EINSTEIN NOAH BAGEL CORP, POS AM, 1997-06-11

EINSTEIN NOAH BAGEL CORP
POS AM, 1997-06-11
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1997

REGISTRATION NO. 333-12395

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EINSTEIN/NOAH BAGEL CORP.
(Exact name of Registrant as specified in its charter)

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DELAWARE 5812 84-1294908
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

14123 DENVER WEST PARKWAY; P.O. BOX 4086
GOLDEN, COLORADO 80401
TELEPHONE (303) 215-9300
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

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JOEL M. ALAM
SENIOR VICE PRESIDENT AND SECRETARY
EINSTEIN/NOAH BAGEL CORP.
14123 DENVER WEST PARKWAY; P.O. BOX 4086
GOLDEN, COLORADO 80401
TELEPHONE (303) 215-9300
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)

Copies to:

KEVIN J. MCCARTHY
BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
TELEPHONE: (312) 372-1121

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AMENDING THE PROSPECTUS AND FILING CERTAIN EXHIBITS.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED JUNE 11, 1997

PROSPECTUS

5,158,286 SHARES

[EINSTEIN LOGO]

COMMON STOCK

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

This Prospectus covers 5,158,286 shares (the "Shares") of common stock, par
value $.01 (the "Common Stock"), of Einstein/Noah Bagel Corp. (the "Company")
which may be offered and sold from time to time for the account of the persons
who are identified herein under the heading "Registering Stockholders" and any
other person who obtains the right to sell the Shares hereunder (the
"Registering Stockholders"). The Shares are being registered hereunder to
simplify resale thereof if and when a Registering Stockholder determines to sell
Shares from time to time and not because of any expressed intent to immediately
sell such Shares. See "Registering Stockholders" and "Plan of Distribution." The
Company will receive no part of the proceeds of any sales of the Shares.

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

The Common Stock is traded on the Nasdaq National Market under the symbol
"ENBX". On June 6, 1997, the closing sale price of the Common Stock, as reported
in The Wall Street Journal (Western Edition), was $14 7/8 per share. See "Price
Range of Common Stock."

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SEE "RISK FACTORS" AT PAGE 5 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.

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The date of this Prospectus is , 1997.

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TABLE OF CONTENTS

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PAGE
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Available Information................... 2
Prospectus Summary...................... 3
Special Note Regarding Forward-Looking
Statements............................ 5
Risk Factors............................ 5
Price Range of Common Stock and Dividend
Policy................................ 10
Business................................ 11
Selected Consolidated Financial and
Store Data............................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Management.............................. 28
Principal Stockholders and Securities
Ownership of Management............... 30
Executive Compensation.................. 33
Certain Transactions.................... 35
Relationship with Boston Chicken........ 42
Description of Capital Stock............ 46
Registering Stockholders................ 49
Plan of Distribution.................... 56
Experts................................. 56
Index to Financial Statements........... F-1
</TABLE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, 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 material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.

The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act, in
respect of the securities offered hereby. For purposes hereof, the term
"Registration Statement" means the initial Registration Statement and any and
all amendments thereto. This Prospectus omits certain information contained in
the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of any
contract or other document are not necessarily complete, 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.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements of the Company and Notes
thereto included herein. References in this Prospectus to the "Company" mean the
Company, its predecessors, and its and their subsidiaries from time to time,
unless the context otherwise requires. Einstein Bros.(TM) and Noah's New York
Bagels(R) are trademarks owned by Einstein/Noah Bagel Corp.

THE COMPANY

The Company franchises specialty retail stores that feature fresh-baked
bagels, proprietary cream cheeses, specialty coffees and teas, and creative
soups, salads and bagel sandwiches, primarily under the Einstein Bros. Bagels
and Noah's New York Bagels brand names. As of April 21, 1997, there were 420
stores in operation systemwide, all of which 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 at a premium over the price per unit paid by the investors in the
area developer for their equity investments. As of April 21, 1997, the Company
had entered into area development agreements that provide for the development of
1,047 additional stores, the majority of which are scheduled to open over the
next three years. The Company estimates that there will be between 615 and 665
stores in operation systemwide by the end of 1997. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 5.

The Company has two principal brands. The Einstein Bros. Bagels brand was
developed by the Company after it was formed in March 1995. The Noah's New York
Bagels brand, which was acquired when the Company acquired Noah's New York
Bagels, Inc. ("Noah's") in February 1996, was originally introduced in 1989 in
Berkeley, California. As of April 21, 1997, there were 283 Einstein Bros. Bagels
stores in 28 states and the District of Columbia, and 102 Noah's New York Bagels
stores in California, Washington and Oregon.

The key component of the Company's product strategy is its offering of
fresh-baked bagels, produced utilizing proprietary processes that allow for
maximum inclusion of high quality ingredients, such as whole blueberries,
raisins and nuts. Bagels are offered in a wide variety of both traditional and
creative flavors and are baked fresh throughout the day in each Einstein Bros.
Bagels and Noah's New York Bagels store using steamed-baking processes.

The Company was incorporated in Delaware in February 1995 under the name
Progressive Bagel Concepts, Inc. The Company's name was subsequently changed to
Einstein/Noah Bagel Corp. in June 1996. The Company's principal executive
offices are located at 14123 Denver West Parkway, Golden, Colorado, and its
telephone number is (303) 215-9300.

RISK FACTORS

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

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SUMMARY CONSOLIDATED FINANCIAL AND STORE DATA

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

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PERIOD FROM
MARCH 24, 1995 QUARTERS ENDED(1)
(INCEPTION) THROUGH FISCAL YEAR ENDED -------------------------------
DECEMBER 31, 1995 DECEMBER 29, 1996(1) APRIL 21, 1996 APRIL 20, 1997
------------------- -------------------- -------------- --------------
(UNAUDITED)
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenue................... $ 26,423 $ 61,707 $22,379 $16,728
Income (loss) from operations... (43,152)(2) 10,039 (1,270) 7,232
Net income (loss)............... (43,716) 5,707 (3,317) 5,178
Net income (loss) per common
and equivalent share....... $ (4.54) $ 0.25 $ (0.35) $ 0.15
Weighted average number of
common and equivalent
shares outstanding during
the period................. 9,659 22,344 9,679 34,962
======== ======== ======= =======
STORE DATA (UNAUDITED):
Systemwide revenue(3)........... $ 26,986 $145,631 $29,764 $84,469
======== ======== ======= =======
Number of stores:
Beginning of period........... -- 60 60 315
Opened or acquired............ 60 266 85 105
Closed(4)..................... -- (11) (7) --
-------- -------- ------- -------
End of period................. 60 315 138 420
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Company stores................ 47 14 61 0
Area developer stores......... 13 301 77 420
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APRIL 20, 1997
--------------------------------
DECEMBER 29, 1996 ACTUAL AS ADJUSTED(5)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital....................... $ 46,421 $ (1,322) $115,878
Notes receivable...................... 146,087 216,999 216,999
Total assets.......................... 332,418 357,352 474,552
Long-term debt........................ -- 7,800 125,000
Stockholders' equity.................. $315,517 $329,849 $329,849
</TABLE>

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(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 four-week periods and each of the remaining quarters
consists of three four-week periods.

(2) Includes a $26,575,000 write-off of intangible assets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

(3) Includes gross revenue for all stores in the Einstein/Noah Bagel Corp.
system.

(4) Such stores were closed because the sites were determined to be unsuitable
for the Einstein Bros. Bagels brand and store. Costs associated with such
closings were expensed by the owners of such stores.

(5) Adjusted to give effect to the issuance by the Company of its 7 1/4%
Convertible Subordinated Debentures due 2004.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS PROSPECTUS UNDER "BUSINESS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND
ELSEWHERE IN THIS PROSPECTUS, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM
ACT"). SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY, ITS AREA DEVELOPERS, AND EINSTEIN BROS.(TM)
BAGELS AND NOAH'S NEW YORK BAGELS(R) 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; DEVELOPMENT AND OPERATING COSTS;
AREA DEVELOPERS' ADHERENCE TO DEVELOPMENT SCHEDULES; ADVERTISING AND PROMOTIONAL
EFFORTS; BRAND AWARENESS; THE COMPANY'S RELATIONSHIPS WITH, AND THE CONTINUED
SUCCESS OF, BOSTON CHICKEN, INC. ("BOSTON CHICKEN"), THE COMPANY'S MAJORITY
STOCKHOLDER; ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT OFFERINGS;
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 REGULATION; 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.

RISK FACTORS

In evaluating an investment in the securities offered hereby, prospective
investors should carefully consider the following factors in addition to the
other information contained in this Prospectus.

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 April
21, 1997, there were 420 stores in operation systemwide, all of which were
operated by area developers financed in part by the Company. Of such stores, 286
have been open for less than one year and an additional 77 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" and 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. 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."

RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY

Food service businesses are often affected by changes in consumer tastes,
national, regional, and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
product and the type, number, and location of competing restaurants. Multi-unit
food service

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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. Dependence on frequent deliveries of produce and supplies also
subjects food service businesses such as the Company to the risk that shortages
or interruptions in supply caused by adverse weather or other conditions could
adversely affect the availability, quality, and cost of ingredients. In
addition, material changes in, or the Company's failure to comply with,
applicable federal, state, and local government regulations, and factors such as
inflation, increased food, labor, and employee benefits costs, regional weather
conditions, and unavailability of an adequate number of experienced managers and
hourly employees may also adversely affect the food service industry in general
and the Company's and its area developers' results of operations and financial
conditions in particular.

EXPANSION/DEPENDENCE ON AREA DEVELOPERS

As of April 21, 1997, there were 420 stores in operation systemwide. The
Company has entered into area development agreements that provide for the
opening of 1,047 additional stores, the majority of which are scheduled to open
over the next three years. There can be no assurance that the Company and its
area developers will be able to achieve these goals, manage expanding operations
effectively, or maintain or accelerate growth. The Company has extended secured
debt financing to its area developers pursuant to which the Company has agreed
to lend an aggregate of approximately $359.9 million, of which approximately
$211.7 million had been advanced as of April 20, 1997. These loans subject the
Company to the risks of being a secured lender, including those risks relating
to borrower delinquency and default and the adequacy of the collateral for such
loans. See "-- Need for Additional Capital," "Business -- Area Developers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

The Company's success is dependent to a significant extent upon its area
developers and the manner in which they develop and operate their stores and
manage their organizational and financial resources. 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. The financial resources required by the
Company's area developers to comply with their area development agreements are
dependent upon, among other things, the number and cost of stores developed and
store operating results. The cost to develop a store typically ranges from
between $240,000 and $625,000. The area developers are expected to finance their
capital requirements through borrowings from the Company, equity, debt and lease
financing from third parties and internally generated funds. There can be no
assurance that area developers will have access to financial resources necessary
to open the number of stores required by their development schedules or will
successfully develop or operate stores in their development areas in a manner
consistent with the Company's concepts and standards. See "Business -- Area
Developers." Because the amount of additional financing that the Company may
provide to area developers depends on the amount of funds internally generated
by the area developers, the amount of additional equity, debt and lease
financing to be obtained by the area developers from other parties and the cost
of stores developed, the Company has not determined, nor is it able at present
to reasonably estimate, any amount of additional financing that it may commit to
such area developers. As of April 20, 1997, the Company had committed to lend
the area developers an additional $148.2 million.

NEED FOR ADDITIONAL CAPITAL

The Company anticipates that it will have a continuing need for additional
capital to accomplish its and its area developers' expansion goals. There can be
no assurance that the Company will be able to raise such capital on satisfactory
terms when needed. To the extent such capital is obtained through the incurrence
of

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indebtedness by the Company, the terms of the Debentures do not restrict such
indebtedness from being secured by any or all of the Company's assets or ranking
senior in right of payment to the Debentures. Substantially all of the Company's
assets are currently pledged to secure indebtedness of the Company. See Note 7
of Notes to Audited Consolidated Financial Statements. In addition, the Company
currently offers loans to its area developers under loan agreements pursuant to
which the Company is, and will be, subject to the risks of being a secured
lender. See "Business -- Area Developers." The Company's management of its
capital resources may be affected by the amount and timing of advances under
such loan agreements and additional loan agreements. The Company's obligations
under the loan agreements could affect the amount and timing of the Company's
future capital financing requirements.

RELATIONSHIP WITH BOSTON CHICKEN

The Company and Boston Chicken, the Company's majority stockholder, 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 June 6, 1997. The termination of these agreements 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

Boston Chicken owns a majority of the outstanding shares of Common Stock of
the Company. The Company has granted to Boston Chicken an option that permits it
to maintain ownership of shares of Common Stock having up to 52% of the voting
power of all of the outstanding shares of capital stock of the Company having
the power generally to vote in the election of directors. As of May 30, 1997,
pursuant to such option, Boston Chicken had the right to purchase 1,249,135
additional shares of Common Stock at prices ranging from $17.50 to $30.75 per
share. 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."

Pursuant to certain agreements with Boston Chicken, the Company is
prohibited 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.

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DEPENDENCE ON PRODUCTION CAPACITY

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.
See "Business -- Vendors."

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."

ANTI-TAKEOVER EFFECT OF CHARTER, STATUTORY AND OTHER 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."

The terms of the Company's 7 1/4% Convertible Subordinated Debentures due
2004 (the "Debentures") require the Company, as of 40 business days after the
occurrence of a Change in Control of the Company, to purchase all or any part
(provided that the principal amount must be $1,000 or an integral multiple
thereof) of any Debenture, at the option of the holder thereof, for a purchase
price equal to 100% of the outstanding principal amount thereof, plus accrued
but unpaid interest up to but not including the Change in Control Purchase Date.
The Change in Control purchase feature of the Debentures may in certain
circumstances have an anti-takeover effect. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Indenture
related to the Debentures, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.

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,

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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 revolving credit facilities contain prohibitions on the payment of
cash dividends. See "Price Range of Common Stock and Dividend Policy."

RECOVERABILITY OF INTANGIBLE ASSETS

The Company has recorded significant intangible assets in connection with
the Company's acquisitions of other bagel retailers. 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 and 4 of Notes to Audited Consolidated
Financial Statements.

VOLATILITY OF STOCK PRICE

The market price for the Company's Common Stock has been highly volatile.
Since August 1, 1996 (the date on which the Common Stock began trading on the
Nasdaq National Market), the per share closing price of the Common Stock has
fluctuated from a low of $13.875 to a high of $35.875. Such volatility does not
necessarily relate to the Company's financial performance. In the future, the
market price for the Common Stock may be significantly affected by the Company's
operating results and other factors that may or may not be within the Company's
control. Fluctuations in the stock market generally, as well as general economic
conditions, may adversely affect the market prices of the Common Stock offered
hereby. See "Price Range of Common Stock and Dividend Policy."

9
<PAGE> 11

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The following table sets forth the high and low sales prices of the Common
Stock during each of the Company's fiscal quarters since its initial public
offering of Common Stock on August 1, 1996, as quoted on the Nasdaq National
Market as reported by The Wall Street Journal (Western Edition).

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
Third Quarter............................................... 36 1/2 19
Fourth Quarter.............................................. 36 1/8 29 1/4
1997:
First Quarter............................................... 33 1/4 17
Second Quarter (through June 6, 1997)....................... 21 3/4 13 1/8
</TABLE>

On June 6, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $14 7/8 per share. As of June 6, 1997, there were
approximately 730 record holders of the Common Stock.

The Company has never paid cash dividends on its Common Stock and the Board
of Directors intends to continue a policy of retaining any earnings for use in
the Company's operations. The Company does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's current
revolving credit facilities contain prohibitions on the payment of any cash
dividends.

10
<PAGE> 12

BUSINESS

GENERAL

THE COMPANY'S BRANDS

The Company has two principal brands. The Einstein Bros. Bagels brand was
developed by the Company after it was formed in March 1995. The Noah's New York
Bagels brand, which was acquired when the Company acquired Noah's in February
1996, was originally introduced in 1989 in Berkeley, California. As of April 21,
1997, there were 283 Einstein Bros. Bagels stores in 28 states and the District
of Columbia, and 102 Noah's New York Bagels stores in California, Washington and
Oregon.

Einstein Bros. Bagels and Noah's New York Bagels stores also offer
consumers a line of traditional and creative flavors of cream cheese and an
extensive line of beverages featuring branded coffees and teas, fruit teas,
bottled sodas, juices and waters, and a full line of fountain sodas. The stores
also include a menu of creative soups, salads and bagel sandwiches offering
customers a variety of lunch alternatives, as well as branded retail products
that support the major menu categories, including ground and whole bean coffee,
teas, bagel chips, coffee mugs and other items. Stores are typically in leased
locations of approximately 2,200 square feet with ample parking, substantial
indoor seating and when practical, additional outdoor seating.

AREA DEVELOPERS

General. 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 of achieving market leadership than either Company ownership of
all stores or more traditional franchising approaches utilizing a larger number
of franchisees. The Company anticipates that domestic expansion of its brands
will be undertaken by its current area developers and is not seeking additional
domestic area developers or franchisees.

The Company believes that rapid penetration of selected designated market
areas ("DMAs") is superior to more limited penetration of many DMAs for several
reasons. Concentration of stores allows both area developers and Company
personnel to gain greater expertise concerning the trade areas within the DMA,
thus

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<PAGE> 13

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
concentration can permit more efficient operations in terms of multi-unit
management, convenient employee training, and sharing of employees, expertise
and other resources within a DMA. Concentrated DMA penetration also permits
cost-efficient media advertising to commence sooner than would be the case with
a more scattered nationwide expansion. The Company believes that media
advertising increases aggregate store revenue (which, in turn, can promote
certain in-store operating efficiencies) and assists the Company's area
developers in securing real estate for future sites on acceptable terms and
recruiting management and hourly employees.

The Company's success is dependent to a significant extent upon its area
developers and the manner in which they develop and operate their stores and
manage their organizational and financial resources. 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. The financial resources required by the
Company's area developers to comply with their area development agreements are
dependent upon, among other things, the number and cost of stores developed and
store operating results. The cost to develop a store typically ranges from
between $240,000 and $625,000. The area developers are expected to finance their
capital requirements through borrowings from the Company, equity, debt and lease
financing from third parties and internally generated funds. There can be no
assurance that area developers will have access to the financial resources
necessary to open the number of stores required by their development schedules
or will successfully develop or operate stores in their development areas in a
manner consistent with the Company's concepts and standards. Because the amount
of additional financing that the Company may provide to area developers depends
on the amount of funds internally generated by the area developers, the amount
of additional equity, debt and lease financing to be obtained by the area
developers from other parties and the cost of stores developed, the Company has
not determined, nor is it able at present to reasonably estimate, any amount of
additional financing that it may commit to such area developers.

At times, the Company or its area developers may determine that a specific
store should be closed due to operating or site-related issues specific to that
store, changes in the market or trade area, changes in store development
strategy, or failure of the store to meet desired sales or profitability levels.
The cost to close a store varies depending upon the remaining lease renewal
terms and the ability of the site to be sublet, as well as the type, quantity
and condition of the equipment installed and the cost to remove such equipment
and improvements from the site. During fiscal 1996, the Company closed six
stores and its area developers closed five stores. The costs incurred to close
the Company-operated stores ranged from between $60,000 and $400,000 per store.
The Company has been informed by its area developers that the costs incurred by
them to close such stores ranged from between $260,000 and $520,000 per store. A
provision to close Company stores was established in 1995. See "Selected
Consolidated Financial and Store Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

12
<PAGE> 14

The following table sets forth information as of April 21, 1997 concerning
the Company's nine area developers. The operating principals of such area
developers listed below each have experience in the multi-unit retail industry
ranging from 10 to 30 years. A majority of the additional stores committed are
required to be opened over the next three years. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 5.

<TABLE>
<CAPTION>
CURRENT ADDITIONAL
STORES STORES
AREA DEVELOPER PRIMARY MARKETS OPERATING PRINCIPAL OPEN COMMITTED
-------------- --------------- ------------------- ------- ----------
<S> <C> <C> <C> <C>
Einstein Bros. Bagels(1):
Colonial Bagels, L.P.(2)............. Boston, Cleveland, Pittsburgh, Robert Schlacter 45 217
Columbus, New York City
metropolitan area
Finest Bagels, L.L.C.(2)............. Kansas City, St. Louis, Edwin Brownell 61 127
Minneapolis, Dallas/Ft. Worth,
Houston, Austin
Great Lakes Bagels, L.L.C............ Milwaukee, Chicago, Detroit, Joseph Hoog 53 144
Madison, Indianapolis
Gulfstream Bagels, L.P.(2)........... Miami, Fort Lauderdale, West Robert Hartnett 47 122
Palm Beach, Orlando, Tampa,
Atlanta(3), Charlotte, Norfolk
Mayfair Bagels, L.L.C.(2)............ Washington, D.C., Baltimore, Steve Quamme 17 58
Richmond
Philly Rose, L.P.(2)................. Philadelphia Harry Rose 20 65
Sunbelt Bagels, L.L.C.(2)............ San Diego, Palm Springs, Pearce Tucker 75 112
Orange County, San Bernardino
County, Denver, Salt Lake
City, Phoenix, Tucson,
Albuquerque, Las Vegas,
Colorado Springs

Noah's New York Bagels:
Noah's Bay Area Bagels, L.L.C........ Sacramento, San Francisco/ Jim Mizes 51 44
Oakland/San Jose, Fresno
Noah's Pacific, L.L.C................ Portions of Los Angeles, Jim Mizes 51 158
Portland, Seattle/Tacoma
--- -----
Total............................................................................ 420 1,047
=== =====
</TABLE>

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

(1) Includes 11 stores operated under the Bagel & Bagel brand, one store
operated under the Offerdahl's Bagel Gourmet brand, seven stores operated
under the Baltimore Bagel brand, 15 stores operated under the Bagel
Boulevard brand and one store operated under the Bagel Street Cafe brand.
The Company's area developers intend to convert all such stores to Einstein
Bros. Bagels stores by early 1998.

(2) Effective April 21, 1997, Alamo Bagels, L.P. ("Alamo") merged into Finest
Bagels, L.L.C., BCE West Bagels, L.L.C. ("BCE West") merged into Sunbelt
Bagels, L.L.C., and Liberty Foods, L.L.C. ("Liberty") merged into Colonial
Bagels, L.P. Prior to such mergers, Alamo, BCE West and Liberty were area
developers of the Company. In addition, effective April 21, 1997, Gulfstream
Bagels, L.P. acquired certain development rights, stores and other assets of
Mayfair Bagels, L.L.C. ("Mayfair") in Atlanta, Charlotte and Norfolk. In
each of the merger transactions, owners of equity interests in the merging
area developer received equity interests in the surviving area developer.
Such transactions were the result of arms' length negotiations between the
relevant area developers and conditioned upon the consent of the Company in
its capacity as franchisor. The Company believes that any further
consolidation of area developers primarily will be the result of
negotiations by and among such area developers, with input and suggestions
from the Company in its capacity as franchisor. On April 1, 1997,

13
<PAGE> 15

Mayfair and Philly Rose, L.P. ("Philly Rose") entered into a letter of
intent pursuant to which Philly Rose and Mayfair propose to combine their
operations in a statutory merger.

(3) Stores in the Atlanta metropolitan area operate under the Melvyn &
Elmo's(TM) brand because the Company does not currently have the right to
use the Einstein Bros. Bagels brand for restaurant services in the Atlanta
metropolitan area.

Area Developer Ownership. No officer or director of the Company owns a
controlling equity interest in any area developer. Lawrence Beck, Scott Beck's
father, is a minority investor in Sunbelt Bagels, L.L.C. and Colonial Bagels,
L.P. The Company does not believe Lawrence Beck is an affiliate of the Company.
In addition, Messrs. Scott Beck, Jeffrey L. Butler, President of Einstein Bros.
Bagels Concept, W. Eric Carlborg, Chief Financial Officer, David G. Stanchak,
Chief Development Officer, and John H. Muhlstein, Jr. and Lloyd D. Ruth,
directors of the Company, each own a direct equity interest in Bagel Store
Development Funding, L.L.C. ("Bagel Funding"), which has invested approximately
$89.5 million in the Company's area developers. All of such individuals'
interests aggregate approximately 8.2% of the outstanding equity interests in
Bagel Funding. See "Certain Transactions."

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 schedule of store opening
dates. As of April 21, 1997, the Company had entered into area development
agreements that provide for the development of 1,047 additional stores. The
development schedule generally covers two to five years and contains 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 DMAs.
Area developers generally pay an initial 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 for which such fees have been paid 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, subject to certain area
developer rights of first refusal, the Company reserves the right to engage in
certain limited special distribution arrangements and 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.

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" (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

14
<PAGE> 16

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 had previously 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 $40,000 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, $15,000 of which is paid to
Boston Chicken and $1,000 of which is paid to a third-party for certain
proprietary software which the area developer is required to use under an
existing 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's area developers pay $323
to Boston Chicken and the Company's area developers pay an additional $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 facilitate the movement of knowledge, including
financial, customer and employee performance data, allowing the Company and its
area developers to react 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 limited 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. The Company is specifically
authorized to take accelerated action in the event that the operations of any
franchise 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.

AREA DEVELOPER FINANCING

Secured Loan Agreements. Each of the Company's area developers is 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
Company's loan agreements with its area developers generally require the area
developer to expend at least 75% of its equity capital on developing stores
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 contributed capital. The loans are
convertible into a majority equity interest in the area developer at a
conversion price set forth in the loan agreement, which is at a premium over the
per unit price paid by investors in the area developers for their equity
investments, after the expiration of a moratorium period, provided that the area
developer has completed not less than 80% of its store development

15
<PAGE> 17

commitment, or in the event of certain defaults. See Note 11 of Notes to Audited
Consolidated Financial Statements. Upon conversion, the Company would typically
become the majority equity owner of the area developer, resulting in the Company
consolidating the area developer's operations in its financial statements.
Consequently, the franchise and related fees earned by the Company (including
interest, royalties, real estate-related fees, software fees, and other fees)
from such area developer would be eliminated in consolidation. The operating
results of the area developer (primarily store revenue, less expenses) would be
included in the Company's financial results. Such results would be adjusted for
any remaining minority interest in the area developer not acquired by the
Company.

Each area developer loan agreement contains customary secured loan
agreement 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 Audited
Consolidated Financial Statements.

As a result of executing the rapid expansion strategy required by the
Company, the Company's area developers have incurred aggregate net losses of
$1.3 million in 1995 (during which period most stores were operated by the
Company) and $40.6 million in 1996, which amounts included (a) approximately
$10.5 million of depreciation and amortization charges, (b) approximately $26.0
million attributable to investment overhead, scale inefficiencies in operating
overhead, and other start-up costs which the Company believes are necessary to
establish the Einstein Bros. Bagels and Noah's New York Bagels brands in new
territories and open stores at a rate sufficient to gain a competitive advantage
over similar concepts, and (c) royalties, interest, and other franchise-related
fees that would no longer be incurred in the event the Company acquired, or
converted its convertible secured loans to its area developers. As a result of
the foregoing factors, as well as ongoing improvements to store operating
performance and increases in scale efficiencies, the Company does not consider
these start-up losses to be a meaningful financial measure during this rapid
expansion phase (i.e., that period during which new stores constitute a
significant percentage of the store base). The Company believes the rapid
expansion phase for most of its area developers should last approximately three
to four years from the time significant development commences in an area
developer's DMA. As the rapid expansion phase ends, the size of an area
developer's store base should enable the area developer to gradually reduce and
eventually recover start-up losses. The reduction in and recovery of losses are
expected to be driven primarily by lower investment overhead, increased
operational and advertising efficiencies, greater economies of scale, and
increases in store revenue through continued product and service enhancements.
The point at which losses may be recovered will vary by area developer depending
primarily upon the size and timing of the area developer's store development
schedule, the achievement of advertising efficiency, the level of debt and
interest charges, the intensity of competition and the quality of management;
however, there can be no assurance that such losses will be recovered. Because a
majority of the Company's area developers are less than one year into
significant store development in their respective DMAs, the Company believes
they will remain in the rapid expansion phase during 1997. Subsequent to the
completion of the rapid expansion phase, the Company expects area developer
profitability to be a more meaningful factor in assessing loan recoverability
and any future loan commitments. Although the Company believes its current area
developers will achieve profitability, in the event the foregoing strategy does
not come to fruition or an area developer otherwise fails to achieve a
sufficient level of profitability subsequent to the completion of its rapid
expansion phase, such event 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 5.

Conversion or Acquisition Criteria. As of April 21, 1997, the Company had
not converted (nor did it have the right to convert) any loan to any area
developer or otherwise acquired any equity interest in any area developer. Any
determination to convert any area developer loan or otherwise acquire an equity
interest in any developer would involve a variety of economic and operational
considerations, including the projected financial impact of converting the loan,
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 and the
willingness of the Company to incur

16
<PAGE> 18

the risk of owning such stores versus receiving income as a franchisor, lender,
and service provider, the Company's ability to manage stores if necessary, the
future capital requirements of the area developer and its ability to raise a
portion of such capital, and the demand on Company resources. However, factors
or circumstances unique to a specific transaction may also impact the Company's
decision. 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. There can be no assurance that the Company
will exercise its future rights to acquire an equity interest in any area
developer to which it provides financing or that such exercise will result in
control of the area developer.

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 of such investments varies among area developers. Future investments by
management or others could include contributions of assets. In addition to
direct equity investments provided by area developer management, equity
investments in the Company's area developers are made by Bagel Funding, formed
in December 1995 to invest in area developers of the Company. Bagel Funding has
received total capital contributions from its members aggregating $89.5 million,
all of which has been invested by Bagel Funding in the Company's area
developers. The Company is currently the manager of Bagel Funding, but has no
equity interest in Bagel Funding. See "Certain Transactions" and Notes 10 and 13
of Notes to Audited Consolidated Financial Statements.

Bagel Funding has the right to require an area developer to redeem Bagel
Funding's equity interest in such area developer at a pre-determined formula
purchase price based on store level cash flow of the area developer in the event
(i) the Company acquires a majority equity 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 the area
developer's request to undertake a firm commitment underwritten public offering
of area developer's equity, or (iii) the Company does not acquire a majority
interest in the 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.

MARKETING AND COMPETITION

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's area developers utilize community involvement
as a means of providing charitable service, as well as building brand awareness
and loyalty. The Company's area developers also utilize the traditional
marketing and advertising methods of 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's area developers are currently testing a combination of
multi-media and consumer promotions designed to launch the Company's brands in
local markets and to build strong brand awareness in a short time. Area
developer stores are generally 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 Notes to Audited Consolidated Financial Statements.

The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. 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, specialty coffee retailers, doughnut shops, fast-food
restaurants, delicatessens, take-out food service companies, supermarkets and
convenience stores. 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

17
<PAGE> 19

Einstein Bros. Bagels and Noah's New York Bagels brands compete favorably in the
important factors of food quality, convenience, service and price.

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 cost
of goods, labor and employee benefits costs, regional weather conditions and
potential scarcity of experienced management and hourly employees may also
adversely affect the food service industry in general and the results of
operations and financial condition of the Company and its area developers in
particular. The Company attempts to manage or adapt to these factors, but some
or all of these factors could adversely affect the Company and some or all of
its area developers.

VENDORS

In May 1996, the Company entered into a project and approved supplier
agreement (the "Harlan Supply Agreement") with Harlan Bagel Supply Company,
L.L.C. ("Harlan") and the equity owners of Harlan. Under the Harlan Supply
Agreement, Harlan has agreed to sell to the Company, its area developers and
their food service distributors frozen bagel dough, 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). Harlan has granted to the Company an option,
exercisable at any time from December 15, 1999 through June 1, 2002, to acquire
all of the assets of Harlan at a formula price equal to a multiple of Harlan's
profits from sales of products under the Harlan Supply Agreement. The Company
owns certain equipment used in the Harlan Facility which is leased to Harlan
pursuant to an operating lease.

The Company also expects to enter into an approved supplier agreement with
Noah's Pacific, L.L.C. ("Noah's Pacific"), an area developer of the Company to
whom the Company currently subleases a dough production facility in Whittier,
California (the "Whittier Facility"), or with a third party bagel producer to
whom the Whittier Facility would be transferred (Noah's Pacific or such third
party producer being referred to herein as the "Whittier Supplier"). Under such
an agreement, the Whittier Supplier would agree to sell bagels to the Company,
its area developers and their food service distributors for sale in Einstein
Bros. Bagels stores. Noah's Pacific has recently completed the installation of a
frozen bagel dough production line in the Whittier Facility. The Company owns
certain equipment in the Whittier Facility which is leased to Noah's Pacific
pursuant to an operating lease.

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's area developers
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. Certain vendors have provided funds to the national advertising fund
to be used by such fund for advertising and promotions.

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.

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

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<PAGE> 20

New York(R), Noah's Shmears(R), Shmear 'Em(R), Protect Your Bagels, Put Lox on
Them(R), The Veg Out(R) and Veggie Confetti(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 & Elmo's(TM)
and Man Cannot Live on Great Bagels Alone(TM), as well as the Einstein Bros.
logo and certain other logos used by the Company. The Company has applied to
register Noah's New York Bagels(R) in more than 30 foreign countries and
Einstein Bros. Bagels(TM) in approximately 70 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 the
principal trademarks and service marks used in connection with the Einstein
Bros. Bagels stores and products and there can be no assurance that such
registrations will be obtained.

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 any of the Company's marks in any
DMA for which it has granted development rights for such marks, 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 actively defends and enforces 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 benefits 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.

EMPLOYEES

At April 21, 1997, the Company had approximately 124 employees. None of the
Company's employees are represented by a labor union or covered by a collective
bargaining contract. The Company believes that its relationship with its
employees is good.

PROPERTIES

The Company leases its support center facility in Golden, Colorado, which
consists of approximately 38,000 square feet of office space (and certain common
areas, including parking areas), from Boston Chicken. The Company also leases
office space in Los Angeles, California.

The Company and its subsidiaries also lease sites for stores and
commissaries that are subleased 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 and commissaries to the extent acceptable terms are available.

Stores and commissaries leased by the Company are typically leased under
"triple net" leases that require the lessee to pay its proportionate share of
real estate taxes, maintenance costs and insurance premiums. In

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<PAGE> 21

some cases, store leases require not only base rent but also 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 two or three
additional five-year periods at market rates.

A subsidiary of the Company leases dough production facilities in San
Leandro and Whittier, California, which are subleased to one of the Company's
area developers.

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.

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.

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<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL AND STORE DATA

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

The following table sets forth selected consolidated financial and store
data for the Company. This data should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
herein and Management's Discussion and Analysis of Financial Condition and
Results of Operations also included herein.

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR QUARTERS ENDED(1)
THROUGH ENDED --------------------------------
DECEMBER 31, DECEMBER 29, APRIL 21, APRIL 20,
1995 1996(1) 1996 1997
--------------- ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue:
Company stores................... $ 25,685 $ 35,803 $18,397 $ 2,103
Royalties and franchise-related
fees........................... 671 19,918 3,559 9,338
Interest income.................. 67 5,986 423 5,287
-------- -------- ------- -------
Total revenue............. 26,423 61,707 22,379 16,728
Cost and expenses:
Cost of products sold............ 8,239 11,546 5,490 704
Salaries and benefits............ 13,531 18,302 9,128 3,018
General and administrative
expenses....................... 47,805(2) 21,820 9,031 5,774
-------- -------- ------- -------
69,575 51,668 23,649 9,496
-------- -------- ------- -------
Income (loss) from operations...... (43,152) 10,039 (1,270) 7,232
Other income (expense), net........ (564) (4,332) (2,047) 221
-------- -------- ------- -------
Income (loss) before income
taxes............................ (43,716) 5,707 (3,317) 7,453
Income taxes....................... -- -- -- 2,275
-------- -------- ------- -------
Net income (loss).................. $(43,716) $ 5,707 $(3,317) $ 5,178
======== ======== ======= =======
Net income (loss) per common and
equivalent share............... $ (4.54) $ 0.25 $ (0.35) $ 0.15
======== ======== ======= =======
Weighted average number of common
and equivalent shares
outstanding during the
period......................... 9,659 22,344 9,679 34,962
======== ======== ======= =======
STORE DATA (UNAUDITED):
Systemwide revenue(3).............. $ 26,986 $145,631 $29,764 $84,469
======== ======== ======= =======
Number of stores:
Beginning of period.............. -- 60 60 315
Opened or acquired............... 60 266 85 105
Closed(4)........................ -- (11) (7) --
-------- -------- ------- -------
End of period.................... 60 315 138 420
======== ======== ======= =======
Company stores................... 47 14 61 --
Area developer stores............ 13 301 77 420
</TABLE>

<TABLE>
<CAPTION>
APRIL 20, 1997
--------------------------
DECEMBER 29, AS
1996 ACTUAL ADJUSTED(5)
------------ -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $ 46,421 $ (1,322) $115,878
Notes receivable........................................ 146,087 216,999 216,999
Total assets............................................ 332,418 357,352 474,552
Long-term debt.......................................... -- 7,800 125,000
Stockholders' equity.................................... $315,517 $329,849 $329,849
</TABLE>

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<PAGE> 23

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

(2) Includes a $26,575,000 write-off of intangible assets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

(3) Includes gross revenue for all stores in the Einstein/Noah Bagel Corp.
system.

(5) Adjusted to give effect to the issuance by the Company of the Debentures.

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<PAGE> 24

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 has sold all of the stores operated by it to area
developers financed in part by the Company. Because the Company has sold all of
its 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 derived principally from royalties, franchise-related
fees and interest income from its area developers as opposed to revenue from
Company stores. Additionally, due to the sale of Company stores to its area
developers, costs of goods sold and salaries, benefits and general and
administrative expenses from store operations will be eliminated, which will
impact the overall costs and expenses of the Company. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 5. Consequently, comparisons of
operating results to date may not be meaningful.

The Company currently estimates that there will be between 615 and 665
stores in operation systemwide by the end of 1997. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 5. Area developer 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
franchise stores and those of competitors, the size of the store and its
visibility. Consequently, royalty income may not increase at a rate
proportionate to the rate of store openings. 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 systemwide rapid expansion significantly affects its
liquidity and capital requirements.

RESULTS OF OPERATIONS

Fiscal year ended December 29, 1996 compared to the period beginning March
24, 1995 (inception) and ended December 31, 1995

Revenue. Total revenue increased 134% for the year ended December 29, 1996
over the prior period. Royalties and franchise-related fees were $19.9 million
compared to $671,000 in the prior period, caused by an increase in stores opened
and operated by area developers, which totaled 301 as of December 29, 1996
compared to 13 as of December 31, 1995. Interest income was $6.0 million
compared to $67,000 in the prior period, due to higher interest income generated
on increased loans made to area developers. Revenue from Company stores
increased 39% for the year ended December 29, 1996 to $35.8 million from $25.7
million in the prior period. The increase was due to the revenue from acquired
stores and stores opened by the Company prior to being sold to area developers.

Cost of Products Sold. Cost of products sold increased 40% to $11.5 million
for the year ended December 29, 1996, compared to $8.2 million in the prior
period. The increase was primarily due to the increase in revenue from Company
stores. Cost of products sold, as a percentage of Company store revenue,
increased to 32.2% in 1996 from 32.1% in 1995.

Salaries and Benefits. Salaries and benefits increased 35% to $18.3 million
for the year ended December 29, 1996, compared to $13.5 million in the prior
period. The increase in salaries and benefits was due to a greater number of
Company stores in 1996 and an increase in the number of employees at the
Company's support center necessary to support systemwide expansion.

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<PAGE> 25

General and Administrative. General and administrative expenses decreased
54% to $21.8 million for the year ended December 29, 1996 compared to $47.8
million in the prior period. The decrease was due primarily to a $26.6 million
write-off of intangible assets in the prior period. After the acquisition of
Brackman Brothers, Inc. ("Brackman"), Bagel & Bagel, Inc. ("Bagel & Bagel"),
Offerdahl's Bagel Gourmet, Inc. ("Offerdahl's") and Baltimore Bagel Co.
(collectively the "Founding Companies"), the Company launched a development
project, pursuant to which management analyzed (i) the Founding Companies'
stores, including brand positioning, product offerings, operational service
systems and atmosphere, (ii) the competitive environment and (iii) the
preferences of consumers across the United States. The project resulted in the
development of the Einstein Bros. Bagels brand and store. In connection with,
and as a result of, the development of the Einstein Bros. Bagels brand and
store, management determined to discontinue the use of the identifiable
intangible assets acquired in the acquisitions of the Founding Companies,
including trademarks and recipes. This change in business strategy resulted in
an impairment of such intangible assets, and accordingly, the assets were
written down to their fair market values. In addition, in 1995, certain acquired
store locations were determined to be unsuitable for the Einstein Bros. Bagels
brand and store, resulting in a $2.4 million provision for anticipated costs
required to close those locations. Absent these write-downs, general and
administrative expenses increased 16% for the year ended December 29, 1996
compared to the prior period. This increase was due to an increase in
expenditures at the Company's support center necessary to support systemwide
expansion and a greater number of Company stores in 1996.

Included in general and administrative expenses are depreciation and
amortization charges of $5.4 million in fiscal year 1996 and $1.7 million in the
prior period. The increase in depreciation and amortization charges was
primarily attributable to the goodwill and intangible assets related to the
acquisition of Noah's in February 1996.

Other Income (Expense). The Company incurred other expense of $4.3 million
for the year ended December 29, 1996, compared to $564,000 in the prior period.
The increase reflects higher net interest expense attributable to borrowings
under the Company's loan agreements, offset by gains recognized on the sale of
marketable equity securities.

Income Taxes. No income tax expense has been recorded for the year ended
December 29, 1996 or the prior period. During 1996, the Company recognized a
portion of its deferred tax asset which resulted in no tax expense.

Quarter ended April 20, 1997 compared to the quarter ended April 21, 1996

Revenue. Total revenue decreased to $16.7 million for the quarter ended
April 20, 1997 from $22.4 million for the prior comparable quarter due to the
decrease in the number of Company stores. The decrease in Company stores was due
to the sale of Company stores to the Company's area developers. The Company
completed the sale of its remaining stores to area developers in March 1997.
There was an average of 12 Company stores for the quarter ended April 20, 1997
compared to 66 for the prior comparable quarter. As a result, revenue from
Company stores decreased to $2.1 million for the quarter ended April 20, 1997
from $18.4 million for the prior comparable quarter.

Royalty and franchise-related fees increased to $9.3 million for the
quarter ended April 20, 1997 from $3.6 million for the prior comparable quarter.
The increase was primarily due to an increase in royalties and initial franchise
and area development fees attributable to the larger base of franchise stores
operating systemwide, which increased to an average of 354 stores for the first
quarter of 1997 from an average of 38 stores for the first quarter of 1996.
Interest income from loans to area developers increased to $5.3 million for the
quarter ended April 20, 1997 from $423,000 in the prior comparable quarter, due
to higher outstanding loan balances associated with the increase in stores
opened by the Company's area developers.

Cost of Products Sold. Cost of products sold decreased to $704,000 for the
quarter ended April 20, 1997 from $5.5 million for the prior comparable quarter.
The decrease was primarily due to the decrease in the number of Company stores.
Cost of products sold, as a percentage of Company store revenue, increased to
33.5% from 29.8%. The increase was primarily due to changing store mix and
production methods related to the changing store mix.

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<PAGE> 26

Salaries and Benefits. Salaries and benefits decreased to $3.0 million for
the quarter ended April 20, 1997 from $9.1 million for the prior comparable
quarter. The decrease was due to the decrease in the number of Company stores in
1997, offset by increases in employees at the Company's support center necessary
to support systemwide expansion.

General and Administrative. General and administrative expenses decreased
to $5.8 million for the quarter ended April 20, 1997 from $9.0 million for the
quarter ended April 21, 1996. The decrease was due to the decrease in the number
of Company stores in 1997, offset by increases in expenditures necessary to
support systemwide expansion.

Other Income (Expense). The Company had other income, consisting of
interest income on short-term cash investments, of $221,000 for the quarter
ended April 20, 1997 compared to other expenses of $2.0 million for the quarter
ended April 21, 1996. During the first quarter of 1996, the Company had an
average outstanding balance of $109.4 million on its credit facilities resulting
in $3.3 million in interest expense. In the first quarter of 1997, the Company
had a positive cash balance for the majority of the quarter. The interest
expense incurred in 1996 was partially offset by gains realized on the sale of
marketable equity securities.

Income Taxes. The provision for income taxes for the quarter ended April
20, 1997 reflects the Company's expected effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided from operations in 1996 totaled $6.5 million, an increase of
$18.8 million from the cash used in operations in 1995 of $12.3 million. The
primary cause of the change resulted from the Company incurring a net loss of
$43.7 million in 1995 compared to net income of $5.7 million in 1996. Included
in the 1995 net loss was a non-cash charge of $26.6 million to write-off
intangible assets. See "-- Results of Operations -- General and Administrative."

Cash provided from operations for the quarter ended April 20, 1997 was $7.0
million, an increase of $17.1 million from cash used in operating activities of
$10.1 million for the quarter ended April 21, 1996. Net income increased to $5.2
million for the first quarter of 1997 compared to a net loss of $3.3 million for
the first quarter of 1996. Cash provided by working capital increased to $2.0
million for the first quarter of 1997, compared to cash used to fund working
capital of $7.5 million for the first quarter of 1996. This change in working
capital was attributable to increases in accounts payable and accrued expenses
experienced as a result of the general growth of the business in 1997 and the
impact of the working capital reduction incurred from the sale of Company stores
to area developers in the first quarter of 1996.

Cash provided from financing activities totaled $271.6 million in 1996. In
August 1996, the Company completed an underwritten initial public offering of
3,105,000 shares of Common Stock, a concurrent non-underwritten public offering
of 425,000 shares of Common Stock and a concurrent private placement of
2,000,000 shares of Common Stock to Boston Chicken. In December 1996, the
Company completed an underwritten offering of 2,640,000 shares of Common Stock
to the public and a concurrent non-underwritten public offering of 500,000
shares of Common Stock to Boston Chicken. The aggregate net proceeds of all
these offerings totaled approximately $174.6 million. In 1996, the Company
borrowed $80.0 million from Boston Chicken under its convertible secured loan
agreement resulting in a $120.0 million outstanding balance. In June 1996,
Boston Chicken converted the entire $120.0 million balance of convertible debt
into 15,307,421 shares of Common Stock of the Company. As of December 29, 1996,
the Company had $50.7 million available in cash and cash equivalents. In
addition, the Company had a $50.0 million non-convertible credit facility with
Boston Chicken and a $45.0 million senior secured credit facility with Bank of
America Illinois and the lenders named therein. No balance was outstanding under
either facility at December 29, 1996. During 1995, the Company borrowed $40.0
million from Boston Chicken under its convertible secured loan agreement (which
Boston Chicken converted to equity of the Company in 1996) and raised $20.8
million from the sale of approximately 3,500,000 shares of Common Stock.

Cash provided by financing activities decreased to $16.0 million for the
first quarter of 1997 compared to $131.5 million for the first quarter of 1996.
Financing was primarily provided by proceeds from debt. Proceeds

25
<PAGE> 27

from the issuance of Common Stock provided $8.2 million for the first quarter of
1997, compared with $13.0 million for the first quarter of 1996. Subsequent to
the end of the first quarter of 1997, the Company issued $125.0 million of
Debentures.

The Company's primary use of capital reflects its goal of establishing
brand awareness and market leadership by providing partial financing to its area
developers for their use in rapid store development and to finance their working
capital needs. As of April 20, 1997, the Company had secured loan commitments to
its area developers aggregating $359.9 million, of which $211.7 million had been
advanced. Net loan advances to area developers were $137.3 million in 1996
(consisting of $206.8 million of loan advances, net of $69.5 million of loan
repayments) and $3.6 million in 1995 (consisting of $7.4 million of loan
advances net of $3.8 million of loan repayments). Net loan advances to area
developers were $71.0 million (consisting of $124.3 million of loan advances,
net of $53.3 million of loan repayments) in the first quarter of 1997 compared
to $29.0 million (consisting of $36.9 million of loan advances, net of $7.9
million of loan repayments) in the first quarter of 1996. The majority of the
loan advance and repayment activity reflects the revolving nature of the loans;
that is, amounts are drawn and repaid on a regular basis to optimize cash
management. The increase in loan advances was attributable to the increase in
the number of area developer stores opened in the comparable periods.

As a result of executing the rapid expansion strategy required by the
Company, the Company's area developers have incurred aggregate net losses of
$1.3 million in 1995 (during which period most stores were operated by the
Company) and $40.6 million in 1996, which amounts included (a) approximately
$10.5 million of depreciation and amortization charges, (b) approximately $26.0
million attributable to investment overhead, scale inefficiencies in operating
overhead, and other start-up costs which the Company believes are necessary to
establish the Einstein Bros. Bagels and Noah's New York Bagels brands in new
territories and open stores at a rate sufficient to gain a competitive advantage
over similar concepts, and (c) royalties, interest, and other franchise-related
fees that would no longer be incurred in the event the Company acquired, or
converted its convertible secured loans to its area developers. As a result of
the foregoing factors, as well as ongoing improvements to store operating
performance and increases in scale efficiencies, the Company does not consider
these start-up losses to be a meaningful financial measure during this rapid
expansion phase (i.e., that period during which new stores constitute a
significant percentage of the store base). The Company believes the rapid
expansion phase for most of its area developers should last approximately three
to four years from the time significant development commences in an area
developer's DMA. As the rapid expansion phase ends, the size of an area
developer's store base should enable the area developer to gradually reduce and
eventually recover start-up losses. The reduction in and recovery of losses are
expected to be driven primarily by lower investment overhead, increased
operational and advertising efficiencies, greater economies of scale, and
increases in store revenue through continued product and service enhancements.
The point at which losses may be recovered will vary by area developer depending
primarily upon the size and timing of the area developer's store development
schedule, the achievement of advertising efficiency, the level of debt and
interest charges, the intensity of competition and the quality of management;
however, there can be no assurance that such losses will be recovered. Because a
majority of the Company's area developers are less than one year into
significant store development in their respective DMAs, the Company believes
they will remain in the rapid expansion phase during 1997. Subsequent to the
completion of the rapid expansion phase, the Company expects area developer
profitability to be a more meaningful factor in assessing loan recoverability
and any future loan commitments. Although the Company believes its current area
developers will achieve profitability, in the event the foregoing strategy does
not come to fruition or an area developer otherwise fails to achieve a
sufficient level of profitability subsequent to the completion of its rapid
expansion phase, such event could have material adverse impact on the Company's
financial position and results of operations. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 5.

The allowance for area developers' loan 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 use of
loan proceeds, adherence to store development schedules, store performance
trends, type and amount of collateral securing the loan, prevailing economic
conditions, and other factors that management deems relevant at the time. Based
upon this review and analysis, no allowance for loan losses was required as of
December 29, 1996 and April 20, 1997.

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<PAGE> 28

Area developer loans are convertible into a majority equity interest in the
area developer at a conversion price set forth in the loan agreement, which is
at a premium over the per unit price paid by investors in the area developer for
their equity investments, after the expiration of a moratorium period, provided
that the area developer has completed not less than 80% of its area development
commitment, or in the event of certain defaults. Any determination to convert
any area developer loan or otherwise acquire an equity interest in any area
developer would involve a variety of economic and operational considerations,
including the projected financial impact of converting the loan, 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 and the willingness of the
Company to incur the risk of owning such stores versus receiving income as a
franchisor, lender, and service provider, the Company's ability to manage stores
if necessary, the future capital requirements of the area developer and its
ability to raise a portion of such capital, and the demand on Company resources.
However, factors and circumstances unique to a specific transaction may also
impact the Company's decision. 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. There can be no
assurance that the Company will exercise its future rights to acquire an equity
interest in any area developer to which it provides financing or that such
exercise will result in control of the area developer. At April 20, 1997, the
Company had not converted (nor did it have the right to convert) any loan to any
area developer or otherwise acquired any equity interest in any area developer.

In addition to providing funding to its area developers, the Company's
capital requirements have consisted of store acquisition and development,
development of its corporate infrastructure, which supports systemwide
expansion, and investments in food production facilities. In 1996, the Company
expended $107.9 million on store acquisition and development, including the
acquisition of all the capital stock of Noah's for $100.9 million. In 1995, the
Company expended $16.9 million on store acquisition and development. In 1996,
the Company expended $10.1 million on its corporate infrastructure and
investments in food production facilities compared to $1.2 million in 1995.
During the first quarter of 1997, the Company expended $3.9 million related to
its corporate infrastructure and investments in food production facilities.
During the first quarter of 1996, the Company expended $17.6 million on its
corporate infrastructure, investments in food production facilities and store
development, as well as $100.9 million for the acquisition of all the capital
stock of Noah's. These capital expenditures have been offset with proceeds from
selling Company stores. The Company generated $49.9 million in 1996 and $5.5
million in 1995 from the sale of stores to newly-formed area developers. The
Company generated $3.6 million in the first quarter of 1997 and $25.1 million in
the first quarter of 1996 from the sale of stores to newly-formed area
developers. There were no material gains or losses recognized as a result of
these sales. The Company completed its practice of selling Company stores to
newly-formed area developers during the first quarter of 1997. Consequently, the
Company does not anticipate it will realize cash proceeds from the sale of
stores in the future.

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 stores opened, operational
results of the stores, and the amount and timing of borrowings under the loan
agreements between the Company and its 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 5.

SEASONALITY

Historically, the Company has experienced lower average store revenue
during the November and December holiday periods.

IMPACT OF INFLATION

The Company believes that inflation has not had a material impact on its
operations to date. Substantial increases in the cost of labor, employee
benefits, food and other operating expenses could adversely affect store
operations.

27
<PAGE> 29

MANAGEMENT

Set forth below are the names and ages of the executive officers and
directors of the Company and summaries of their business experience. All
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. Executive officers are
elected by, and serve at the discretion of, the Board of Directors. The
executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott A. Beck(3)................... 39 Chairman of the Board
Mark R. Goldston................... 42 President, Chief Executive Officer and Director
Jeffrey L. Butler.................. 35 President of Einstein Bros. Bagels Concept
W. Eric Carlborg................... 33 Chief Financial Officer
David G. Stanchak.................. 39 Chief Development Officer and Director
Joel M. Alam....................... 39 Senior Vice President and Secretary
Paul A. Strasen.................... 40 Senior Vice President and General Counsel
Theodore P. Heininger.............. 43 Vice President -- Controller
Kyle T. Craig...................... 49 Director
M. Laird Koldyke(1)(2)(3).......... 35 Director
Gail A. Lozoff..................... 47 Director and Vice President
John H. Muehlstein, Jr.(3)......... 42 Director
John A. Offerdahl(1)............... 32 Director
Lloyd D. Ruth(1)(2)(3)............. 50 Director
</TABLE>

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

(1) Member of the Audit Committee.

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

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

Scott A. 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 has
served as Chairman or Co-Chairman of the Board of Boston Chicken since that
date. In January 1997, he also assumed the responsibilities of President of
Boston Chicken. He was Vice Chairman of the Board of Blockbuster Entertainment
Corporation ("Blockbuster") in Fort Lauderdale, Florida from September 1989
until his retirement in January 1992 and Chief Operating Officer of Blockbuster
from September 1989 to January 1991. From June 1987 to August 1989, Mr. Beck was
Managing Partner of Blockbuster's first and largest franchisee until its
acquisition by Blockbuster in 1989. Since 1980, Mr. Beck also has been President
of Pace Affiliates, Inc., an investment banking firm he founded.

Mark R. 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 and
in August 1996, he became a Vice Chairman of the Board and a director of Boston
Chicken. From July 1994 to April 1996, Mr. Goldston was Chairman and Chief
Executive Officer of The Goldston Group, a strategic advisory firm. From October
1991 to June 1994, Mr. Goldston served as President and Chief Operating Officer
of L.A. Gear, Inc.

Jeffrey L. 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 to that time, he was employed by BC Great Lakes,
L.L.C., an area developer of Boston Chicken ("BC Great Lakes"), since June 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 to that time, Mr. Butler was an independent
consultant from July 1991 until January 1992.

W. Eric Carlborg became Chief Financial Officer in April 1997. Prior
thereto he was Senior Vice President -- Finance of the Company since July 1996.
From October 1995 through June 1996, he was Vice

28
<PAGE> 30

President of Alignment and Planning of Boston Chicken. Prior to that time, 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.

David G. Stanchak became a director 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.

Joel M. Alam became a Senior Vice President of the Company in February 1997
and has been Secretary of the Company since April 1995. Mr. Alam has also served
as Senior Vice President, Co-General Counsel and Secretary of Boston Chicken
since May 1997. From April 1995 to February 1997, he was a Vice President of the
Company. 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 to that time, Mr. Alam was an
associate at the Chicago law firm of Bell, Boyd & Lloyd from 1986 to May 1993.

Paul A. Strasen became a Senior Vice President of the Company in February
1997 and has been General Counsel of the Company since April 1995. Mr. Strasen
has also served as Senior Vice President, Co-General Counsel and Assistant
Secretary of Boston Chicken since May 1997. From April 1995 to February 1997, he
was a Vice President of the Company. Prior to that time, he was a partner at the
Chicago law firm of Bell, Boyd & Lloyd from 1988 to April 1995.

Theodore P. Heininger became Vice President-Controller of the Company in
March 1997. Prior to that time, he served as Vice President of Performance
Evaluation since January 1996 and was the Company's Controller from April 1995
until January 1996. From June 1993 to March 1995, Mr. Heininger was employed as
Vice President and Chief Financial Officer with Meyercord Co., a subsidiary of
the Berwind Group in Carol Stream, Illinois. He served as Vice President and
Chief Financial Officer of GPS Healthcare, also a subsidiary of the Berwind
Group, in Pottsville, Pennsylvania, from October 1990 to May 1993. Mr. Heininger
is a certified public accountant.

Kyle T. Craig has been a director of the Company since 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., from April 1990 until November 1993, he was President of
KFC-USA, also a unit of KFC Corp. KFC Corp. is a wholly owned subsidiary of
PepsiCo, Inc.

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

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

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

John A. 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 Bagel Gourmet, Inc., 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.

29
<PAGE> 31

Lloyd D. 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.

PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 28, 1997 by: (i) each stockholder known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock; (ii) each director; (iii) each executive officer named in the
Summary Compensation Table under "Executive Compensation;" and (iv) all
directors and executive officers as a group. The beneficial ownership reflected
in the following table is calculated in accordance with Rule 13d-3 under the
Exchange Act. Unless otherwise indicated, ownership includes sole voting and
investment power.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)(2)
---------------------
NAME NUMBER PERCENT
---- ---------- -------
<S> <C> <C>
Boston Chicken, Inc.(3)................. 18,546,310 54.0%
Scott A. Beck(4)........................ 131,652 *
Mark R. Goldston(5)..................... 277,092 *
David G. Stanchak....................... 67,352 *
Michael J. Beaudoin(6).................. 45,423 *
Paul A. Strasen(7)...................... 27,789 *
Joel M. Alam(8)......................... 25,164 *
Kyle T. Craig........................... 63,603 *
M. Laird Koldyke(9)..................... 492,926 1.5%
Gail A. Lozoff(10)...................... 563,568 1.7%
John H. Muehlstein, Jr.................. 21,075 *
John A. Offerdahl(11)................... 1,017,770 3.1%
Lloyd D. Ruth(12)....................... 74,010 *
Daniel V. Colangelo(13)................. 188,147 *
All directors and executive officers as
a group (excluding Messrs. Beaudoin
and Colangelo) (14 persons)........... 2,967,206 8.9%
</TABLE>

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

* Less than 1%.

(1) Includes shares subject to options granted by the Company which are
exercisable within 60 days of May 28, 1997 as follows: Mr.
Goldston -- 13,903; Mr. Stanchak -- 8,495; Mr. Beaudoin -- 19,795; Mr.
Strasen -- 16,537; Mr. Alam -- 16,537; Mr. Craig -- 19,844; Mr.
Koldyke -- 4,318; Ms. Lozoff -- 12,289; Mr. Muehlstein -- 4,318; Mr.
Offerdahl -- 42,447; Mr. Ruth -- 4,318; and all executive officers and
directors as a group (including such individuals, except Mr.
Beaudoin) -- 177,821. 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 Messrs. Beck and Goldston because such individuals
may be deemed to be affiliates of Boston Chicken. Messrs. Beck and Goldston
disclaim any beneficial ownership of such shares (except for, with respect
to Mr. Goldston, that number of shares of Common Stock subject to options
granted by Boston Chicken to Mr. Goldston that were exercisable as of May
28, 1997). See Footnotes 3 and 5 below.

(2) Includes shares subject to outstanding warrants of the Company as follows:
Mr. Beck -- 55,432; Mr. Stanchak -- 9,563; Mr. Muehlstein -- 2,391; Mr.
Ruth -- 1,913; and all executive officers and directors as a group
(including such individuals) -- 74,980.

(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 264,623 shares of Common Stock are exercisable
within 60 days of May 28, 1997. Includes 1,249,135 shares subject to
options granted by the Company which are exercisable within 60 days of May
28, 1997. The address of Boston

30
<PAGE> 32

Chicken is 14103 Denver West Parkway, Golden, Colorado 80401-4086. See
"Relationship with Boston Chicken."

(4) Includes 17,948 shares held by a limited partnership, of which Mr. Beck is
the general partner.

(5) Includes 230,931 shares of Common Stock subject to options from Boston
Chicken which are currently exercisable within 60 days of May 28, 1997.

(6) Mr. Beaudoin resigned as Senior Vice President -- Supply Chain of the
Company in February 1997.

(7) Includes 3,653 shares held by a trust, of which Mr. Strasen is a trustee
and beneficiary, and 5,099 shares held by a limited liability company,
which Mr. Strasen and his spouse control.

(8) Includes 2,039 shares beneficially owned by Mr. Alam's spouse, which are
subject to options from the Company exercisable within 60 days of May 28,
1997. Mr. Alam disclaims beneficial ownership of such shares.

(9) Represents 488,608 shares of Common Stock held by a limited partnership,
the general partner of which is an entity of which Mr. Koldyke is a general
partner. Mr. Koldyke disclaims beneficial ownership of all such shares
which exceed his pecuniary interest.

(10) Includes 546,850 shares of Common Stock held by a corporation, of which Ms.
Lozoff's spouse is the sole stockholder. Ms. Lozoff disclaims beneficial
ownership of such shares.

(11) Includes 932,876 shares of Common Stock held by a limited partnership, of
which corporations controlled by Mr. Offerdahl and his spouse are the sole
limited partner and the general partner. Also includes 42,447 shares
beneficially owned by Mr. Offerdahl's spouse, which are subject to options
from the Company exercisable within 60 days of May 28, 1997, of which
shares Mr. Offerdahl disclaims beneficial ownership.

(12) Includes 63,405 shares of Common Stock held by two limited partnerships,
the general partner of which is a limited partnership of which Mr. Ruth is
a general partner. Mr. Ruth disclaims beneficial ownership of all such
shares which exceed his pecuniary interest.

(13) Mr. Colangelo resigned as President and Chief Executive Officer of the
Company in January 1996.

PERSONAL HOLDING COMPANY TAX

Under Section 541 of the Internal Revenue Code of 1986, as amended (the
"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 sources of income during 1996 were such that the Income Test
was not satisfied and consequently that the PHC Tax did 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 during 1997 and future years. The Company also believes that, as of
April 20, 1997, its five largest individual stockholders did 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.

31
<PAGE> 33

OWNERSHIP OF BOSTON CHICKEN COMMON STOCK

The following table sets forth certain information regarding the beneficial
ownership of Boston Chicken common stock as of May 28, 1997 by (i) each
director; (ii) each executive officer named in the Summary Compensation Table
under "Executive Compensation;" and (iii) all directors and executive officers
as a group. The beneficial ownership reflected in the following table is
calculated in accordance with Rule 13d-3 under the Exchange Act. Unless
otherwise indicated, ownership includes sole voting and investment power.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
-----------------------
NAME NUMBER(1)(2) PERCENT
---- ------------ -------
<S> <C> <C>
Scott A. Beck(3)........................ 5,972,894 9.0%
Mark R. Goldston........................ 112,499 *
David G. Stanchak....................... 532,230 *
Michael J. Beaudoin..................... 4,683 *
Paul A. Strasen......................... 120 *
Joel M. Alam(4)......................... 18,063 *
Kyle T. Craig........................... 81,223 *
M. Laird Koldyke........................ 0 *
Gail A. Lozoff(5)....................... 303,677 *
John H. Muehlstein, Jr.................. 5,000 *
John A. Offerdahl(6).................... 77,589 *
Lloyd D. Ruth........................... 0 *
Daniel V. Colangelo..................... 0 *
All directors and executive officers as
a group (excluding Messrs. Beaudoin
and Colangelo) (14 persons)........... 7,765,432 11.6%
</TABLE>

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

* Less than 1%.

(1) Includes shares subject to options which are exercisable within 60 days of
May 28, 1997 as follows: Mr. Beck -- 608,510; Mr. Goldston -- 112,499; Mr.
Stanchak -- 137,050; Mr. Beaudoin -- 1,823; Mr. Alam -- 12,480; Mr.
Craig -- 54,075; and all executive officers and directors as a group
(including such individuals, except Mr. Beaudoin) -- 1,026,980.

(2) Excludes an aggregate of 3,019,123 of the 5,261,430 shares of common stock
of Boston Chicken beneficially owned by BC Midwest Trust, 207,702 of the
312,333 shares of common stock of Boston Chicken beneficially owned by
certain partnerships, and 3,723 of the 7,447 shares of common stock of
Boston Chicken beneficially owned by BC Midwest, Inc., 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 such excluded shares because they exceed his pecuniary interest
as a beneficiary of BC Midwest Trust, as a limited partner of such
partnerships and as a stockholder of BC Midwest, Inc. Also excludes 10,610
shares of common stock of Boston Chicken held by Mr. Beck's spouse, of which
shares he disclaims beneficial ownership.

(3) Excludes 360,000 shares gifted by Mr. Beck to charitable organizations in
May 1997 and includes 24,719 shares of Boston Chicken common stock issuable
upon conversion of $660,000 in aggregate principal amount of Boston
Chicken's 7 3/4% convertible subordinated debentures due 2004.

(4) Includes 1,300 shares held jointly by Mr. Alam and his spouse, 25 shares
held by his spouse, 300 shares held by Mr. Alam's minor children, and 3,598
shares beneficially owned by Mr. Alam's spouse which are subject to options
from Boston Chicken exercisable within 60 days of May 28, 1997. Mr. Alam
disclaims beneficial ownership of the shares held by his minor children and
by his spouse individually.

(5) Represents shares owned by a corporation, of which Ms. Lozoff's spouse is
the sole stockholder. Ms. Lozoff disclaims beneficial ownership of such
shares.

(6) Represents shares owned by a limited partnership, of which corporations
controlled by Mr. Offerdahl and his spouse are the sole limited partner and
the general partner.

32
<PAGE> 34

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth compensation for each of the fiscal years
ended December 29, 1996 and December 31, 1995 received by the Company's Chief
Executive Officer and the Company's four other most highly compensated executive
officers (the "named executive officers"). The Company was incorporated in
February 1995 and did not conduct business prior to that time. The Company does
not have a restricted stock award program or a long-term incentive plan.

<TABLE>
<CAPTION>
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND COMPEN- OPTIONS COMPEN-
PRINCIPAL POSITION(1) YEAR SALARY BONUS SATION (#) SATION(2)
--------------------- ---- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Goldston..................... 1996 $256,154 $400,000 $ 0 139,030 $ 0
President and Chief Executive
Officer 1995 -- -- -- -- --
David G. Stanchak.................... 1996 149,038 0 0 45,518 0
Chief Development Officer 1995 90,865 0 0 42,483 4,629
Michael J. Beaudoin(3)............... 1996 149,038 0 0 70,518 0
Senior Vice President -- Supply
Chain 1995 60,096 0 0 42,483 0
Paul A. Strasen...................... 1996 125,000 0 0 37,931 0
Senior Vice President and General 1995 81,731 0 0 42,483 58,693
Counsel
Joel M. Alam......................... 1996 125,000 0 0 37,931 0
Senior Vice President and Secretary 1995 79,327 0 0 42,483 0
</TABLE>

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

(1) Daniel V. Colangelo served as President and Chief Executive Officer of the
Company until January 1996. During fiscal year 1995, the Company paid Mr.
Colangelo total cash compensation of $103,462 in salary and $47,375 in
bonus, and during fiscal year 1996, the Company paid Mr. Colangelo total
cash compensation of $67,308 in salary. During 1995 and 1996, the Company
granted Mr. Colangelo options to purchase an aggregate of 50,979 and 37,931
shares of Common Stock, respectively. The Company paid Mr. Colangelo no
other compensation during such fiscal years.

(2) Amounts represent relocation reimbursements.

(3) Mr. Beaudoin resigned as Senior Vice President -- Supply Chain in February
1997.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth individual grants of stock options made by
the Company to the named executive officers during the fiscal year ended
December 29, 1996.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
OPTIONS GRANTED EXERCISE OPTION TERM(3)
DATE OF OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION ---------------------------
NAME(1) GRANT(2) GRANTED(3) FISCAL YEAR PRICE DATE 5% 10%
------- -------- ---------- ---------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark R.
Goldston(4)........ 4/8/96 114,030 5.86% $10.5236 4/8/2006 $754,677 $1,912,501
7/19/96 25,000 1.28 12.0000 7/19/2006 188,688 478,123
David G. Stanchak.... 1/16/96 45,518 2.34 6.5909 1/16/2006 188,671 478,130
Michael J.
Beaudoin........... 1/16/96 45,518 2.34 6.5909 1/16/2006 188,671 478,130
7/19/96 25,000 1.28 12.0000 7/19/2006 188,688 478,123
Paul A. Strasen...... 1/16/96 37,931 1.95 6.5909 1/16/2006 157,223 398,435
Joel M. Alam......... 1/16/96 37,931 1.95 6.5909 1/16/2006 157,223 398,435
</TABLE>

33
<PAGE> 35

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

(1) On January 16, 1996, the Company granted Mr. Colangelo options to purchase
an aggregate of 37,931 shares of Common Stock at an exercise price of
$6.5909 per share. Such options represent 1.95% of the total number of
options granted to employees during fiscal year 1996 and expire January 16,
2006. See "Certain Transactions -- Employment and Consulting Agreements."
The potential realizable values of such options at assumed annual rates of
stock price appreciation of 5% and 10% during the term of the options are
$157,223 and $398,435, respectively. See Footnote 3.

(2) Options granted become exercisable with respect to 10% of the total number
of shares on the first anniversary of the date of grant, an additional 20%
on the second anniversary of the date of grant, an additional 30% on the
third anniversary of the date of grant, and the balance on the fourth
anniversary of the date of grant.

(3) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
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.

(4) Excludes 344,673 shares of Common Stock subject to options granted to Mr.
Goldston in April 1996 by Boston Chicken on shares of Common Stock owned by
Boston Chicken with an exercise price of $6.38 per share.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth for the named executive officers' aggregated
information concerning each exercise of stock options during the fiscal year
ended December 29, 1996 and the fiscal year-end value of unexercised options.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
NAME(1) EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Mark R. Goldston............ 0 $ 0 0/139,030 $ 0/$2,653,515
David G. Stanchak........... 4,249 24,193 0/ 83,749 0/ 1,977,015
Michael J. Beaudoin......... 0 0 4,248/108,753 101,910/ 2,423,985
Paul A. Strasen............. 0 0 4,248/ 76,166 101,910/ 1,800,454
Joel M. Alam................ 0 0 4,248/ 76,166 101,910/ 1,800,454
</TABLE>

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

(1) During fiscal year 1996, Mr. Colangelo exercised options to purchase an
aggregate of 50,979 shares of Common Stock and realized an aggregate of
$35,996 upon such exercise. At December 29, 1996, Mr. Colangelo retained
options to purchase 37,931 shares of Common Stock, all of which were
exercisable as of such date, having an aggregate value of $883,189 as of
such date.

STOCK OPTION PLANS

The purpose of the Company's Amended and Restated 1995 Stock Option Plan
(the "Employee Plan") is to benefit the Company by offering certain present and
future employees, officers and consultants of the Company and its subsidiaries
an opportunity to become holders of Common Stock over a period of years, thereby
giving them a stake in the growth and prosperity of the Company and to encourage
them to continue their involvement with the Company. Under the Employee Plan,
eligible persons may be granted options to purchase an aggregate of not more
than 5,500,000 shares of Common Stock. Such options are not intended to be
treated as incentive stock options as defined in Section 422 of the Code .

Each director who is not an officer or employee of the Company is eligible
to participate in the Company's 1996 Stock Option Plan for Non-Employee
Directors (the "Directors Plan"). The purpose of the Directors Plan is to
benefit the Company by offering certain present and future directors who are not
employees or officers of the Company and its subsidiaries an opportunity to
become holders of Common Stock over a period of years, thereby giving them a
stake in the growth and prosperity of the Company in order to

34
<PAGE> 36

enable them to represent the viewpoint of other stockholders of the Company more
effectively and to encourage them to continue serving as directors of the
Company.

Under the Directors Plan, options for shares having a fair market value of
$50,000 at the date of grant 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. An aggregate of 100,000 shares is available for option grants
under the Directors Plan. Such options are not intended to be treated as
incentive stock options as defined in Section 422 of the Code. As of March 17,
1997, each of Messrs. Koldyke, Muehlstein and Ruth had received options to
purchase 4,318 shares of Common Stock under the Directors Plan, at an exercise
price of $11.58 per share and as of May 11, 1997, each of Messrs. Koldyke,
Muehlstein, Offerdahl and Ruth had received options to purchase 2,564 shares of
Common Stock at an exercise price of $19.50 per share, in each case under the
Directors Plan.

DIRECTOR COMPENSATION

In addition to annual grants under the Directors Plan, each director who is
not an officer or employee of, or consultant to, the Company receives $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 or were executive or other officers of the
Company. See "Certain Transactions -- Employment and Consulting Agreements."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following persons served as members of the Compensation Committee of
the Board of Directors during the year ended December 29, 1996: Scott A. Beck,
M. Laird Koldyke, John H. Muehlstein, Jr., and Lloyd D. Ruth.

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 Chairman of the Board, President 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.

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 certain current and former 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 Mr.
Colangelo was a shareholder (the "Brackman Acquisition"). The consideration paid
by the Company consisted of 573,750 shares of Common Stock and

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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 "-- Employment and Consulting
Agreements."

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"), Frontenanc VI, Limited Partnership ("Frontenac"), of which
Mr. Koldyke is a general partner, Marquette Venture Partners II, L.P.
("Marquette") and MVP II Affiliates Fund, L.P. ("MVP II"), the general partner
of each of which is an entity of which Mr. Ruth is a general partner, and
Pedersen Bagel Investments Joint Venture ("Pedersen Bagel"), of which Mr.
Muehlstein is a general partner, purchased 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 capital stock
of Noah's for an aggregate purchase price of $100.9 million in cash. Noah Alper,
formerly a Vice Chairman of the Board, received an aggregate of $10,274,268 from
the Company in such acquisition. Also in connection with such acquisition, a
trust, of which Mr. Alper is the beneficiary and trustee, purchased 93,600
shares of Common Stock for an aggregate purchase price of $984,672, the fair
market value of such shares on the date of purchase.

CONCURRENT PUBLIC OFFERING

In connection with the Company's initial public offering in August 1996,
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 in a concurrent non-underwritten
public offering at the initial public offering price net of underwriting
discount (the "Concurrent Public Offering"). In the Concurrent Public Offering,
certain current and former executive officers and directors of the Company (none
of whom were members of the committee of the Board of Directors who negotiated
the offering price) purchased an aggregate of 45,360 of such shares of Common
Stock as follows: Mr. Beck -- 8,612;

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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 current and former executive officers and directors of
Boston Chicken (other than Messrs. Beck and Goldston) also purchased an
aggregate of 39,500 shares of Common Stock.

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.
Goldston, Craig, Alper, Stanchak, Beaudoin, Butler, Beck and Colangelo, as well
as Mr. Alam and his spouse, and with certain stockholders of the Company, which
are entities controlled by certain executive officers and directors of the
Company or their spouses, including Mr. Strasen and his spouse, Mr. Offerdahl
and his spouse, Mr. Koldyke, Mr. Ruth, Mr. Muehlstein and Ms. Lozoff's spouse.
Pursuant to such agreement, the Company granted certain piggyback and resale
registration rights under the Securities Act with respect to shares of Common
Stock owned by such stockholders (the "Registrable Securities"). The Company has
registered under the Securities Act the Registrable Securities held by such
stockholders (except for shares owned by Messrs. Beck and Goldston), which
permit them to make public resales of the Registrable Securities in accordance
with the requirements of the Securities Act.

TRANSACTIONS WITH AREA DEVELOPERS

Sunbelt Bagels, L.L.C. Lawrence Beck, Scott Beck's father, is a minority
investor in Sunbelt Bagels, L.L.C. ("Sunbelt"). Sunbelt's predecessors, BCE SLC
Bagels, L.L.C., later renamed BCE West Bagels, L.L.C. ("BCE West") and BCE West
Bagels, L.L.C. ("Old BCE West") entered into convertible secured loan agreements
and area development agreements with the Company. At the time of execution of
such agreements, Lawrence Beck was the majority owner of Old BCE West and BCE
West. In connection with the execution of such agreements, the Company sold to
Old BCE West and BCE West the Company-operated stores and other assets located
in certain of their respective 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 Sunbelt and its predecessors
are as favorable to the Company as terms of agreements that could be negotiated
by the Company with unrelated third parties. In fiscal 1995 and 1996, Sunbelt's
predecessors paid to the Company an aggregate of $2,100,714 and $3,960,832,
respectively, in development, franchise, royalty, real estate, software
maintenance and miscellaneous fees, interest and deposits. The Company believes
that the terms of the area development agreement and each franchise agreement
entered into with Sunbelt are as favorable to the Company as those with other
area developers of the Company. The Company also believes that the terms of the
secured loan agreement with Sunbelt are as favorable to the Company as those
with other area developers of the Company to whom the Company has loaned money.

Colonial Bagels, L.P. Lawrence Beck is a minority investor in the general
partner of Colonial Bagels, L.P. ("Colonial"). Effective June 17, 1996, the
Company entered into a convertible secured loan agreement and an area
development agreement with 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 $597,115,
pursuant to an asset sale agreement. The Company realized no significant gain or
loss on such sale. In fiscal 1996, Colonial paid to the Company an aggregate of
$1,877,466 in development, franchise, royalty, real estate, software maintenance
and miscellaneous fees, interest and deposits. The Company believes that the
terms of the area development agreement and each franchise agreement entered
into with Colonial are as favorable to the Company as those with other area
developers of the Company. The Company also believes that the terms of the
secured loan agreement and asset sale agreement with Colonial are as favorable
to the Company as those with other area developers of the Company to whom the
Company has loaned money and sold assets.

Noah's Pacific, L.L.C. Noah Alper owns a minority equity interest in Noah's
Pacific, L.L.C. ("Noah's Pacific"). Effective June 17, 1996, the Company entered
into a convertible secured loan agreement and an

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area development agreement with Noah's Pacific. In connection with the execution
of such agreements, the Company sold to Noah's Pacific the Company stores and
certain assets located in certain of those DMAs at net book value for an
aggregate purchase price of $10,482,762, 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. In fiscal 1996,
Noah's Pacific paid to the Company an aggregate of $3,713,608 in development,
franchise, royalty, real estate, software maintenance and miscellaneous fees,
interest and deposits. The Company believes that the terms of the area
development agreement and each franchise agreement entered into with Noah's
Pacific are as favorable to the Company as those with other area developers of
the Company. The Company also believes that the terms of the secured loan
agreement and asset sale agreement with Noah's Pacific are as favorable to the
Company as those with other area developers of the Company to whom the Company
has loaned money and sold assets.

Noah's Bay Area Bagels, L.L.C. Noah Alper owns a minority equity interest
in Noah's Bay Area, L.L.C. ("Noah's Bay Area"). Effective July 15, 1996, the
Company entered into a convertible secured loan agreement and an area
development agreement with Noah's Bay Area. In connection with the execution of
such agreements, the Company sold to Noah's Bay Area the Company stores and
certain assets located in those DMAs at net book value for an aggregate purchase
price of $9,542,001, 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. In fiscal 1996, Noah's Bay
Area paid to the Company an aggregate of $3,761,002 in development, franchise,
royalty, real estate, software maintenance and miscellaneous fees, interest and
deposits. The Company believes that the terms of the area development agreement
and each franchise agreement entered into with Noah's Bay Area are as favorable
to the Company as those with other area developers of the Company. The Company
also believes that the terms of the secured loan agreement and asset sale
agreement with Noah's Bay Area are as favorable to the Company as those with
other area developers of the Company to whom the Company has loaned money and
sold assets.

Other Area Developers. Bagel Funding owns a majority equity interest in all
of the Company's area developers and certain officers and directors of the
Company own equity interests in Bagel Funding. See "-- Bagel Store Development
Funding, L.L.C." In addition to the transactions between the Company and each of
Sunbelt, Sunbelt's predecessors, Colonial, Noah's Pacific and Noah's Bay Area
described above, in fiscal 1995 and 1996, the Company entered into convertible
secured loan agreements and area development agreements with its other area
developers. In connection with the execution of such agreements, the Company
sold to such area developers the Company stores and related assets located in
the area developers' respective DMAs at net book value for an aggregate purchase
price of $29,430,721 in fiscal 1996, pursuant to asset sale agreements, and
entered into franchise agreements for each such store. The Company realized no
significant gain or loss on any of such sales. In fiscal 1996, such area
developers paid to the Company an aggregate of $19,637,563 in development,
franchise, royalty, real estate, software maintenance and miscellaneous fees,
interest and deposits. The Company believes that the terms of the area
development agreements and franchise agreements entered into with such area
developers are as favorable to the Company as those with its other area
developers. The Company also believes that the terms of the secured loan
agreements and asset sale agreements with such area developers are as favorable
to the Company as those with its other area developers of the Company to whom
the Company has loaned money.

Area Developer Warrants. On January 15, 1996, in connection with the
formation of the Company's area developers, the Company issued to such entities
warrants to acquire an aggregate of 1,237,050 shares of Common Stock, each at an
exercise price per share of $6.47, the fair market value of the shares of Common
Stock on the date the warrants were sold. All of such warrants have been
exercised.

BAGEL STORE DEVELOPMENT FUNDING, L.L.C.

Bagel Funding was formed in December 1995 to invest in the Company's area
developers. Bagel Funding has raised $89.5 million, all of which has been
invested in the Company's area developers. Bagel Funding has the right to
require an area developer to redeem Bagel Funding's equity interest in such area
developer at a pre-determined formula price based on the store level cash flow
of the area developer in the event: (i) the Company acquires a majority equity
interest in the area developer pursuant to the exercise of its conversion or

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option rights under the area developer's secured loan agreement; (ii) the
Company does not consent to the area developer's request to undertake a firm
commitment underwritten public offering of such area developer's equity after
the Company's conversion and option rights under its loan agreement with the
area developer have expired unexercised; or (iii) the Company does not consent
to the area developer's request to terminate the area developer's area
development and franchise agreements with the Company after the Company's
conversion and option rights under its loan agreement with the area developer
have expired unexercised. 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 is currently the manager of Bagel Funding, but has no equity
interest in Bagel Funding. The Company may be removed as manager at any time
with or without cause by action of a majority in interest of Bagel Funding's
members. Prior to such time as the Company ceases to be the 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 or Boston Chicken. 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 will be governed by applicable
Delaware law.

At such time as the Company ceases to be the manager of Bagel Funding, each
of the members of Bagel Funding's 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, at such time as the Company ceases to be the
manager of Bagel Funding, the equity interests of Bagel Funding in the Company's
area developers will automatically be converted from nonvoting equity interests
to voting equity interests, which will have the power to select the manager or
general partner, as applicable, of each of the Company's area developers.

Bagel Funding has also acquired from the Company, for an aggregate purchase
price of $45,000, warrants to acquire 1,012,500 shares of Common Stock of the
Company having an exercise price of $6.47 per share (the "Bagel Funding
Warrants"), or 11,250 shares of Common Stock for every $1.0 million of capital
committed to Bagel Funding. The Bagel Funding Warrants have a term of five
years. Bagel Funding has distributed to its members Bagel Funding Warrants
covering 998,860 shares of Common Stock.

The Company received fees of $500,000 during 1996 for serving as manager of
Bagel Funding and it will be entitled to receive fees of $10,000 for 1997 and
each year thereafter during which it serves as manager.

Messrs. Scott Beck, Butler, Carlborg, Muehlstein, Ruth and Stanchak each
own a direct equity interest in Bagel Funding. Such interests aggregate
approximately 8.2% of the outstanding equity interest in Bagel Funding. Certain
executive officers and directors of Boston Chicken own direct or indirect equity
interests in Bagel Funding. Such interests, excluding interests owned by Scott
Beck, aggregate approximately 10.8% of the outstanding equity interest in Bagel
Funding.

EMPLOYMENT AND CONSULTING AGREEMENTS

On March 6, 1996, the Company entered into a consulting agreement with Mr.
Colangelo in connection with his resignation as President and Chief Executive
Officer of the Company. Pursuant to the consulting agreement, Mr. Colangelo
agreed to, 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

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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, in
January 1996, Mr. Colangelo exercised options granted during 1995 under the
Employee Plan. Mr. Colangelo also retained options to purchase an aggregate of
37,931 shares of Common Stock at an exercise price of $6.5909 per share, which
options were granted in January 1996 and vest in accordance with the Employee
Plan's vesting schedule during the term of the consulting agreement.

On March 24, 1995, in connection with the Company's acquisition of the
assets of Bagel & Bagel, the Company entered into an employment agreement with
Ms. Lozoff, pursuant to which Ms. Lozoff became a Vice President 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 Employee Plan with an exercise price of $5.88 per share.

On September 23, 1996, the Company entered into a letter agreement with Mr.
Offerdahl in connection with his resignation as an officer of the Company and
termination of his employment agreement with the Company effective July 26,
1996. Pursuant to such letter agreement, the vesting of options to purchase
42,483 shares of Common Stock at an exercise price of $5.88 per share was
accelerated in accordance with the terms of Mr. Offerdahl's employment
agreement.

On September 23, 1996, the Company entered into a letter agreement with
Lynnora Offerdahl, Mr. Offerdahl's spouse, in connection with her resignation as
a consultant to the Company and termination of her consulting agreement with the
Company effective August 11, 1996. Pursuant to such letter agreement, the
vesting of options to purchase 42,483 shares of Common Stock at an exercise
price of $5.88 per share was accelerated in accordance with the terms of Ms.
Offerdahl's consulting agreement.

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, the 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 Employee 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 Employee 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, the fair market value of the shares of Common
Stock on the date of purchase.

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.
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. 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. In addition, Boston Chicken granted to Mr. Goldston options
(outside of Boston Chicken's employee option plans) to purchase an additional
100,000 shares of Boston Chicken common stock at an exercise price of $16.00 per
share, the fair market value of the Boston Chicken common stock on the date of
grant. Such options are currently exercisable. In consideration for certain
consulting services rendered to Boston Chicken by Mr. Goldston and a consulting
firm of which Mr. Goldston was a principal, Boston Chicken has paid an aggregate
of $1,818,086 to such firm for consulting services rendered during fiscal years
1995 and 1996. Boston Chicken has also granted to Mr. Goldston an option to
purchase from Boston Chicken 344,673 shares of the Company's Common Stock at an
exercise price of $6.38 per share.

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On July 1, 1996, the Company entered into a transition and consulting
agreement with Mr. Craig in connection with his resignation as Chairman of the
Board of the Company, pursuant to which Mr. Craig will continue as a full-time
employee of the Company until June 30, 1997 and will provide consulting services
to the Company for a period of one year thereafter. As an employee of the
Company, Mr. Craig was paid approximately $3,600 bi-weekly through the end of
fiscal 1996 and will be paid 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.

In connection with Mr. Alper's resignation as a director of the Company,
the Company agreed to the continued vesting of Mr. Alper's options to purchase
4,751 shares of the Company's Common Stock until March 26, 1998. The exercise
price of such options is $10.52 per share.

BOWANA AVIATION, INC.

During the fiscal 1996, the Company made payments in an aggregate amount of
$98,000 to Bowana Aviation, Inc. ("Bowana") pursuant to lease agreements between
Bowana and the Company for the use of Bowana's aircraft. Such lease agreements
were terminated in July 1996. Mr. Beck and Lawrence Beck own Bowana. The Company
believes that the terms of its use of Bowana's aircraft were at least as
favorable to the Company as those it could have obtained from an unaffiliated
party.

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 accrued at the reference rate announced by Bank of America Illinois
from time to time plus 1%. 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 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 that 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. As of March 17, 1997,
an aggregate of $2,085,887 in principal and accrued interest was outstanding
under such loans.

Also in connection with the Company's acquisition of the assets of OBG, 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 prior to
such date in whole or in part under certain circumstances.

OTHER RELATIONSHIPS

Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
stockholders, 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

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area developers. The annual rental payments under the lease and sublease, each
of which terminates in May 2009, aggregate $72,000.

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 its
loan to the Company 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. The agreements relating to financial services and
real estate services were terminated in 1996.

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, 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
June 6, 1997, 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 an applicable margin. In fiscal 1996, the Company
paid to Boston Chicken $6,084,893 in interest under its loans with Boston
Chicken. Any borrowings outstanding under the Company's non-convertible loan
facility from Boston Chicken are payable on June 15, 2003.

Boston Chicken may satisfy a portion of its funding obligations under the
non-convertible 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. During
fiscal 1996, Boston Chicken issued to the Company, and the Company 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 Company's secured revolving credit facility with
Bank of America Illinois, Boston Chicken agreed to subordinate all of its loans
to the Company 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.

42
<PAGE> 44

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

In connection with the Company's initial public offering and the Concurrent
Public Offering in August 1996, the Company entered into a concurrent private
placement agreement (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 initial public offering price per share, net of
underwriting discount. The Concurrent Private Placement Agreement includes
customary terms and provisions, representations and warranties and
indemnification obligations. In addition, the Concurrent Private Placement
Agreement permits Boston Chicken to maintain ownership of shares of Common Stock
having up to 52% of the voting power of all of the outstanding shares of capital
stock of the Company having the power generally to vote in the election of
directors pursuant to an option (the "BCI Option") to purchase newly issued
shares of Common Stock for cash or registered shares of Boston Chicken common
stock at a per share exercise price equal to the (i) the weighted average price
per share at which the Common Stock was issued or sold in a transaction pursuant
to which the BCI Option becomes exercisable, in the case of a transaction in
which such price per share is readily ascertainable, or (ii) in all other cases,
the average of the closing sale prices for the Common Stock on the Nasdaq
National Market (or such other principal exchange or market on which the Common
Stock may then be trading) for the five trading days ending on the fifth trading
day prior to the date of the transaction pursuant to which the BCI Option
becomes exercisable, but subject in each case to adjustments for issuances of
shares of Common Stock in connection with recapitalizations, dividends, stock
splits, consolidations of shares and other diluting events. In the event payment
is made in registered shares of Boston Chicken common stock, Boston Chicken will
guarantee the price at which those shares can be sold at the market within a
limited time period. The BCI Option will terminate if (i) Boston 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 held approximately 50.2% of the voting stock of the Company as of May
28, 1997, and, accordingly, had the right to purchase 1,249,135 additional
shares of Common Stock under the BCI Option at prices ranging from $17.50 to
$30.75. 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

43
<PAGE> 45

registrations (other than underwriting discounts or commissions). Boston
Chicken's demand registration rights under the Boston Chicken Registration
Agreement became exercisable on September 27, 1996.

In connection with a public offering of shares by the Company in November
1996, the Company entered into a concurrent offering purchase agreement (the
"Concurrent Offering Purchase Agreement") with Boston Chicken, pursuant to which
Boston Chicken purchased an aggregate of 500,000 shares of Common Stock at
$28.575 per share. 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 purchased
thereby by Boston Chicken constitute Registrable Securities under the Boston
Chicken Registration Agreement.

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 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. During
fiscal 1995 and 1996, the Company paid to Boston Chicken fees aggregating
$489,750 and $720,800, respectively, under such agreement.

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 nonpayment 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 paid to Boston Chicken in fiscal 1995 and 1996
fees aggregating approximately $500,000 and $125,000, respectively. 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 area
developers in conducting certain real estate-related activities, including site
analysis, advisory services regarding customer trade area studies and other real
estate matters. Pursuant to the Real Estate Services Agreement, the Company paid
to Boston Chicken in fiscal 1995 and 1996 fees aggregating $280,000 and
$315,000, respectively. 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 a computer
and communications systems services agreement, subsequently amended and restated
in May 1996 and June 1996 to make certain changes to such agreement (the
"Computer Services Agreement"), pursuant to which (i) the Company has agreed to
acquire communications and computer systems or hardware specified or required
from time to time

44
<PAGE> 46

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), (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, in addition to other miscellaneous fees, 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 area developers (excluding the revenue derived from Noah's
New York Bagels stores) for each of the 1999 and 2000 fiscal years. Pursuant to
the Computer Services Agreement, the Company and its subsidiaries paid to Boston
Chicken in fiscal 1995 and 1996 fees aggregating $234,823 and $2,943,251,
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.

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 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.

OTHER RELATIONSHIPS BETWEEN BOSTON CHICKEN AND THE COMPANY

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

45
<PAGE> 47

lease and remedies available upon default. The Company believes the terms and
provisions of the lease, including the rent payable thereunder, are at least as
favorable to the Company as those it could have obtained from an unaffiliated
third party.

The Company is a party to two subleases with Boston Chicken, pursuant to
which the Company is entitled to the non-exclusive use of aircraft leased by
Boston Chicken from unaffiliated leasing companies. Under the subleases, the
Company is obligated to pay to Boston Chicken between $1,900 and $2,800
(depending on the type of aircraft) for each hour of flight time such aircraft
is used by the Company. There is no minimum monthly use requirement or lease
payment under either of the subleases, and both subleases may be terminated by
either party upon 30 days' written notice. The Company believes that costs
incurred by it under the subleases are lower than the costs it would incur to
lease and maintain its own aircraft from an unaffiliated third party lessor and
slightly higher than the costs it would incur to charter individual aircraft on
a spot-basis from unaffiliated third party lessors. However, the Company
believes that such higher costs are reasonably related to the benefits to the
Company from the subleases, including aircraft availability and higher
maintenance standards, that it would not realize from charter arrangements with
unaffiliated third party lessors. During fiscal 1996, the Company paid to Boston
Chicken an aggregate of $469,128 under the two subleases.

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 nine 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 or 1997 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 its loan agreement with the
Company, 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 current and former 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, former Executive Vice
President, 15,294 shares; Donald J. Bingle, former Vice President, General
Counsel and Secretary, 10,195 shares; and Mark A. Link, Vice
President -- Financial Reporting, 10,195 shares.

See also "Risk Factors -- Relationship with 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 May 28, 1997, the
Company had 33,068,428 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 have been filed as exhibits to
the Registration

46
<PAGE> 48

Statement of which this Prospectus forms a part. See "Risk
Factors -- Anti-Takeover Effect of Charter, Statutory and Other 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
"Price Range of Common Stock and Dividend Policy." In the event of a
liquidation, dissolution, or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and have no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon consummation of
the Offerings will be, fully paid and nonassessable. The board of directors may
issue additional authorized shares of Common Stock without further action by the
stockholders.

PREFERRED STOCK

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

As of May 28, 1997, no shares of Preferred Stock were outstanding, and the
Company has no present plan to issue any shares of Preferred Stock.

CERTAIN CHARTER, BYLAW, AND OTHER PROVISIONS

The Certificate of Incorporation of the Company requires that any action
permitted to be taken by the stockholders of the Company must be effected at a
duly-called annual or special meeting of stockholders and may not be effected by
a written consent. In addition, the Bylaws of the Company require 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 the stockholders.
Specifically, for business properly to be brought before any meeting of
stockholders by a stockholder, the stockholder must deliver to the Secretary of
the Company a notice not less than 30 days nor more than 60 days prior to the
date of the meeting. If less than 40 days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, the notice must be
received by the Secretary of the Company prior to the date of the meeting and
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. To be in proper written form, the stockholder's notice must include
certain specific information, including a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting. Stockholder nominations for election of a director must
comply with similar requirements and include all information relating to the
nominee that is required to be disclosed in solicitations of proxies for
election of a director or that is otherwise required pursuant to Regulation 14A
under the Exchange Act, including the nominee's consent to being named in the
proxy statement as a nominee and to serving as a director if elected. The
existence of these provisions in the Certificate of Incorporation and Bylaws may
have the effect of discouraging, delaying, deferring, or preventing a change in
control of the Company or removal of incumbent

47
<PAGE> 49

management even if such change in control or removal could be beneficial to the
Company's stockholders generally.

The terms of the Debentures provide that the Company will be required, as
of 40 business days after the occurrence of a Change in Control of the Company,
to purchase for cash any Debenture, at the option of the holder thereof, for a
Change in Control Purchase Price equal to 100% of the outstanding principal
amount thereof, plus accrued but unpaid interest through the Change in Control
Purchase Date. The Change in Control purchase features of the Debentures may in
certain circumstances have an anti-takeover effect. The definition of "Change in
Control" for purposes of the Debentures is set forth in the Indenture relating
to the Debentures, which is an exhibit to the Registration Statement of which
this Prospectus forms a part.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is LaSalle National
Bank.

48
<PAGE> 50

REGISTERING STOCKHOLDERS

The Shares are being registered hereunder to simplify resale thereof if and
when a Registering Stockholder determines to sell Shares from time to time and
not because of any expressed intent to immediately sell such Shares. The
following table sets forth certain information regarding the ownership of the
Company's Common Stock as of June 2, 1997 by each of the Registering
Stockholders.

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Byron K. Adams, Jr........................... 27,420 * 22,770 4,650 *
Sangwoo Ahn.................................. 18,040 * 4,849 13,191 *
Sangwoo Ahn Family Partnership II............ 4,500 * 4,500 0 *
Joel M. Alam and Bernadette M. Dennehy....... 2,088 * 64 2,024 *
Daniel V. and Lynne K. Alper................. 16,630 * 16,630 0 *
Fred Alper................................... 7,127 * 7,127 0 *
Noah C. Alper or Hope M. Alper ttees Alper
Living Trust u/a/d 7/18/94................. 68,600 * 68,600 0 *
Altgeld Management Corporation............... 46,932 * 25,689 21,243 *
ALTHEO, Inc.................................. 4,397 * 574 3,823 *
Arnold Amster................................ 5,625 * 5,625 0 *
Kyle A. Anderson............................. 10,000 * 10,000 0 *
Avalon Corp.................................. 11,843 * 1,757 10,086 *
Glenn Bacheller.............................. 9,028 * 9,028 0 *
Albert S. and Anne M. Baldocchi.............. 629 * 629 0 *
Albert Steven Baldocchi...................... 199 * 199 0 *
Colorado National Bank, Custodian for Albert
S. Baldocchi Individual Retirement Account
Rollover................................... 1,922 * 1,922 0 *
Baldwin & Lyons, Inc......................... 57,250 * 56,250 1,000 *
Chris Bancroft............................... 4,220 * 4,220 0 *
Bank of America Illinois..................... 15,375 * 15,375 0 *
Bank America Investment Corp................. 28,688 * 28,688 0 *
B&B Holdings, Inc............................ 546,850 1.7% 546,850 0 *
B.B. Trust, B.B. Trust Company Limited,
Trustee.................................... 39,608 * 39,608 0 *
Michael Beaudoin............................. 21,878 * 638 21,240 *
Lawrence Beck................................ 63,587 * 24,668 38,919 *
Belushi Partners II.......................... 13,272 * 5,889 7,383 *
Morris Belzberg.............................. 2,109 * 2,109 0
Reed Berkey.................................. 1,561 * 284 1,277
Steven Berrard............................... 14,421 * 6,773 7,648 *
Bertelsen Family Trust Dated 12/2/88......... 995 * 995 0 *
Best Friends Foundation...................... 108 * 108 0 *
Robert Bielinski............................. 4,721 * 159 4,562 *
Donald J. Bingle............................. 3,520 * 1,020 2,500 *
Theodore A. Bosler Trust..................... 3,391 * 2,391 1,000 *
John D. Bramsen.............................. 22,231 * 2,771 19,460 *
Brau Family Partnership, L.P................. 456,459 1.4% 456,459 0 *
Michael E. and Rachel C. Brau as Trustees of
the Brau Living Trust dtd 1/23/90.......... 6,271 * 6,271 0 *
Charles A. Brickman, Trustee under Trust
dated 6/1/88............................... 21,989 * 2,870 19,119 *
Greg Brightman............................... 598 * 598 0 *
Katherine Buchanan........................... 4,483 * 853 3,630 *
</TABLE>

49
<PAGE> 51

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Kenneth H. Buchanan.......................... 1,561 * 284 1,277 *
Cecily Buntrock Trust No. 1.................. 42,462 * 5,543 36,919 *
Clayton R. Buntrock.......................... 4,923 * 640 4,283 *
Dean L. Buntrock............................. 44,462 * 44,462 0 *
Vincent Buonnano............................. 3,869 * 2,869 1,000 *
Jeffrey L. Butler............................ 101,686 * 80,944 20,742 *
The Butterfield Group, L.L.C. dtd 7/15/92,
Rosemarie Buntrock, Trustee................ 4,923 * 640 4,283 *
Dr. Richard T. Caleel........................ 5,281 * 4,781 500 *
National Bank of Detroit fbo Richard T.
Caleel..................................... 291 * 291 0 *
W. Eric Carlborg............................. 11,365 * 11,365 0 *
Merrill Lynch f/b/o W. Eric Carlborg......... 12,744 * 12,744 0 *
Caruthers Family, LLC........................ 11,413 * 3,530 7,883 *
James S. Cary................................ 7,725 * 7,725 0 *
Century Engineering, Inc. 401 K Profit
Sharing Plan, Bernerd F. Johnson Rollover
Account.................................... 4,886 * 4,886 0 *
Daniel V. Colangelo.......................... 184,354 * 50,979 133,375 *
Colonial Bagels, L.P......................... 169,842 * 169,842 0 *
Peter C. Cook Trust.......................... 9,846 * 1,280 8,566 *
Michael D. Cookson........................... 199 * 199 0 *
Kyle T. Craig................................ 43,759 * 43,759 0 *
John W. Croghan, Trustee..................... 21,989 * 2,870 19,119 *
Martin T. Culver............................. 398 * 398 0 *
Joseph Cusimano IRA Rollover................. 3,825 * 3,825 0 *
D&R, L.L.C................................... 56,250 * 56,250 0 *
Trustees of Dartmouth College................ 7,969 * 7,969 0 *
Deerpath Investment Partners, Ltd. .......... 7,504 * 1,421 6,083 *
Peter Desnoes................................ 17,012 * 7,552 9,460 *
DGF CRT1..................................... 12,052 * 12,052 0 *
DNB, L.P. ................................... 10,620 * 10,620 0 *
Chris B. Dodge............................... 5,921 * 446 5,475 *
Craig J. Duchossois Revocable Trust U/A dated
9/11/89.................................... 10,993 * 1,435 9,558 *
Frank Miller Dunlevy and Susan Dunlevy,
Trustees of Dunlevy Family Trust u/t/d
4/29/94.................................... 796 * 796 0 *
EBB Investors, Inc........................... 23,906 * 23,906 0 *
EB&M Holdings, Ltd........................... 14,344 * 14,344 0 *
Jim Edgemon.................................. 478 * 478 0 *
EE, L.P...................................... 17,948 * 17,948 0 *
F. Warren Ellish............................. 7,329 * 957 6,372 *
The Carlos A. Ferrer 1994 Investment Trust... 398 * 398 0 *
Andrew J. Filipowski......................... 24,438 * 12,685 11,753 *
Jimmy Filler................................. 5,975 * 5,975 0 *
Finest Bagels, L.L.C......................... 115,914 * 115,914 0 *
Brian J. Flynn June, 1992 Non-Exempt Trust... 24,457 * 12,843 11,614 *
Donald F. Flynn, 1993 Trust.................. 13,250 * 11,250 2,000 *
Kevin F. Flynn June 1992 Non-Exempt Trust.... 23,457 * 12,843 10,614 *
Robert Flynn................................. 1,688 * 1,688 0 *
Richard A. Forsythe Revocable Trust.......... 4,781 * 4,781 0 *
J. Richard Fredericks........................ 398 * 398 0 *
</TABLE>

50
<PAGE> 52

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Frontenac VI Limited Partnership............. 488,608 1.5% 63,781 424,827 1.3%
Stuart Fullinwider........................... 16,245 * 3,125 13,120 *
Robert D. Furst, Jr.......................... 695 * 195 500 *
Furst Rudman Investors, L.L.P................ 2,390 * 2,390 0 *
Hollis Geiger, Jr............................ 598 * 598 0 *
Thomas F. Githens Family Partnership......... 6,647 * 2,824 3,823 *
Glenbrook Partners........................... 3,984 * 3,984 0 *
J. Douglas Gray.............................. 3,391 * 2,391 1,000 *
Great Lakes Bagels, L.L.C.................... 105,419 * 103,500 1,919 *
Arnold C. Greenberg.......................... 20,000 * 12,500 7,500 *
Grosvenor Fund, L.P.......................... 2,812 * 2,812 0 *
Robert Guerin................................ 10,620 * 10,620 0 *
Gulfstream Bagels, L.P....................... 72,618 * 72,618 0 *
Miriam and Peter Haas Fund................... 11,954 * 11,954 0 *
Hal P. Harlan................................ 3,825 * 3,825 0 *
Harlan Bagel Supply Co....................... 23,173 * 23,173 0 *
J. Bruce Harreld............................. 2,500 * 2,500 0 *
Nancy Hauge.................................. 4,752 * 4,752 0 *
Bob Haveman.................................. 1,969 * 256 1,713 *
Wallace R. & Alexandra W. Hawley Revocable
Living Trust Dated 7/30/92................. 3,917 * 3,917 0 *
Mark Hayden.................................. 18,967 * 16,467 2,500 *
Hay Property Company, Ltd.................... 4,500 * 4,500 0 *
Theodore Heininger........................... 4,844 * 32 4,812 *
J. Michael Hester............................ 5,738 * 5,738 0 *
James L. Hilmer.............................. 80,473 * 80,278 195 *
A. Barry Hirschfeld.......................... 3,391 * 2,391 1,000 *
Jack R. Hlustik.............................. 1,738 * 96 1,642 *
Brian Lee Holcomb............................ 99 * 99 0 *
Matt Holmes.................................. 2,901 * 1,901 1,000 *
Joe Hoog..................................... 956 * 956 0 *
Hope College................................. 2,461 * 320 2,141 *
H.P. Family Trust............................ 2,461 * 320 2,141 *
William B. Hughson and Margaret Hsia
Revocable Trust............................ 2,566 * 2,566 0 *
Peter H. Huizenga............................ 20,586 * 2,416 18,170 *
Peter H. Huizenga Testamentary Trust dtd
9/1/56..................................... 18,586 * 2,416 16,170 *
William P. Hulligan.......................... 53,025 * 15,106 37,919 *
Barbara Huth................................. 9,772 * 1,276 8,496 *
M Howard Jacobson............................ 1,000 * 500 500 *
JHR Enterprises, Inc......................... 528 * 528 0 *
JMH Associates, Inc. Profit Sharing Fund..... 3,825 * 3,825 0 *
James Jurries................................ 2,461 * 320 2,141 *
James L. Jurries, Trustee of Kristin S.
Jurries Trust dtd 5/21/91.................. 1,231 * 160 1,071 *
James L. Jurries, Trustee of Steven J.
Jurries Trust dtd 12/21/93................. 1,231 * 160 1,071 *
JWC Trust.................................... 3,825 * 3,825 0 *
K & H Sutter Co.............................. 398 * 398 0 *
</TABLE>

51
<PAGE> 53

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ronald G. Kenny.............................. 1,492 * 64 1,428 *
Jeffrey A. Klein............................. 37,094 * 11,095 25,999 *
Karen Klein.................................. 1,426 * 1,426 0 *
KMK & Associates............................. 10,563 * 9,563 1,000 *
James W. Largay.............................. 57,492 * 16,992 40,500 *
Lowell H. Leberman........................... 4,943 * 2,296 2,647 *
Perry J. Lewis............................... 5,974 * 5,974 0 *
Lewis-Sebring Family Foundation.............. 45,444 * 45,444 0 *
Frederick W. Ley............................. 57,198 * 1,595 55,603 *
Mark Link.................................... 2,990 * 64 2,926 *
Gail A. Lozoff............................... 4,249 * 4,249 0 *
James Robert Maher........................... 995 * 995 0 *
Don Manuel................................... 478 * 478 0 *
Miriam G. Margulies.......................... 149 * 149 0 *
Daniel C. Marino, Jr......................... 43,975 * 5,740 38,235 *
Marquette Venture Partners II, L.P........... 62,519 * 31,005 31,514 *
Maverick Fund USA, Ltd....................... 9,563 * 9,563 0 *
Mayfair Bagels, L.L.C........................ 68,831 * 68,831 0 *
W. McDowell, Jr.............................. 2,250 * 2,250 0 *
John and Janet Melk, Joint Tenants........... 49,813 * 47,813 2,000 *
David B. Meltzer............................. 2,869 * 2,869 0 *
D. Michael Meyer............................. 2,109 * 2,109 0 *
M Group Investments, III L.P................. 42,462 * 5,543 36,919 *
James Fox Miller............................. 9,563 * 9,563 0 *
Lewis Miller................................. 2,096 * 983 1,113 *
Jim Mizes.................................... 12,778 * 9,028 3,750 *
C. Barry Montgomery.......................... 3,442 * 319 3,123 *
John A. Morgan............................... 21,416 * 8,225 13,191 *
Morgan, Lewis, Githens & Ahn, L.P............ 14,344 * 14,344 0 *
John B. Morlock.............................. 15,150 * 12,650 2,500 *
Shirley Morlock.............................. 1,276 * 1,276 0 *
Mount Tamalpais School....................... 100 * 100 0 *
John Muehlstein.............................. 16,757 * 16,757 0 *
Dennis B. Mullen............................. 1,100 * 1,100 0 *
Andrew P. Murphy............................. 1,125 * 1,125 0 *
Barbara Musante.............................. 8,152 * 6,652 1,500 *
MVP II Affiliates Fund, L.P.................. 886 * 886 0 *
Alfred G. Nadaff............................. 6,180 * 656 5,524 *
Gary Thomas Naifeh........................... 6,193 * 319 5,874 *
Jeffrey C. Neal.............................. 93,831 * 26,920 66,911 *
Richard S. Neely............................. 1,953 * 1,953 0 *
The Nippon Credit Bank....................... 478 * 478 0 *
Noah's Pacific, L.L.C........................ 126,496 * 126,496 0 *
Stephen A. Norman............................ 195,358 * 7,483 187,875 *
NS Associates, Inc........................... 2,812 * 2,812 0 *
OBG Holdings, Inc. Charitable Remainder
Trust...................................... 250,000 * 250,000 0 *
Offer Partner Limited Partnership............ 682,876 2.1% 682,876 0 *
Alain O'Hayon................................ 478 * 478 0 *
John Otterlei................................ 398 * 398 0 *
Edward M. Palms.............................. 4,943 * 319 4,624 *
</TABLE>

52
<PAGE> 54

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
George G.C. Parker........................... 1,711 * 1,711 0 *
Ronald N. Paul............................... 1,062 * 139 923 *
Nicholas Biddle Paumgarten................... 796 * 796 0 *
Peer Pedersen................................ 131,162 * 131,162 0 *
Joren C. Peterson............................ 12,272 * 1,276 10,996 *
William G. Petty, Jr......................... 985 * 128 857 *
Philly Rose, L.P............................. 92,700 * 92,700 0 *
The Pigott Family Partnership................ 2,123 * 277 1,846 *
The Pisces Fund.............................. 18,894 * 18,894 0 *
Platinum Venture Partners I, L.P............. 19,789 * 2,583 17,206 *
Platinum Venture Partners II, L.P............ 24,186 * 3,157 21,029 *
John E. Plummer.............................. 1,062 * 139 923 *
Kathrin Winne Poole.......................... 98 * 98 0 *
PSR Investments, L.P......................... 9,562 * 9,562 0 *
Steven J. Quamme............................. 5,625 * 5,625 0 *
A.G. Rappaport............................... 12,677 * 8,927 3,750 *
Charles Reeder............................... 3,390 * 2,390 1,000 *
RET Investments, L.P......................... 1,137 * 1,137 0 *
J. Christopher Reyes......................... 17,012 * 7,552 9,460 *
M. Jude Reyes................................ 26,012 * 7,552 18,460 *
Jack S. Rice................................. 1,628 * 1,628 0 *
Jeffrey J. Rice.............................. 1,575 * 1,575 0 *
Mark E. Rice................................. 1,575 * 1,575 0 *
Rodney Rice.................................. 26,568 * 22,818 3,750 *
Peter G. Rogan............................... 1,421 * 1,421 0 *
Jesse T. Rogers and Melinda B. Rogers,
Trustee of the Rogers Family 1995 Trust
Dated 3/31/95.............................. 199 * 199 0 *
Harry T. Rose................................ 6,141 * 2,391 3,750 *
Howard B. Rosenberg.......................... 1,476 * 1,476 0 *
Maurice Rowe................................. 9,122 * 1,276 7,846 *
Royce Family Fund............................ 1,992 * 1,992 0 *
Keith M. Rudman.............................. 196 * 196 0 *
Karen Rugen.................................. 5,433 * 383 5,050 *
Lloyd D. Ruth................................ 6,286 * 6,286 0 *
1989 Ryan Family Trust....................... 85,924 * 11,086 74,838 *
Joseph M. Schell............................. 995 * 995 0 *
Martin S. Schwartz........................... 11,453 * 11,453 0 *
Martin S. Schwartz Trust FBO Stacy
Schwartz................................... 500 * 500 0 *
Penny Bender Sebring......................... 50,934 * 50,934 0 *
Segal Family Partnership..................... 4,245 * 553 3,692 *
Mayo A. Shattuck III......................... 398 * 398 0 *
Colleen Shearer.............................. 27,912 * 4,263 23,649 *
Jeffry J. Shearer............................ 61,939 * 59,439 2,500 *
Kevin Shepherd............................... 1,420 * 1,420 0 *
John A. Shields.............................. 25,100 * 5,640 19,460 *
John K. Skeen................................ 190 * 190 0 *
Stuart M. Sloan.............................. 1,992 * 1,992 0 *
Judith A. Smith.............................. 1,901 * 1,901 0 *
</TABLE>

53
<PAGE> 55

<TABLE>
<CAPTION>
TOTAL SHARES NOT
SHARES OWNED REGISTERED HEREUNDER
----------------- SHARES REGISTERED ---------------------
NAME NUMBER PERCENT HEREUNDER NUMBER PERCENT
---- ------- ------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Richard A. Smith and Mary Ellen
Zweifel-Smith, Trustees of the Smith Family
Trust U/D/T dated 4/3/96................... 398 * 398 0 *
Geoff Soper.................................. 2,389 * 812 1,577 *
David Stanchak............................... 58,857 * 49,306 9,551 *
Starbucks Corporation........................ 111,045 * 111,045 0 *
Thomas George Stemberg....................... 398 * 398 0 *
Mark W. Stephens............................. 103,930 * 103,930 0 *
S. Kent Stewart.............................. 837 * 837 0 *
Storie Partners, L.P......................... 2,109 * 2,109 0 *
North American Trust Company, f/b/o Paul
Strasen.................................... 3,653 * 255 3,398 *
Sunbelt Bagels, L.L.C........................ 83,478 * 83,478 0 *
Shepard C. Swift............................. 2,616 * 1,616 1,000 *
Emanuel B. Tarrson........................... 3,246 * 3,246 0 *
Ronald E. Tarrson............................ 3,246 * 3,246 0 *
Steven Tarrson............................... 2,109 * 2,109 0 *
Steven Tarrson Trust......................... 568 * 568 0 *
Rick Tasman.................................. 772 * 772 0 *
Mark Thomas.................................. 772 * 772 0 *
Howard Holmes Tomlinson...................... 98 * 98 0 *
Triune, Inc.................................. 1,758 * 1,758 0 *
Triune Venture Holdings, L.P................. 6,266 * 4,841 1,425 *
Triune Venture Partners II, L.P.............. 28,125 * 28,125 0 *
Doug Troy.................................... 11,528 * 9,028 2,500 *
University of Southern California............ 19,924 * 19,924 0 *
Douglas J. Valenti........................... 5,905 * 5,905 0 *
Terry Van Der Aa............................. 2,461 * 320 2,141 *
Paul S. Vander Woude......................... 1,493 * 64 1,429 *
Mark G. Villalpando.......................... 8,751 * 255 8,496 *
Anthony J. and Paula Vinci, Joint Tenants.... 2,443 * 319 2,124 *
Frank L. Walters, Jr......................... 120 * 120 0 *
Charles G. Ward.............................. 398 * 398 0 *
Howard C. Warren............................. 92,275 * 53,356 38,919 *
Washington & Lee University.................. 79 * 79 0 *
Gary & Margot Weinstein...................... 4,923 * 640 4,283 *
Blanch Weiss or Howard Weiss................. 300 * 300 0 *
John Bradford Wells and Dawn Marie Wells
Trustees of the Wells Family 1993 Trust UDT
Dated 11/4/93.............................. 199 * 199 0 *
M. David White............................... 43,773 * 2,860 40,913 *
Everen Clearing Corp. Cust. f/b/o William D.
White Jr................................... 128 * 128 0 *
Wijler Guernsey, Ltd......................... 14,344 * 14,344 0 *
Richard John Williams........................ 2,231 * 160 2,071 *
Timothy J. Wollaeger & Cynthia K. Wollaeger,
Trustees of Trust dated April 25, 1995..... 500 * 500 0 *
Youngstown Partners.......................... 39,375 * 39,375 0 *
Laurence M. Zwain............................ 7,281 * 7,281 0 *
</TABLE>

54
<PAGE> 56

Noah C. Alper served as Vice Chairman of the Company from March 1996 until
February 1997. Prior thereto, Mr. Alper was Chairman of the Board of Noah's
prior to its acquisition by the Company in February 1996. Glenn Bacheller served
as President of Noah's from December 1995 until September 1996. Mr. Bacheller
was also a minority equity investor of Noah's. Albert Baldocchi served as Vice
President -- Business Development of the Company from February 1995 until April
1997. Bank of America Illinois is a participating bank in the Company's $45.0
million secured, revolving credit facility. B&B Holdings, Inc. is owned by the
spouse of Gail Lozoff, a Vice President and a director of the Company since
April 1995. B&B Holdings, Inc. was formerly known as Bagel & Bagel, Inc. Michael
Beaudoin has served as Senior Vice President of the Company since May 1997. Mr.
Beaudoin also served as Senior Vice President -- Supply Chain of the Company
from July 1996 until February 1997 and as Vice President and Chief Financial
Officer of the Company from July 1995 until July 1996. Brau Family Partnership,
L.P. is controlled by Michael E. and Rachel C. Brau, who controlled Baltimore
Bagel Co. prior to its acquisition by the Company in August 1995. Michael E. and
Rachel C. Brau are also trustees and beneficiaries of the Brau Living Trust
dated 1/23/90. Michael Brau has served as Vice President -- Operations of the
Company since August 1996. Dean L. Buntrock has been a director of Boston
Chicken since 1993. James S. Cary has served as Vice President -- Research and
Development of the Company since July 1996. Daniel V. Colangelo served as
President of the Company's Rocky Mountain Division from March 1995 until he
became President and Chief Executive Officer of the Company, positions he held
until January 1996. Mr. Colangelo was a controlling stockholder of Brackman
Brothers, Inc. prior to its acquisition by the Company in March 1995. Colonial
Bagels, L.P. is an area developer of the Company. Finest Bagels, L.L.C. is an
area developer of the Company. Frontenac VI Limited Partnership is a limited
partnership, the general partner of which is an entity of which Mr. Koldyke, a
director of the Company, is a general partner. Great Lakes Bagels, L.L.C. is an
area developer of the Company. Arnold C. Greenberg has been a director of Boston
Chicken since February 1991. Gulfstream Bagels, L.P. is an area developer of the
Company. Hal P. Harlan is an equity owner of Harlan Bagel Supply Company
("Harlan"), with whom the Company has entered into a project and approved
supplier agreement pursuant to which Harlan provides the Company's area
developers and their food service distributors with frozen bagel dough. See
"Business -- Vendors." J. Bruce Harreld has been a director of Boston Chicken
since June 1993. James L. Hilmer served as consultant to the Company from March
1995 until April 1996. M Howard Jacobson has served as a director of Boston
Chicken since February 1991. James W. Largay was an employee of the Company from
March 1995 until March 1996. In addition, Mr. Largay was an equity owner of
Brackman prior to its acquisition by the Company. Marquette Venture Partners II,
L.P. and MVP II Affiliates Fund, L.P. are partnerships, the general partner of
each of which is an entity of which Mr. Ruth, a director of the Company, is a
general partner. Lewis Miller was an employee of the Company from May 1995 until
May 1996. Jim Mizes has served as Executive Vice President of either Noah's or
Noah's New York Bagels, L.L.C., an area developer of the Company, since May
1994. Alfred G. Nadaff was an employee of the Company from March 1995 until
November 1995. Gary Thomas Naifeh has served as Vice President -- Marketing &
Advertising since August 1995. Noah's Pacific, L.L.C. is an area developer of
the Company. Stephen A. Norman served as Chief Operating Officer of the Company
from March 1995 until March 1996. In addition, Mr. Norman was an equity owner of
Brackman prior to its acquisition by the Company. John Offerdahl, a director of
the Company, is a trustee and beneficiary of OBG Holdings, Inc. Charitable
Remainder Trust. Offer Partner Limited Partnership is a partnership whose sole
limited partner and general partner is a corporation controlled by Mr. Offerdahl
and his spouse. Peer Pedersen has served as a director of Boston Chicken since
January 1993. Philly Rose, L.P. is an area developer of the Company. Steven J.
Quamme is an executive and equity owner of Mayfair Bagels, L.L.C. A.G. Rappaport
was an employee and equity owner of Gulfstream Bagels, L.P. Rodney Rice has
served as a Vice President of the Company since November 1996. Prior thereto,
Mr. Rice was an employee of the Company since October 1995. Mark W. Stephens has
been a Vice Chairman and a director of Boston Chicken since December 1995. Paul
A. Strasen, Senior Vice President, General Counsel and Assistant Secretary,
beneficially owns the shares held by North American Trust Company, f/b/o Paul
Strasen. Sunbelt Bagels, L.L.C. is an area developer of the Company. Laurence M.
Zwain has been a Vice Chairman and a director of Boston Chicken since August
1996. With respect to relationships between the Company and Messrs. Alam,
Butler, Carlborg, Craig, Heininger, Muehlstein, Ruth and Stanchak and Ms.
Lozoff, see "Management."

55
<PAGE> 57

PLAN OF DISTRIBUTION

An aggregate of up to 5,158,286 Registering Stockholders' Shares may be
offered and sold pursuant to this Prospectus. The distribution of such Shares by
the Registering Stockholders may be effected from time to time in one or more
transactions on the Nasdaq National Market (which may involve block
transactions), in special offerings, in negotiated transactions, or otherwise,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Registering Stockholders
may engage one or more brokers to act as principal or agent in making sales, who
may receive discounts or commissions from the Registering Stockholders in
amounts to be negotiated. The Registering Stockholders and any such brokers may
be deemed "underwriters" under the Securities Act of the Shares sold. This
Prospectus also may be used, with the Company's consent, by transferees,
pledgees or donees of the Registering Stockholders, or by other persons
acquiring Shares and who wish to offer and sell such Shares under circumstances
requiring or making desirable its use. To the extent, required, the Company will
file, during any period during which offers or sales are being made, one or more
supplements to this Prospectus to set forth the names of the transferees,
pledgees or donees of Registering Stockholders and any other material
information with respect to the plan of distribution not previously disclosed.

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

EXPERTS

The financial statements of the Company and subsidiaries at December 31,
1995 and at December 29, 1996, and for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal year ended December 29,
1996 included in this Prospectus and the related financial statement schedule
included in the Registration Statement of which this Prospectus forms a part,
have been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their reports thereon also included in the Registration Statement of
which this Prospectus forms a part, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

56
<PAGE> 58

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and
December 29, 1996...................................... F-3
Consolidated Statements of Operations for the period from
March 24, 1995 (inception) through December 31, 1995
and the fiscal year ended December 29, 1996............ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from March 24, 1995 (inception) through
December 31, 1995, and the fiscal year ended December
29, 1996............................................... F-5
Consolidated Statements of Cash Flows for the period from
March 24, 1995 (inception) through December 31, 1995
and the fiscal year ended December 29, 1996............ F-6
Notes to Audited Consolidated Financial Statements........ F-7
Consolidated Balance Sheets as of December 29, 1996 and
April 20, 1997 (unaudited)............................. F-21
Consolidated Statements of Operations for the quarters
ended April 21, 1996 and April 20, 1997 (unaudited).... F-22
Consolidated Statements of Cash Flows for the quarters
ended April 21, 1996 and April 20, 1997 (unaudited).... F-23
Notes to Unaudited Consolidated Financial Statements...... F-24
</TABLE>

F-1
<PAGE> 59

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of
Einstein/Noah Bagel Corp. (a Delaware corporation) and subsidiaries as of
December 31, 1995 and December 29, 1996, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the period from
March 24, 1995 (inception) through December 31, 1995, and for the fiscal year
ended December 29, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Einstein/Noah Bagel Corp.
and subsidiaries as of December 31, 1995 and December 29, 1996, and the results
of their operations and their cash flows for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal year ended December 29,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
March 24, 1997

F-2
<PAGE> 60

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 5,368 $ 50,741
Accounts receivable, net.................................. 1,327 5,589
Prepaid expenses and other current assets................. 2,592 579
-------- --------
Total current assets.............................. 9,287 56,909
Property and Equipment, net................................. 19,410 28,213
Notes Receivable............................................ 7,267 146,087
Goodwill, net............................................... 13,715 68,921
Trademarks, net............................................. -- 22,239
Recipes, net................................................ -- 4,758
Other Assets, net........................................... 620 5,291
-------- --------
Total assets...................................... $ 50,299 $332,418
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 5,633 $ 3,873
Accrued expenses.......................................... 2,968 3,615
Deferred franchise revenue................................ 645 3,000
-------- --------
Total current liabilities......................... 9,246 10,488
Convertible Debt............................................ 40,000 --
Deferred Franchise Revenue.................................. 265 6,105
Other Noncurrent Liabilities................................ 2,907 308
Repurchase Common Stock Shares -- 1,721,250 issued and
outstanding in 1995....................................... 11,062 --
Series A Preferred Stock -- 6,250 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; 3,848,607 shares issued and outstanding in
1995 and 32,299,756 issued and outstanding in 1996..... 38 323
Additional paid-in capital................................ 22,684 353,203
Accumulated deficit....................................... (43,716) (38,009)
-------- --------
Total stockholders' equity (deficit)................. (20,994) 315,517
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 50,299 $332,418
======== ========
</TABLE>

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

F-3
<PAGE> 61

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995 FISCAL
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- ------------
<S> <C> <C>
Revenue:
Company stores............................................ $ 25,685 $35,803
Royalties and franchise-related fees...................... 671 19,918
Interest income........................................... 67 5,986
-------- -------
Total revenue..................................... 26,423 61,707
Costs and Expenses:
Cost of products sold..................................... 8,239 11,546
Salaries and benefits..................................... 13,531 18,302
General and administrative................................ 47,805 21,820
-------- -------
Total costs and expenses.......................... 69,575 51,668
-------- -------
Income (Loss) from Operations............................... (43,152) 10,039
Other Income (Expense):
Interest expense, net..................................... (1,281) (6,261)
Other income, net......................................... 717 1,929
-------- -------
Total other income (expense)...................... (564) (4,332)
-------- -------
Income (Loss) Before Income Taxes........................... (43,716) 5,707
Income Taxes................................................ -- --
-------- -------
Net Income (Loss)........................................... $(43,716) $ 5,707
======== =======
Net Income (Loss) Per Common and Equivalent Share........... $ (4.54) $ 0.25
======== =======
Weighted Average Number of Common and Equivalent Shares
Outstanding............................................... 9,659 22,344
======== =======
</TABLE>

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

F-4
<PAGE> 62

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24,
1995 FISCAL
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............................ $ -- $ 38
Conversion of preferred stock, repurchase common stock,
and debt............................................... -- 175
Issuance of common stock.................................. 38 96
Exercise of stock options and warrants.................... -- 14
-------- --------
Balance at end of year.................................... $ 38 $ 323
======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............................ $ -- $ 22,684
Conversion of preferred stock, repurchase common stock and
debt................................................... -- 140,270
Issuance of common stock, net of offering costs of $500 in
1995 and $10,343 in 1996............................... 22,051 182,491
Exercise of stock options and warrants.................... -- 9,227
Dividends on Series A preferred stock and accretion of
dividends on repurchase common stock................... (1,077) (1,708)
Issuance of options and warrants.......................... 1,710 239
-------- --------
Balance at end of year.................................... $ 22,684 $353,203
======== ========
ACCUMULATED DEFICIT
Balance at beginning of period............................ $ -- $(43,716)
Net income (loss)......................................... (43,716) 5,707
-------- --------
Balance at end of year................................. $(43,716) $(38,009)
======== ========
</TABLE>

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

F-5
<PAGE> 63

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $(43,716) $ 5,707
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 1,657 5,431
Warrant and option expense............................. 1,710 239
Write-off of intangible assets......................... 26,575 --
Gain on the sale of marketable equity securities....... (719) (1,824)
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable.................................. (680) (3,966)
Accounts payable and accrued expenses................ 1,778 (292)
Deferred franchise revenue........................... 910 8,180
Other assets and liabilities......................... 173 (7,003)
-------- ---------
Net cash provided by (used in) operating
activities...................................... (12,312) 6,472
-------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment........................ (18,109) (38,198)
Proceeds from sale of net assets.......................... 5,519 49,943
Acquisition of Noah's New York Bagels, Inc., net of cash
acquired............................................... -- (100,902)
Purchase of marketable equity securities, net of proceeds
from sales............................................. (22,682) 1,824
Purchase of other assets.................................. (621) (6,552)
Issuance of notes receivable.............................. (10,569) (209,514)
Repayment of notes receivable............................. 3,831 70,694
-------- ---------
Net cash used in investing activities............. (42,631) (232,705)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................... 20,311 191,606
Proceeds from convertible debt............................ 91,060 352,272
Repayment of convertible debt............................. (51,060) (272,272)
-------- ---------
Net cash provided by financing activities......... 60,311 271,606
-------- ---------
Net Increase in Cash and Cash Equivalents................... 5,368 45,373
Cash and Cash Equivalents, beginning of period.............. -- 5,368
-------- ---------
Cash and Cash Equivalents, end of year...................... $ 5,368 $ 50,741
======== =========
Supplemental Cash Flow Information:
Interest Paid............................................. $ 1,107 $ 7,232
======== =========
Supplemental Schedule of Non-Cash Activities:
Conversion of debt to common stock........................ $ -- $ 120,000
======== =========
Conversion of preferred stock, repurchase common stock and
accrued dividends on preferred stock................... $ -- $ 20,445
======== =========
Exchange of 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 $ 1,486
======== =========
</TABLE>

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

F-6
<PAGE> 64

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Einstein/Noah Bagel Corp. and its subsidiaries (the "Company") franchise
and operate specialty retail stores in the United States that feature
fresh-baked bagels, 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 stores and 13 franchise stores.
In 1995, the Company sold 13 Company stores to area developers of the Company.
At December 29, 1996, there were 315 stores in operation systemwide, consisting
of 301 franchise stores and 14 Company stores. In 1996, the Company sold 105
Company stores to 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 franchise
stores.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Einstein/Noah Bagel Corp. 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, and normally consist of 13 four-week periods. The
first quarter consists of four periods and each of the remaining three quarters
consist of three periods. Fiscal period 1995 was the period from March 24, 1995
(inception) through December 31, 1995. Fiscal year 1996 contained 13 four-week
periods.

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, which are classified in prepaid expenses and
other current assets, 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 with buildings
and improvements being depreciated over 15 to 30 years, leasehold improvements
being amortized over the lesser of their useful lives or their lease terms,
including option periods, furniture, fixtures and equipment being depreciated
over 5 to 8 years, and pre-opening costs being depreciated over one year.

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 store
management activities incurred prior to the opening of new stores.

Long-Lived Assets. The Company evaluates whether events and circumstances
have occurred that indicate revision to the remaining useful lives or the
remaining balances of long-lived assets may be appropriate. Such events and
circumstances include, but are not limited to, a change in business strategy or
a 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.

F-7
<PAGE> 65

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition. Revenue from Company stores is recognized in the
period during which related food and beverage products are sold. Royalties are
recognized in the same period that related franchise store revenue is generated.
Revenue derived from initial franchise fees and area development fees is
recognized when the franchise store opens. Real estate fees are recognized as
earned, and lease income is recognized over the life of the lease on a
straight-line basis. Interest income is recognized as earned. The components of
royalties and franchise-related fees are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
FISCAL PERIOD OR YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Initial franchise and area development fees................ $520 $12,140
Royalties.................................................. 35 6,086
Real estate fees and lease income.......................... -- 1,564
Other...................................................... 116 128
---- -------
Total royalties and franchise related fees................. $671 $19,918
==== =======
</TABLE>

Per Share Data. Net income (loss) per common share is computed by dividing
net income (loss), adjusted for dividends on Series A preferred stock, by the
weighted average number of common shares and dilutive common stock equivalents
outstanding during the period. Common and equivalent shares include any common
stock, options and warrants issued within one year prior to the effective date
of the Company's initial public offering, with a price below the initial public
offering price. These have been included as common stock equivalents
outstanding, 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.

Advertising Costs. Advertising costs are expensed in the period incurred.

Employee Stock Options. The Company accounts for its employee stock options
in accordance with the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. Required pro forma disclosures of compensation
expense determined under the fair value method of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
No. 123") are presented in Note 12.

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

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

Reclassifications. Certain reclassifications have been made to the 1995
amounts to conform with the 1996 presentation.

F-8
<PAGE> 66

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA

Accounts receivable are net of an allowance for doubtful accounts of
$81,000 at December 31, 1995. There was no allowance at December 29, 1996.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Property and equipment consists of (in thousands of
dollars):
Land..................................................... $ 123 $ 118
Buildings and improvements............................... 366 384
Development in progress.................................. 1,212 1,449
Leasehold improvements................................... 10,505 9,763
Furniture, fixtures and equipment........................ 7,544 17,962
Pre-opening expenses..................................... 401 --
------- -------
20,151 29,676
Less: Accumulated depreciation and amortization.......... (741) (1,463)
------- -------
Total property and equipment, net................ $19,410 $28,213
======= =======
</TABLE>

Included in furniture, fixtures and equipment are $14.9 million (net of
accumulated depreciation of approximately $860,000) of assets leased to others
at December 29, 1996.

Goodwill, trademarks, and recipes are reported net of accumulated
amortization of $2.2 million, $584,000, and $484,000, respectively, as of
December 29, 1996. Goodwill is net of accumulated amortization of $269,000 as of
December 31, 1995.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Accrued expenses consist of (in thousands of dollars):
Accrued payroll and fringe benefits...................... $ 876 $ 871
Accrued interest......................................... 325 17
Accrued other............................................ 1,767 2,727
------- -------
Total accrued expenses........................... $ 2,968 $ 3,615
======= =======
</TABLE>

<TABLE>
<CAPTION>
FISCAL PERIOD OR YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Interest expense, net consists of (in thousands of
dollars):
Interest expense......................................... $(1,432) $(6,950)
Interest income.......................................... 151 689
------- -------
Total interest expense, net...................... $(1,281) $(6,261)
======= =======
</TABLE>

4. ACQUISITIONS

In 1995, the Company acquired four regional bagel companies. In March 1995,
the acquisitions included Brackman Brothers, Inc., 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., 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., 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

F-9
<PAGE> 67

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 intangible) and
liabilities based upon 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
goodwill (amortized over a 35-year life). Such assets were identified by
management based upon its evaluation of the businesses acquired. The allocation
of the purchase price to trademarks and recipes was based upon a royalty savings
methodology which determines the present value of the stream of royalties which
the Company believes an independent third party would be willing to pay to
obtain the use of such trademarks and recipes. The estimated useful life for
these assets was based upon various factors which existed at the time of the
acquisitions, including the anticipated periods of benefit to be derived from
the utilization of such assets in connection with executing a 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 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 intangible assets, and, accordingly, the assets were written
down to their fair market values, resulting in a write-off of $26.6 million in
1995.

In February 1996, the Company acquired all of the outstanding capital stock
of 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 intangible) and liabilities
based upon an evaluation of their fair values at the date of the acquisition. Of
the 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 goodwill (amortized over a
35-year life). Such assets 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 the royalty savings methodology described
in the preceding paragraph.

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 purchase transactions described
above had occurred at the beginning of the periods presented (in thousands of
dollars, except per share data):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Revenue.................................................... $ 70,388 $65,011
Net income (loss).......................................... (56,236) 3,825
Net income (loss) per share................................ (5.82) 0.16
</TABLE>

The pro forma information given above does not purport to be indicative of
the results that actually would have been reported if the transactions had
occurred at the beginning of the periods presented and is not intended to be a
projection of future results or trends.

F-10
<PAGE> 68

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Notes Receivable. The estimated fair value of notes receivable (Notes 6 and
11), including the conversion option, 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 convertible debt, including
the conversion option, is based on the discounted value of future payments using
the current rate at which similar loans would be made to companies with similar
credit ratings.

Repurchase Common Stock Shares. The estimated fair value of common stock
subject to repurchase by the Company is based on the price of other common stock
transactions near December 31, 1995.

Series A Preferred Stock. The estimated fair value of 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>
DECEMBER 31, 1995 DECEMBER 29, 1996
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 5,368 $ 5,368 $ 50,741 $ 50,741
Notes receivable.................................. 7,267 7,267 146,087 146,087
Convertible debt.................................. 40,000 40,000 -- --
Repurchase common stock shares.................... 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
(in thousands of dollars):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Due from area developers (Note 11)......................... $3,538 $140,754
Notes receivable from stockholder.......................... 1,888 3,437
Term loans................................................. 1,108 1,496
Other...................................................... 733 400
------ --------
$7,267 $146,087
====== ========
</TABLE>

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

Term loans bear interest at the Reference Rate plus 1%. Principal is due in
annual installments with balloon payments required on various dates through
2001. The loans are collateralized by various assets.

F-11
<PAGE> 69

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. DEBT

The Company has 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 Reference Rate
plus applicable margin or, eurodollar rate loans with interest at the eurodollar
rate plus applicable margin. In addition, a commitment fee of .5% of the average
daily unused portion of the loan is required. The facility contains covenants
that, among other things, restrict other borrowings, prohibit cash dividends,
and require maintenance of specified cash flow ratios, store-level sales, and
minimum capital levels. The facility is collateralized by substantially all of
the assets of the Company. As of December 29, 1996, no balance was outstanding
under the facility.

The Company also has an unsecured non-convertible revolving credit facility
from Boston Chicken, Inc. ("Boston Chicken") providing for borrowings of up to
$50.0 million through June 15, 2003. The facility bears interest at the
Reference Rate plus applicable margin. As of December 29, 1996, there was no
balance outstanding under the facility.

8. INCOME TAXES

As of December 29, 1996, the Company had cumulative federal and state tax
operating loss carryforwards available to reduce future taxable income of
approximately $17.0 million which begin to expire in 2010.

The primary components that comprise deferred tax assets and liabilities
are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued expenses.................... $ 218 $ 199
Deferred franchise revenue............................... 355 3,551
Other noncurrent liabilities............................. 220 226
Write-off of intangible assets that are amortizable for
tax................................................... 2,017 1,582
Net operating loss carryforwards......................... 4,104 6,648
Other.................................................... 1,380 63
-------- --------
Total deferred tax assets........................ 8,294 12,269
Deferred tax liabilities:
Property and equipment................................... (489) (1,335)
Other assets............................................. (116) (652)
-------- --------
Total deferred tax liabilities................... (605) (1,987)
-------- --------
Net deferred tax assets.......................... 7,689 10,282
Valuation allowance...................................... (7,689) (10,282)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>

F-12
<PAGE> 70

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The increase in the valuation allowance of $2,593,000 from December 31,
1995 to December 29, 1996 is due to uncertainty regarding the realization of the
related tax benefits. The difference between the Company's actual tax provision
and the tax provision that would result from applying the statutory federal
income tax rate to income before income taxes is attributable to the following
(in thousands of dollars):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 29, 1996
-----------------
<S> <C>
Income tax expense at statutory rate........................ $ 1,997
State taxes, net of federal benefit......................... 228
Permanent difference related to goodwill.................... 1,138
Change of valuation allowance............................... (3,363)
--------
Provision for income taxes.................................. $ --
========
</TABLE>

9. NATIONAL AND LOCAL ADVERTISING FUNDS

The Company administers a National Advertising Fund (the "Fund") to which
stores make contributions based on individual franchise agreements (2% of base
revenue). Collected amounts are spent primarily on developing marketing and
advertising materials for use systemwide. In addition, the Company maintains
Local Advertising Funds ("LAFs") that provide comprehensive advertising and
sales promotion support for stores in particular markets. Contributions are made
by all stores (a minimum of 4% of net revenue). The Company disburses funds and
accounts for all transactions related to the Fund and LAFs. Such amounts are not
segregated from the cash resources of the Company; however, consistent with
Statement of Financial Accounting Standards No. 45 "Accounting for Franchise Fee
Revenue", such funds are accounted for separately and are not included in the
financial statements of the Company because the Company acts only as an agent
for its franchisees in placing orders for advertising and paying related
invoices out of such accounts.

10. COMMITMENTS AND CONTINGENCIES

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 arm's 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, sublease proceeds, and rental receipts due
under leases on equipment owned by the Company as of December 29, 1996 (in
thousands of dollars):

<TABLE>
<CAPTION>
MINIMUM
RENTAL RECEIPTS ON
MINIMUM SUBLEASE NET MINIMUM EQUIPMENT OWNED
RENTAL PAYMENTS PROCEEDS RENTAL PAYMENTS BY THE COMPANY
--------------- -------- --------------- ------------------
<S> <C> <C> <C> <C>
1997............................. $14,085 $13,139 $ 946 $1,279
1998............................. 13,436 12,686 750 1,278
1999............................. 12,892 12,232 660 1,276
2000............................. 11,952 11,395 557 1,284
2001............................. 9,130 8,627 503 1,273
Thereafter....................... 36,573 30,704 5,869 2,076
------- ------- ------ -------
$98,068 $88,783 $9,285 $8,466
======= ======= ====== =======
</TABLE>

F-13
<PAGE> 71

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rental expense, net of sublease income, under operating leases was
approximately $1,909,000 and $1,601,000 for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal year ended December 29,
1996, respectively.

As of December 29, 1996, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested a total of $70.2 million in the common equity of the
Company's area developers. At December 29, 1996, the Company was the manager of
Bagel Funding. Bagel Funding has the right to require each area developer to
redeem Bagel Funding's equity interest in an area developer at a pre-determined
formula price based on the store level cash flow of the area developer in the
event that (i) the Company acquires a majority equity 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 does not consent to
the area developer's request to undertake a firm commitment underwritten public
offering after the Company's conversion and option rights under its loan
agreement with the area developer have expired unexercised; or (iii) the Company
does not consent to the area developer's request to terminate the area
developer's area development and franchise agreements with the Company after the
Company's conversion and option rights under its loan agreement with the area
developer have expired unexercised. 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 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.

The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. 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.

11. AREA DEVELOPER FINANCING

The Company currently offers partial financing to its area developers for
use in expansion of their operations. 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 facility provided by the Company, with draws permitted during a three-year
draw period in a predetermined maximum amount generally 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. The Company may extend the
draw and repayment periods, subject to the area developer purchasing additional
development rights, contributing additional capital, or in connection with other
amendments to the loan agreement. Interest is set at the Reference Rate from
time to time (8.25% at December 29, 1996 and an average rate of 8.27% for 1996)
plus 1%, 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

F-14
<PAGE> 72

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

area developer at the conversion price set forth in such loan agreement, which
is at a 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. Default provisions contained in the area developer loans
typically include default in payment of principal and interest, breach of a
representation or warranty or of any covenant contained in the loan agreement or
security instruments, bankruptcy or bankruptcy-related act of the borrower,
resignation or termination of key management personnel, default under the area
development agreement, termination of three or more franchise agreements,
dissolution or liquidation, material adverse change in financial condition,
default of other indebtedness, sublease or any real estate lease, a judgment in
excess of $100,000 (not satisfied, vacated or covered by insurance) and the
invalidity or termination of any security instrument. The conversion price is
negotiated at arms' length with each area developer and, at December 29, 1996,
the average conversion premium was 12% 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 or subsequent amendments thereto. 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 convert any loan amount or
exercise its option at such time as it may be permitted to do so and, if it does
convert or exercise its option, that such conversion or option exercise will
result in a majority interest in such area developer.

(b) Commitments to Extend Area Developer Financing

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

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Number of area developers receiving
financing............................. 2 11
Loan commitments........................ $ 16,000 $ 283,200
Unused loans............................ (12,462) (142,446)
-------- ---------
Loans outstanding (included in Notes
Receivable)........................... $ 3,538 $ 140,754
======== =========
Contributed capital..................... $ 4,000 $ 75,765
======== =========
</TABLE>

The following table summarizes area developer financing activity of the
Company during 1995 and 1996 (in thousands of dollars):

<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Area developer loan balances, beginning
of period............................. $ -- $ 3,538
Loan advances........................... 7,369 206,762
Loan repayments......................... (3,831) (69,546)
------- --------
Area developer loan balances, end of
year.................................. $ 3,538 $140,754
======= ========
</TABLE>

The majority of the loan advance and repayment activity reflects the
revolving nature of the loans, that is, amounts are drawn and repaid on a
regular basis to optimize cash management.

F-15
<PAGE> 73

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<S> <C>
1998.................................... $ 375
1999.................................... 9,582
2000.................................... 14,075
2001.................................... 14,075
Thereafter.............................. 102,647
--------
$140,754
========
</TABLE>

Five of the Company's area developers accounted for 21%, 17%, 15%, 10% and
10% of the area developers' notes receivable balance at December 29, 1996, and
no other area developer of the Company individually accounted for 10% or more of
such notes receivable balance as of such date.

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 or December 29, 1996.

The following table sets forth certain combined financial information, as
of the dates indicated, provided by all the Company's area developers. During
1995, two area developers were formed, and their data have been included in the
table for 1995 from the dates of their respective formation. During 1996, ten
area developers were formed, and their data has been included in the table for
1996 from the dates of their respective formations. In addition, one area
developer combined with one other area developer with geographically contiguous
territory.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
(IN THOUSANDS, EXCEPT NUMBER OF
AREA DEVELOPERS AND STORE DATA)
<S> <C> <C>
Total number of area developers......... 2 11
Total number of area developer stores
open.................................. 13 301
Balance sheet data:
Total gross assets.................... $9,262 $221,156
Total debt:
To the Company..................... 3,538 140,754
To third parties................... -- --
Total other liabilities
(including trade
payables)................... 3,011 37,033
Total partner/member equity... 2,676 33,847
</TABLE>

F-16
<PAGE> 74

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
----------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Statement of operations data:
Gross revenue......................... $ 768 $ 109,940
Income (loss) from continuing
operations......................... (1,324) (40,592)
Statement of cash flows data:
Cash flows from (used in) operating
activities......................... $ 1,616 $ (16,382)
Cash flows from (used in) investing
activities......................... (8,064) (187,955)
Cash flows from (used in) financing
activities......................... 7,038 205,756
------- ---------
Net change in cash............ $ 590 $ 1,419
======= =========
</TABLE>

12. STOCKHOLDERS' EQUITY

Common Stock. On July 8, 1996, the Company effected 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.

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

In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its common stock to the public, a concurrent
non-underwritten public offering of 425,000 shares of its common stock and a
concurrent private placement of 2,000,000 shares of its common stock to Boston
Chicken raising aggregate net proceeds of approximately $86.0 million.

In December 1996, the Company completed an additional underwritten offering
of 2,640,000 shares of its common stock to the public and a concurrent
non-underwritten public offering of 500,000 shares to Boston Chicken. The
aggregate net proceeds of these offerings were approximately $88.6 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 had a liquidation preference of $1,000 per share,
paid annual dividends of $60 per share, and was automatically convertible into
common stock of the Company upon closing of its 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 total number of shares of common stock issued on conversion was
465,829.

Repurchase Common Stock Shares. Pursuant to the purchase agreements (see
Note 4), the Company had agreed that, in the event it had not completed an
initial public offering of its common stock resulting in gross proceeds of at
least $15.0 million by specified dates or if Boston Chicken's ownership of, or
right to acquire an ownership interest in, the Company's common stock fell below
25%, the holders of common stock subject to repurchase by the Company could
require the Company to redeem such shares of common stock at their fair market
value, but not less than a specific floor price per share. In 1996, as a result
of the completion of an initial public offering of common stock, the repurchase
obligation was eliminated, resulting in such shares being reclassified to
stockholders' equity.

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 share and expire in 2000. In 1996, the Company also sold or issued
warrants to purchase an aggregate of 1,252,425 shares of common stock of the

F-17
<PAGE> 75

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company to other third parties at exercise prices ranging from $6.47 to $11.58
per share. The warrants expire at various dates through 2001.

Stock Option Plans. The Company has a stock option plan (the "Plan") under
which options to purchase up 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,
and the balance vesting at the end of the fourth year from the date of the
grant.

The Company also has a non-employee directors stock option plan (the
"Directors Plan"), under which options to purchase up to 100,000 shares of the
common stock of the Company may be granted to directors of the Company who are
not officers or employees of the Company. Under the terms of the Directors Plan,
the Company automatically grants to each such director, upon election or
re-election as a director of the Company, options to purchase shares having a
fair market value of $50,000 at the date of the grant, except that initial
grants under the Directors Plan were made on the date the Directors Plan was
adopted by the Company's board of directors. Options are granted at a price
equal to the fair market value of the stock on the date of grant, become
exercisable after the end of one year from the date of grant and have a term of
ten years from the date of grant. The options are subject to termination should
the optionee's service as a director of the Company terminate. At December 29,
1996, 12,954 shares had been granted under the Directors Plan, at an exercise
price of $11.58 per share.

The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no employee compensation expense has been recognized for the
Company's stock option plans. Had employee compensation expense for the
Company's plans been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per common and equivalent share would have
been reduced to the pro forma amounts indicated below (in thousands, except per
share data):

<TABLE>
<CAPTION>
1995 1996
-------- ------
<S> <C> <C>
Net income (loss) -- as reported............................ $(43,716) $5,707
Net income (loss) -- pro forma.............................. (44,395) 3,188
Net income (loss) per common and equivalent share -- as
reported.................................................. (4.54) 0.25
Net income (loss) per common and equivalent share -- pro
forma..................................................... (4.97) 0.14
</TABLE>

The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Expected volatility......................................... 38.0% 37.1%
Risk-free interest rate..................................... 6.8% 6.3%
Expected lives.............................................. 5 years 5 years
Dividend yield.............................................. 0 0
</TABLE>

F-18
<PAGE> 76

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity under the option plans through December 29, 1996 was as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Granted..................................................... 2,090,248 $5.93
Canceled.................................................... (16,778) 5.88
--------- -----
Outstanding as of December 31, 1995......................... 2,073,470 5.93
Granted................................................... 1,959,165 7.94
Exercised................................................. (353,096) 6.03
Canceled.................................................. (201,464) 7.27
--------- -----
Outstanding as of December 29, 1996......................... 3,478,075 $6.87
========= =====
Exercisable as of December 29, 1996......................... 275,824 $5.93
========= =====
</TABLE>

Information on options outstanding at December 29, 1996 is as follows:

<TABLE>
<CAPTION>
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICE OF OPTIONS LIFE (YEARS) EXERCISE PRICE OF OPTIONS EXERCISE PRICE
-------------- ---------- ------------ -------------- ---------- --------------
<C> <C> <C> <C> <C> <C>
$5.88 1,616,739 8.46 $ 5.88 257,700 $5.88
6.01 - 9.00 1,433,755 9.04 6.58 18,124 6.54
9.01 - 12.00 417,411 9.41 11.36 -- --
12.01 - 15.00 8,109 9.58 15.00 -- --
27.01 - 30.00 685 9.70 29.13 -- --
30.01 - 33.00 1,376 9.76 32.63 -- --
--------- ---- ------ ------- -----
Total 3,478,075 8.81 $ 6.87 275,824 $5.93
========= ==== ====== ======= =====
</TABLE>

Boston Chicken Option. The Company has granted to Boston Chicken an option
(the "BCI Option") to purchase such number of shares of the Company's common
stock as will permit Boston Chicken to maintain ownership of shares of common
stock having up to 52% of the voting power of all of the outstanding shares of
the capital stock of the Company having the power generally to vote in the
election of directors. The terms of the BCI Option provide that certain shares
of the Company's common stock owned by Boston Chicken are excluded in
determining the percentage ownership of the voting stock of the Company owned by
Boston Chicken for purposes of BCI Option. As of December 29, 1996, Boston
Chicken had the right under the BCI Option to purchase 416,407 shares of the
Company's common stock at a weighted average price of $28.61.

As of December 29, 1996, the Company had 6,878,449 shares of common stock
reserved for issuance upon exercise of options and warrants.

13. RELATED PARTY TRANSACTIONS

Boston Chicken is the majority shareholder of 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 the Company paid to Boston Chicken amounts aggregating approximately
$3.0 million and $10.2 million in fiscal 1995 and 1996, respectively, for
software license, software maintenance, real estate, financial advisory and
accounting fees, and interest.

F-19
<PAGE> 77

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to Statement of Financial Accounting Standards No. 57, all the
Company's area developers may be deemed to be related parties as a result of the
lending and franchise relationships with its area developers. Total royalties
and franchise-related fees earned from all area developers were $671,000 and
$19.9 million in 1995 and 1996, respectively. Total interest income earned from
all area developers was $67,000 and $6.0 million in 1995 and 1996, respectively.
Total notes receivable from all area developers were $3.5 million and $140.8
million at December 31, 1995 and December 29, 1996, respectively.

Certain officers and directors of the Company and Boston Chicken are
investors in Bagel Funding and had invested an aggregate of $15.2 million in
Bagel Funding at December 29, 1996. The Company is the manager of Bagel Funding
but has no equity interest in Bagel Funding. Bagel Funding paid $500,000 to the
Company in its capacity as manager during 1996.

Certain directors and officers and members of their families have a direct
or indirect equity interest in the Company's area developers. The Company
received fees and other payments from these entities aggregating approximately
$2.3 million and $33.0 million in fiscal 1995 and 1996, respectively, for area
development, real estate, software maintenance, franchise, royalty,
miscellaneous fees, interest and deposits. The Company has also sold to these
entities, stores, inventory, equipment and other miscellaneous net assets for
which it received approximately $5.5 million and $49.9 million in fiscal 1995
and 1996, respectively.

During fiscal 1995 and 1996, the Company paid approximately $86,000 and
$98,000, respectively, to Bowana Aviation, Inc. ("Bowana") for the Company's use
of 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 by Bowana are at rates at least comparable to those charged by
unaffiliated third parties.

14. SUBSEQUENT EVENT

On March 24, 1997, the Company sold the 16 remaining Company stores and
related assets to Sunbelt Bagels, L.L.C., a newly-formed area developer, for
approximately $3.3 million. No material gain or loss resulted from this sale.

F-20
<PAGE> 78

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 29, APRIL 20,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............. $ 50,741 $ 237
Accounts receivable................... 5,589 9,406
Prepaid expenses and other current
assets............................. 579 438
Deferred income taxes................. -- 1,315
-------- --------
Total current assets.......... 56,909 11,396
Property and Equipment, net............. 28,213 27,766
Notes Receivable:
Area developers....................... 140,754 211,742
Others................................ 5,333 5,257
Goodwill, net........................... 68,921 66,722
Trademarks, net......................... 22,239 22,153
Recipes, net............................ 4,758 4,597
Other Assets, net....................... 5,291 7,107
Deferred Income Taxes................... -- 612
-------- --------
Total assets.................. $332,418 $357,352
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable...................... $ 3,873 $ 4,832
Accrued expenses...................... 3,615 4,886
Deferred franchise revenue............ 3,000 3,000
-------- --------
Total current liabilities..... 10,488 12,718
Revolving Credit Facility............... -- 7,800
Deferred Franchise Revenue.............. 6,105 6,700
Other Noncurrent Liabilities............ 308 285
Commitments and Contingencies
Stockholders' Equity:
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: 32,299,756
in December and 32,939,413 in
April.............................. 323 329
Additional paid-in capital............ 353,203 362,351
Accumulated deficit................... (38,009) (32,831)
-------- --------
Total stockholders' equity.... 315,517 329,849
-------- --------
Total liabilities and
stockholders' equity........ $332,418 $357,352
======== ========
</TABLE>

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

F-21
<PAGE> 79

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
Revenue:
Royalties and franchise-related
fees............................... $ 3,559 $ 9,338
Interest income....................... 423 5,287
Company stores........................ 18,397 2,103
------- -------
Total revenue................. 22,379 16,728
Costs and Expenses:
Cost of products sold................. 5,490 704
Salaries and benefits................. 9,128 3,018
General and administrative............ 9,031 5,774
------- -------
Total costs and expenses...... 23,649 9,496
------- -------
Income (Loss) from Operations........... (1,270) 7,232
Other Income (Expense):
Interest income (expense), net........ (3,333) 221
Other income, net..................... 1,286 --
------- -------
Total other income
(expense).................... (2,047) 221
------- -------
Income (Loss) Before Income Taxes....... (3,317) 7,453
Income Taxes............................ -- 2,275
------- -------
Net Income (Loss)....................... $(3,317) $ 5,178
======= =======
Net Income (Loss) Per Common and
Equivalent Share...................... $ (0.35) $ 0.15
======= =======
Weighted Average Number of Common and
Equivalent Shares Outstanding......... 9,679 34,962
======= =======
</TABLE>

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

F-22
<PAGE> 80

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ (3,317) $ 5,178
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Depreciation and amortization.......................... 1,914 1,763
Gain on sale of marketable equity securities........... (1,267) --
Warrant and option expense............................. 58 26
Deferred income taxes.................................. -- (1,926)
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable.................................. (3,710) (3,873)
Accounts payable and accrued expenses................ (2,440) 5,363
Deferred franchise revenue........................... 1,660 595
Other assets and liabilities......................... (2,981) (90)
--------- ---------
Net cash provided by (used in) operating
activities...................................... (10,083) 7,036
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment........................ (17,557) (3,872)
Proceeds from sale of assets.............................. 25,088 3,600
Purchase of other assets.................................. (744) (2,362)
Acquisition of Noah's New York Bagels, Inc., net of cash
acquired............................................... (100,902) --
Issuance of notes receivable.............................. (39,003) (124,298)
Repayment of notes receivable............................. 7,972 53,386
Proceeds from sales of marketable equity securities, net
of purchases........................................... 1,267 --
--------- ---------
Net cash used in investing activities............. (123,879) (73,546)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................... 13,009 8,206
Proceeds from debt........................................ 208,929 29,500
Repayment of debt......................................... (90,432) (21,700)
--------- ---------
Net cash provided by financing activities......... 131,506 16,006
--------- ---------
Net Decrease in Cash and Cash Equivalents................... (2,456) (50,504)
Cash and Cash Equivalents, beginning of period.............. 5,368 50,741
--------- ---------
Cash and Cash Equivalents, end of period.................... $ 2,912 $ 237
========= =========
</TABLE>

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

F-23
<PAGE> 81

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements have been prepared by Einstein/Noah
Bagel Corp. (the "Company") and are unaudited except for the consolidated
balance sheet at December 29, 1996 and notes related thereto. The financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not necessarily include all information and footnotes
required by generally accepted accounting principles. In the opinion of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows as of April 20, 1997 and for all periods
presented have been made. The statements are subject to year-end audit
adjustment. A description of the Company's accounting policies and other
financial information are included in the audited consolidated financial
statements for the year ended December 29, 1996 included elsewhere in this
Registration Statement. The consolidated results of operations for the quarter
ended April 20, 1997 are not necessarily indicative of the results expected for
the full year.

2. AREA DEVELOPER FINANCING

The Company currently offers partial financing to its area developers for
use in expansion of their operations in the form of convertible secured loans.
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 by 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 facility provided by
the Company, with draws permitted during a three-year draw period in a
predetermined maximum amount generally equal to four times the amount of the
area developer's contributed 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. The Company may extend the draw and
repayment periods in connection with the area developer purchasing additional
development rights, contributing additional capital or other amendments to the
loan agreement. Interest is set at the applicable reference rate of Bank of
America Illinois (8.5% at April 20, 1997 and an average rate of 8.3% for the
quarter ended April 20, 1997) plus 1%, 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, which is at a 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. Default provisions contained in the area
developer loans typically include default in payment of principal and interest,
breach of a representation or warranty or of any covenant contained in the loan
agreement or security instruments, bankruptcy or bankruptcy-related act of the
borrower, resignation or termination of key management personnel, default under
the area development agreement, termination of three or more franchise
agreements, dissolution or liquidation, material adverse change in financial
condition, default of other indebtedness, sublease or any real estate lease, a
judgment in excess of $100,000 (not satisfied, vacated or covered by insurance)
and the invalidity or termination of any security instrument. The conversion
price is negotiated at arms' length with each area developer and is set at a
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 or subsequent amendments thereto. On average, upon conversion, the
Company would own an 80% interest in each of its area developers. 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

F-24
<PAGE> 82

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, except number of area developers):

<TABLE>
<CAPTION>
DECEMBER 29, APRIL 20,
1996 1997
------------ ---------
<S> <C> <C>
Number of area developers receiving financing............... 11 12
Loan commitments............................................ $ 283,200 $ 359,900
Unused loans................................................ (142,446) (148,158)
--------- ---------
Loans outstanding........................................... $ 140,754 $ 211,742
========= =========
Contributed capital......................................... $ 75,765 $ 95,227
========= =========
</TABLE>

The following table summarizes area developer financing activity of the
Company during the quarters ended (in thousands of dollars):

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
Area developer loan balances, beginning of quarter.......... $ 3,538 $140,754
Loan advances............................................... 36,928 124,298
Loan repayments............................................. (7,900) (53,310)
------- --------
Area developer loan balances, end of quarter................ $32,566 $211,742
======= ========
</TABLE>

The majority of the loan advance and repayment activity reflects the
revolving nature of the loans; that is, amounts are drawn and repaid on a
regular basis to optimize cash management.

Three of the Company's area developers accounted for approximately 16%, 15%
and 12% of the area developer notes receivable balance at April 20, 1997, and no
other area developer of the Company individually accounted for 10% or more of
such notes receivable balance as of such date.

F-25
<PAGE> 83

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth certain combined audited financial
information, as of the dates indicated, provided annually by all the Company's
area developers. During 1995, two area developers were formed, and their data
have been included in the table for 1995 from the dates of their respective
formation. During 1996, ten area developers were formed, and their data have
been included in the table for 1996 from the dates of their respective
formations. In addition, two area developers with geographically contiguous
territories combined in 1996.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
(IN THOUSANDS, EXCEPT NUMBER
OF
AREA DEVELOPERS AND STORE
DATA)
<S> <C> <C>
Total number of area developers............................ 2 11
Total number of area developer stores open................. 13 301
Balance sheet data:
Total gross assets....................................... $9,262 $221,156
Total debt:
To the Company........................................ 3,538 140,754
To third parties...................................... -- --
Total other liabilities (including trade payables)....... 3,011 37,033
Total partner/member equity.............................. $2,676 $ 33,847
</TABLE>

<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
----------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Statement of operations data:
Gross revenue............................................ $ 768 $ 109,940
Income (loss) from continuing operations................. (1,324) (40,592)
Statement of cash flows data:
Cash flows from (used in) operating activities........... $ 1,616 $ (16,382)
Cash flows used in investing activities.................. (8,064) (187,955)
Cash flows from financing activities..................... 7,038 205,756
------- ---------
Net change in cash............................... $ 590 $ 1,419
======= =========
</TABLE>

3. ROYALTIES AND FRANCHISE-RELATED FEES

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

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
APRIL 21, APRIL 20,
1996 1997
-------------- --------------
<S> <C> <C>
Royalties................................................. $ 680 $4,223
Initial franchise and area developer fees................. 2,600 4,160
Real estate fees and lease income......................... -- 844
Other..................................................... 279 111
------ ------
$3,559 $9,338
====== ======
</TABLE>

F-26
<PAGE> 84

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires disclosure of basic and
dilutive earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the weighted-
average number of common shares outstanding for the reporting period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. SFAS No. 128 is effective for financial statements issued for
period ending after December 15, 1997. The pro forma earnings per share for the
quarters ended April 21, 1996 and April 20, 1997, utilizing the requirements of
SFAS No. 128 are as follows:

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
APRIL 21, 1996 APRIL 20, 1997
-------------- --------------
<S> <C> <C>
Basic earnings (loss) per share........................... $(0.35) $ 0.16
Diluted earnings (loss) per share......................... $(0.35) $ 0.15
</TABLE>

5. COMMITMENTS

As of April 20, 1997, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested a total of $89.5 million, in the common equity of the
Company's area developers. As of April 20, 1997, the Company was the manager of
Bagel Funding. Bagel Funding has the right to require each area developer to
redeem Bagel Funding's equity interest in an area developer at a pre-determined
formula price based on the store level cash flow of the area developer in the
event that (i) the Company acquires a majority equity 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 does not consent to
the area developer's request to undertake a firm commitment underwritten public
offering after the Company's conversion and option rights under its loan
agreement with the area developer have expired unexercised; or (iii) the Company
does not consent to the area developer's request to terminate the area
developer's area development and franchise agreements with the Company after the
Company's conversion and option rights under its loan agreement with the area
developer have expired unexercised. 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.

6. 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.

7. SUBSEQUENT EVENT

On May 29, 1997, the Company issued in a private offering $125.0 million
aggregate principal amount of 7 1/4% convertible subordinated debentures due
June 1, 2004. Interest is payable semi-annually on June 1 and December 1 of each
year beginning December 1, 1997. The debentures are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion rate
of $21.25 per share, subject to adjustments under certain conditions. The
debentures may be redeemed at the option of the Company beginning June 1, 2000,
initially at 104.14% of their principal amount and at declining prices
thereafter, plus accrued interest.

F-27
<PAGE> 85

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees, and agents of the Company;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of directors,
officers, employees, and agents against liabilities whether or not in the
circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute.

The Company's Restated Certificate of Incorporation, a copy of which is
Exhibit 4.1 hereto, provides for indemnification of the Company's officers and
directors to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law. The Company maintains directors and officers insurance covering
its executive officers and directors.

The Company's Certificate of Incorporation eliminates, to the fullest
extent permitted by Delaware law, liability of a director to the Company or its
stockholders for monetary damages for a breach of such director's fiduciary duty
of care except for liability where a director (a) breaches his or her duty of
loyalty to the Company or its stockholders, (b) fails to act in good faith or
engages in intentional misconduct or knowing violation of law, (c) authorizes
payment of an illegal dividend or stock repurchase, or (d) obtains an improper
personal benefit. While liability for monetary damages has been eliminated,
equitable remedies such as injunctive relief or rescission remain available. In
addition, a director is not relieved of his or her responsibilities under any
other law, including the federal securities laws.

Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provisions, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On March 24, 1995, in connection with the formation of the Company, the
Company issued to the shareholders of Brackman Bros., Inc. ("Brackman") and to
Bagel & Bagel, Inc. ("Bagel & Bagel") an aggregate of 573,750 and 573,750 shares
of Common Stock, respectively, as partial consideration for all of the
outstanding shares of Brackman and substantially all of the assets of Bagel &
Bagel. On such date, the Company also sold to certain accredited investors an
aggregate of 3,536,361 shares of Common Stock for $20.8 million in cash. The
above-mentioned securities were sold without registration under the Securities
Act in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation
D promulgated under the Securities Act.

On March 31, 1995, in connection with the formation of the Company, the
Company issued to Offerdahl's Bagel Gourmet, Inc. ("Offerdahl's") an aggregate
of 885,996 shares of Common Stock as partial consideration for substantially all
of the assets of Offerdahl's and a non-recourse promissory note in the aggregate
amount of $437,497. Such securities were sold without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act.

On August 10, 1995, the Company issued to the shareholder of Baltimore
Bagel Co. ("Baltimore Bagel") an aggregate of 6,250 shares of Series A Preferred
Stock (the "Preferred Shares") in connection with the merger of Baltimore Bagel
into a wholly owned subsidiary of the Company. Such shares were issued without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act. On August 7, 1996, the Preferred Shares and accrued, unpaid interest
thereon were converted into 465,830 shares of Common Stock.

II-1
<PAGE> 86

On December 29, 1995, the Company sold warrants to purchase an aggregate of
1,012,500 shares of Common Stock to Bagel Store Development Funding, L.L.C.,
formerly known as Einstein Bros. Equity Funding, L.L.C., at an exercise price of
$6.47 per share. The cash purchase price for the warrants was $45,000. An
aggregate of 108,035 shares of Common Stock have been issued pursuant to the
exercise of such warrants for an aggregate exercise price of $698,986. Such
warrants, and the shares of Common Stock issued upon exercise thereof, were sold
without registration under the Securities Act in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.

On January 15, 1996, the Company sold warrants to purchase an aggregate of
1,237,050 shares of Common Stock to certain accredited investors at an exercise
price of $6.47 per share. The aggregate purchase price for the warrants was
$1,100, which purchase price was paid by delivery of promissory notes from the
accredited investors. An aggregate of 925,648 shares of Common Stock have been
issued pursuant to the exercise of certain of such warrants for an aggregate
exercise price of $5,988,943. Such warrants, and the shares of Common Stock
issued upon exercise thereof, were sold without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act.

On February 1, 1996, the Company sold to certain accredited investors (all
of whom were former shareholders of Noah's New York Bagels, Inc.) an aggregate
of 855,225 shares of Common Stock for a cash purchase price of $10.52 per share.
Such shares were issued without registration under the Securities Act in
reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act.

On April 5, 1996, the Company sold to Mark A. Goldston, President and Chief
Executive Officer and a director of the Company, 28,508 shares of Common Stock
for a cash purchase price of $10.52 per share. Such shares were sold without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.

On May 28, 1996, in connection with entering into its secured revolving
credit facility, the Company issued a warrant to purchase an aggregate of 15,375
shares of Common Stock to one accredited investor at an exercise price of
$11.58. Such warrant was issued without registration under the Securities Act
and Rule 506 of Regulation D promulgated under the Securities Act.

From its inception until August 30, 1996, the Company granted options for
3,980,594 shares of Common Stock pursuant to its stock option plans at exercise
prices ranging from $5.88 to $15.00 per share, of which options to purchase
304,805 shares of Common Stock have been exercised. Such options were issued
without registration under the Securities Act in reliance on Section 4(2) and
Rule 701 promulgated under the Securities Act.

On August 7, 1996, the Company sold to Boston Chicken, Inc. 2,000,000
shares of Common Stock for an aggregate purchase price of $31,620,000 without
registration under the Securities Act in reliance on Section 4(2) under the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.

During the fourth quarter of 1996, the Company issued an aggregate of
124,139 shares of common stock pursuant to the exercise of warrants for an
aggregate exercise price of $803,179.33. The shares of common stock issued upon
exercise of such warrants were sold without registration under the Securities
Act, in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act.

During the first quarter of 1997, the Company issued (i) 231,023 shares of
the Company's common stock to one of its area developers in connection with the
acquisition by such area developer of certain assets of Bagel Boulevard Cafe
America, Inc., Bagel Boulevard of Florida, Inc., Bagel Boulevard of Georgia,
Inc. and Bagel Boulevard of Texas, Inc. and (ii) 364,150 shares of the Company's
common stock upon the exercise of certain warrants for an aggregate purchase
price of $2.4 million. All of such shares were issued and sold without
registration under the Securities Act, in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.

II-2
<PAGE> 87

On May 29, 1997, the Company issued $125,000,000 in aggregate principal
amount of convertible subordinated debentures due 2004 to qualified
institutional buyers, as defined in, and in reliance on, Rule 144A under the
Securities Act, to institutional accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt
from, or not subject to, the registration requirements of the Securities Act,
and to non-U.S. persons outside the United States pursuant to the requirements
of Regulation S under the Securities Act.

ITEM 16. EXHIBITS.

(a) A list of the exhibits included or incorporated by reference as part of
this Registration Statement is set forth in the Exhibit Index which immediately
precedes such exhibits, and is hereby incorporated by reference herein.

(b) Financial Statement Schedules:

<S> <C>
Report of Independent Public Accountants.................... II-4
Schedule II -- Valuation and Qualifying Accounts............ II-5
</TABLE>

ITEM 17. UNDERTAKINGS.

(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(b)-(g) Not applicable.

(h) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(i)-(j) Not applicable.

II-3
<PAGE> 88

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Einstein/Noah Bagel Corp. and
subsidiaries as of December 31, 1995 and December 29, 1996, and for the period
from March 24, 1995 (inception) through December 31, 1995, and for the fiscal
year ended December 29, 1996 included in this Registration Statement on Form
S-1, and have issued our report thereon dated March 24, 1997. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplemental schedule listed in Part II, Item 16 of this
Registration Statement is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Denver, Colorado

March 24, 1997

II-4
<PAGE> 89

SCHEDULE II

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED TO FOR BALANCE
BEGINNING COSTS AND ACCOUNTS AT END OF
CLASSIFICATIONS OF PERIOD EXPENSES WRITTEN-OFF PERIOD
--------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended December 29, 1996:
Allowance for Doubtful Accounts................ $81,000 $ -- $(81,000) $ --
Period ended December 31, 1995:
Allowance for Doubtful Accounts................ -- 81,000 -- 81,000
</TABLE>

II-5
<PAGE> 90

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement, or amendment thereto, to be signed
on its behalf by the undersigned, thereunto duly authorized, in Golden, Colorado
on June 9, 1997.

EINSTEIN/NOAH BAGEL CORP.

By: /s/ MARK R. GOLDSTON
----------------------------------
MARK R. GOLDSTON
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement, or amendment thereto, has been signed by the following
persons in the capacities indicated on June 9, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ MARK R. GOLDSTON President, Chief Executive Officer and
- ----------------------------------------------------- Director
Mark R. Goldston (Principal Executive Officer)

/s/ W. ERIC CARLBORG Chief Financial Officer (Principal Financial
- ----------------------------------------------------- Officer)
W. Eric Carlborg

/s/ THEODORE P. HEININGER Vice President -- Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Theodore P. Heininger

/s/ SCOTT A. BECK Director
- -----------------------------------------------------
Scott A. Beck

/s/ KYLE T. CRAIG Director
- -----------------------------------------------------
Kyle T. Craig

/s/ M. LAIRD KOLDYKE Director
- -----------------------------------------------------
M. Laird Koldyke

/s/ GAIL A. LOZOFF Director
- -----------------------------------------------------
Gail A. Lozoff

/s/ JOHN H. MUEHLSTEIN, JR. Director
- -----------------------------------------------------
John H. Muehlstein, Jr.

/s/ JOHN A. OFFERDAHL Director
- -----------------------------------------------------
John A. Offerdahl

/s/ LLOYD D. RUTH Director
- -----------------------------------------------------
Lloyd D. Ruth

/s/ DAVID G. STANCHAK Director
- -----------------------------------------------------
David G. Stanchak
</TABLE>

II-6
<PAGE> 91

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT+
------- -----------------------
<C> <S>
1.1 -- Purchase Agreement dated May 22, 1997 by and between the
Company and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Alex. Brown & Sons
Incorporated and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 1.1 to the
Company's Current Report on Form 8-K dated as of May 22,
1997).
2 -- Merger Agreement dated as of January 22, 1996, as
amended, among the Company, NNYB Acquisition Corporation,
Noah's New York Bagels, Inc. ("Noah's"), and the
shareholders and optionholders of Noah's (the "Noah's
Agreement") (incorporated by reference to Exhibit 2.5 to
the Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
3.1 -- Restated Certificate of Incorporation of the Company
("Certificate of Incorporation") (incorporated by
reference to Exhibit 3 to the Company's quarterly report
for the quarter ended October 6, 1996).
3.2 -- Amended and Restated Bylaws of the Company ("Bylaws")
(incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
4.1 -- Certificate of Incorporation (included in Exhibit 3.1).
4.2 -- Bylaws (included in Exhibit 3.2).
4.3 -- Certificate representing Common Stock (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
4.4 -- Amended and Restated Registration Rights Agreement dated
February 1, 1996 by and among the Company and certain
stockholders of the Company (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-04725)).
4.5 -- Concurrent Private Placement Agreement dated August 1,
1996 between Boston Chicken, Inc. ("Boston Chicken") and
the Company (incorporated by reference to Exhibit 10.3 to
Boston Chicken's quarterly report on Form 10-Q for the
quarter ended July 14, 1996).
4.6 -- Registration Agreement dated August 1, 1996 between
Boston Chicken and the Company (incorporated by reference
to Exhibit 10.3 to Boston Chicken's quarterly report on
Form 10-Q for the quarter ended July 14, 1996).
4.7 -- Concurrent Offering Purchase Agreement dated November 26,
1996 between Boston Chicken and the Company ("Concurrent
Offering Purchase Agreement") (incorporated by reference
to Exhibit 10.41 to Boston Chicken's 1996 annual report
on Form 10-K).
4.8 -- Registration Rights Agreement dated February 24, 1997 by
and between the Company and Alamo Bagels, L.P.
(incorporated by reference to the Company's 1996 Annual
Report on Form 10-K).
</TABLE>

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

<TABLE>
<C> <S>
+ In case of incorporation by reference to documents filed by the Company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's
file number under that Act is 0-21097. In the case of incorporation by reference
to documents filed by Boston Chicken, Inc. ("Boston Chicken") under the Exchange
Act, Boston Chicken's file number under that Act is 0-22802.
</TABLE>

Exhibit-1

<PAGE> 92

<TABLE>
<CAPTION>
<S> <S>
4.9 -- Indenture dated as of May 29, 1997 by and between the
Company and Bankers Trust Company, as Trustee, which
includes as Exhibits the forms of Debenture for the
Company's 7 1/4% Convertible Subordinated Debentures due
2004 (the "Debenture Indenture") (incorporated by
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated as of May 22, 1997).
4.10 -- Registration Rights Agreement dated May 22, 1997 by and
between the Company and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Alex. Brown &
Sons Incorporated and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated as of May 22,
1997).
10.1(a) -- Amended and Restated Loan Agreement dated May 17, 1996
between Boston Chicken and the Company (the "Loan
Agreement") (incorporated by reference to Exhibit 10.1(a)
to the Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.1(b) -- First Amendment to the Loan Agreement dated July 19, 1996
(incorporated by reference to Exhibit 10.1(b) to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.1(c) -- Second Amendment to the Loan Agreement dated September
16, 1996 (incorporated by reference to Exhibit 10.1(c) to
the Company's Registration Statement on Form S-1
(Registration No. 333-12395)).
10.2 -- Concurrent Private Placement Agreement dated August 1,
1996 between Boston Chicken and the Company (included in
Exhibit 4.5).
10.3(a) -- Secured Demand Note of the Company dated January 30, 1996
payable to Boston Chicken ("Secured Demand Note")
(incorporated by reference to Exhibit 10.23(d) to Boston
Chicken's 1995 annual report on Form 10-K).
10.3(b) -- First Amendment to Secured Demand Note dated as of March
7, 1996 (incorporated by reference to Exhibit 10.3(b) to
the Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.3(c) -- Second Amendment to Secured Demand Note dated as of
September 16, 1996 (included in Exhibit 10.1(c)).
10.4 -- Noah's Agreement (included in Exhibit 2).
10.5(a) -- Secured Credit Agreement dated as of May 17, 1996 among
the Company, the Lenders named therein, and Bank of
America Illinois, as Agent ("Secured Credit Agreement")
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.5(b) -- First Amendment and Waiver dated August 27, 1996 to
Secured Credit Agreement (incorporated by reference to
Exhibit 10.9(b) to the Company's Registration Statement
on Form S-1 (Registration No. 333-12395)).
10.5(c) -- Second Amendment dated August 27, 1996 to Secured Credit
Agreement (incorporated by reference to Exhibit 10.5(c)
to the Company's 1996 Annual Report on Form 10-K/A).
10.5(d) -- Third Amendment dated May 20, 1997 to Secured Credit
Agreement (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended April 20, 1997).
</TABLE>

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

Exhibit-2

<PAGE> 93

<TABLE>
<CAPTION>
<S> <S>
10.6 -- The Company's Amended and Restated 1995 Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.7 -- The Company's 1996 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.8(a) -- Amended and Restated Accounting and Administration
Services Agreement dated as of May 28, 1996 between
Boston Chicken and the Company (incorporated by reference
to Exhibit 10.12(a) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.8(b) -- First Amendment to Amended and Restated Accounting and
Administration Services Agreement dated as of June 17,
1996 between Boston Chicken and the Company (incorporated
by reference to Exhibit 10.12(b) to the Company's
Registration Statement on Form S-1 (Registration No.
333-04725)).
10.9 -- Financial Services Agreement Termination Agreement
effective as of May 20, 1996 (incorporated by reference
to Exhibit 10.13(c) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.10(a) -- Amended and Restated Real Estate Services Agreement dated
as of May 28, 1996 between Boston Chicken and the Company
(incorporated by reference to Exhibit 10.14(a) to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.10(b) -- Amended and Restated Real Estate Services Agreement
Termination Agreement dated as of June 17, 1996 between
the Company and Boston Chicken (incorporated by reference
to Exhibit 10.14 (b) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.11(a) -- Amended and Restated Computer and Communications Systems
Services Agreement dated as of June 17, 1996 between
Boston Chicken and the Company (incorporated by reference
to Exhibit 10.15(a) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.11(b) -- First Amendment to the Amended and Restated Computer and
Communications Systems Services Agreement dated as of
June 17, 1996 between Boston Chicken and the Company
(incorporated by reference to Exhibit 10.15(b) to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.12 -- Letter Agreement dated April 5, 1996 between Mark R.
Goldston and the Company (incorporated by reference to
Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (Registration No. 333-04725)).
10.13++ -- Project and Approved Supplier Agreement dated May 24,
1996 among the Company, Harlan Bagel Supply Company,
L.L.C. ("Harlan Bagel Supply"), Harlan Bakeries, Inc.
("Harlan Bakeries") and Hal P. Harlan, Hugh P. Harlan and
Doug H. Harlan (the "Harlans") (incorporated by reference
to Exhibit 10.24 to the Company's Registration Statement
on Form S-1 (Registration No. 333-04725)).
</TABLE>

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Exhibit-3

<PAGE> 94

<TABLE>
<CAPTION>
<S> <S>
10.14 -- Option Agreement dated August 27, 1996 among Harlan Bagel
Supply, the Harlans and the Company (incorporated by
reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (Registration No. 333-12395)).
10.15 -- Right of First Refusal Agreement dated August 27, 1996
among Harlan Bakeries, the Harlans and the Company
(incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement on Form S-1
(Registration No. 333-12395)).
10.16 -- Aircraft Dry Leases dated January 16, 1996 between the
Company and Bowana Aviation, Inc. (incorporated by
reference to Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.17 -- Fifth Amended and Restated Limited Liability Company
Agreement of Bagel Store Development Funding, L.L.C.
("Bagel Funding") dated as of April 14, 1997
(incorporated by reference to Exhibit 10.17 to the
Company's 1996 Annual Report on Form 10-K/A).
10.18 -- Form of agreement between the Company and Bagel Funding
relating to the Company's purchase of Bagel Funding's
interests in area developers (incorporated by reference
to Exhibit 10.30 to the Company's Registration Statement
on Form S-1 (Registration No. 333-04725)).
10.19 -- Form of Area Development Agreement between the Company
and its Area Developers (included in Exhibit 99).
10.20 -- Form of Franchise Agreement between the Company and its
Area Developers (included in Exhibit 99).
10.21 -- Form of Secured Loan Agreement between the Company and
its Area Developers (included in Exhibit 99).
10.22 -- Letter Agreement dated as of September 23, 1996
terminating the Employment Agreement dated March 31, 1995
between the Company and John A. Offerdahl (incorporated
by reference to Exhibit 10.3 to the Company's quarterly
report on Form 10-Q for the quarter ended October 6,
1996).
10.23 -- Office Lease Agreement dated as of July 1, 1996 between
the Company and Boston Chicken (incorporated by reference
to Exhibit 10.35 to the Company's Registration Statement
on Form S-1 (Registration No. 333-04725)).
10.24 -- Consulting Agreement dated as of July 1, 1996 between
Kyle T. Craig and the Company (incorporated by reference
to Exhibit 10.36 to the Company's Registration Statement
on Form S-1 (Registration No. 333-04725)).
10.25(a) -- Aircraft Dry Sublease and related Letter Agreement dated
as of July 9, 1996 between the Company and Boston Chicken
(incorporated by reference to Exhibit 10.37(a) to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.25(b) -- Aircraft Dry Sublease and related Letter Agreement dated
as of July 9, 1996 between the Company and Boston Chicken
(incorporated by reference to Exhibit 10.37(b) to the
Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.26 -- Concurrent Offering Purchase Agreement (included in
Exhibit 4.7).
10.27 -- Debenture Indenture (included in Exhibit 4.9).
</TABLE>

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Exhibit-4

<PAGE> 95

<TABLE>
<C> <S>
11.1 -- Statement re: Computation of Earnings (Loss) Per Share (incorporated by reference to
Exhibit 11 to the Company's 1996 Annual Report on Form 10-K).
11.2 -- Statement re: Computation of Earnings (Loss) Per Share (incorporated by reference to
Exhibit 11 to the Company's Quarterly Report on Form 10-Q for the quarter ended April
20, 1997).
21 -- Subsidiaries of the Company (incorporated by reference to the Company's 1996 Annual
Report on Form 10-K).
23.1 -- Consent of Arthur Andersen LLP with respect to the Audited Consolidated Financial
Statements of the Company.
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 20, 1997).
99 -- Uniform Franchise Offering Circular dated March 27, 1997 (incorporated by reference to
Exhibit 99 to the Company's 1996 Annual Report on Form 10-K/A).
</TABLE>

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Exhibit-5

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants we hereby consent to the use of our
reports dated March 24, 1997 on our audits of the consolidated financial
statements of Einstein/Noah Bagel Corp. and subsidiaries, and to all references
to our firm included in or made a part of this registration statement on
Form S-1.

ARTHUR ANDERSEN LLP

/s/ Arthur Andersen LLP

Denver, Colorado
June 4, 1997