
5 taxes (state, federal and local), charges, imposts, duties, excise
taxes and similar assessments;
6. insurance;
7. hangar rental;
8. communications, flight planning and weather services;
9. miscellaneous supplies;
10. Sublessor's lease costs for the Aircraft under its lease with the
third party lessors of the Aircraft, including applicable sales
tax; and
11. Sublessor's administrative costs.
Sublessee will also be responsible for all other charges attributable to
the ownership, operation and maintenance of the Aircraft by Sublessee during the
term of the Sublease. These charges include, but are not limited to:
1. tie down expenses;
2. catering expenses;
3. customs fees;
4. landing fees, ramp fees and parking fees; and
<PAGE>
5. ground transportation.
The above-referenced charges will be due within five (5) days after receipt
of an invoice from Sublessor.
If the above meets with your understanding of our agreement, please execute
this letter in the space below and return it to me as soon as possible.
Sincerely,
BOSTON CHICKEN, INC.
By: /s/ Robert Bielinski
___________________________
Robert Bielinski, Treasurer
ACCEPTED AND AGREED TO this
9th day of July, 1996
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Joel Alam
________________________________
Name: Joel Alam
_____________________________
Title: Vice President and Secretary
____________________________
<PAGE>
Exhibit 10.37(b)
AIRCRAFT DRY SUBLEASE
This Sublease of aircraft is made, dated as of July 9, 1996, by and
between Boston Chicken, Inc., a Delaware corporation, having its principal place
of business at 14103 Denver West Parkway, Golden, CO 80401, hereinafter referred
to as "BCI", Einstein/Noah Bagel Corp., a Delaware corporation, with offices at
1526 Cole Boulevard, Suite 200, Golden, Colorado 80401, hereniafter referred to
as "Sublessee".
RECITALS
The parties recite that:
A. BCI leases a 1988 British Aerospace, Model BAE125-800A, Serial No.
NA0430 (258142) and currently registered as N1903P, hereinafter referred to as
the "Aircraft". The Aircraft is available for use by a qualified Sublessee; and
B. Sublessee desires to lease the Aircraft under such terms and
conditions as are mutually satisfactory to the parties.
The parties agree as follows:
SECTION ONE
SUBLEASE OF AIRCRAFT
For One Dollar and No/100 ($1.00) and other valuable consideration,
BCI agrees to sublease the Aircraft to Sublessee on a nonexclusive basis. The
Aircraft shall be delivered to Sublessee at Jeffco Airport in Broomfield,
Colorado, and this Sublease shall be effective on, July 11, 1996, at which time
Sublessee shall inspect the Aircraft to the extent deemed necessary. It shall be
conclusively presumed between the parties that Sublessee has fully inspected the
Aircraft having knowledge that it is in good condition and repair and that
Sublessee is satisfied with and has accepted the Aircraft in such condition and
repair.
1
<PAGE>
SECTION TWO
TERM
This Sublease shall commence on the date the Aircraft is delivered to
and accepted by the Sublessee (which such delivery and acceptance shall be
deemed to occur, if not sooner, on the date Sublessee first uses the Aircraft
after the date of this Agreement) and shall terminate, if not earlier
terminated, upon expiration of the term of that certain Aircraft Lease Agreement
dated as of April 18, 1996 by and between BCI and General Electric Capital
Corporation (the "Master Lease"). This Sublease may be terminated by either
party upon thirty (30) days written notice.
SECTION THREE
INSURANCE
At all times during the term of this Sublease, BCI shall cause to be
carried and maintained casualty insurance with respect to the Aircraft for the
actual fair market value thereof. BCI shall pay for the premium therefor. BCI
shall also cause to be carried and maintained public liability insurance with
respect to the Aircraft in amounts and against risk comparable to similar
insurance carried with respect to similar Aircraft.
BCI shall cause to be carried and maintained third party aircraft
liability insurance, passenger legal liability insurance and property damage
liability insurance during the term hereof in commercially reasonable amounts.
Sublessee shall bear the cost of paying any deductible amount on any policy of
insurance in the event of a claim or loss relating to Sublessee's use of the
Aircraft. Any policies of insurance carried in accordance with this Sublease:
(i) shall name or otherwise provide for Sublessee as an additional insured; and
(ii) the underwriter thereof shall agree to waive any right of subrogation
against Sublessee; and (iii) shall provide that in respect of the interests of
Sublessee, such policies of insurance shall not be invalidated by any action or
inaction of BCI or any other person and shall insure the Sublessee (subject to
the limits of liability and war risk exclusion set forth in such policies)
regardless of any breach or any violation of any warranty, declarations or
conditions contained in such policies by BCI or any
2
<PAGE>
other person; and (iv) shall provide that if the insurers cancel insurance for
any reason whatsoever, or the same is allowed to lapse for nonpayment of
premium, or if there is any material change in policy terms and conditions, such
a cancellation, lapse or change shall not be effective as to the Sublessee
without thirty (30) days prior written notice. Each liability policy shall be
primary without right of contribution from any other insurance which is carried
by the Sublessee or BCI and shall expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured. BCI shall arrange for
evidence of appropriate coverage as to the Aircraft and to the satisfaction of
the requirements set forth above to be given by its insurance brokers to the
Sublessee.
This Aircraft Dry Sublease Agreement shall be submitted for approval
to the insurance carrier for each policy on the Aircraft.
SECTION FOUR
RESTRICTIONS ON USE
Sublessee may operate the Aircraft only for the purposes and within
the geographical limits set forth in the insurance policy or policies obtained
in compliance with Section Three of this agreement and the Master Lease. The
Aircraft shall be operated at all times in accordance with the flight manual and
all manufacturer's suggested operating procedures. Furthermore, Sublessee shall
not use the Aircraft in violation of any foreign, federal, state, territorial,
or municipal law or regulation and shall be solely responsible for any fines,
penalties, or forfeitures occasioned by any violation by Sublessee. If such
fines or penalties are imposed on BCI and paid by BCI, Sublessee shall reimburse
BCI for the amount thereof within thirty (30) days of receipt by Sublessee of
written demand from BCI. Sublessee will not base the Aircraft, or permit it to
be based, outside the limits of the United States of America, without the
written consent of BCI.
3
<PAGE>
The Aircraft shall be flown only by certificated and qualified pilots
and shall be maintained only by certificated and qualified mechanics. In the
event the insurance on the Aircraft would be invalidated because Sublessee is
unable to obtain certificated and qualified pilots and mechanics, Sublessee
shall not operate the Aircraft until such time as certificated and qualified
pilots and mechanics are obtained and insurance on the Aircraft is made valid.
Sublessee will not directly or indirectly create, incur, assume or
suffer to exist any lien on or with respect to the Aircraft. Sublessee will
promptly, at its own expense, take such action as may be necessary to discharge
any lien not excepted above if the same shall arise at any time.
SECTION FIVE
INSPECTION BY BCI
Sublessee agrees to permit BCI or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that BCI may reasonably request.
SECTION SIX
ALTERATIONS
Except in accordance with other written agreements entered into
subsequent to the date of this Agreement between Sublessee and BCI regarding
maintenance of the Aircraft, Sublessee shall not have the right to alter,
modify, or make additions or improvements to the Aircraft without the written
permission of BCI. All such alterations, modifications, additions, and
improvements as are so made shall become the property of BCI and shall be
subject to all of the terms of this Sublease.
4
<PAGE>
SECTION SEVEN
TITLE
The registration of, and title to, the Aircraft shall be in the name
of the General Electric Capital Corporation, and the Aircraft, at all times
during the term of this agreement, or any extension, shall bear United States
registration markings. All responsibility and obligations in regard to the
operation of the Aircraft as above owned, registered, and marked shall be borne
by Sublessee for Sublessee's flight operations during the term of this Sublease.
SECTION EIGHT
PAYMENT OF TAXES
Sublessee shall pay all taxes associated with Sublessee's use of the
Aircraft, including landing fees, fuel taxes, and any other taxes or fees which
may be assessed against a specific flight by Sublessee.
SECTION NINE
ASSIGNMENT
Sublessee shall not assign this Sublease or any interest in the
Aircraft, or sublet the Aircraft, without prior written consent of BCI. Subject
to the foregoing, this Sublease inures to the benefit of, and is binding on, the
heirs, legal representatives, successors, and assigns of the parties.
SECTION TEN
ACCIDENT AND CLAIM
Sublessee shall immediately notify BCI of any accident involving
Sublessee's use of the Aircraft, which notification shall specify the time,
place, and nature of the accident or damage, the names and addresses of parties
involved, persons injured, witnesses, and owners of properties damaged, and such
other information as may be known. Sublessee shall advise BCI of all
5
<PAGE>
correspondence, papers, notices, and documents whatsoever received by Sublessee
in connection with any claim or demand involving or relating to the Aircraft or
its operation, and shall aid in any investigation instituted by BCI and in the
recovery of damages from third persons liable therefor.
SECTION ELEVEN
RETURN OF AIRCRAFT TO BCI
On the termination of this Sublease by expiration or otherwise,
Sublessee shall return the Aircraft to BCI at Jeffco Airport in Broomfield,
Colorado, in as good operating condition and appearance as when received,
ordinary wear, tear and deterioration excepted.
SECTION TWELVE
MODIFICATION OF AGREEMENT; GOVERNING LAW
This Agreement constitutes the entire understanding between the
parties, and any change or modification must be in writing and signed by both
parties. This Agreement is entered into under, and is to be construed in
accordance with, the laws of the State of Colorado.
SECTION THIRTEEN
INDEMNIFICATION
Each party hereto agrees to indemnify and hold harmless the other
against all losses, including costs, attorney fees and expenses by reason of
claims for injury to or death of persons and loss of or damage to property
arising out of or in any manner connected with the possession, use, or operation
of the Aircraft by such party, or any breach by such party of any covenant or
warranty made herein, in each case to the extent not covered by insurance.
6
<PAGE>
SECTION FOURTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1988 BRITISH AEROSPACE, MODEL BAE125-800A,
MANUFACTURER'S SERIAL NO. NA0430 (258142), CURRENTLY REGISTERED WITH THE FEDERAL
AVIATION ADMINISTRATION AS N1903P, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR
PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS AGREEMENT.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS SUBLEASE. DURING THE DURATION OF THIS
SUBLEASE, EINSTEIN/NOAH BAGEL CORP., A DELAWARE CORPORATION, WITH OFFICES AT
1526 COLE BOULEVARD, SUITE 200, GOLDEN, COLORADO 80401, IS CONSIDERED
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
I, THE UNDERSIGNED MR. MARK GOLDSTON, PRESIDENT AND CEO OF
EINSTEIN/NOAH BAGEL CORP., CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL
OF THE AIRCRAFT AND THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
BOSTON CHICKEN, INC.
/s/ Robert Bielinski July 9, 1996, 5:00 p.m.
____________________ __________________________
Treasurer Date and Time of Execution
EINSTEIN/NOAH BAGEL CORP.
/s/ Mark R. Goldston July 9, 1996, 5:00 p.m.
____________________ __________________________
Chief Executive Date and Time of Execution
Officer
8
<PAGE>
INSTRUCTIONS FOR COMPLIANCE WITH "TRUTH IN LEASING"
REQUIREMENTS
1. Mail a copy of the Sublease agreement to the following address via
certified mail, return receipt requested, immediately upon execution of the
agreement (14 C.F.R.(S) 91.23 requires that the copy be sent within twenty-
four hours after it is signed):
Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125
2. Telephone the nearest Flight Standards District Office at least forty-eight
hours prior to the first flight under this Sublease agreement.
3. Carry a copy of the Sublease agreement in the aircraft at all times.
9
<PAGE>
July 9, 1996
Mr. Joel Alam
Einstein Bros. Bagels Inc.
1526 Cole Boulevard
Suite 200
Golden, Colorado 80401
Re: Consideration for Aircraft pursuant to Aircraft Dry Sublease
dated July 9, 1996, ("Sublease") by and between Boston Chicken,
Inc. ("Sublessor") and Einstein/Noah Bagel Corp. ("Sublessee")
relating to one 1988 British Aerospace, Model BAE125-800A
aircraft (the "Aircraft")
Dear Joel:
This letter is to set forth our understanding concerning the amounts
Sublessee will pay for the Aircraft pursuant to the above-referenced Sublease.
Sublessee will pay $2,800.00 for each hour of flight time the Aircraft is
used by Sublessee. The hourly rate paid by Sublessee will be used to offset
direct and indirect operating expenses attributable to the Aircraft, which
include, but are not limited to:
1. engine and propeller reserve allowances;
2. hot section reserve allowances;
3. air frame and systems maintenance;
4. fuel;
5 taxes (state, federal and local), charges, imposts, duties,
excise taxes and similar assessments;
6. insurance;
7. hangar rental;
8. communications, flight planning and weather services;
9. miscellaneous supplies;
10. Sublessor's lease costs for the Aircraft under its lease with the
third party lessors of the Aircraft, including applicable sales
tax; and
11. Sublessor's administrative costs.
Sublessee will also be responsible for all other charges attributable to
the ownership, operation and maintenance of the Aircraft by Sublessee during the
term of the Sublease. These charges include, but are not limited to:
1. tie down expenses;
2. catering expenses;
3. customs fees;
4. landing fees, ramp fees and parking fees; and
<PAGE>
5. ground transportation.
The above-referenced charges will be due within five (5) days after receipt
of an invoice from Sublessor.
If the above meets with your understanding of our agreement, please execute
this letter in the space below and return it to me as soon as possible.
Sincerely,
BOSTON CHICKEN, INC.
By:/s/Robert Bielinski
___________________________
Robert Bielinski, Treasurer
ACCEPTED AND AGREED TO this
9th day of July, 1996
EINSTEIN/NOAH BAGEL CORP.
By:/s/ Joel Alam
________________________________
Name: Joel Alam
______________________________
Title: Vice President and Secretary
____________________________
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF LOSS PER SHARE
(In thousands)
<TABLE>
<CAPTION>
Period from Period from
inception (March 24, inception (March 24,
1995) through 1995) through Quarter Ended
December 31, 1995 April 16, 1995 April 21, 1996
-------------------- -------------------- --------------
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares outstanding....... 8,027 7,801 8,048
Incremental shares pursuant to Staff Accounting
Bulletin No. 83................................... 2,105 2,105 2,105
------ ----- ------
Adjusted primary weighted average number of
common and equivalent shares outstanding.......... 10,132 9,906 10,153
====== ===== ======
Fully diluted earnings per share:
Weighted average number of shares outstanding....... 8,027 7,801 8,048
Incremental shares pursuant to Staff Accounting
Bulletin No. 83................................... 2,105 2,105 2,105
------ ----- ------
Adjusted fully diluted weighted average number of
common and equivalent shares outstanding.......... 10,132 9,906 10,153
====== ===== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated July 16, 1996 on our audit of the consolidated financial
statements of Einstein/Noah Bagel Corp. We also consent to the references to
our firm under the captions "Experts" and "Selected Financial Data."
ARTHUR ANDERSEN LLP
Denver, Colorado
July 16, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-04725 of Einstein/Noah Bagel Corp. of our report dated May 7, 1996 on 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 appearing in the Prospectus, which is a
part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Francisco, California
July 16, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form S-1 of
Einstein/Noah Bagel Corp. of our report dated April 26, 1996 on the financial
statements of Bagel & Bagel, Inc. appearing in the Prospectus, which is a part
of this Registration Statement and to the reference to us under the heading
"Experts" in such Prospectus.
MAYER HOFFMAN McCANN L.C.
Kansas City, Missouri
July 9, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 24, 1996, on our audit of the combined financial
statements of Offerdahl's Bagel Gourmet, Inc. and Affiliates. We also consent
to the references to our firm under the caption "Experts."
ARTHUR ANDERSEN LLP
Denver, Colorado
July 16, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated April 24, 1996, on our audit of the financial statements of
Baltimore Bagel Co. We also consent to the references to our firm under the
caption "Experts."
ARTHUR ANDERSEN LLP
Denver, Colorado
July 16, 1996
