EINSTEIN NOAH BAGEL CORP, 424B4, 1996-11-27

EINSTEIN NOAH BAGEL CORP
424B4, 1996-11-27
EATING PLACES

Previous: WORLD OMNI 1996-A AUTOMOBILE LEASE SECURITIZATION TRUST /DE, 8-K, 1996-11-27

Next: WORLD FINANCIAL NETWORK NATIONAL BANK, 8-K, 1996-11-27

<PAGE> 1
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-15915

PROSPECTUS

3,000,000 SHARES

[EINSTEIN BAGEL LOGO]

COMMON STOCK
------------------------

All of the shares of common stock, $.01 par value per share ("Common
Stock"), offered hereby are being issued and sold by Einstein/Noah Bagel Corp.,
a Delaware corporation (the "Company"). Of the 3,000,000 shares offered hereby,
2,500,000 shares are being offered by the Underwriters to the public (the
"Public Offering") and 500,000 shares are being offered directly by the Company
to Boston Chicken, Inc. ("Boston Chicken") in a non-underwritten concurrent
offering (the "Concurrent Offering"). Shares being offered in the Concurrent
Offering to Boston Chicken are being offered at a price equal to the public
offering price, net of underwriting discount. Following the Offerings, Boston
Chicken is expected to beneficially own approximately 53.8% of the outstanding
shares of Common Stock. See "Relationship with Boston Chicken."

The Common Stock is quoted on the Nasdaq National Market under the symbol
"ENBX". On November 26, 1996, the last reported sale price of the Common Stock
was $31 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" AT PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
==========================================================================================================

PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share -- Public Offering.............................. $30.00 $1.425 $28.575
- ----------------------------------------------------------------------------------------------------------
Per Share -- Concurrent Offering.......................... $28.575 -- $28.575
- ----------------------------------------------------------------------------------------------------------
Total(3).................................................. $89,287,500 $3,562,500 $85,725,000
==========================================================================================================
</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 $400,000.

(3) The Company has granted the several Underwriters an option for 30 days to
purchase up to 375,000 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
$100,537,500, $4,096,875 and $96,440,625, respectively. See "Underwriting."
------------------------
The shares of Common Stock offered in the Public Offering are being offered
by the several Underwriters, subject to prior sale, when, as and if issued to
and accepted by them, 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 December 3, 1996.
------------------------

MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES

MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is November 26, 1996.
<PAGE> 2

[PICTURE OF EINSTEIN BROS. BAGELS STORE FRONT]

[PICTURE OF NOAH'S NEW YORK BAGELS STORE FRONT]

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.

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. SEE "UNDERWRITING."
<PAGE> 3

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 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 2,500,000 shares
being offered hereby in a public offering through the Underwriters (the "Public
Offering") and the 500,000 shares being offered to Boston Chicken, Inc. ("Boston
Chicken") in a non-underwritten concurrent offering (the "Concurrent Offering").
See "-- The Offerings" and "Concurrent Offering." Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." Einstein Bros.(TM), Noah's Bagels(@)
and Noah's New York Bagels(@) are trademarks owned by the Company.

THE COMPANY

The Company operates and franchises specialty retail stores that feature
fresh-baked bagels, cream cheeses, coffee and other related products, primarily
under the Einstein Bros. Bagels and Noah's New York Bagels brand names. As of
November 3, 1996, there were 262 stores in operation systemwide, of which 14
were Company-operated and 248 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 November 3, 1996, the Company had entered into area development
agreements that provide for the development of 1,069 additional stores, the
majority of which are scheduled to open over the next three years. The Company
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" ON
PAGE 7.

The Company's principal business objective is to become the leading
specialty retailer of fresh-baked bagels and related products in the United
States and to ultimately support and extend its consumer brands through
alternate distribution channels, such as wholesale and contract food service.
The Company believes that there is an opportunity to develop a significant
multi-unit specialty retail business based on fresh-baked bagels because of the
growth in per capita consumption of bagels and the fragmented state of the
current retail bagel market. To achieve its specialty retail objectives, the
Company and its area developers employ a concentrated market development
strategy that is designed to create strong local brand awareness. The Company
believes this strategy will allow it and its area developers to more efficiently
leverage marketing, development and operations resources, while establishing a
strong competitive position in each targeted market. The Company is currently
segregating 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
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 November 3, 1996, there were 156 stores operating under the brand
in 24 states and the District of Columbia. In addition, by early 1998, the
Company and its area developers intend to complete the conversion to Einstein
Bros. Bagels stores of 33 stores currently operating under certain other brand
names. 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

3
<PAGE> 4

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 November
3, 1996, there were 73 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.

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

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

RISK FACTORS

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

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock offered in the Public
Offering................................... 2,500,000 shares
Common Stock offered in the Concurrent
Offering................................... 500,000 shares
Common Stock to be outstanding after the
Offerings(1)............................... 32,139,988 shares
Use of Proceeds.............................. To finance the development of additional
stores and to repay indebtedness utilized for
the development of stores and for general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol................ ENBX
</TABLE>

- ---------------
(1) Excludes 4,745,935 shares of Common Stock issuable upon exercise of
outstanding stock options (vested and unvested) and warrants.

4
<PAGE> 5

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

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) THROUGH PERIOD FROM PERIOD FROM THREE QUARTERS ENDED QUARTER ENDED
DECEMBER 31, 1995 DECEMBER 26, MARCH 24, 1995 OCTOBER 6, 1996(1) OCTOBER 6, 1996(1)
------------------- 1994 THROUGH (INCEPTION) THROUGH --------------------- ------------------
ACTUAL DECEMBER 31, 1995 OCTOBER 1, 1995 ACTUAL PRO FORMA(3) ACTUAL
------------------- ----------------- ------------------- ------- ------------ ------------------
PRO FORMA(2) ACTUAL
----------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenue.......... $ 26,423 $ 70,388 $ 16,198 $50,842 $ 54,146 $ 10,257
Income (loss) from
operations(4)(5)..... (43,152) (46,369) (32,184) 5,268 4,085 4,235
Net income
(loss)(4)(5)......... $ (43,716) $ (54,802) $ (32,194) $ 931 $ 3,494 3,953
========= ========= ========= ======= ======== ========
Net income (loss) per
common and equivalent
share(6)............. $ (4.54) $ (2.20) $ (3.34) $ 0.04 $ 0.12 $ 0.13
========= ========= ========= ======= ======== ========
Weighted average number
of common and
equivalent shares
outstanding during
the period........... 9,659 24,986 9,649 19,225 26,878 30,377
========= ========= ========= ======= ======== ========
STORE DATA (UNAUDITED):
Systemwide
revenue(7)......... $ 26,986 $ 71,263 $ 16,558 $98,800 $102,104 $ 38,330
========= ========= ========= ======= ======== ========
Number of stores in
operation at period
end:
Company-operated..... 47 84 53 15 15 15
Area developers...... 13 13 -- 226 226 226
--------- --------- --------- ------- -------- --------
Total................ 60 97 53 241 241 241
========= ========= ========= ======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 6, 1996(1)
------------------------
AS
ACTUAL ADJUSTED(8)
-------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................................... $ (3,113) $ 81,012
Notes receivable...................................................... 106,013 106,013
Total assets.......................................................... 238,917 323,042
Long-term debt........................................................ 1,200 --
Stockholders equity................................................... 222,648 307,973
</TABLE>

- ---------------
(1) The Company's fiscal year is the 52/53-week period ending on the last Sunday
in December and normally consists of 13 four-week periods. The first quarter
consists of four periods, and each of the remaining three quarters consists
of three periods, with the first, second and third quarters ending 16 weeks,
28 weeks and 40 weeks, respectively, into the fiscal year.
(2) Giving pro forma effect to the acquisition of Brackman Brothers, Inc., Bagel
& Bagel, Inc., Offerdahl's Bagel Gourmet, Inc., Baltimore Bagel Co. and
Noah's and conversion of the Company's $120.0 million convertible loan from
Boston Chicken into 15,307,421 shares of Common Stock (which occurred on
June 17, 1996) (the "Loan Conversion") as though all transactions occurred
as of December 26, 1994 (deemed to be the beginning of the Company's 1995
fiscal year). See the Company's Unaudited Pro Forma Consolidated Financial
Statements and Notes thereto contained elsewhere herein.
(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.

5
<PAGE> 6

(4) Includes for the pro forma three quarters ended October 6, 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 and for the period from
March 24, 1995 (inception) through October 1, 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 October 6, 1996, the Company had approximately $1.2 million of debt
outstanding under the Company's revolving credit facilities. For the three
quarters ended October 6, 1996, assuming such debt had been repaid utilizing
the proceeds from the sale of 41,995 shares of Common Stock ($28.575 per
share) and giving effect to the Loan Conversion as of the beginning of the
fiscal year, the net income per common and equivalent share would have been
$0.19. For the period from March 24, 1995 (inception) through December 31,
1995, giving effect to the Loan Conversion as of the beginning of the
period, the net loss per common and equivalent share would have been $1.70.
(7) Includes gross revenue for all stores operated by the Company and its area
developers. Gross revenue excludes sales taxes.
(8) Adjusted to give effect to the Offerings and the application of the net
proceeds therefrom.

6
<PAGE> 7

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

THE COMPANY

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

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

7
<PAGE> 8

Bagels brand and store were first tested in Ogden, Utah in June 1995 and, based
on extensive consumer research, were revised throughout the summer of 1995,
resulting in the Einstein Bros. Bagels brand positioning, product offering and
store design.

In the fall of 1995, the Company developed and launched its area developer
program, which incorporates aspects of the area developer program utilized by
Boston Chicken. The Company believes that having a relatively small group of
area developers, each led by a management group with substantial multi-unit
retail food service experience and short- and long-term incentives tied to
performance, is a superior means to achieve market leadership than either direct
Company ownership of all stores or more traditional franchising approaches which
utilize a larger number of franchisees. As of November 3, 1996, the Company had
entered into area development agreements with eleven entities that provide for
the development of 1,317 stores, 248 of which were open as of such date. See
"Business -- Expansion Strategy" and "Business -- Development Agreements."

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

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

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

8
<PAGE> 9

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
November 3, 1996, the Company and its area developers operated 262 stores, 33 of
which were operating under brands other than Einstein Bros. Bagels or Noah's New
York Bagels. Approximately 186 of the stores operated by the Company and its
area developers have been open for less than one year and an additional 29 of
such stores have been open for less than two years. Consequently, operating
results achieved to date may not be indicative of the results that may be
achieved in the future by any new or existing store. The Company achieved its
first quarter of profitable operations in the second quarter of fiscal 1996 and
previously incurred significant operating losses. There can be no assurance that
the Company's recent results of operations are indicative of its future results
of operations or that any profitability will continue in the near future or on a
sustained basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Consolidated Financial
Statements and the Notes thereto.

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
November 3, 1996, the Company had entered into area development agreements with
eleven entities that provide for the opening of 1,317 stores, 248 of which were
open as of such date. By the end of 1997, the Company expects to have between
575 and 650 stores in operation systemwide. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 7. Such expansion will require the addition
of management, facilities, systems and personnel. Failure to acquire necessary
resources on a cost-effective basis could have a material adverse effect on the
results of operations and financial condition of the Company and its area
developers. There can be no assurance that the Company and its area developers
will be able to achieve their development and operating goals, manage expanding
operations effectively, or maintain or accelerate growth. In addition, there can
be no assurance of the viability of any of the Company's brands in a particular
geographic region or locale. See "Business -- Expansion Strategy."

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
food 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

9
<PAGE> 10

capacity requirements. The Company's capital requirements will also depend on
the amount and timing of borrowings under the loan agreements between the
Company and its existing and future area developers. The Company and its area
developers may seek funds from public or private offerings of debt or equity
securities or other types of financing. There can be no assurance that the
Company and its area developers will be able to raise such funds on satisfactory
terms when needed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Business -- Expansion Strategy" and "Business -- Area Developer Financing."

DEPENDENCE ON AREA DEVELOPERS

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

The Company has extended secured debt financing to its area developers
pursuant to which the Company had agreed, as of October 6, 1996, to lend an
aggregate of $210.8 million, of which $100.7 million had been advanced as of
such date. These loans subject the Company to the risks of being a secured
lender. As a result of executing the rapid expansion strategy required by the
Company, the Company's area developers incurred net losses of $1.3 million in
1995, and the Company anticipates that its area developers will incur
substantial net losses during their expansion phase. The Company believes that
such losses will be recovered as expansion moderates and development costs
correspondingly diminish, store investment costs decrease, operational
efficiencies increase as a result of overall system maturity and operational
experience, advertising efficiencies commence and average weekly store revenue
increases. However, there can be no assurance that such events will occur or
that such losses will be recovered. The failure of an area developer to achieve
a sufficient level of profitability subsequent to the completion of its
expansion phase could have a material adverse impact on the Company's financial
position and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Expansion Strategy"
and Note 11 of Notes to the Company's Audited Consolidated Financial Statements.
SEE ALSO "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

DEPENDENCE ON BOSTON CHICKEN

The Company's success is highly dependent on its continued relationship
with Boston Chicken. The Company and Boston Chicken are parties to various
agreements, pursuant to which Boston Chicken has agreed to provide to the
Company certain accounting and administration, and computer and communications
services. In addition, Boston Chicken has made available to the Company a
non-convertible loan facility of up to $50.0 million, none of which was
outstanding as of November 21, 1996. 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 53.8% of the outstanding shares of Common Stock of the Company
(53.2% if the Underwriters' over-allotment option is exercised in full). In
connection with the Concurrent Private Placement, the Company granted to Boston
Chicken an option that permits it to maintain ownership of shares of Common
Stock (excluding certain shares optioned by Boston Chicken included in
calculating the ownership percentages set forth above) having up to

10
<PAGE> 11

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 such option, Boston Chicken will have the right, after consummation
of the Offerings, to purchase additional shares of Common Stock at a price equal
to the public offering price per share, net of underwriting discount. See
"Relationship with Boston Chicken -- Concurrent Private Placement Agreement,
Registration Agreement and Concurrent Offering Purchase Agreement." By reason of
its holdings and such option, Boston Chicken will be able to control the affairs
and policies of the Company, elect the Company's board of directors and approve
or disapprove any matter submitted to a vote of the stockholders, including
certain fundamental corporate transactions requiring stockholder approval. In
addition, concentrated ownership of the Company could affect the potential
applicability to the Company of personal holding company tax in certain
circumstances. See "Certain Transactions," "Principal Stockholders and
Securities Ownership of Management" and "Relationship with Boston Chicken."

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

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

LIMITED SOURCES OF BAGEL DOUGH AND CREAM CHEESE SUPPLY

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

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

RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY

11
<PAGE> 12

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

GOVERNMENT REGULATION

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

POTENTIAL VOLATILITY OF STOCK PRICE

The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors
that may or may not be within the Company's control. See "Price Range of Common
Stock."

ANTI-TAKEOVER EFFECT OF CHARTER AND STATUTORY PROVISIONS

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

SHARES ELIGIBLE FOR FUTURE SALE

12
<PAGE> 13

will not sell any of such shares prior to January 28, 1997, subject to certain
exceptions, without the consent of Merrill Lynch, the holders of 163,147 of such
shares have agreed that they will not sell any of such shares prior to March 6,
1997, the holders of 17,000 of such shares have agreed that they will not sell
any of such shares prior to August 1, 1997 and the holders of 1,372,135 of such
shares (consisting of all officers and directors of the Company, who hold an
aggregate of 550,460 of such shares, and area developers of the Company holding
an aggregate of 821,675 of such shares) have agreed that they will not sell any
of such shares prior to August 1, 1998. Of the 1,384,225 shares of Common Stock
registered pursuant to the resale registration statement which are not subject
to lock-up arrangements, the Company believes that 221,017 of such shares have
already been sold in the public market. The Company also has registered under
the Securities Act 5,295,195 shares of Common Stock issuable under its stock
option plans. Of such number of shares, 3,516,283 shares were subject to
outstanding options as of November 3, 1996, of which options to purchase an
aggregate of 325,513 shares were vested and exercisable. See
"Management -- Stock Option Plans." In connection with the Concurrent Private
Placement, the Company entered into a registration agreement with Boston
Chicken, pursuant to which the Company granted to Boston Chicken certain demand
and piggyback registration rights under the Securities Act with respect to an
aggregate of 16,797,175 shares owned by Boston Chicken. The Company has agreed
that the 500,000 shares of Common Stock to be purchased by Boston Chicken in the
Concurrent Offering will constitute Registrable Securities under the
registration agreement. Boston Chicken has agreed with the representatives of
the underwriters of the Initial Public Offering not to sell the 2,000,000 shares
of Common Stock purchased by it in the Concurrent Private Placement prior to
August 1, 1997, without the consent of Merrill Lynch. In addition, Boston
Chicken has agreed with the representatives of the Underwriters not to sell
other shares owned by it (including the 500,000 shares to be purchased in the
Concurrent Offering) for a period of at least 180 days from the date of this
Prospectus, subject to certain exceptions, without the consent of Merrill Lynch.
The Company may file a registration statement covering shares of Common Stock
for issuance from time to time in connection with potential future acquisitions
and resales of such shares by the recipients thereof, although no such
acquisitions are currently pending. Shares so registered could not be sold in
the public market prior to 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 any of such shares described
herein or the availability of such shares for sale will have on the market price
for shares of Common Stock prevailing from time to time. Sales of substantial
amounts of shares of Common Stock in the public market could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of equity securities or securities
convertible into equity securities. See "Certain Transactions -- Registration
Rights," "Relationship with Boston Chicken -- Concurrent Private Placement
Agreement, Registration Agreement and Concurrent Offering Purchase 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, 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."

13
<PAGE> 14

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
2 of Notes to the Company's Unaudited Consolidated Financial Statements
contained elsewhere herein.

CONCURRENT OFFERING

Of the 3,000,000 shares offered hereby, Boston Chicken is being offered the
opportunity to purchase an aggregate of 500,000 shares of Common Stock in the
Concurrent Offering pursuant to a concurrent offering purchase agreement (the
"Concurrent Offering Purchase Agreement") at a price equal to the public
offering price per share, net of underwriting discount. Boston Chicken has
informed the Company that it intends to purchase the 500,000 shares offered to
it in the Concurrent Offering. The consummation of each of the Offerings is
conditioned upon the consummation of the other Offering. Boston Chicken has
agreed not to sell shares of Common Stock purchased in the Concurrent Offering
for a period of at least 180 days after the date of this Prospectus, without the
consent of Merrill Lynch. See "Relationship with Boston Chicken -- Concurrent
Private Placement Agreement, Registration Agreement and Concurrent Offering
Purchase Agreement" and "Shares Eligible for Future Sale." None of the members
of the committee of the board of directors who will negotiate the public
offering price of the Common Stock with the representatives of the Underwriters
are officers or directors of Boston Chicken nor were any of such members elected
to the board of directors as designees of Boston Chicken.

USE OF PROCEEDS

The net proceeds to the Company from each of the Public Offering and the
Concurrent Offering are estimated to be approximately $71.1 million ($81.8
million if the Underwriters' over-allotment option is exercised in full) and
$14.2 million, respectively, or an aggregate of $85.3 million ($96.0 million if
the Underwriters' over-allotment option is exercised in full), after deduction
of underwriting discount and estimated offering expenses. The Company intends to
use approximately $21.0 million of the aggregate net proceeds from the Offerings
to repay borrowings under the Company's secured revolving credit facility 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 November 21, 1996, the Company had approximately $21.0 million
outstanding under its secured revolving credit facility, which amount was
incurred to loan funds to area developers to finance development of stores and
for general corporate purposes. Borrowings under the secured revolving credit
facility bear interest at either the lender's base rate (currently 8.25% per
annum) plus 0.5% 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%. As of November 21, 1996, the entire amount outstanding under
the secured revolving credit facility bore interest at the lender's base rate
plus 0.5%. Any borrowings outstanding under the Company's secured revolving
credit facility are payable on April 30, 1998.

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

14
<PAGE> 15

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."

PRICE RANGE OF COMMON STOCK

The Common Stock began trading on the Nasdaq National Market on August 2,
1996. The following table sets forth the high and low sales prices of the Common
Stock during each of the Company's fiscal quarters (beginning on August 2,
1996), as reported by The Wall Street Journal (Western Edition).

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996:
Third Quarter (ending October 6, 1996)............................. $36 1/2 $19
Fourth Quarter (through November 26, 1996)......................... 36 1/8 29 1/2
</TABLE>

On November 26, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $31 per share. At November 26, 1996, there were
approximately 590 record holders of the Common Stock.

CAPITALIZATION

The following table sets forth the capitalization of the Company at October
6, 1996 and as adjusted to give effect to the Offerings and the application of
the net proceeds therefrom. This table should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 6, 1996
---------------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Short-term debt.................................................. $ -- $ --
======== ========
Revolving credit facility(1)..................................... $ 1,200 $ --
-------- --------
Total long-term debt........................................... 1,200 --
Stockholders' equity:
Preferred stock, 20,000,000 shares authorized;
no shares issued and outstanding............................ -- --
Common Stock, par value $.01 per share, 200,000,000 shares
authorized; 29,000,726 shares issued and outstanding;
32,000,726 shares issued and outstanding as adjusted for the
Offerings................................................... 290 320
Additional paid-in capital..................................... 265,143 350,438
Deficit........................................................ (42,785) (42,785)
-------- --------
Total stockholders' equity(2).......................... 222,648 307,973
-------- --------
Total capitalization................................... $223,848 $307,973
======== ========
</TABLE>

- ---------------
(1) As of November 21, 1996, borrowings of approximately $21.0 million were
outstanding under the Company's secured revolving credit facility bearing an
interest rate of 8.75%. The Company intends to repay such borrowings with a
portion of the proceeds from the Offerings.

(2) Excludes shares of Common Stock subject to outstanding stock options (vested
and unvested) and warrants, which totaled 4,745,935 as of November 21, 1996.

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 for use in the
Company's operations and to fund the Company's and its area developers'
expansion programs. 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.

15
<PAGE> 16

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 three quarters ended October 6, 1996 and for the period
from March 24, 1995 (inception) through October 1, 1995 is unaudited, but in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations. Interim results are not necessarily
indicative of results for subsequent periods or the full year.

<TABLE>
<CAPTION>
PERIOD FROM MARCH
24, 1995
(INCEPTION) PERIOD FROM
THROUGH DECEMBER PERIOD FROM MARCH 24, 1995 THREE QUARTERS ENDED QUARTER ENDED
31, 1995 DECEMBER 26, 1994 (INCEPTION) OCTOBER 6, 1996(1) OCTOBER 6, 1996(1)
----------------- THROUGH DECEMBER THROUGH OCTOBER --------------------- ------------------
ACTUAL 31, 1995 1, 1995 ACTUAL PRO FORMA(3) ACTUAL
----------------- ----------------- ---------------- ------- ------------ ------------------
PRO FORMA(2) ACTUAL
----------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue:
Company-operated stores....... $ 25,685 $ 69,650 $ 16,198 $33,810 $ 37,114 $ 2,321
Royalties and franchise
related fees................ 738 738 -- 17,032 17,033 7,936
-------- -------- -------- ------- -------- -------
Total revenue........... 26,423 70,388 16,198 50,842 54,146 10,257
Cost of products sold.......... 8,239 25,085 5,056 10,871 11,989 793
Salaries and benefits(4)....... 13,531 29,547 8,044 16,286 18,647 1,842
General and administrative
expenses...................... 21,230 35,550 8,707 18,417 19,426 3,387
Write-off of intangible
assets(5)..................... 26,575 26,575 26,575 -- -- --
-------- -------- -------- ------- -------- -------
Income (loss) from
operations.................... (43,152) (46,369) (32,184) 5,268 4,085 4,235
Other income (expenses), net... (564) $ (8,433) $ (10) $(4,337) $ (591) $ (282)
-------- -------- -------- ------- -------- -------
Net income (loss).............. $ (43,716) $ (54,802) $(32,194) $ 931 $ 3,494 $ 3,953
======== ======== ======== ======= ======== =======
Net income (loss) per common
and equivalent share(6)..... $ (4.54) $ (2.20) $ (3.34) $ 0.04 $ 0.12 $ 0.13
======== ======== ======== ======= ======== =======
Weighted average number of
common and equivalent shares
outstanding during the
period...................... 9,659 24,986 9,649 19,225 26,878 30,377
======== ======== ======== ======= ======== =======
STORE DATA (UNAUDITED):
Systemwide revenue(7).......... $ 26,986 $ 71,263 $ 16,558 $98,800 $102,104 $ 38,330
======== ======== ======== ======= ======== =======
Number of stores in operation
at period end:
Company-operated.............. 47 84 53 15 15 15
Area developers............... 13 13 -- 226 226 226
-------- -------- -------- ------- -------- -------
Total................... 60 97 53 241 241 241
======== ======== ======== ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 6, 1996(1)
------------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(8)
------------ -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................. $ 41 $ (3,113) $ 81,012
Notes receivable................................................. 7,267 106,013 106,013
Total assets..................................................... 50,299 238,917 323,042
Long-term debt................................................... 58,875 1,200 --
Stockholders' equity............................................. (20,994) 222,648 307,973
</TABLE>

16
<PAGE> 17

(2) Giving pro forma effect to the acquisition of Brackman, Bagel & Bagel,
Offerdahl's, Baltimore Bagel and Noah's and the Loan Conversion as though
all transactions occurred as of December 26, 1994 (deemed to be the
beginning of the Company's 1995 fiscal year). See the Company's Unaudited
Pro Forma Consolidated Financial Statements and Notes thereto contained
elsewhere herein.

(3) Giving pro forma effect to the acquisition of Noah's and the Loan Conversion
as of the beginning of the Company's 1996 fiscal year. See the Company's
Unaudited Pro Forma Consolidated Financial Statements and Notes thereto
contained elsewhere herein.

(5) Includes a $26,575,000 write-off of intangible assets for the period from
March 24, 1995 (inception) through December 31, 1995 and for the period from
March 24, 1995 (inception) through October 1, 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 October 6, 1996, the Company had approximately $1.2 million of debt
outstanding under the Company's revolving credit facilities. For the three
quarters ended October 6, 1996, assuming such debt had been repaid utilizing
the proceeds from the sale of 41,995 shares of Common Stock ($28.575 per
share) and giving effect to the Loan Conversion as of the beginning of the
fiscal year, the net income per common and equivalent share would have been
$0.19. For the period from March 24, 1995 (inception) through December 31,
1995, giving effect to the Loan Conversion as of the beginning of the
period, the net loss per common and equivalent share would have been $1.70.

(7) Includes gross revenue for all stores operated by the Company and its area
developers. Gross revenue excludes sales taxes.

(8) Adjusted to give effect to the Offerings and the application of the net
proceeds therefrom.

17
<PAGE> 18

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>

18
<PAGE> 19

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

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>

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, as of November 22, 1996, beneficially owned
approximately 58% of the outstanding shares of Common Stock of the Company. In
addition, in connection with the Concurrent Private Placement, the Company
granted to Boston Chicken an option that would permit it to maintain ownership
of shares of Common Stock (excluding certain shares as provided in the
Concurrent Private Placement Agreement) 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. 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.

19
<PAGE> 20

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

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

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

QUARTER ENDED OCTOBER 6, 1996 COMPARED TO THE QUARTER ENDED OCTOBER 1, 1995

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

20
<PAGE> 21

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
third quarter of fiscal 1995. 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.

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 October 6, 1996,
the Company had secured loan commitments aggregating $16.0 million and $210.8
million respectively, of which $3.5 million and $100.7 million, respectively,
had been advanced. As a result of executing the rapid expansion strategy
required by the Company, the Company's area developers incurred net losses of
$1.3 million in 1995, and the Company anticipates its area developers will 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

21
<PAGE> 22

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

In connection with entering into new area development agreements, the
Company has sold 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 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 $5.5 million in 1995 and
$54.2 million for the three quarters ended October 6, 1996. There were no
material gains or losses recognized as a result of these sales.

Capital Resources. For the period ended December 31, 1995, the Company's
primary sources of capital included $20.8 million from the sale of shares of
Common Stock and $40.0 million from borrowings under its loan agreement with
Boston Chicken. For the 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 non-underwritten
concurrent 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 7.

22
<PAGE> 23

BUSINESS

GENERAL

BUSINESS STRATEGY

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

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

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

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

23
<PAGE> 24

Chicken." In addition, the Company is implementing certain key business
strategies that it believes have been important to Boston Chicken's development
of the Boston Market(R) brand.

Production Efficiencies. The Company believes that its use of proprietary
frozen bagel dough products for both the Einstein Bros. Bagels and Noah's New
York Bagels brands provides significant product quality and 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 the
centralized production of bagel and cream cheese products allows for more
consistent, superior products and permits better quality control and more rapid
development, production and deployment of a variety of new products into stores
systemwide. 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 will offer certain additional
manufacturing and distribution efficiencies. The Company is in the process of
increasing the capacity of its frozen dough facility in Whittier, California so
that the facility can supply frozen bagel dough to both Einstein Bros. Bagels
stores and Noah's New York Bagels stores. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 7.

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

Store Manager Incentives. The Company believes that a key factor in
achieving superior store-level performance is the development and maintenance of
highly motivated and well-trained store managers. The Company is currently
developing a unit operator incentive program for use by the Company and its area
developers, pursuant to which each unit operator would receive, in addition to
fixed base compensation, periodic bonus compensation equal to a percentage of
the unit's cash flow, as defined for purposes of such program, together with a
right to receive additional bonus compensation in the form of deferred payments
based on the unit's cash flow during a five-year period, payable only after
expiration of five years of service as a unit operator of such store. The
Company believes that such a program would enhance the ability of the Company
and its area developers to attract and retain highly motivated store managers
who would deliver superior performance at the store-level.

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 575 and 650 stores in operation systemwide by the end of 1997. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

As of November 3, 1996, in addition to 229 Einstein Bros. Bagels and Noah's
New York Bagels stores, the Company and its area developers were operating 33
bagel stores under the Bagel & Bagel, Offerdahl's Bagel Gourmet and Baltimore
Bagel brands. As part of the Company's expansion strategy, it and its area
developers intend to convert all such stores to either Einstein Bros. Bagels
stores or Noah's New York Bagels stores by early 1998. The Company and its area
developer for the Salt Lake City market completed conversion of nine Brackman
Bros. stores to Einstein Bros. Bagels stores in March 1996.

24
<PAGE> 25

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 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 "-- Area Developer Financing."

As of November 3, 1996, the Company had entered into area development
agreements with eleven entities for the development and operation of an
aggregate of 1,013 Einstein Bros. Bagels stores and an aggregate of 304 Noah's
New York Bagels stores over the next six years (as summarized below). One
hundred fifty-six of such Einstein Bros. Bagels stores and 73 of such Noah's New
York Bagels stores were open as of November 3, 1996 and a majority of the
additional stores committed are scheduled to open over the next three years. The
Company and its area developers currently operate stores in 35 territories, and
expect to have stores in all of the territories currently covered by area
developer agreements by the end of 1996. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 7.

<TABLE>
<CAPTION>
CURRENT ADDITIONAL
STORES STORES
AREA DEVELOPER PRIMARY DEVELOPMENT TERRITORIES OPEN(1) COMMITTED
- ------------------------------ ----------------------------------------- -------- ---------
<S> <C> <C> <C>
Einstein Bros. Bagels:
Alamo Bagels, L.P............. Dallas/Ft. Worth, Houston, Austin 3 107
BCE West Bagels, L.L.C........ Denver, Salt Lake City, Phoenix, Tucson, 43 68
Albuquerque, Las Vegas, Colorado
Springs
Colonial Bagels, L.P.......... Boston, Cleveland, Pittsburgh, 9 113
Providence/ New Bedford, Springfield, MA
Finest Bagels, L.L.C.......... Kansas City, St. Louis, Minneapolis 23 45
Great Lakes Bagels, L.L.C..... Milwaukee, Chicago, Detroit, Madison, 37 160
Indianapolis
Gulfstream Bagels, L.P........ Miami, Fort Lauderdale, 33 62
West Palm Beach, Orlando, Tampa
Liberty Foods, L.L.C.......... New York City metropolitan area 9 141
Mayfair Bagels, L.L.C......... Washington, D.C., Baltimore, Richmond 11 64
Philly Rose, L.P.............. Philadelphia 7 78
Noah's New York Bagels:
Noah's Bay Area Bagels, Sacramento, San Francisco/Oakland/San
L.L.C....................... Jose 37 58
Noah's Pacific, L.L.C......... Los Angeles, Portland, Seattle/Tacoma 36 173
--- -----
Total.......................................................... 248(2) 1,069
=== =====
</TABLE>

- ---------------
(1) Includes 11 stores operated under the Bagel & Bagel brand, and 8 stores
operated under the Offerdahl's Bagel Gourmet brand.

(2) In addition, at November 3, 1996, the Company operated 14 stores, all 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

25
<PAGE> 26

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 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 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, (ii) the operational and other capabilities of the
Company's area developers, (iii) the availability of capital to its area
developers, (iv) the ability of the Company to manage anticipated expansion and
recruit and train personnel, and (v) 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
period following the Company's formation and opened a test store in Ogden, Utah
in June 1995. The Company continued to develop and refine the Einstein Bros.
Bagels brand and concept store during the summer and early fall of 1995 based on
extensive consumer and competitor research. The Company intends to continue to
refine the Einstein Bros. Bagels brand, store design and products to reflect
consumers' tastes and preferences. As of November 3, 1996, the Company and its
area developers had opened a total of 156 Einstein Bros. Bagels stores in 24
states and the District of Columbia.

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

26
<PAGE> 27

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 8 Grain, Spinach
Herb, Nutty Banana, Wild Blueberry, Dark Pumpernickel, Chocolate Chip and Veggie
Confetti(TM). 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 line of Einstein Bros. Bagels cream cheeses includes Wildberry Lite,
Cheddarpeno, Veggie Lite, Maple Walnut Raisin, Smoked Salmon, Sun-Dried Tomato
and Spinach Dill Lite, in addition to traditional cream cheese flavors. Unlike
flavored cream cheeses created by adding flavors to already processed plain
cream cheese, Einstein Bros. Bagels cream cheeses are created by blending
quality flavors and ingredients (such as fresh fruits and vegetables) directly
into the cream cheese during initial production. This process is specifically
designed to yield a more consistently flavored and more spreadable cream cheese
than traditional grocery store products.

The Einstein Bros. Bagels stores also offer consumers an extensive line of
beverages featuring branded coffee products. In addition to several blends of
premium drip coffee, customers can choose from a traditional offering of
espresso-based drinks, including Lattes, Cappuccinos and Americanos, that can be
augmented with gourmet syrup flavorings. High quality herbal, green and black
teas complete the hot beverage offerings. Cold beverages featured by Einstein
Bros. Bagels stores currently include 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 and the Veg-Out, in addition to
made-to-order deli sandwiches, melts and pizza bagels. Salads include Low-Fat
Potato Salad and a Pasta of the Day, as well as a classic Caesar Salad. 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 traditional colors and simple
furnishings in a relaxed social atmosphere. The look of the Einstein Bros.
Bagels store incorporates stained concrete or wood floors and
traditional-colored woods. The seating area features cafe-style tables and
wooden chairs. Walls are covered with posters and old photographs that relate to
the Einstein Bros. Bagels brand. Other characteristic decorative items include a
bulletin board for community notices, and logos and whimsical drawings featuring
the Einstein Bros., Melvyn and Elmo(TM).

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 November 3, 1996, two of the Company's area
developers operated 73 Noah's New York Bagels stores in the San Francisco Bay
Area, Sacramento, Southern California, Portland and Seattle markets.

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

27
<PAGE> 28

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 cream
cheese shmears that are light and smooth while still having a rich taste.
Regular and low fat Noah's Shmears flavors include Plain, Lox, Sun-Dried Tomato,
Basil, Chive, Garlic Herb, Veggie, Walnut Raisin and Strawberry.

The Noah's New York Bagels kosher dairy deli menu includes four varieties
of lox (New York Nova, Oregon, Norwegian and Nova lox trim), and salads and
specialty items, including Seven Herb Salmon, Smoked Whitefish, Albacore Tuna
and Hummus. Beverages include premium branded coffees and a variety of other
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 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. The
Company and its area developers are currently testing a combination of
multi-media and consumer promotions to launch the Company's brands in local
markets and to build strong brand awareness in a short time period. Both the
Company-operated and area developer stores are required to contribute to a
national advertising fund and a local advertising fund to pay for the
development of advertising material and for advertising in their respective
DMAs. See "-- Franchise Agreements" and Note 9 of the Notes to the Company's
Audited Consolidated Financial Statements.

VENDORS

In May 1996, the Company entered into a project and approved supplier
agreement (the "Harlan Supply Agreement") with Harlan Bagel Supply Company, LLC
("Harlan") and the equity owners of Harlan. Harlan completed the construction of
a new production facility in Avon, Indiana (the "New Facility") in August 1996,
which is designed to produce frozen dough for approximately 1.4 million dozen
bagels per month, expected to be sufficient to supply approximately 250 Einstein
Bros. Bagels stores. Under the Harlan Supply Agreement, Harlan has agreed to
sell to the Company, its area developers and their food service distributors up
to 1.4 million dozen bagels per month through June 1, 2003, for which such
purchasers will be charged a price equal to the cost of ingredients and
packaging, will absorb an agreed upon allowance for product losses, and will pay
a fixed toll charge (which is subject to adjustment for inflation, changes in
formulations, specifications or procedures required by the Company or failure of
the Company, its area developers and their food service distributors to purchase
certain minimum numbers of bagels). Under certain circumstances, contract
purchase amounts may be increased, which would permit Harlan to double the New
Facility's capacity. Harlan has granted to the Company an option, exercisable at
any time from December 15, 1999 through June 1, 2002, to acquire all of the
assets of Harlan at a formula price equal to a multiple of Harlan's

28
<PAGE> 29

profits from sales of products under the Harlan Supply Agreement. The Company
owns $7.5 million of equipment used in the New Facility, which equipment is
leased to Harlan pursuant to an operating lease.

The Company is a party to a cream cheese supply agreement and certain
related agreements (the "Doc's Agreements") with Doc's Cheese Company, L.L.C.
("Doc's"). 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
approximately 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 Harlan Supply Agreement and the Doc's Agreements are exhibits to the
Registration Statement of which this Prospectus is a part.

The Company has a long-term distribution agreement with Marriott
Distribution Services, Inc. ("Marriott"), which provides for distribution of
food, beverages and supplies to stores operated by the Company and its
franchisees at a negotiated fixed mark-up above cost. The Company and its area
developers currently purchase in excess of 10% of their products and supplies
from Marriott.

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.

COMPETITION

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

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

29
<PAGE> 30

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 an existing computer and communications
systems services agreement (the "Computer Services

30
<PAGE> 31

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.

31
<PAGE> 32

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 November
21, 1996, the aggregate amount of investments by management of the Company's
eleven area developers was approximately $625,000 in cash and approximately $4.6
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, $75.0 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 before December 31, 1998 as
Bagel Funding's manager or managers make one or more capital calls. As of
November 21, 1996, Bagel Funding had invested a total of approximately $65.2
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

32
<PAGE> 33

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 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 $16.4 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),
Melvyn Einstein(TM), Elmo Einstein(TM), Fresh & Holesome(TM), Veggie
Confetti(TM), The Veg-Out(TM) and Bagelmeister(TM), as well as certain logos
used by the Company. The Company has applied to register each of Noah's New York
Bagels(R) and Einstein Bros.(TM) in more than 30 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, had previously filed oppositions to certain
of the Company's trademark applications. Effective October 1996, the Company
entered into an agreement with Hebrew University pursuant to which Hebrew
University acknowledged the Company's ownership of the rights to the Einstein
Bros.(TM) trademarks and service marks, as well as certain other marks,
including Melvyn Einstein(TM) and Elmo Einstein(TM), and agreed not to contest
the validity of, or make a claim adverse to the Company's interest in, such
marks. In addition, Hebrew University granted to the Company a license to use
certain intellectual property rights of Albert Einstein, including certain
rights to use the name Einstein alone and with certain indicia of Albert
Einstein, such as references to scientific formulae (e.g., E=MC(2)) and theories
(e.g., the theory of relativity) as well as an option to acquire a license to
use the full name of Albert Einstein and the likeness, image, caricature,
photographs and signature of Albert Einstein.

33
<PAGE> 34

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

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

GOVERNMENT REGULATION

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

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

PROPERTIES/LEASING

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

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.

The Company owns commissaries in or near Salt Lake City, Utah and San
Diego, California. The facility in Salt Lake City 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

34
<PAGE> 35

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 may lease or sublease its commissaries and
related office space to area developers.

EMPLOYEES

At November 3, 1996, the Company had approximately 377 employees, including
approximately 101 employed at its support center offices in Golden, Colorado,
approximately 17 employed at zone offices or commissaries and approximately 259
employed at bagel stores operated by the Company. None of the Company's
employees are represented by a labor union or covered by a collective bargaining
contract. The Company believes that its relationships with its employees are
generally good.

LEGAL PROCEEDINGS

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

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

INSURANCE

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

35
<PAGE> 36

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. Beaudoin................ 34 Senior Vice President -- Supply Chain
W. Eric Carlborg................... 32 Senior Vice President -- Finance
David G. Stanchak.................. 38 Vice President, Chief Development Officer and Director
Jeffrey L. Butler.................. 35 President of Einstein Bros. Bagels Concept
Joel M. Alam....................... 39 Vice President and Secretary
Paul A. Strasen.................... 40 Vice President and General Counsel
Kyle T. Craig...................... 49 Director
M. Laird Koldyke(1)(2)(3).......... 35 Director
Gail A. Lozoff..................... 46 Director and Vice President
John H. Muehlstein, Jr.(3)......... 41 Director
John A. Offerdahl(1)............... 32 Director
Lloyd D. Ruth(1)(2)(3)............. 49 Director
</TABLE>

- ---------------
(1) Member of the Audit Committee of the board of directors.

(2) Member of the Reporting Person Stock Option Committee of the board of
directors.

(3) Member of the Compensation and Stock Option Committees of the board of
directors.

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

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

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

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

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. In August 1996, Mr. Goldston became Vice Chairman of the Board and a
director of Boston Chicken. From July 1994 to April 1996, Mr. Goldston was the
Chairman and Chief

36
<PAGE> 37

Executive Officer of The Goldston Group, a strategic advisory firm which advises
high-growth companies on improving performance and creating operating leverage
and efficiencies. From October 1991 to June 1994, Mr. Goldston served as
President and Chief Operating Officer of L.A. Gear, Inc. From September 1989 to
October 1991, Mr. Goldston was a principal of Odyssey Partners, L.P., an
investment firm, and from September 1988 to September 1989 served as Chief
Marketing Officer of Reebok Inc.

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

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

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

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

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

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

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

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

Ms. Lozoff became a director and a Vice President of the Company in April
1995, after working with Bagel & Bagel, which she founded in June 1988. From
April 1995 until September 1996, Ms. Lozoff served as

37
<PAGE> 38

Vice President -- Design and Merchandising of the Company. Ms. Lozoff also
served as President and Chief Executive Officer of Bagel & Bagel from May 1992
to April 1995.

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

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

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

MANAGEMENT COMPENSATION

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

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

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

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

38
<PAGE> 39

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 OF ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK
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."

STOCK OPTION PLANS

The Company has adopted an Amended and Restated 1995 Stock Option Plan,
effective August 15, 1996 (the "Plan"). The purpose of the Plan is to benefit
the Company by offering certain present and future employees, officers and
consultants of the Company and its subsidiaries, if any, a favorable opportunity
to become holders of Common Stock over a period of years, thereby giving them a
long-term stake in the growth and prosperity of the Company and encouraging the
continuance of their involvement with the Company. Under the Plan, eligible
persons may be granted options to purchase an aggregate of not more than
5,500,000 shares of Common Stock. At November 3, 1996, an aggregate of
approximately 1,668,829 shares of Common Stock were available for option grants
under the Plan. Such options are not intended to be treated as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

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

Options granted under the Plan have a term of 10 years, subject to earlier
expiration if the optionee's service terminates, and no options under the Plan
may be granted after February 1, 2005. Options become exercisable with respect
to 10% of the total number of shares subject to the option on the first
anniversary of

39
<PAGE> 40

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.

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

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

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

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

40
<PAGE> 41

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

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

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

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

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

41
<PAGE> 42

Bagel"), of which Mr. Muehlstein is a general partner, purchased an aggregate of
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 and Colangelo, as well as Mr. Alam and
his spouse, PJS, OBG, Frontenac, Marquette, MVP II and B&B Holdings, Inc.
(formerly Bagel & Bagel), of which Ms. Lozoff's spouse is the sole stockholder
("B&B"), and with Boston Chicken (with respect to the shares of Common Stock
issued pursuant to the Loan Conversion). Pursuant to such agreement, the Company
granted to such stockholders and Boston Chicken certain piggyback registration
rights under the Securities Act with respect to shares of Common Stock owned by
them (the "Registrable Securities"). The Company has registered under the
Securities Act the Registrable Securities held by such stockholders, which
permit them to make public resales of the Registrable Securities. Such
stockholders have agreed not to sell certain of their Registrable Securities for
various specified periods of time. See "Shares Eligible for Future Sale." The
Company entered into the Boston Chicken Registration Agreement (defined below)
that superseded the rights of Boston Chicken under the Stockholder Registration
Agreement. See "Relationship with Boston Chicken -- Concurrent Private Placement
Agreement, Registration Agreement and Concurrent Offering Purchase Agreement"
and "Shares Eligible for Future Sale."

CONCURRENT PUBLIC OFFERING

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

BAGEL STORE DEVELOPMENT FUNDING

In December 1995, Bagel Funding was formed under the name Einstein Bros.
Equity Funding, L.L.C. with the objective of raising $90.0 million to invest in
existing and proposed area developers of the Company. Bagel Funding has received
total capital commitments from its members aggregating such amount, $75.0
million of which had been contributed to Bagel Funding as of November 21, 1996
and the balance of which is payable by such members to Bagel Funding at such
times 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.

42
<PAGE> 43

Through November 21, 1996, Bagel Funding had invested a total of
approximately $65.2 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.

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

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

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

Bagel Funding 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

43
<PAGE> 44

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 prior to the time all committed
capital has been contributed to Bagel Funding, but only if the Bagel Funding
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. On September 26, 1996, Bagel Funding distributed to its
members Bagel Funding Warrants to purchase 506,272 shares of Common Stock.

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 terms of
agreements that could be negotiated by the Company with unrelated third parties.

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

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

For the Company's 1995 fiscal year and the three quarters ended October 6,
1996, BCE West (together with its predecessor, Old BCE West) paid to the Company
an aggregate of $2,308,714 and $2,840,419, respectively, in development,
franchise, royalty, real estate, software license, software maintenance,
miscellaneous and accounting fees and deposits. For the three quarters ended
October 6, 1996, BCE West (together with Old BCE West) paid $283,657 in national
and $540,503 in local advertising fund contributions. In addition, for the three
quarters ended October 6, 1996, BCE West (together with Old BCE West) paid to
the Company $765,364 in interest on its loan from the Company.

44
<PAGE> 45

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 three quarters ended October 6, 1996, Finest
paid to the Company an aggregate of $3,050,492 in development, franchise,
royalty, real estate, software license, software maintenance, miscellaneous and
accounting fees and deposits. For the three quarters ended October 6, 1996,
Finest paid $203,329 in national and $406,658 in local advertising fund
contributions. In addition, for such period, Finest paid to the Company $387,473
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.

Gulfstream Bagels, L.P. and Great Lakes Bagels, L.L.C. 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. In
connection with the execution of such agreements, the Company sold to EBA the
Company-operated stores and other assets located in certain of those DMAs at net
book value for an aggregate purchase price of $18,622,026, pursuant to an asset
sale agreement, and entered into a franchise agreement with EBA for each such
store. The Company realized no significant gain or loss on such sale.

Effective June 17, 1996, EBA contributed to Great Lakes Bagels, L.L.C.
("Great Lakes") its assets located in the following DMAs: Milwaukee; Chicago;
Detroit; and Madison (the "Great Lakes DMAs"). Upon such contribution, the
equity interests in Great Lakes were distributed in redemption of a portion of
the equity interests in EBA and EBA's name was changed to Gulfstream Bagels,
L.P. ("Gulfstream"). Bagel Funding is the majority equity owner of Great Lakes
and Gulfstream. At the same time, the Company entered into a convertible secured
loan agreement and an area development agreement with Great Lakes for the
development of the Great Lakes DMAs, and it modified the agreements it had
previously entered into with Gulfstream to exclude the Great Lakes DMAs from
such agreements. For the three quarters ended October 6, 1996, Gulfstream and
Great Lakes (together with their predecessor, EBA) paid to the Company an
aggregate of $9,020,690 in development, franchise, royalty, real estate,
software license, software maintenance, miscellaneous and accounting fees and
deposits. For the three quarters ended October 6, 1996, Gulfstream and Great
Lakes (together with EBA) paid $290,258 in national and $697,660 in local
advertising fund contributions. In addition, for such period, Gulfstream and
Great Lakes (together with EBA) paid to the Company $934,477 in interest on
their loans from the Company.

Effective July 15, 1996, the Company modified its development agreement
with Great Lakes to include the Indianapolis DMA and the Company sold to Great
Lakes certain assets located in that DMA at net book value for an aggregate
purchase price of $270,959, pursuant to an asset sale agreement. The Company
realized no significant gain or loss on such sale.

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. Effective 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 three quarters

45
<PAGE> 46

ended October 6, 1996, Mayfair paid to the Company an aggregate of $1,916,733 in
development, franchise, royalty, real estate, software license, software
maintenance, miscellaneous and accounting fees and deposits. For the three
quarters ended October 6, 1996, Mayfair paid $19,565 in national and $37,113 in
local advertising fund contributions. In addition, for such period, Mayfair paid
to the Company $30,113 in interest on its loan from the Company. Effective
September 9, 1996, the Company modified its development agreement with Mayfair
to include the Richmond DMA and the Company sold to Mayfair certain assets
located in that DMA at net book value for an aggregate purchase price of
$25,994, pursuant to an asset sale agreement. The Company realized no
significant gain or loss on such sale.

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. For the three quarters ended October 6,
1996, Liberty paid to the Company an aggregate of $2,599,237 in development,
franchise, royalty, real estate, software license, software maintenance,
miscellaneous and accounting fees and deposits. For the three quarters ended
October 6, 1996, Liberty paid $16,180 in national and $32,359 in local
advertising fund contributions. In addition, for such period, Liberty paid to
the Company $53,877 in interest on its loan from the Company. The Company
believes that the terms of the 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 30 percent interest in the general partner of Colonial. In
connection with the execution of such agreements, the Company sold to Colonial
certain assets located in certain of those DMAs at net book value for an
aggregate purchase price of $499,013, pursuant to an asset sale agreement. The
Company realized no significant gain or loss on such sale. For the three
quarters ended October 6, 1996, Colonial paid to the Company an aggregate of
$2,112,720 in development, franchise, royalty, real estate, software license,
software maintenance, miscellaneous and accounting fees and deposits. For the
three quarters ended October 6, 1996, Colonial paid $5,716 in national and
$11,432 in local advertising fund contributions. In addition, for such period,
Colonial paid to the Company $7,031 in interest on its loan from the Company.
The Company believes that the terms of the 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-operated stores and certain
assets located in certain of those DMAs at net book value for an aggregate
purchase price of $11,523,682, pursuant to an asset sale agreement, and entered
into a franchise agreement with Noah's Pacific for each such store. The Company
realized no significant gain or loss on such sale. For the three quarters ended
October 6, 1996, Noah's Pacific paid to the Company an aggregate of $3,434,791
in development, franchise, royalty and miscellaneous fees and deposits. For the
three quarters ended October 6, 1996, Noah's Pacific paid to the Company
$273,821 in interest on its loan from the Company. The Company believes that the
terms of the 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.

46
<PAGE> 47

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-operated stores
and certain assets located in those DMAs at net book value for an aggregate
purchase price of $10,908,882, 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. For the three quarters ended
October 6, 1996, Noah's Bay Area paid to the Company an aggregate of $2,750,029
in development, franchise, royalty and miscellaneous fees and deposits. For the
three quarters ended October 6, 1996, Noah's Bay Area paid to the Company
$141,754 in interest on its loan from the Company. The Company believes that the
terms of the agreements entered into with Noah's Bay Area are as favorable to
the Company as terms of agreements that could be negotiated by the Company with
unrelated third parties.

Philly Rose, L.P. Effective July 15, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with Philly
Rose, L.P. ("Philly Rose") for the development of the Philadelphia DMA. Bagel
Funding is the majority equity owner of Philly Rose. In connection with the
execution of such agreements, the Company sold to Philly Rose the
Company-operated stores and certain assets located in such DMA at net book value
for an aggregate purchase price of $375,455, pursuant to an asset sale
agreement, and entered into a franchise agreement with Philly Rose for each such
store. The Company realized no significant gain or loss on such sale. For the
third quarter ended October 6, 1996, Philly Rose paid to the Company an
aggregate of $1,701,373 in development, franchise, royalty, real estate,
software license, software maintenance, miscellaneous and accounting fees and
deposits. For the third quarter ended October 6, 1996, Philly Rose paid $4,681
in national and $9,362 in local advertising fund contributions. In addition, for
such period, Philly Rose paid to the Company $18,343 in interest on its loan
from the Company. The Company believes that the terms of the agreements entered
into with Philly Rose are as favorable to the Company as terms of agreements
that could be negotiated by the Company with unrelated third parties.

Alamo Bagels, L.P. Effective October 7, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with Alamo
Bagels, L.P. ("Alamo Bagels") for the development of the Dallas/Ft. Worth,
Houston and Austin DMAs. Bagel Funding is the majority equity owner of Alamo
Bagels. In connection with the execution of such agreements, the Company sold to
Alamo Bagels the Company-operated stores and certain assets located in such DMAs
at net book value for an aggregate purchase price of $2,378,839, pursuant to an
asset sale agreement, and entered into a franchise agreement with Alamo Bagels
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
Alamo Bagels 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, Noah's Bay Area and Alamo Bagels are each represented by Pedersen &
Houpt, a law firm in which John Muehlstein, Jr., a director of the Company, is a
partner.

AREA DEVELOPER WARRANTS

On January 15, 1996, in connection with the formation of the Company's
prospective area developers, the Company issued to eleven such entities warrants
to acquire an aggregate of 1,237,050 shares of Common Stock of the Company, each
at an exercise price per share of $6.47. As of November 3, 1996, warrants to
purchase an aggregate of 902,475 shares of Common Stock had been exercised by
area developers as follows: BCE West -- 85,050 shares; Finest -- 77,175 shares;
Great Lakes -- 108,225 shares; Liberty -- 100,350 shares; Mayfair -- 77,175
shares; Noah's Pacific -- 168,750 shares; Colonial -- 100,350 shares; Philly
Rose -- 92,700 shares; and Gulfstream -- 92,700 shares. See "-- Interests in
Area Developers by Certain Persons."

47
<PAGE> 48

EMPLOYMENT AND CONSULTING AGREEMENTS

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

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

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

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

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 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. In August 1996, Mr.
Goldston became Vice Chairman of the Board and a director of 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

48
<PAGE> 49

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

BOWANA AVIATION, INC.

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

LOANS TO EXECUTIVE OFFICERS

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

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 advertising

49
<PAGE> 50

agency paid Quantum an aggregate of approximately $188,000. Through October
1996, Noah's advertising agency paid Quantum an aggregate of approximately
$855,000.

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."

50
<PAGE> 51

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 November 22, 1996. The
beneficial ownership reflected in the following table is calculated in
accordance with Section 13(d) of the Exchange Act. Unless otherwise indicated,
ownership includes sole voting and investment power. As of such date, there were
approximately 590 record holders of Common Stock.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
---------------------
NAMES(2) NUMBER PERCENT
---------------------------------------------------------- ---------- -------
<S> <C> <C>
Boston Chicken, Inc.(3)................................... 16,797,175 57.6%
Daniel V. Colangelo....................................... 188,147 *
Scott A. Beck(4).......................................... 131,651 *
Noah C. Alper(5).......................................... 97,098 *
Mark R. Goldston(6)....................................... 149,447 *
David G. Stanchak(7)...................................... 51,608 *
Kyle T. Craig............................................. 53,409 *
M. Laird Koldyke(8)....................................... 488,608 1.7%
Gail A. Lozoff(9)......................................... 554,892 1.9%
John H. Muehlstein, Jr.(10)............................... 786,692 2.7%
John A. Offerdahl(11)..................................... 1,017,842 3.5%
Lloyd D. Ruth(12)......................................... 249,968 *
All directors and executive officers as a group
(excluding Mr. Colangelo)(15 persons)(13)............... 3,813,791 13.1%
</TABLE>

- -------------------------
* Less than 1%.

(1) Includes shares subject to options granted by the Company to the following
persons which are exercisable within 60 days of November 22, 1996 as
follows: Mr. Colangelo -- 3,793; Mr. Stanchak -- 4,552; Mr. Craig -- 9,650;
Ms. Lozoff -- 3,793; Mr. Offerdahl -- 42,483; and all executive officers
and directors as a group -- 94,034.

(2) The address for each such person is 14123 Denver West Parkway, Golden,
Colorado 80401-4086.

(3) Includes 701,177 shares of Common Stock on which Boston Chicken has granted
options to purchase to certain individuals (including Mr. Goldston), of
which options to purchase 117,189 shares of Common Stock are exercisable
within 60 days of November 22, 1996. Excludes 510,246 shares previously
held by BCEF and shown as beneficially owned by Boston Chicken by virtue of
its position as manager of BCEF, which shares were distributed by BCEF to
its members.

(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. Includes 17,948
shares held by a limited partnership, of which Mr. Beck is the general
partner, and 55,432 shares subject to outstanding warrants of the Company.

(5) Represents 93,600 shares held by a trust, of which Mr. Alper is a trustee
and a beneficiary and 3,498 shares held by Mr. Alper's minor children. Mr.
Alper disclaims beneficial ownership of the shares held by his children.

(6) Includes 117,189 shares of Common Stock subject to options granted by
Boston Chicken which are exercisable within 60 days of November 22, 1996.

(7) Includes 7,313 shares subject to outstanding warrants of the Company.

51
<PAGE> 52

(8) Represents 488,608 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. LaSalle Street, Suite 3800, Chicago, Illinois
60603.

(9) Includes 546,850 shares of Common Stock held by B&B Holdings, Inc.
(formerly Bagel & Bagel), of which Ms. Lozoff's spouse is the sole
stockholder.

(10) Includes 780,551 shares of Common Stock held by Pedersen Bagel, of which
Mr. Muehlstein is a general partner, and 2,391 shares subject to
outstanding warrants of the Company. Pedersen Bagel's address is 161 N.
Clark St., Suite 3100, Chicago, Illinois 60601.

(11) Includes 932,876 shares of Common Stock held by OBG and 42,483 shares
beneficially owned by Mr. Offerdahl's spouse, which are subject to options
from the Company that were exercisable within 60 days of November 22, 1996.
OBG's address is 1801 Clint Moore Road, Suite 215, Boca Raton, Florida
33487.

(12) Includes 237,519 shares of Common Stock held by Marquette and 6,786 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. Also includes 1,913 shares subject to outstanding warrants of the
Company.

(13) Includes 72,731 shares subject to outstanding warrants of the Company.

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 (the "Income Test"). 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. However,
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. The Company also believes that, as of November 22, 1996, its five largest
individual stockholders do not own, directly or indirectly, more than 50% in
value of the outstanding Common Stock, although there can be no assurance that
the Stock Ownership Test will not be satisfied in any year.

52
<PAGE> 53

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 November 3, 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>
SHARES BENEFICIALLY
OWNED(1)(2)
--------------------
NAMES NUMBER PERCENT
- -------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Daniel V. Colangelo....................................................... 0 *
Scott A. Beck(3).......................................................... 6,261,287 9.8%
Noah C. Alper............................................................. 0 *
Mark R. Goldston.......................................................... 50,000 *
David G. Stanchak......................................................... 430,957 *
Kyle T. Craig............................................................. 56,576 *
M. Laird Koldyke.......................................................... 0 *
Gail A. Lozoff(4)......................................................... 291,177 *
John H. Muehlstein, Jr. .................................................. 5,000 *
John A. Offerdahl(5)...................................................... 77,589 *
Lloyd D. Ruth............................................................. 0 *
All directors and executive officers as a group (excluding Mr. Colangelo)
(15 persons)............................................................ 8,274,238 12.8%
</TABLE>

- -------------------------
* Less than 1%.

(1) Includes shares subject to options which are exercisable within 60 days of
November 3, 1996 as follows: Mr. Scott Beck -- 551,012; Mr. Craig -- 54,076;
Mr. Goldston -- 50,000; Mr. Stanchak -- 111,650; and all executive officers
and directors as a group (including such individuals) -- 924,250. 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) Excludes 311,110 shares gifted by Mr. Beck to a charitable foundation in
October 1996.

(4) Represents shares owned by B&B.

(5) Represents shares owned by OBG.

53
<PAGE> 54

RELATIONSHIP WITH BOSTON CHICKEN

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

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

LOAN AGREEMENT

On March 24, 1995, Boston Chicken made a senior secured convertible loan to
the Company, secured by substantially all of the Company's and its subsidiaries'
assets, pursuant to which the Company could draw on a line of credit through
March 1998, in order to provide partial funding for store development and
working capital. In February 1996, in connection with the Noah's acquisition,
Boston Chicken increased the amount available under the loan from $80.0 million
to $120.0 million. Also in February 1996, Boston Chicken provided a $25.0
million bridge loan to the Company (later increased to $40.0 million), which was
repaid by the Company upon the closing of the Company's secured revolving credit
facility. On May 9, 1996, Boston Chicken and the Company amended the convertible
loan agreement to include a $14.0 million non-convertible facility, which was
subsequently increased to $50.0 million. On June 17, 1996, pursuant to the terms
of the convertible loan agreement, Boston Chicken converted $80.0 million
outstanding under the loan into Common Stock at a conversion price of $6.38 per
share, and converted the remaining $40.0 million outstanding under the loan into
Common Stock at a conversion price of $14.42 per share. The Company issued an
aggregate of 15,307,421 shares of Common Stock in the Loan Conversion. As of
November 21, 1996, there was no balance outstanding under the non-convertible
loan facility. Interest on the non-convertible loan is based on the reference
rate of Bank of America Illinois plus 0.5%. Any borrowings outstanding under the
Company's non-convertible loan facility from Boston Chicken are payable on June
15, 2003. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 7 of Notes to the Company's Audited Consolidated
Financial Statements.

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 November 21, 1996, Boston Chicken had
issued to the Company, and the Company had sold on the Nasdaq National Market,
through Merrill Lynch acting as broker, 2,701,615 shares of registered Boston
Chicken common stock for aggregate proceeds of approximately $88.0 million.

In 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.

54
<PAGE> 55

CONCURRENT PRIVATE PLACEMENT AGREEMENT, REGISTRATION AGREEMENT AND CONCURRENT
OFFERING PURCHASE AGREEMENT

In connection with the Initial Public Offering and the Concurrent Public
Offering, the Company entered into the Concurrent Private Placement Agreement
with Boston Chicken, pursuant to which Boston Chicken purchased 2,000,000 shares
of Common Stock for $15.81 per share. The Concurrent Private Placement Agreement
includes customary terms and provisions, representations and warranties and
indemnification obligations. In addition, the Concurrent Private Placement
Agreement permits Boston Chicken to maintain ownership of shares of Common Stock
having up to 52% of the voting power of all of the outstanding shares of capital
stock of the Company having the power generally to vote in the election of
directors pursuant to an option (the "BCI Option") to purchase newly issued
shares of Common Stock for cash or registered shares of Boston Chicken common
stock at a per share exercise price equal to the (i) the weighted average price
per share at which the Common Stock was issued or sold in a transaction pursuant
to which the BCI Option becomes exercisable, in the case of a transaction in
which such price per share is readily ascertainable, or (ii) in all other cases,
the average of the closing sale prices for the Common Stock on the Nasdaq
National Market (or such other principal exchange or market on which the Common
Stock may then be trading) for the five trading days ending on the fifth trading
day prior to the date of the transaction pursuant to which the BCI Option
becomes exercisable, but subject in each case to adjustments for issuances of
shares of Common Stock in connection with recapitalizations, dividends, stock
splits, consolidations of shares and other diluting events. In the event payment
is made in registered shares of Boston Chicken common stock, Boston Chicken will
guarantee the price at which those shares can be sold at the market within a
limited time period. The BCI Option will terminate if (i) Boston 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. In determining the
percentage ownership of voting stock of the Company owned by Boston Chicken for
purposes of the BCI Option, the Concurrent Private Placement Agreement excludes
(i) 701,177 shares of Common Stock subject to options granted by Boston Chicken,
(ii) any shares of Common Stock held by officers, directors or employees of
Boston Chicken, and (iii) any shares of Common Stock held by any person or
entity that would not be counted under generally accepted accounting principles
in determining whether Boston Chicken owns a majority of the voting stock for
consolidated financial statement reporting purposes. As so calculated, Boston
Chicken will own approximately 51.6% of the voting stock of the Company upon
consummation of the Offerings (approximately 51.0% if the Underwriters'
over-allotment option is exercised in full), and, accordingly, will have the
right to purchase additional shares of Common Stock to maintain its ownership of
the voting stock of the Company at 52%, as so calculated. The Concurrent Private
Placement Agreement prohibits the Company from taking certain actions without
the consent of Boston Chicken as long as the BCI Option has not terminated,
including altering any rights attaching to the Common Stock, offering or issuing
any equity securities or debt securities convertible into equity securities, in
either case other than Common Stock, distributing assets or securities of the
Company having a fair market value in excess of 10% of the Company's
consolidated gross assets or consolidated gross revenues measured as of the
immediately preceding fiscal year end, and filing a petition in bankruptcy.

In connection with the Concurrent Private Placement Agreement, the Company
also entered into a registration agreement with Boston Chicken (the "Boston
Chicken Registration Agreement"), pursuant to which the Company granted to
Boston Chicken five demand and unlimited piggyback registration rights under the
Securities Act with respect to the shares of Common Stock purchased by Boston
Chicken in the Concurrent Private Placement or otherwise owned by it, including
shares of Common Stock subject to the BCI Option, for which the Company will
bear substantially all of the expenses in connection with such registrations
(other than underwriting discounts or commissions). The Boston Chicken
Registration Agree-

55
<PAGE> 56

ment supersedes the rights of Boston Chicken under the Stockholder Registration
Agreement. Boston Chicken's demand registration rights under the Boston Chicken
Registration Agreement became exercisable on September 27, 1996. 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. See
"Certain Transactions -- Registration Rights" and "Shares Eligible for Future
Sale."

Of the 3,000,000 shares offered hereby, Boston Chicken is being offered the
opportunity to purchase an aggregate of 500,000 shares of Common Stock in the
Concurrent Offering pursuant to the Concurrent Offering Purchase Agreement at a
price equal to the public offering price per share, net of underwriting
discount. Boston Chicken has informed the Company that it intends to purchase
the 500,000 shares offered to it in the Concurrent Offering. The consummation of
each of the Offerings is conditioned upon the consummation of the other
Offering. Boston Chicken has agreed not to sell shares of Common Stock purchased
in the Concurrent Offering for a period of at least 180 days after the date of
this Prospectus, without the consent of Merrill Lynch. See "Shares Eligible for
Future Sale." The Concurrent Offering Purchase Agreement includes customary
terms, representations, warranties and other provisions. The Concurrent Offering
Purchase Agreement also provides that the shares of Common Stock to be purchased
thereby by Boston Chicken will constitute Registrable Securities under the
Boston Chicken Registration Agreement. None of the members of the committee of
the board of directors who will negotiate the public offering price of the
Common Stock with the representatives of the Underwriters are officers or
directors of Boston Chicken nor were any of such members elected to the board of
directors as designees of Boston Chicken.

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

ASSIGNMENT AND REIMBURSEMENT AGREEMENT

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

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.

56
<PAGE> 57

In consideration for such assistance, the Company has agreed to pay to
Boston Chicken a base fee of $30,000 for each four-week accounting period, and
to cause each Entity (defined below) to pay a supplemental base fee of $4,500
for each accounting period for services to each area developer or business unit
of the Company (each such area developer or business unit being herein sometimes
referred to as an "Entity"), which fees may be increased cumulatively not more
than 10% per fiscal year by Boston Chicken. The Accounting and Administration
Services Agreement also provides for a per store fee, ranging from $850 per
four-week accounting period if the Company or Entity operates fewer than twelve
bagel stores, to $350 per four-week accounting period if the Company or Entity
operates more than 200 bagel stores (which range of per store fees may be
reduced to a range from $700 to $250 upon compliance with certain reporting
requirements, administrative procedure compliance requirements and timeliness
deadlines established by Boston Chicken). The Company has also agreed to
reimburse Boston Chicken for all non-ordinary, out-of-pocket expenses incurred
by Boston Chicken or its affiliates in connection with the Accounting and
Administration Services Agreement. All such expenses in excess of $50,000 must
be approved by the Company prior to being incurred. Pursuant to the Accounting
and Administration Services Agreement, the Company paid to Boston Chicken in
fiscal year 1995 and for the three quarters ended October 6, 1996, fees
aggregating $489,750 and $580,500, respectively.

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

FINANCIAL SERVICES AGREEMENT

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

REAL ESTATE SERVICES AGREEMENT

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

57
<PAGE> 58

for the three quarters ended October 6, 1996 fees aggregating $315,000. The Real
Estate Services Agreement was terminated effective as of June 17, 1996.

COMPUTER AND COMMUNICATIONS SYSTEMS SERVICES AGREEMENTS

On March 24, 1995, Boston Chicken and the Company entered into the Computer
Services Agreement, subsequently amended and restated in May 1996 and June 1996
to make certain changes to such agreement, pursuant to which (i) the Company has
agreed to acquire communications and computer systems or hardware specified or
required from time to time by Boston Chicken for use by the Company and its
subsidiaries and area developers (except for Noah's Pacific and Noah's Bay Area,
area developers of the Company operating Noah's New York Bagels stores, each of
which is subject to a separate agreement with Boston Chicken for computer
systems conversion and services as more fully described below), (ii) Boston
Chicken has licensed the Company to use retail store-level computer software
programs and certain other computer software programs in connection with various
support and control functions (which the Company has agreed to use exclusively,
along with other software specified by Boston Chicken), and (iii) Boston Chicken
has agreed to provide certain computer and communications support services. In
consideration for such license and provision of services, the Company has agreed
to pay, and to cause each of its subsidiaries and area developers to pay, to
Boston Chicken a one-time license fee of $15,000 per bagel store. In addition,
the Company agreed to pay fees aggregating $156,000 for certain real estate
software, fees aggregating $156,000 for certain Lotus Notes Database(R)
templates and fees aggregating $156,000 for certain structured report software.
In addition, the Company has agreed to pay to Boston Chicken, for data center
and network service operations and support of certain infrastructure programs,
$750,000 for each of the 1996, 1997 and 1998 fiscal years and 0.25% of net
systemwide revenue of the Company, its subsidiaries and its area developers
(excluding the revenue derived from Noah's New York Bagels stores) for each of
the 1999 and 2000 fiscal years. The Company has also agreed to pay, and to cause
each of its subsidiaries and area developers to pay, to Boston Chicken a
software maintenance and support service fee of $323 for each of Boston
Chicken's four-week accounting periods for each installed copy of certain
software licensed from Boston Chicken, which fee may be increased by Boston
Chicken at any time at its option. The Company has also agreed to compensate
Boston Chicken at hourly rates for performance of support services not otherwise
covered by the foregoing fees and to incur certain additional amounts as may be
needed to modify, enhance or replace computer or communications systems or
computer software, some of which amounts may be payable to Boston Chicken. The
Company has also agreed to reimburse Boston Chicken for certain costs and
expenses incurred by Boston Chicken in connection with the Computer Services
Agreement. Pursuant to the Computer Services Agreement, the Company, its
subsidiaries and area developers paid to Boston Chicken in fiscal year 1995 and
for the three quarters ended October 6, 1996, fees aggregating $234,823 and
$609,448, respectively.

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

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

58
<PAGE> 59

Boston Chicken's accounting periods in fiscal 1999 and 2000, an amount equal to
0.5% of the combined Royalty Base Revenue of all stores owned by Noah's Pacific,
Noah's Bay Area or their subsidiaries or affiliates which are operating during
any such accounting period.

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

OTHER RELATIONSHIPS BETWEEN BOSTON CHICKEN AND THE COMPANY

Pursuant to subscription agreements and certain other agreements entered
into upon the formation of the Company, the stockholders of the Company agreed
to vote their shares in favor of three persons designated by Boston Chicken as
directors of the Company. The Company currently has ten directors, including the
following persons who were originally 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, including options granted to executive officers of Boston Chicken as
follows: Mark W. Stephens, Vice Chairman of the Board and Chief Financial
Officer, 15,294 shares; Thomas R. Sprague, Executive Vice President, 15,294
shares; Donald J. Bingle, Vice President, General Counsel and Secretary, 10,195
shares; and Mark A. Link, Vice President -- Financial Reporting, 10,195 shares.

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

59
<PAGE> 60

including the rent payable thereunder, are at least as favorable to the Company
as those it could have obtained from an unaffiliated third party.

The Company is a party to two subleases with Boston Chicken, pursuant to
which the Company is entitled to the non-exclusive use of aircraft leased by
Boston Chicken from unaffiliated leasing companies. Under the subleases, the
Company is obligated to pay to Boston Chicken between $1,900 and $2,800
(depending on the type of aircraft) for each hour of flight time such aircraft
is used by the Company. There is no minimum monthly use requirement or lease
payment under either of the subleases, and both subleases may be terminated by
either party upon 30 days' written notice. The Company believes that costs
incurred by it under the subleases are lower than the costs it would incur to
lease and maintain its own aircraft from an unaffiliated third party lessor and
slightly higher than the costs it would incur to charter individual aircraft on
a spot-basis from unaffiliated third party lessors. However, the Company
believes that such higher costs are reasonably related to the benefits to the
Company from the subleases, including aircraft availability and higher
maintenance standards, that it would not realize from charter arrangements with
unaffiliated third party lessors. For the three quarters ended October 6, 1996,
the Company paid to Boston Chicken an aggregate of $275,456 under the two
subleases.

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

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200 million shares
of Common Stock, $.01 par value per share, and 20 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). At November 22, 1996,
the Company had 29,139,988 shares of Common Stock issued and outstanding. As of
such date, no shares of Preferred Stock were issued and outstanding. The
following description is a summary of the provisions of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"), and its
Amended and Restated Bylaws (the "Bylaws"), copies of which are exhibits to the
Registration Statement of which this Prospectus is a part. See "Risk Factors --
Anti-Takeover Effect of Charter and Statutory Provisions."

COMMON STOCK

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

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

60
<PAGE> 61

voting power of holders of Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of the Company.

As of November 22, 1996, no shares of Preferred Stock were outstanding and
the Company has no present plan to issue any shares of Preferred Stock.

TRANSFER AGENT

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

SHARES ELIGIBLE FOR FUTURE SALE

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.

At November 22, 1996, the Company had 29,139,988 shares of Common Stock
outstanding. The 3,105,000 shares of Common Stock sold in the Initial Public
Offering are freely tradeable (other than by an "affiliate" of the Company as
such term is defined in the Securities Act) without restriction or registration
under the Securities Act. The 425,000 shares of Common Stock sold in the
Concurrent Public Offering, although also freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act), are
subject to contractual lock-up arrangements restricting their sale prior to
August 1, 1997, without the consent of Merrill Lynch. An additional aggregate of
9,908,327 shares of Common Stock, which are currently issued and outstanding or
which are issuable pursuant to outstanding warrants granted by the Company, have
been registered by the Company under the Securities Act for resale pursuant to a
resale registration statement so that holders thereof may make resales of their
shares in the public market, subject to expiration of their respective lock-up
agreements described below. The holders of 6,971,820 of such shares have agreed
that they will not sell any of such shares prior to January 28, 1997, subject to
certain exceptions, without the consent of Merrill Lynch, the holders of 163,147
of such shares have agreed that they will not sell any of such shares prior to
March 6, 1997, the holders of 17,000 of such shares have agreed that they will
not sell any of such shares prior to August 1, 1997 and the holders of 1,372,135
of such shares (consisting of all officers and directors of the Company, who
hold an aggregate of 550,460 of such shares, and area developers of the Company
holding an aggregate of 821,675 of such shares) have agreed that they will not
sell any of such shares prior to August 1, 1998. Of the 1,384,225 shares of
Common Stock registered pursuant to the resale registration statement which are
not subject to lock-up arrangements, the Company believes that 221,017 of such
shares have already been sold in the public market. The 16,797,175 shares of
Common Stock currently owned by Boston Chicken were issued and sold by the
Company in private transactions ("Restricted Shares") and may not be resold
unless registered under the Securities Act or sold in accordance with an
exemption therefrom, such as Rule 144 or Rule 144A thereunder. The Company has
granted to Boston Chicken five demand and unlimited piggyback registration
rights under the Boston Chicken Registration Agreement with respect to the
16,797,175 shares of Common Stock currently owned by Boston Chicken. In
addition, the Concurrent Offering Purchase Agreement provides that the 500,000
shares of Common Stock to be purchased thereby by Boston Chicken will constitute
Registrable Securities under the Boston Chicken Registration Statement. Boston
Chicken has agreed, however, not to sell shares of Common Stock purchased in the
Concurrent Private Placement prior to August 1, 1997, without the consent of
Merrill Lynch. In addition, Boston Chicken has agreed with the representatives
of the Underwriters not to sell other shares owned by it (including the 500,000
shares to be purchased in the Concurrent Offering) for a period of at least 180
days from the date of this Prospectus, subject to certain exceptions, without
the consent of Merrill Lynch. See "Relationship with Boston -- Concurrent
Private Placement Agreement, Registration Agreement and Concurrent Offering
Purchase Agreement."

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

61
<PAGE> 62

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 Initial Public Offering of all or a portion of their shares to certain
"qualified institutional buyers" as defined in Rule 144A.

In connection with the Concurrent Private Placement, the Company entered
into the Boston Chicken Registration Agreement (which superseded Boston
Chicken's rights under the Stockholder Registration Agreement). Pursuant to the
Boston Chicken Registration Agreement, the Company granted to Boston Chicken
five demand and unlimited piggyback registration rights under the Securities Act
with respect to the shares of Common Stock owned by Boston Chicken, including
shares of Common Stock subject to the BCI Option, for which the Company will
bear substantially all of the expenses (other than underwriting discounts or
commissions). The demand registration rights became exercisable by Boston
Chicken on September 27, 1996. 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 Agreements,
Registration Agreement and Concurrent Offering Purchase Agreement."

The Company has registered under the Securities Act 5,295,195 shares of
Common Stock issuable under the Plan and the Directors Plan. Of such number of
shares, 3,516,283 shares were subject to outstanding options as of November 3,
1996, of which options to purchase an aggregate of 325,513 shares were vested
and exercisable. All shares purchased in the future under such plans will be
available for resale in the public market without restriction, except that
affiliates must comply with the provisions of Rule 144 other than the two-year
holding period requirement described above. In addition, the Company may file a
registration statement covering shares of Common Stock for issuance from time to
time in connection with potential future acquisitions and resales thereof by the
recipients, although no such acquisitions are currently pending. Shares so
registered could not be sold in the public market prior to 180 days from the
date of this Prospectus, subject to certain exceptions, without the consent of
Merrill Lynch.

62
<PAGE> 63

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, Montgomery Securities and
Morgan Stanley & Co. Incorporated are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company the
respective number of shares of Common Stock set forth opposite its name below at
the 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
UNDERWRITER OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 456,250
Alex. Brown & Sons Incorporated.................................... 456,250
Montgomery Securities.............................................. 456,250
Morgan Stanley & Co. Incorporated.................................. 456,250
Dean Witter Reynolds Inc. ......................................... 50,000
Lehman Brothers Inc. .............................................. 50,000
PaineWebber Incorporated........................................... 50,000
Piper Jaffray Inc. ................................................ 50,000
Salomon Brothers Inc .............................................. 50,000
Schroder Wertheim & Co. Incorporated............................... 50,000
Smith Barney Inc. ................................................. 50,000
William Blair & Company, L.L.C. ................................... 50,000
George K. Baum & Company........................................... 25,000
EVEREN Securities, Inc. ........................................... 25,000
Forum Capital Markets L. P. ....................................... 25,000
Hanifen, Imhoff Inc. .............................................. 25,000
Janney Montgomery Scott Inc. ...................................... 25,000
Legg Mason Wood Walker, Incorporated............................... 25,000
Mesirow Financial, Inc. ........................................... 25,000
Needham & Company, Inc. ........................................... 25,000
Nesbitt Burns Securities Inc. ..................................... 25,000
Ragen MacKenzie Incorporated....................................... 25,000
Rodman & Renshaw, Inc. ............................................ 25,000
---------
Total................................................. 2,500,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public 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 $.80 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.10 per share to certain other dealers. After the
offering contemplated hereby, the offering price and other selling terms may be
changed by the Representatives.

The obligations of the several Underwriters to pay for and accept delivery
of the shares of Common Stock offered hereby 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 hereby
(other than the shares of Common Stock covered by the over-allotment option
described below) if any are taken.

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 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less the underwriting discount. The Underwriters may

63
<PAGE> 64

exercise such option only to cover over-allotments, if any, made in connection
with the sale of Common Stock offered hereby. 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 2,500,000 shares of Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 2,500,000 shares are being offered.

In connection with the Public Offering, certain Underwriters or their
respective affiliates and selling group members (if any) who are qualified
market makers on the Nasdaq National Market may engage in "passive market
making" in the Common Stock on the Nasdaq National Market in accordance with
Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction
of certain conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq National Market market makers in the security
being distributed to engage in limited market making transactions during the
period when Rule 10b-6 under the Exchange Act would otherwise prohibit such
activity. Rule 10b-6A prohibits underwriters and selling group members engaged
in passive market making generally from entering a bid or effecting a purchase
at a price that exceeds the highest bid for those securities displayed on the
Nasdaq National Market by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.

The Company and 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 at least 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 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. See "Shares
Eligible for Future Sale."

Charles A. Lewis, Vice Chairman -- Investment Banking of Merrill Lynch &
Co. and his family beneficially own 364,272 shares of Common Stock.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby are being 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 shares of Common Stock offered hereby.

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

64
<PAGE> 65

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.

AVAILABLE INFORMATION

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

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

65
<PAGE> 66

(This page intentionally left blank)
<PAGE> 67

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Report of Independent Public Accountants............................................. F-3
Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1995.................................... F-4
Consolidated Statement of Operations for the period from March 24, 1995 (inception)
through December 31, 1995....................................................... F-5
Consolidated Statement of Stockholders' Deficit for the period from March 24, 1995
(inception) through December 31, 1995........................................... F-6
Consolidated Statement of Cash Flows for the period from March 24, 1995 (inception)
through December 31, 1995....................................................... F-7
Notes to Audited Consolidated Financial Statements................................. F-8
Consolidated Balance Sheets at December 31, 1995 and October 6, 1996 (unaudited)... F-19
Consolidated Statements of Operations for the quarter ended October 1, 1995, the
period from March 24, 1995 (inception) through October 1, 1995, and for the
quarter and three quarters ended October 6, 1996 (unaudited).................... F-20
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 (unaudited)................................................................ F-21
Notes to Unaudited Consolidated Financial Statements............................... F-22
NOAH'S NEW YORK BAGELS, INC.
Independent Auditors' Report......................................................... F-26
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and December 30, 1995............. F-27
Consolidated Statements of Operations for the fiscal years ended December 31, 1993,
December 31, 1994 and December 30, 1995......................................... F-28
Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal years
ended December 31, 1993, December 31, 1994 and December 30, 1995................ F-29
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1993,
December 31, 1994 and December 30, 1995......................................... F-30
Notes to Audited Consolidated Financial Statements................................. F-31
BAGEL & BAGEL, INC.
Report of Independent Public Accountants............................................. F-37
Financial Statements:
Statements of Operations for the fiscal year ended December 27, 1994 and for the
period from December 28, 1994 through March 23, 1995............................ F-38
Statements of Cash Flows for the fiscal year ended December 27, 1994 and for the
period from December 28, 1994 through March 23, 1995............................ F-39
Notes to Audited Financial Statements.............................................. F-40
</TABLE>

F-1
<PAGE> 68

<TABLE>
<S> <C>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
Report of Independent Public Accountants............................................. F-42
Combined Financial Statements:
Combined Statements of Operations for the fiscal years ended December 31, 1993 and
December 31, 1994 and for the period from January 1, 1995 through April 2,
1995............................................................................ F-43
Combined Statements of Cash Flows for the fiscal years ended December 31, 1993 and
December 31, 1994 and for the period from January 1, 1995 through April 2,
1995............................................................................ F-44
Notes to Audited Combined Financial Statements..................................... F-45
BALTIMORE BAGEL CO.
Report of Independent Public Accountants............................................. F-47
Financial Statements:
Statements of Operations for the years ended December 31, 1993 and 1994 and for the
period from January 1, 1995 through August 10, 1995............................. F-48
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-49
Notes to Financial Statements...................................................... F-50
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information of Einstein/Noah Bagel
Corp. ............................................................................. F-51
Unaudited Pro Forma Consolidated Statement of Operations for the fiscal year ended
December 31, 1995.................................................................. F-52
Unaudited Pro Forma Consolidated Statement of Operations for the three quarters ended
October 6, 1996.................................................................... F-53
Notes to Unaudited Pro Forma Consolidated Financial Statements....................... F-54
</TABLE>

F-2
<PAGE> 69

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> 70

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 5,368
Accounts receivable........................................................... 1,327
Inventory..................................................................... 883
Deposits...................................................................... 1,492
Prepaid expenses and other current assets..................................... 217
--------
Total current assets..................................................... 9,287
Property and Equipment, net..................................................... 19,410
Notes Receivable................................................................ 7,267
Excess of Purchase Price Over Fair Value of Net Assets Acquired, net............ 13,715
Other Assets, net............................................................... 620
--------
Total assets............................................................. $ 50,299
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
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> 71

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

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

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

F-5
<PAGE> 72

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> 73

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> 74

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.

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

F-8
<PAGE> 75

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment if necessary, of long-lived assets and certain identifiable
intangibles to be held and used by an entity.

Excess Purchase Price Over Fair Value of Identifiable Net Assets Acquired

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

Revenue Recognition

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

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

Per Share Data

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

Stock Options

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

Employee Benefit Plan

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

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the

F-9
<PAGE> 76

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

3. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA

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

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

4. ACQUISITIONS

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

F-10
<PAGE> 77

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

royalty savings methodology which determines the present value of the stream of
royalties which the Company believes an independent third party would be willing
to pay to obtain the use of such trademarks and recipes. The estimated useful
life for these assets was based upon various factors which existed at the time
of the acquisitions, including the anticipated periods of benefit to be derived
from the utilization of such assets in connection with executing a regional
brand business strategy, increasing consumer demand for bagel products, the lack
of a competitor with national brand awareness, the lack of regulatory
limitations on the potential useful lives of such assets, the absence of any
inherent or technological obsolescence for such assets, and in the case of
trademarks, the long-lived nature of a primary brand name in the consumer
marketplace. Subsequent to these acquisitions, management launched a development
project which resulted in the development of the Einstein Bros. Bagels brand and
store, at which time management determined it would discontinue the use of the
acquired trademarks and recipes. Consequently, this change in business strategy
resulted in an impairment of these identifiable intangible assets, and
accordingly, the assets were written down to their fair market values, resulting
in a write-off of $26.6 million (see Note 13). The financial statements include
the results of operations for the acquired entities from their dates of
acquisition.

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

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

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

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Cash and Cash Equivalents

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

Notes Receivable

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

Convertible Debt

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

Common Stock Subject to Repurchase

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

F-11
<PAGE> 78

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 FAIR
AMOUNT 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>

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

F-12
<PAGE> 79

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

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

F-13
<PAGE> 80

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

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

F-14
<PAGE> 81

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 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 predetermined 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.

F-15
<PAGE> 82

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(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>

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

F-16
<PAGE> 83

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

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
SHARES PER 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.

F-17
<PAGE> 84

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED

In connection with, and as a result of, the development of the Einstein Bros.
Bagels brand and store, management determined to discontinue the use of the
identifiable intangible assets acquired in the acquisitions of the Founding
Companies, including trademarks and recipes. Consequently, this change in
business strategy resulted in an impairment of these identifiable intangible
assets, and accordingly, the assets were written down to their fair market
values resulting in a write-off of $26.6 million.

14. RELATED-PARTY TRANSACTIONS

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

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

The Company has entered into secured loan and area developer agreements
with certain area developers in which certain directors and officers and members
of their families have a direct or indirect equity interest. The 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> 85

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 6,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
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.

F-19
<PAGE> 86

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
QUARTER ENDED PERIOD FROM THREE
----------------------- MARCH 24, 1995 QUARTERS
OCTOBER (INCEPTION) ENDED
1, OCTOBER 6, THROUGH OCTOBER 6,
1995 1996 OCTOBER 1, 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 income (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.

F-20
<PAGE> 87

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.

F-21
<PAGE> 88

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 is included in its
1995 audited consolidated financial statements included in the prospectus that
forms a part of the Company's Registration Statement on Form S-1 (Reg. No.
333-12395). 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>
<S> <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.

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

F-22
<PAGE> 89

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

developer's equity capital. Upon expiration of the draw period, the loan
converts to an amortizing term loan payable over five years in periodic
installments, with a final balloon payment. Interest is set at 1% over the
applicable reference rate of Bank of America Illinois as established from time
to time and is payable each four-week period. The loan is secured by a pledge of
substantially all of the assets of the area developer.

(A) Loan Conversion Option

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

(B) Commitments to Extend Area Developer Financing

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

<TABLE>
<CAPTION>
OCTOBER 6,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
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>

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.

F-23
<PAGE> 90

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

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

4. DEBT

In May 1996, the Company entered into a secured revolving credit facility
providing for borrowings of up to $45.0 million through April 30, 1998.
Borrowings under the facility may be either floating rate loans with interest at
the lender's base rate plus .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 public
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.

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>
QUARTER ENDED PERIOD FROM THREE QUARTERS
------------------------ MARCH 24, 1995 ENDED
OCTOBER 1, OCTOBER 6, (INCEPTION) THROUGH OCTOBER 6,
1995 1996 OCTOBER 1, 1995 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>

F-24
<PAGE> 91

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

F-25
<PAGE> 92

INDEPENDENT AUDITORS' REPORT

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

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

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

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

DELOITTE & TOUCHE LLP

San Francisco, California
May 7, 1996

F-26
<PAGE> 93

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

See notes to consolidated financial statements.

F-27
<PAGE> 94

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
(IN THOUSANDS)

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

See notes to consolidated financial statements.

F-28
<PAGE> 95

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 Compensation.... -- -- -- 19 19
Net Loss................................. -- -- (840) -- (840)
---------- ----- ------- ----- -------
Balance at December 30, 1995............. 5,365,197 $ 858 $(1,566) $ (971) $(1,679)
========== ===== ======= ===== =======
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE> 96

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
(IN THOUSANDS)

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

See notes to consolidated financial statements.

F-30
<PAGE> 97

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.

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.

F-31
<PAGE> 98

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

2. PROPERTY AND EQUIPMENT

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

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

3. BANK LINE OF CREDIT

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

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

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

Minimum principal payments are as follows (in thousands):

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

F-32
<PAGE> 99

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

4. NOTES PAYABLE TO RELATED PARTIES

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

5. INCOME TAXES

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

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

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

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

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

F-33
<PAGE> 100

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

F-34
<PAGE> 101

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

7. STOCK OPTION PLANS

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

A summary of stock option transactions follows:

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

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

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

8. LEASES

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

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

F-35
<PAGE> 102

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The aggregate future minimum lease payments under all non-cancelable lease
agreements are as follows (in thousands):

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

9. SUBSEQUENT EVENT

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

F-36
<PAGE> 103

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

MAYER HOFFMAN McCANN L.C.

Kansas City, Missouri
April 26, 1996

F-37
<PAGE> 104

BAGEL & BAGEL, INC.

STATEMENTS OF OPERATIONS

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

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

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

F-38
<PAGE> 105

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

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

F-39
<PAGE> 106

BAGEL & BAGEL, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

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

Property and Equipment

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

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

Expenditures for maintenance and repairs are expensed as incurred.

Revenue Recognition

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

Income Taxes

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

Estimates

Reclassification

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

3. COMMITMENTS AND CONTINGENCIES

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

On December 13, 1994, the Company suffered a fire at one of its retail
locations, resulting in the involuntary conversion of the equipment, inventory
and leasehold improvements therein. The Company retains insurance coverage at
the replacement value which is deemed to be in excess of the net book value of
the

F-40
<PAGE> 107

BAGEL & BAGEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

4. RELATED-PARTY TRANSACTIONS

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

5. SALE OF ASSETS

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

F-41
<PAGE> 108

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

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

ARTHUR ANDERSEN LLP

Denver, Colorado
April 24, 1996

F-42
<PAGE> 109

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

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

F-43
<PAGE> 110

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

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

F-44
<PAGE> 111

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:

Leasehold improvements...........10-15 years

Furniture, fixtures, and equipment.......5-7
years

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

F-45
<PAGE> 112

OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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-46
<PAGE> 113

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

ARTHUR ANDERSEN LLP

Denver, Colorado
April 24, 1996

F-47
<PAGE> 114

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-48
<PAGE> 115

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-49
<PAGE> 116

BALTIMORE BAGEL CO.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

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

Property and Equipment

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

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

Expenditures for maintenance and repairs are expensed as incurred.

Revenue Recognition

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

Income Taxes

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

Employee Benefit Plan

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

Estimates

3. COMMITMENTS

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

4. RELATED-PARTY TRANSACTIONS

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

5. SALE OF ASSETS

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

F-50
<PAGE> 117

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 three quarters ended October 6, 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-51
<PAGE> 118

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 BAGEL & OFFERDAHL'S
EINSTEIN/NOAH BAGELS, BAGEL, BALTIMORE BAGEL
BAGEL CORP. INC. INC. BAGEL CO. GOURMET, INC.
(HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL)
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Company-operated stores................... $ 25,685 $ 32,323 $1,887 $5,760 $ 1,712
Royalties and franchise-related fees...... 738 -- -- -- --
--------- -------- ------ ------ -------
26,423 32,323 1,887 5,760 1,712
Costs and Expenses:
Cost of products sold..................... 8,239 12,118 736 1,857 1,010
Salaries and benefits..................... 13,531 12,388 535 2,034 777
General and administrative................ 21,230 8,561 653 1,615 228
Write-off of intangible assets............ 26,575 -- -- -- --
--------- -------- ------ ------ -------
Total costs and expenses.................... 69,575 33,067 1,924 5,506 2,015
--------- -------- ------ ------ -------
Income (Loss) from Operations............... (43,152) (744) (37) 254 (303)
Other Income (Expense):
Interest income (expense), net.............. (1,281) (79) (79) 3 (6)
Other income (expense), net................. 717 (17) (14) (21) --
--------- -------- ------ ------ -------
Total other expense................ (564) (96) (93) (18) (6)
Income (Loss) Before Income Taxes........... (43,716) (840) (130) 236 (309)
Provision for Income Taxes.................. -- -- -- -- --
--------- -------- ------ ------ -------
Net Income (Loss)........................... $ (43,716) $ (840) $ (130) $ 236 $ (309)
========= ======== ====== ====== =======
Net Loss Per Common and Equivalent Share.... $ (4.54)
=========
Weighted Average Number of Common and
Equivalent Shares Outstanding............. $ 9,659
=========

BRACKMAN
BROTHERS,
INC. PRO FORMA UNAUDITED
(HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ----------- ---------
<S> <C> <C> <C>
Revenue:
Company-operated stores................... $2,283 $ 69,650
Royalties and franchise-related fees...... -- 738
------ ---------
2,283 70,388
Costs and Expenses:
Cost of products sold..................... 1,125 25,085
Salaries and benefits..................... 282 29,547
General and administrative................ 497 2,766(1) 35,550
Write-off of intangible assets............ -- 26,575
------ ---------
Total costs and expenses.................... 1,904 116,757
------ ---------
Income (Loss) from Operations............... 379 (46,369)
Other Income (Expense):
Interest income (expense), net.............. -- (9,090)(2) (10,532)
Other income (expense), net................. -- 665
------ ---------
Total other expense................ -- (9,867)
Income (Loss) Before Income Taxes........... 379 (56,236)
Provision for Income Taxes.................. 98 98(3) --
------ ---------
Net Income (Loss)........................... $ 281 $ (56,236)
====== =========
Net Loss Per Common and Equivalent Share.... $ (5.82)
=========
Weighted Average Number of Common and
Equivalent Shares Outstanding............. $ 9,679(4)
=========
</TABLE>

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

F-52
<PAGE> 119

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE QUARTERS ENDED OCTOBER 6, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NOAH'S
NEW YORK
EINSTEIN/NOAH BAGELS,
BAGEL CORP. INC. PRO FORMA UNAUDITED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Company-operated stores...................... $33,810 $3,304 $37,114
Royalties and franchise-related fees......... 17,032 -- 17,032
------- ------ -------
50,842 3,304 54,146
Costs and Expenses:
Cost of products sold........................ 10,871 1,118 11,989
Salaries and benefits(5)..................... 16,286 2,361 18,647
General and administrative................... 18,417 795 213(1) 19,425
------- ------ -------
Total costs and expenses.................. 45,574 4,274 50,061
------- ------ -------
Income (Loss) from Operations.................. 5,268 (970) 4,085
Other Income (Expense):
Interest expense, net........................ (6,266) (4) (699)(2) (6,969)
Other income, net............................ 1,929 4 1,933
------- ------ -------
Total other expense....................... (4,337) -- (5,036)
------- ------ -------
Net Income (Loss).............................. $ 931 $ (970) $ (951)
======= ====== =======
Net Income (Loss) Per Common and Equivalent
Share........................................ $ 0.04 $ (0.06)
======= =======
Weighted Average Number of Common and
Equivalent Shares Outstanding................ 19,225 19,225
======= =======
</TABLE>

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

F-53
<PAGE> 120

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

F-54
<PAGE> 121

[PICTURE OF EINSTEIN BROS. BAGELS]

[PICTURE OF EINSTEIN BROS. BAGEL SANDWICHES]

[PICTURE OF NOAH'S BAGELS]

[PICTURE OF COFFEE CUPS]
<PAGE> 122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION 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
OFFERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Special Note Regarding Forward-Looking
Statements............................... 7
The Company................................ 7
Risk Factors............................... 9
Concurrent Offering........................ 14
Use of Proceeds............................ 14
Price Range of Common Stock................ 15
Capitalization............................. 15
Dividend Policy............................ 15
Selected Historical and Pro Forma
Consolidated Financial and Store Data.... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 23
Management................................. 36
Certain Transactions....................... 41
Principal Stockholders and Securities
Ownership of Management.................. 51
Relationship with Boston Chicken........... 54
Description of Capital Stock............... 60
Shares Eligible for Future Sale............ 61
Underwriting............................... 63
Legal Matters.............................. 64
Experts.................................... 64
Available Information...................... 65
Index to Financial Statements.............. F-1
</TABLE>

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

3,000,000 SHARES

LOGO

COMMON STOCK

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

P R O S P E C T U S

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

MERRILL LYNCH & CO.

ALEX. BROWN & SONS
INCORPORATED

MONTGOMERY SECURITIES

MORGAN STANLEY & CO.
INCORPORATED
November 26, 1996

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