<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 6, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-21097
EINSTEIN/NOAH BAGEL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1294908
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14123 Denver West Parkway
Golden, CO 80401
(Address of principal executive offices, including zip code)
(303) 215-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock, $.01 par value per share, outstanding as of
November 7, 1996: 29,081,482.
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
INDEX
<TABLE>
<CAPTION>
<C> <S> <C>
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and
October 6, 1996............................................................. 2
Consolidated Statements of Operations for the quarter ended October 1, 1995,
period from March 24, 1995 (inception) through October 1, 1995 and quarter
and three quarters ended October 6, 1996.................................... 3
Consolidated Statements of Cash Flows for the period from March 24, 1995
(inception) through October 1, 1995 and for the three quarters ended
October 6, 1996............................................................. 4
Notes to Consolidated Financial Statements.................................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................................. 13
Item 6. Exhibits and Reports on Form 8-K....................................... 13
Signature Page.................................................................. 14
Exhibit Index................................................................Exhibit-1
</TABLE>
1
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, October 6,
1995 1996
------------ ----------
<S> <C> <C>
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and cash equivalents............. $ 5,368 $ 237
Accounts receivable, net.............. 1,327 4,688
Inventory............................. 883 256
Prepaid expenses and other current
assets.............................. 1,709 169
---------- ----------
Total current assets................ 9,287 5,350
Property and Equipment, net............. 19,410 26,253
Notes Receivable........................ 7,267 106,013
Excess of Purchase Price Over Fair
Value of Net Assets Acquired, net..... 13,715 69,366
Trademarks, net......................... - 22,114
Recipes, net............................ - 4,879
Other Assets, net....................... 620 4,942
---------- ----------
Total assets........................ $ 50,299 $ 238,917
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable...................... $ 5,633 $ 2,275
Accrued expenses...................... 2,968 3,643
Deferred franchise revenue............ 645 2,545
---------- ----------
Total current liabilities........... 9,246 8,463
Convertible Debt........................ 40,000 -
Revolving Credit Facility............... - 1,200
Deferred Franchise Revenue.............. 265 6,125
Other Noncurrent Liabilities............ 2,907 481
Repurchase Common Stock Shares -
1,721,250 shares issued and
outstanding in 1995................... 11,062 -
Series A Preferred Stock - 6,250 shares
issued and outstanding in 1995........ 7,813 -
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred stock--$.01 par value;
20,000,000 shares authorized; no
shares issued and outstanding....... - -
Common stock--$.01 par value;
200,000,000 shares authorized;
issued and outstanding: 3,848,607
in 1995 and 29,000,726 in 1996...... 38 290
Additional paid-in capital............ 22,684 265,143
Accumulated deficit................... (43,716) (42,785)
---------- ----------
Total stockholders' equity
(deficit)......................... (20,994) 222,648
---------- ----------
Total liabilities and stockholders'
equity............................ $ 50,299 $ 238,917
========== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Period from
March 24, 1995 Three
Quarter Ended (inception) Quarters
----------------------- through Ended
October 1, October 6, October 1, October 6,
1995 1996 1995 1996
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenue:
Company-operated stores............... $ 8,483 $ 2,321 $ 16,198 $ 33,810
Royalties and franchise-related fees.. - 7,936 - 17,032
---------- ---------- -------------- ----------
Total revenue....................... 8,483 10,257 16,198 50,842
Costs and Expenses:
Cost of products sold................. 2,700 793 5,056 10,871
Salaries and benefits................. 4,408 1,842 8,044 16,286
General and administrative............ 31,595 3,387 35,282 18,417
----------- ---------- -------------- ----------
Total costs and expenses............ 38,703 6,022 48,382 45,574
---------- ---------- -------------- ----------
Income (Loss) from Operations........... (30,220) 4,235 (32,184) 5,268
Other Income (Expense):
Interest expense, net................. (373) (282) (594) (6,266)
Other income, net..................... 583 - 584 1,929
---------- ---------- -------------- ----------
Total other income (expense)........ 210 (282) (10) (4,337)
---------- ---------- -------------- ----------
Income (Loss) Before Income Taxes....... (30,010) 3,953 (32,194) 931
Income Taxes............................ - - - -
---------- ---------- -------------- ----------
Net Income (Loss)....................... $ (30,010) $ 3,953 $ (32,194) $ 931
========== ========== ============== ==========
Net Income (Loss) Per Common and
Equivalent Share...................... $ (3.11) $ 0.13 $ (3.34) $ 0.04
========== ========== ============== ==========
Weighted Average Number of Common
and Equivalent Shares Outstanding..... 9,679 30,377 9,649 19,225
========== ========== ============== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Period from
March 24, 1995 Three Quarters
(inception) through Ended
October 1, 1995 October 6, 1996
------------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).......................................................... $ (32,194) $ 931
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Write-off of intangible assets........................................... 26,575 -
Depreciation and amortization............................................ 1,795 4,205
(Gain) loss on sale of marketable equity securities...................... (578) (1,824)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable.................................................... (35) (3,065)
Accounts payable and accrued expenses.................................. (1,570) (8,497)
Deferred franchise revenue............................................. - 7,745
Other assets and liabilities........................................... 56 (6,268)
------------------- ---------------
Net cash used in operating activities................................ (5,951) (6,773)
------------------- ---------------
Cash Flows from Investing Activities:
Purchase of property and equipment....................................... (7,321) (33,951)
Proceeds from sale of assets............................................. - 54,198
Purchase of other assets................................................. (227) (5,672)
Net assets purchased in acquisitions, net of cash acquired............... (2,636) -
Acquisition of Noah's New York Bagels, Inc. ............................. - (100,902)
Issuance of notes receivable............................................. (1,837) (150,012)
Repayment of notes receivable............................................ - 51,266
Purchase of marketable equity securities................................. (36,421) (66,778)
Proceeds from sales of marketable equity securities...................... 12,859 68,602
------------------- ---------------
Net cash used in investing activities................................ (35,583) (183,249)
------------------- ---------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock................................... 20,332 103,691
Borrowings under revolving credit facilities............................. 86,933 312,572
Repayments of revolving credit facilities................................ (65,055) (231,372)
------------------- ---------------
Net cash provided by financing activities............................ 42,210 184,891
------------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents....................... 676 (5,131)
Cash and Cash Equivalents, beginning of period............................. - 5,368
------------------- ---------------
Cash and Cash Equivalents, end of period................................... $ 676 $ 237
=================== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by Einstein/Noah
Bagel Corp. (the "Company") and are unaudited except for the consolidated
balance sheet at December 31, 1995. The financial statements have been prepared
in accordance with the instructions for Form 10-Q and, therefore, do not
necessarily include all information and footnotes required by generally accepted
accounting principles. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows as of October 6, 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 are included in
its 1995 audited consolidated financial statements included in the prospectus
that forms a part of the Company's Registration Statement on Form S-1 (Reg. No.
333-12395). The consolidated results of operations for the quarter and three
quarters ended October 6, 1996 are not necessarily indicative of the results
expected for the full year.
2. ACQUISITION
In February 1996, the Company acquired Noah's New York Bagels, Inc. for
approximately $100.9 million. The acquisition has been accounted for as a
purchase, and, accordingly, the purchase price was allocated to assets (both
tangible and identifiable intangible) and liabilities based upon an evaluation
of their fair values at the date of the acquisition. Of such total purchase
price, $22.1 million was allocated to trademarks (amortized over a 35-year
life), $5.2 million was allocated to recipes (amortized over a 10-year life) and
$56.3 million was allocated to excess purchase price over fair value of
identifiable net assets acquired (amortized over a 35-year life). Such
intangibles were identified by management based upon its evaluation of the
business acquired. The allocation of the purchase price to trademarks and
recipes was based upon a royalty savings methodology which determines the
present value of the stream of royalties which the Company believes an
independent third party would be willing to pay to obtain the use of such
trademarks and recipes. The estimated useful life for these assets was based
upon various factors which existed at the time of the acquisition, including the
anticipated periods of benefit to be derived from the utilization of such assets
in connection with executing a dual brand business strategy, increasing consumer
demand for bagel products, the lack of a competitor with national brand
awareness, the lack of regulatory limitations on the potential useful lives of
such assets, the absence of any inherent or technological obsolescence for such
assets, and in the case of trademarks, the long-lived nature of a primary brand
name in the consumer marketplace.
The following represents the unaudited pro forma results of operations for
the three quarters ended October 6, 1996 as if the acquisition had occurred at
the beginning of the Company's fiscal year (in thousands of dollars, except per
share amount):
<TABLE>
<CAPTION>
<S> <C> <C>
Revenue..................... $54,146
Net income (loss)........... $ (951)
Net income (loss) per share. $ (0.06)
</TABLE>
This pro forma information is not indicative of the results of operations
that actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. The pro forma information is not
intended to be a projection of future results.
5
<PAGE>
3. AREA DEVELOPER FINANCING
The Company currently offers partial financing to its area developers for
use in expansion of their operations. Area developer financing requires the area
developer to expend at least 75% of its contributed capital toward developing
stores prior to drawing on the revolving loan account, with draws permitted
during a three-year draw period in a pre-determined maximum amount equal to four
times the amount of the developer's equity capital. Upon expiration of the draw
period, the loan converts to an amortizing term loan payable over five years in
periodic installments, with a final balloon payment. Interest is set at 1% over
the applicable reference rate of Bank of America Illinois as established from
time to time and is payable each four-week period. The loan is secured by a
pledge of substantially all of the assets of the area developer.
(A) LOAN CONVERSION OPTION
All or any portion of the loan amount may be converted at the Company's
election at any time after the expiration of a specified moratorium (generally
two years) and after the area developer has completed not less than 80% of its
area development commitment (or in the event of certain defaults) into equity in
the area developer at the conversion price set forth in such loan agreement,
generally at a 12% premium over the per unit equity price paid by the investors
in the area developer for the equity investment made concurrently with the
execution of the loan agreement. The maximum loan amount is established to give
the Company majority ownership of the area developer upon conversion provided
the Company exercises its right to participate in any intervening financing of
the developer. To the extent such loan is not fully drawn or has been drawn and
repaid, the Company has a corresponding option to acquire, at the loan
conversion price, the amount of additional equity it could have acquired by
conversion of the loan, had it been fully drawn.
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 credit commitments for area developer
financing (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, October 6,
1995 1996
-------------- ----------
<S> <C> <C>
(Unaudited)
Number of area developers receiving financing..... 2 10
Loan commitments.................................. $16,000 $210,800
Unused loans...................................... 12,462 110,070
------- --------
Loans outstanding (included in Notes Receivable).. $ 3,538 $100,730
======= ========
</TABLE>
6
<PAGE>
(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 October 6, 1996.
The following table sets forth certain aggregate financial information
obtained from area developers to which the Company had outstanding loans (in
thousands, except total number of area developers and store data):
<TABLE>
<CAPTION>
December 31,
1995
--------------
<S> <C>
Total number of area developers...... 2
Total number of area developer 13
stores open.........................
Total gross assets................... $9,262
Total debt to the Company............ $3,538
Total members' equity................ $2,676
</TABLE>
4. DEBT
In May 1996, the Company entered into a secured revolving credit facility
providing for borrowings of up to $45.0 million through April 30, 1998.
Borrowings under the facility may be either floating rate loans with interest at
the lender's base rate plus .5% or, at the Company's option, the rate offered in
the interbank Eurodollar market for one-, two-, or three-month dollar deposits
offered by the lender plus 3.0%. In addition, a commitment fee of .25% of the
average daily unused portion of the loan is required. The facility contains
covenants, among others, restricting other borrowings, prohibiting cash
dividends and requiring the Company to maintain minimum interest coverage and
cash flow ratios, specified store level sales, and a minimum capital level. As
of October 6, 1996, $1.2 million was outstanding under the facility.
The Company also has an unsecured non-convertible revolving credit facility
from Boston Chicken, Inc. providing for borrowings of up to $50.0 million
through June 15, 2003. The facility bears interest at the reference rate of
Bank of America Illinois plus .5%. As of October 6, 1996, there was no balance
outstanding under the facility.
5. EQUITY OFFERINGS
In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its common stock to the public, a concurrent non-
underwritten public offering of 425,000 shares of its common stock to certain
individuals and entities and a concurrent private placement of 2,000,000 shares
of its common stock to Boston Chicken, Inc. raising aggregate net proceeds of
approximately $86.0 million.
7
<PAGE>
6. ROYALTIES AND FRANCHISE-RELATED FEES
The components of royalties and franchise-related fees are comprised of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
Period from
March 24,
1995 Three
(inception) Quarters
Quarter Ended through Ended
----------------------------
Oct. 1, 1995 Oct. 6, 1996 Oct. 1, 1995 Oct. 6, 1996
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Royalties $ - $1,994 $ - $ 3,669
Initial franchise and area
developer fees - 3,480 - 9,140
Interest income - 1,940 - 3,277
Real estate and lease income - 364 - 364
Other - 158 - 582
---------- ------- -------- -------
$ - $7,936 $ - $17,032
========== ======= ======== =======
</TABLE>
7. COMMITMENTS
In December 1995, Bagel Store Development Funding, L.L.C., formerly named
Einstein Bros. Equity Funding, L.L.C. ("Bagel Funding"), was formed to invest in
existing and proposed area developers. Through October 6, 1996, Bagel Funding
had raised $90.0 million (including an aggregate of $20.7 million in
subscriptions receivable) and had invested a total of $51.9 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.
8. CONTINGENCIES
The Company is subject to various lawsuits, claims, and other legal matters
in the course of conducting its business, including its business as a
franchisor. The Company believes that the outcome of such lawsuits, claims, and
other legal matters will not have a material impact on the Company's financial
position or results of operations.
8
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF EINSTEIN/NOAH BAGEL CORP. (THE "COMPANY"), ITS
AREA DEVELOPERS, AND EINSTEIN BROS. BAGELS AND NOAH'S NEW YORK BAGELS
STORES TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: COMPETITION; SUCCESS OF OPERATING
INITIATIVES; AREA DEVELOPERS' ADHERENCE TO DEVELOPMENT SCHEDULES; ADVERTISING
AND PROMOTIONAL EFFORTS; ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT OFFERINGS;
THE COMPANY'S RELATIONSHIP WITH BOSTON CHICKEN, INC. ("BOSTON CHICKEN");
AVAILABILITY, LOCATIONS AND TERMS OF SITES FOR STORE DEVELOPMENT; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY AND TERMS OF CAPITAL; FOOD,
LABOR AND EMPLOYEE BENEFIT COSTS; CHANGES IN GOVERNMENT REGULATIONS; REGIONAL
WEATHER CONDITIONS; AND OTHER FACTORS REFERENCED IN THIS FORM 10-Q. THE SUCCESS
OF THE COMPANY IS DEPENDENT ON ITS AREA DEVELOPERS AND THE MANNER IN WHICH THEY
OPERATE AND DEVELOP EINSTEIN BROS. BAGELS AND NOAH'S NEW YORK BAGELS STORES.
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. Because the Company has sold
substantially all of the Company-operated stores to its area developers and also
intends to continue to expand its business primarily through such area
developers, the Company anticipates that its future revenue will be increasingly
derived from royalties, franchise-related fees and interest income from its area
developers. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ABOVE.
Consequently, comparisons of operating results to date may not be meaningful.
The Company currently estimates that there will be between 575 and 650
stores in operation systemwide by the end of 1997. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ABOVE. This rapid expansion significantly affects
the comparability of results of operations from period to period in a number of
ways. Store revenue is not as high in the first periods following opening as it
is in later periods and revenue for any new store is also highly dependent on
the proximity of other Company-operated or franchised stores and those of
competitors, the size of the store and its visibility. Further, the cost of
products sold is generally higher as a percentage of revenue for newly opened
stores than for more mature stores because of inefficiencies caused by less
experienced employees and a lack of store-specific operating history from which
to predict daily food production needs. Moreover, in order to support its
expansion program, the Company is continuing to develop its corporate support
center, and accordingly, certain related expenditures will be higher as a
percentage of revenue in earlier periods than in later comparable periods. In
addition, the Company's rapid expansion significantly affects its liquidity and
capital requirements.
Store activity, for both Company-operated and franchised stores, for the
quarter ended October 6, 1996, was as follows:
<TABLE>
<CAPTION>
Stores at Stores Opened Stores Closed Stores at
Beginning in the in the End of
of Quarter Quarter Quarter Quarter
------------ ------------- ------------- ---------
<S> <C> <C> <C>
188 53 - 241
</TABLE>
9
<PAGE>
Systemwide gross revenue for all stores was $38.3 million for the quarter
ended October 6, 1996 compared to $8.7 million for the comparable quarter in
1995.
The Company's success is highly dependent on its continued relationship
with Boston Chicken, which beneficially owns approximately 58% of the
outstanding shares of common stock of the Company. In addition, in connection
with a concurrent private placement, the Company granted to Boston Chicken
an option that would permit it to maintain ownership of shares of common stock
having up to 52% of the voting power of all of the outstanding shares of capital
stock of the Company having the power generally to vote in the election of
directors. The Company and Boston Chicken are parties to various agreements,
pursuant to which Boston Chicken has agreed to provide to the Company certain
accounting and administration and computer and communications services. In
addition, Boston Chicken has made available to the Company a non-convertible
loan facility of up to $50.0 million.
RESULTS OF OPERATIONS
Revenue. Total revenue increased 21% for the quarter ended October 6,
1996 over the prior comparable quarter. For the three quarters ended October 6,
1996, total revenue increased 214% over the prior comparable period. Royalty
and franchise-related fees were $7.9 million for the quarter ended October 6,
1996 and $17.0 million for the three quarters ended October 6, 1996. There were
226 stores operated by area developers as of October 6, 1996. There were no
such fees in the comparable periods last year because all stores were Company-
operated.
Revenue from Company-operated stores is significantly affected by the
average number of Company-operated stores in the periods being compared. The
average number of Company-operated stores for the third quarter of 1996 was 16
compared to 45 for the third quarter of 1995. This decrease in the average
number of stores is attributable to the Company selling stores to area
developers in 1996. The average number of Company-operated stores was 48 for the
three quarters ended October 6, 1996 compared to 23 for the prior comparable
period. This increase in average number of stores is attributable to the
acquisition of 37 Noah's New York Bagels stores in 1996, offset by the sale of
Company-operated stores to area developers in 1996.
Revenue from Company-operated stores decreased 73% for the quarter ended
October 6, 1996 over the comparable 1995 period due to the Company operating
fewer stores in the quarter. For the three quarters ended October 6, 1996,
revenue from Company-operated stores increased 109% from the prior comparable
period due to the Company operating a higher average number of stores during
the three quarters ended October 6, 1996 and the fact that the prior comparable
period included fewer operating weeks.
Cost of Products Sold. Cost of products sold decreased 71% for the quarter
ended October 6, 1996 compared with the prior comparable quarter due to a lower
average number of Company-operated stores operating in the quarter. Cost of
products sold increased 115% for the three quarters ended October 6, 1996
compared with the prior comparable period due to the Company operating a higher
average number of stores during the three quarters ended October 6, 1996 and the
fact that the prior comparable period included fewer operating weeks.
Salaries and Benefits. Salaries and benefits decreased 58% for the quarter
ended October 6, 1996 compared with the prior comparable quarter due to a lower
average number of Company-operated stores operating in the quarter. Salaries and
benefits increased 102% for the three quarters ended October 6, 1996 compared
with the prior comparable period due to a combination of the Company operating a
higher average number of stores during the three quarters ended October 6, 1996,
an increase in the number of employees at the Company's support center necessary
to support systemwide expansion and the fact that the prior comparable period
included fewer operating weeks.
General and Administrative. General and administrative expenses decreased
89% for the quarter ended October 6, 1996 compared with the prior comparable
quarter due to a lower average number of Company-operated stores operating in
the quarter. General and administrative expenses also decreased 48% for the
three quarters ended October 6, 1996, compared with the prior comparable period.
This decrease was due to a $26.6 million write-off of intangible assets in the
10
<PAGE>
third quarter of fiscal 1995. After the acquisition of Brackman Brothers, Inc.,
Bagel & Bagel, Inc., Offerdahl's Bagel Gourmet, Inc. and Baltimore Bagel Co.
(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. This change in business strategy resulted in
an impairment of such identifiable intangible assets, and accordingly, the
assets were written down to their fair market values. Absent this write-off,
general and administrative expenses increased 112% for the three quarters ended
October 6, 1996 compared with the comparable 1995 period. This increase was due
to a combination of a higher average number of Company-operated stores, an
increase in the number of employees at the Company's support center necessary to
support systemwide expansion and the fact that the prior comparable period
included fewer operating weeks.
Included in general and administrative expenses are depreciation and
amortization charges of $1.3 million for the quarter ended October 6, 1996 and
$4.2 million for the three quarters ended October 6, 1996. These depreciation
and amortization charges include amortization on $98.9 million of goodwill and
intangible assets. These assets are being amortized over their estimated useful
lives ranging from 10 to 35 years. The Company will continue to evaluate in the
ordinary course whether events and circumstances occur which may warrant
revising the estimated useful lives or writing down all or part of the balance.
Other Income (Expense). The Company incurred other expense of $.3 million
for the quarter ended October 6, 1996, compared to other income of $.2 million
in the comparable quarter of 1995. The Company incurred other expense of $4.3
million for the three quarters ended October 6, 1996, compared to other expense
of $10,000 for the prior comparable period. The increases in expense reflect
higher interest expense attributable to borrowings under the Company's loan
agreements, offset by gains recognized on the sale of marketable equity
securities.
Income Taxes. For the quarter and three quarters ended October 6, 1996,
the Company has recognized a portion of its deferred tax asset which has
resulted in no tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company's primary capital requirements relate to
establishing brand awareness and leadership by providing partial financing to
its area developers for store development and working capital. The remainder of
the Company's capital requirements relate primarily to investments in food
production facilities and investments in, and operation of, its corporate
support center necessary to support the increase in the number of stores in
operation systemwide. In addition, in February 1996, the Company acquired all of
the outstanding capital stock of Noah's New York Bagels, Inc. for $100.9 million
in cash.
11
<PAGE>
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 October 6, 1996, the Company had secured
loan commitments aggregating $210.8 million, of which $100.7 million had been
advanced. As a result of executing the rapid expansion strategy required by the
Company, the Company's area developers incurred net losses of $1.3 million in
1995, and the Company anticipates its area developers will incur substantial net
losses during their expansion stage. The Company believes that such losses will
be recovered as expansion moderates and development costs correspondingly
diminish, store investment costs decrease, operational efficiencies increase as
a result of overall system maturity and operational experience, advertising
efficiencies commence and average weekly store revenue increases. However, there
can be no assurance that such events will occur or that such losses will be
recovered. The failure of an area developer to achieve a sufficient level of
profitability subsequent to completion of its expansion phase could have a
material adverse impact on the Company's financial position and results of
operations. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 9.
In connection with entering into new area development agreements, the
Company has sold Company-operated stores located in areas covered by such area
development agreements to the respective area developer. During the three
quarters ended October 6, 1996, the Company sold an aggregate of 105 Company-
operated stores and related assets to Finest Bagels, L.L.C., Gulfstream Bagels,
L.P. (formerly Einstein Bros. America, L.P.), Noah's Pacific, L.L.C., Liberty
Foods, L.L.C., Philly Rose, L.P., Colonial Bagels, L.P., Noah's Bay Area Bagels,
L.L.C. 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 $54.2 million. There were no material gains or losses
recognized as a result of these sales.
Capital Resources. For the three quarters ended October 6, 1996, the
Company's primary sources of capital included $103.7 million from the sale of
shares of common stock and $81.2 million of net borrowings under its revolving
credit facilities. The Company has a $50.0 million non-convertible credit
facility with Boston Chicken and a $45.0 million credit facility with Bank of
America Illinois, as agent for the lenders. As of October 6, 1996, $1.2
million was outstanding under the bank facility and there was no balance
outstanding under the facility with Boston Chicken. The Company had a $120.0
million convertible loan facility from Boston Chicken which was converted into
15,307,421 shares of common stock on June 17, 1996.
In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its common stock to the public, a concurrent non-
underwritten public offering of 425,000 shares of its common stock to certain
individuals and entities and a concurrent private placement of 2,000,000 shares
of its common stock to Boston Chicken. The aggregate net proceeds of these
offerings were approximately $86.0 million, $69.3 million of which was utilized
to repay outstanding balances under the Company's revolving credit facilities
with Bank of America Illinois and Boston Chicken.
The Company anticipates it will have a continuing need for additional
financing to continue systemwide expansion. The timing of the Company's capital
requirements will be affected by the number of Company-operated and area
developer stores opened, operational results of the stores and the amount and
timing of borrowings under the loan agreements between the Company and its
existing and future area developers. As the Company's capital requirements
increase, the Company will seek additional funds from public or private
offerings of debt or equity securities. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms when needed.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 9.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
On October 2, 1996, in accordance with Section 151 of the Delaware General
Corporation Law, the board of directors of the Company adopted resolutions
eliminating from the Company's Restated Certificate of Incorporation the
Company's preferred stock, $.01 par value (The "Preferred Stock"),
designated as Series A Preferred Stock. Such action was taken because none
of the 6,250 authorized shares of the Series A Preferred Stock was
outstanding and no shares of Series A Preferred Stock would be issued
subject to the designation provision with respect thereto set forth in the
Company's Restated Certificate of Incorporation. On October 23, 1996, the
Company filed with the Secretary of State of the State of Delaware a
Certificate of Elimination and a Restated Certificate of Incorporation.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits: See Exhibit Index appearing elsewhere herein, which is
incorporated herein by reference.
B. Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended October 6, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP.
Date: November 12, 1996 /s/ Mark R. Goldston
-----------------------------------------
Mark R. Goldston
President and Chief Executive Officer
Date: November 12, 1996 /s/ W. Eric Carlborg
-----------------------------------------
W. Eric Carlborg
Senior Vice President - Finance
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- ------
NUMBER EXHIBITS*
- ------ ---------
<S> <C>
3 Restated Certificate of Incorporation of the
Company ("Certificate of Incorporation").
4.1 Certificate of Incorporation (included in Exhibit 3).
4.2 Concurrent Private Placement Agreement dated
August 1, 1996 between Boston Chicken, Inc.
("Boston Chicken") and the Company ("Concurrent
Private Placement Agreement") (incorporated by
reference to Exhibit 10.3 to Boston Chicken's
quarterly report on Form 10-Q for the quarter
ended July 14, 1996).
4.3 Registration Agreement dated August 1, 1996
between Boston Chicken and the Company
("Registration Agreement") (incorporated by
reference to Exhibit 10.3 to Boston Chicken's
quarterly report on Form 10-Q for the quarter
ended July 14, 1996).
10.1 Concurrent Private Placement Agreement (included
in Exhibit 4.2).
10.2(a) First Amendment dated July 19, 1996 to Amended and
Restated Loan Agreement dated May 17, 1996 (the
"Loan Agreement") between Boston Chicken and the
Company (incorporated by reference to Exhibit
10.1(b) to the Company's Registration Statement on
Form S-1 (Reg. No. 333-04725)).
10.2(b) Second Amendment to the Loan Agreement dated
September 16, 1996 and Second Amendment dated
September 16, 1996 to Secured Demand Note of the
Company payable to Boston Chicken (incorporated by
reference to Exhibit 10.1(c) to the Company's
Registration Statement on Form S-1 (Reg. No.
333-12395)).
10.3 Letter Agreement dated as of September 23, 1996
terminating Employment Agreement dated March 31,
1995 between the Company and John A. Offerdahl.
11 Statement re Computation of Earnings (Loss) Per
Share.
27 Financial Data Schedule.
</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.
<PAGE>
Exhibit 3
RESTATED CERTIFICATE OF INCORPORATION
OF
EINSTEIN/NOAH BAGEL CORP.
Einstein/Noah Bagel Corp., 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 Section 245 of the General Corporation Law of the State of Delaware
and restates and integrates, but does not further amend, the provisions of the
corporation's Restated Certificate of Incorporation, as amended (the "Amended
Restated Certificate"), and there is no discrepancy between the provisions of
this Restated Certificate of Incorporation and the Amended Restated Certificate.
3. The text of the Amended Restated Certificate is hereby restated 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 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.
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
<PAGE>
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.
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
2
<PAGE>
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 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 or 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
3
<PAGE>
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 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 21st day of
October, 1996.
/s/ JOEL M. ALAM
_____________________________________
Joel M. Alam, Vice President
Attest:
/s/ AMY S. POWERS
__________________________________
Amy S. Powers, Assistant Secretary
4
<PAGE>
CERTIFICATE OF ELIMINATION
OF
EINSTEIN/NOAH BAGEL CORP.
Einstein/Noah Bagel Corp., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), does hereby
certify:
FIRST: That at a meeting of the Board of Directors of the Company duly
held on October 2, 1996, resolutions were duly adopted in accordance with
Section 151 of the General Corporation Law of the State of Delaware ("DGCL")
setting forth the proposed elimination of the Company's preferred stock, $.01
par value ("Preferred Stock"), designated as Series A Preferred Stock, as set
forth herein:
WHEREAS, none of the 6,250 authorized shares of the Company's
preferred stock, $.01 par value (the "Preferred Stock"), which is
designated as Series A Preferred Stock in the Company's Restated
Certificate of Incorporation (the "Restated Certificate of Incorporation"),
is outstanding and no shares of Series A Preferred Stock will be issued
subject to the designation provisions with respect thereto set forth in the
Restated Certificate of Incorporation; and
WHEREAS, the Board of Directors of the Company deems it advisable and
in the best interests of the Company and its stockholders that the
designation provisions relating to the Series A Preferred Stock set forth
in the Restated Certificate of Incorporation be eliminated by filing a
certificate with the Secretary of State of the State of Delaware in
accordance with Sections 103 and 151(g) of the Delaware General Corporation
Law, substantially in the form previously submitted to the directors (the
"Certificate");
NOW, THEREFORE, be it
RESOLVED, that the Chairman of the Board, the President and Chief
Executive Officer or any Vice President of the Company (collectively, the
"appropriate officers") and the Secretary or any Assistant Secretary of the
Company are hereby authorized and directed, acting for and on behalf of the
Company, to file the Certificate with the Secretary of State of the State
of Delaware, to cause a copy thereof, certified by said Secretary of
State, to be recorded in the New Castle County Recorder's Office, and to
file with the proper state official of any state in which the Company is
authorized to do business as a foreign corporation, such evidence of the
Certificate or any instrument as may be required by the laws of such state.
FURTHER RESOLVED, that the appropriate officers of the Company and the
Secretary or Assistant Secretary of the Company be, and each of them hereby
is, authorized and empowered, on behalf and in the name of the Company, to
execute and deliver any and all additional
<PAGE>
documents and take any and all additional action, not inconsistent with any
provision of the foregoing resolution, which any such officer may deem to
be in the best interests of the Company in connection with any transaction,
document or matter provided for by the foregoing resolution and any matter
incidental thereto, and the taking of such action or the execution of such
document by any such officer shall be conclusive evidence that such officer
deems such action or the execution and delivery of such document to be
proper or in the bests interests of the Company.
SECOND: None of the authorized shares of Series A Preferrred Stock are
outstanding and none will be issued.
THIRD: In accordance with the provisions of Section 151 of the DGCL, the
Restated Certificate of Incorporation of the Company is hereby amended to
eliminate all references to the Series A Preferred Stock.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Elimination to be executed and attested as of October 21, 1996.
EINSTEIN/NOAH BAGEL CORP.
By:/s/ JOEL M. ALAM
_________________________________
Joel M. Alam
Vice President
ATTEST:
/s/ AMY S. POWERS
___________________________
Amy S. Powers
Assistant Secretary
<PAGE>
Exhibit 10.3
September 11, 1996
By Federal Express
- ------------------
Mr. John Offerdahl
7607 Forest Peach Road
Watervliet, Michigan 49098
Dear John:
Einstein/Noah Bagel Corp. (the "Company") hereby acknowledges your
voluntary termination of employment with the Company and the termination, as of
July 26, 1996, of that certain Employment Agreement between you and the Company
dated March 31, 1995 ("Employment Agreement"). In connection with such
termination, the Stock Option Committee of the Board of Directors of the Company
has accelerated the vesting of your March 31, 1995 stock option grant for 42,483
shares of common stock. Such option is immediately exercisable and shall remain
exercisable until July 26, 1999, after which time the option shall expire and
the right to purchase shares thereunder shall terminate immediately. All other
options granted to you by the Company have been terminated and are of no further
force and effect.
You agree that the effective date of the termination of the Employment
Agreement is July 26, 1996 and that Section 10 of the Employment Agreement
survives until July 26, 1998, in accordance with the terms thereof.
Nothwithstanding anything herein to the contrary, nothing herein shall affect
any of the rights and obligations of you and the Company under the Agreement to
Contribute Assets dated March 23, 1996 by and among the Company, Offerdahl's
Bagel Gourmet, Inc. ("Offerdahl's") and the shareholders of Offerdahl's.
Please acknowledge your acceptance of the terms outlined herein by signing
the accompanying copy of this letter and returning it to me in the enclosed
Federal Express envelope.
Very truly yours,
/s/ Joel M. Alam
----------------------------
Joel M. Alam
Vice President and Secretary
ACKNOWLEDGED AND AGREED:
By: /s/ John A. Offerdahl
---------------------
John A. Offerdahl
Date: 9-23-96
-------------------
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period
from March 24, Three
Quarter Ended 1995 (inception) Quarters
----------------- through Ended
Oct. 1, Oct. 6, Oct. 1, Oct. 6,
1995 1996 1995 1996
-------- ------- ---------------- ---------
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares outstanding 7,935 27,742 7,905 17,068
Incremental shares pursuant to Staff Accounting
Bulletin No. 83 1,744 2,635 1,744 2,157
----- ------ ----- -------
Adjusted primary weighted average number of
common and equivalent shares outstanding 9,679 30,377 9,649 19,225
===== ====== ===== =======
Fully diluted earnings per share:
Weighted average number of shares outstanding 7,935 27,742 7,905 17,068
Incremental shares pursuant to Staff Accounting
Bulletin No. 83 1,744 2,863 1,744 2,225
----- ------ ----- -------
Adjusted fully diluted weighted average number
of common and equivalent shares outstanding 9,679 30,605 9,649 19,293
===== ====== ===== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-06-1996
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 4,688
<ALLOWANCES> 0
<INVENTORY> 256
<CURRENT-ASSETS> 5,350
<PP&E> 26,253
<DEPRECIATION> 0
<TOTAL-ASSETS> 238,917
<CURRENT-LIABILITIES> 8,463
<BONDS> 1,200
0
0
<COMMON> 290
<OTHER-SE> 222,358
<TOTAL-LIABILITY-AND-EQUITY> 238,917
<SALES> 33,810
<TOTAL-REVENUES> 50,842
<CGS> 10,871
<TOTAL-COSTS> 10,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,266
<INCOME-PRETAX> 931
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 931
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
