<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 12, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-21097
EINSTEIN/NOAH BAGEL CORP.
(Exact name of registrant as specified in its charter)
Delaware 84-1294908
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14103 Denver West Parkway
Golden, CO 80401
(Address of principal executive offices, including zip code)
(303) 215-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Number of shares of common stock, $.01 par value per share, outstanding as of
August 25, 1998: 33,270,535.
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of December 28, 1997 and
July 12, 1998............................................. 3
Consolidated Statements of Operations for the quarter and
two quarters ended July 13, 1997 and July 12, 1998........ 4
Consolidated Statements of Cash Flows for the two quarters
ended July 13, 1997 and July 12, 1998..................... 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 12
Item 2. Changes in Securities..................................... 12
Item 4. Submission of Matters to a Vote of Security Holders....... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 12
Signature Page..................................................... 13
Exhibit Index...................................................... 14
</TABLE>
2
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 28, July 12,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents........................................ $ 34,148 $ 3,144
Accounts receivable.............................................. 1,593 854
Inventories...................................................... 9,823 9,246
Prepaid expenses and other current assets........................ 502 397
-------- --------
Total current assets.......................................... 46,066 13,641
Property and Equipment, net........................................ 194,152 192,022
Goodwill, net...................................................... 360,155 359,509
Trademarks, net.................................................... 22,075 22,742
Recipes, net....................................................... 7,202 6,768
Other Assets, net.................................................. 13,478 8,955
-------- --------
Total assets.................................................. $643,128 $603,637
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable................................................. $ 16,140 $ 4,175
Accrued expenses................................................. 38,369 35,301
Current portion of senior term loan.............................. 6,000 6,000
-------- --------
Total current liabilities..................................... 60,509 45,476
Revolving Credit Facility.......................................... -- 4,825
Long-Term Portion of Senior Term Loan.............................. 24,000 21,000
Convertible Subordinated Debentures................................ 125,000 125,000
Other Noncurrent Liabilities....................................... 23,225 20,129
Minority Interest.................................................. 80,048 76,289
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: 33,332,594 shares in December and
34,083,681 shares in July..................................... 333 341
Additional paid-in capital....................................... 374,685 377,616
Treasury stock, at cost (813,146 shares in December and July).... (5,261) (5,261)
Accumulated deficit.............................................. (39,411) (61,778)
-------- --------
Total stockholders' equity.................................... 330,346 310,918
-------- --------
Total liabilities and stockholders' equity.................. $643,128 $603,637
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
-------------------- --------------------
July 13, July 12, July 13, July 12,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Store revenue............................ $ -- $ 87,899 $ 2,103 $198,374
Royalties and franchise-related fees..... 13,275 -- 27,900 --
------- -------- ------- --------
Total revenue......................... 13,275 87,899 30,003 198,374
Costs and Expenses:
Store:
Cost of products sold................. -- 29,907 704 68,479
Salaries and benefits................. -- 27,289 609 62,669
Other controllable costs.............. -- 6,988 122 16,257
Rent, occupancy and related costs..... -- 8,002 150 18,591
Marketing expenses.................... -- 3,489 126 7,457
Depreciation and amortization......... -- 4,870 66 11,048
------- -------- ------- --------
Total store costs and expenses...... -- 80,545 1,777 184,501
Non-Store:
Salaries, benefits, general and
administrative...................... 3,768 7,971 9,791 22,859
Depreciation and amortization
(excluding goodwill amortization)... 907 776 1,978 1,821
Goodwill amortization................. 458 2,462 1,083 5,709
------- -------- ------- --------
Total non-store costs and expenses.. 5,133 11,209 12,852 30,389
------- -------- ------- --------
Total costs and expenses............ 5,133 91,754 14,629 214,890
------- -------- ------- --------
Income (Loss) from Operations.............. 8,142 (3,855) 15,374 (16,516)
Other Income (Expense):
Interest income.......................... 586 22 977 268
Interest expense......................... (1,380) (2,877) (1,550) (6,468)
Other.................................... -- (3,409) -- (3,409)
------- -------- ------- --------
Total other income (expense).......... (794) (6,264) (573) (9,609)
------- -------- ------- --------
Income (Loss) before Income Taxes and
Minority Interest........................ 7,348 (10,119) 14,801 (26,125)
Income Taxes............................... 2,234 4,509
Minority Interest in Loss of Subsidiary.... -- (1,170) -- (3,759)
------- -------- ------- --------
Net Income (Loss).......................... $ 5,114 $ (8,949) $10,292 $(22,366)
======= ======== ======= ========
Basic Earnings (Loss) per Share............ $.15 $(.27) $.31 $(.68)
======= ======== ======= ========
Diluted Earnings (Loss) per Share.......... $.15 $(.27) $.30 $(.68)
======= ======== ======= ========
Weighted Average Number of Common
Shares Outstanding:
Basic................................. 33,080 33,137 32,782 32,785
======= ======== ======= ========
Diluted............................... 34,725 33,137 34,860 32,785
======= ======== ======= ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Two Quarters Ended
---------------------
July 13, July 12,
1997 1998
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................ $ 10,292 $(22,366)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 3,126 18,578
Provision for write-down of notes receivable.............. -- 3,409
Minority interest......................................... -- (3,759)
Warrant and option exercise............................... 48 --
Deferred income taxes..................................... (1,900) --
Changes in assets and liabilities:
Accounts receivable..................................... (8,009) 739
Accounts payable and accrued expenses................... 8,577 (14,579)
Deferred franchise revenue.............................. (200) --
Other assets and liabilities............................ (286) (2,064)
--------- --------
Net cash provided by (used in) operating activities.. 11,648 (20,042)
--------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment........................... (6,172) (12,655)
Proceeds from sale of assets................................. 3,600 --
Purchase of other assets..................................... (6,280) (132)
Issuance of notes receivable................................. (222,144) --
Repayment of notes receivable................................ 103,791 --
--------- --------
Net cash used in investing activities..................... (127,205) (12,787)
--------- --------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock....................... 9,985 --
Borrowings under credit facilities........................... 62,200 21,700
Repayments under credit facilities........................... (62,200) (19,875)
Proceeds from convertible debt............................... 125,000 --
--------- --------
Net cash provided by financing activities................. 134,985 1,825
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........... 19,428 (31,004)
Cash and Cash Equivalents, beginning of period................. 50,741 34,148
--------- --------
Cash and Cash Equivalents, end of period....................... $ 70,169 $ 3,144
========= ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
5
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated interim financial statements have been prepared by
Einstein/Noah Bagel Corp. (the "Company") and are unaudited. The financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not necessarily include all information and footnotes
required by generally accepted accounting principles. In the opinion of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows as of July 12, 1998 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 as filed with the Securities and Exchange Commission in the Company's
Form 10-K for the year ended December 28, 1997. The consolidated results of
operations for the quarter and two quarters ended July 12, 1998 are not
necessarily indicative of the results expected for the full year.
2. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with certain vendors which provide
for minimum purchases over specified terms. Such agreements call for
retroactive rate adjustments or cash settlement in the event of purchase
shortfalls. Management believes that the ultimate settlement of such
commitments will not have a material impact on the consolidated financial
position or results of operations of the Company.
Bagel Store Development Funding, L.L.C. ("Bagel Funding") has invested a
total of approximately $89.5 million, representing an approximately 21% equity
interest, in Einstein/Noah Bagel Partners, L.P., a majority-owned subsidiary of
the Company ("Bagel Partners"). The Company is the manager of Bagel Funding.
Bagel Funding has the right to require Bagel Partners or the Company to redeem
Bagel Funding's equity interest in Bagel Partners at a pre-determined formula
price based on store level cash flow of Bagel Partners in the event that, at any
time after December 5, 1999 and prior to June 5, 2001, the Company does not
consent to a public offering of such equity interests or the termination of
certain rights and obligations under franchise and license agreements between
the Company and Bagel Partners. Such right becomes exercisable prior to
December 5, 1999 if there is a Change in Control (as defined in the Bagel
Partners partnership agreement) of the Company. The Company or Bagel Partners
may pay the purchase price for such equity interests in cash, shares of the
Company's common stock or a combination thereof.
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. 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.
The Company and certain of its current and former executive officers and
directors are defendants in a class action lawsuit filed in the United States
District Court for the District of Colorado. In addition, an action was filed
in state court in Jefferson County, Colorado, although such action has been
stayed pending resolution of the federal case. The complaints in such actions
allege, among other things, that the Company and the other defendants violated
Sections 11, 12(2) and 15 of the Securities Act of 1933, as amended, and Section
10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder, as well as certain similar provisions of Colorado state law. The
plaintiffs are seeking, among other things, an award of unspecified compensatory
damages, interest and costs. Although the Company cannot predict the outcome of
these lawsuits, the Company believes the complaints are without merit and
is vigorously defending against the allegations made in the complaints. On
February 10, 1998, the Company filed a motion to dismiss the complaint in the
federal case.
6
<PAGE>
3. RELATED PARTY TRANSACTIONS
On June 25, 1998, the Company and Boston Chicken, Inc., the Company's
majority stockholder ("Boston Chicken"), amended agreements under which Boston
Chicken provides the Company certain accounting and administration, and computer
and communications services. Such amendments reduced the amount of fees payable
by the Company for such services. On the same date, the Company agreed to
terminate its unsecured non-convertible revolving credit facility from Boston
Chicken, which had provided for borrowings of up to $50.0 million. There was no
balance outstanding under the facility as of the termination date.
During the second quarter ended July 12, 1998, notes and interest receivable
due from a stockholder in the amount of $3.4 million were deemed uncollectible
and were written off.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF EINSTEIN/NOAH BAGEL CORP. (THE "COMPANY"),
EINSTEIN/NOAH BAGEL PARTNERS, L.P., A MAJORITY-OWNED SUBSIDIARY OF THE COMPANY
("BAGEL PARTNERS"), AND EINSTEIN BROS.(R) 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; ADVERTISING AND PROMOTIONAL
EFFORTS; BRAND AWARENESS; AVAILABILITY AND TERMS OF CAPITAL; ADVERSE PUBLICITY;
ACCEPTANCE OF NEW PRODUCT OFFERINGS; THE COMPANY'S RELATIONSHIP WITH, AND
BUSINESS OF, BOSTON CHICKEN, INC., THE COMPANY'S MAJORITY STOCKHOLDER ("BOSTON
CHICKEN"); CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS; ACHIEVEMENT OF
DEVELOPMENT SCHEDULES; AVAILABILITY, LOCATIONS AND TERMS OF SITES FOR STORE
DEVELOPMENT; FOOD, LABOR AND EMPLOYEE BENEFIT COSTS; CHANGES IN GOVERNMENT
REGULATION; REGIONAL WEATHER CONDITIONS; AND OTHER FACTORS REFERENCED IN THIS
FORM 10-Q. THE COMPANY CANNOT PREDICT WHICH FACTORS WOULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. IN
ADDITION TO CONSIDERING STATEMENTS THAT EXPLICITLY DESCRIBE SUCH RISKS AND
UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS THAT INCLUDE THE TERMS
"BELIEVES", "BELIEF", "EXPECTS", "PLANS", "ANTICIPATES", "INTENDS" OR THE LIKE
TO BE UNCERTAIN AND FORWARD-LOOKING.
GENERAL
On December 5, 1997, the Company converted its loans to its area developers
into a majority equity interest in the area developers and purchased additional
area developer equity interests, and the area developers merged into a surviving
entity, Einstein/Noah Bagel Partners, L.P. ("Bagel Partners"). As a result of
the loan conversions and the area developer merger (together with certain
related transactions, the "Transactions"), the Company owns approximately 78% of
Bagel Partners with the remaining equity interest owned by Bagel Store
Development Funding, L.L.C. and management of the former area developers.
Prior to the date of the Transactions, the revenue reflected in the
consolidated statements of operations were those generated by the Company as a
lender, franchisor and service provider to the area developers. From and after
the date of the Transactions, the consolidated statements of operations reflect
all store revenue and operating results. Such results are adjusted in the
"minority interest" line item to reflect the minority interest in Bagel Partners
not owned by the Company. As a result of the Transactions, the operating results
for the quarter and two quarters ended July 12, 1998 are not readily comparable
to those for the quarter and two quarters ended July 13, 1997.
As of July 12, 1998, Boston Chicken held approximately 51.0% of the common
stock of the Company. In addition, Boston Chicken has 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. On May 27, 1998,
Boston Chicken announced that it had retained Morgan Stanley & Co. Incorporated
to advise and assist it in evaluating the sale of all or a portion of the shares
of common stock of the Company owned by it to one or more third parties. The
Company and Boston Chicken are parties to various agreements, pursuant to which
Boston Chicken has agreed to provide to the Company certain accounting and
administration, and computer and communications services. On June 25, 1998, the
agreements were amended to reduce the amount of fees payable for such services.
The Company also agreed to terminate its $50.0 million non-convertible unsecured
credit facility from Boston Chicken on the same date. There was no balance
outstanding under the facility as of the termination date. See Note 3 of Notes
to the Company's Consolidated Financial Statements.
8
<PAGE>
The Company's future financial condition and results of operations are
subject to uncertainties related to stockholder class action lawsuits filed
against the Company and certain other defendants. See Note 2 of Notes to the
Company's Consolidated Financial Statements. Because such litigation is at a
preliminary stage, the Company is unable to make a meaningful estimate of any
loss that could result from an unfavorable outcome of the litigation.
RESULTS OF OPERATIONS
The Company's results of operations for the quarter and two quarters ended
July 13, 1997 reflect the Company's operations primarily as a franchisor. As a
result of the Transactions, the Company's results of operations for the quarter
and two quarters ended July 12, 1998 reflect the results of the Company as the
majority owner and operator of stores systemwide.
Revenue. Total systemwide store net revenue increased 25.8% to $87.9 million
for the quarter ended July 12, 1998 compared to $69.9 million for the prior
comparable quarter. Total systemwide store net revenue increased 35.5% to
$198.4 million for the two quarters ended July 12, 1998 from $146.4 million for
the prior comparable period. The increase in systemwide store net revenue was
due to an increase in the average number of stores in operation systemwide to
554 for the quarter ended July 12, 1998 from 451 for the quarter ended July 13,
1997 and an increase to 557 stores for the first two quarters of 1998 from 401
stores for the comparable 1997 period.
Average weekly per store net sales ("WPSA") were $13,326 and $12,866 for the
quarter and two quarters ended July 12, 1998, compared to $13,111 and $13,184
for the prior comparable periods. WPSA represents the weekly per store average
revenue, after customer and employee discounts, for all stores open at the end
of the periods presented. The increase in WPSA for the quarter ended July 12,
1998 compared to the prior comparable quarter was due to the introduction of a
new lunch menu in selected markets and higher prices in the second quarter of
1998 and the closure of underperforming stores in the first quarter of 1998. The
decrease in WPSA for the two quarters ended July 12, 1998 was due to lower
revenue generated by Noah's New York Bagels stores during the 1998 periods
compared to the prior comparable periods.
Company store net revenue was $87.9 million for the quarter ended July 12,
1998. There were no Company stores in operation in the prior comparable quarter.
Company store net revenue increased to $198.4 million for the two quarters ended
July 12, 1998, compared to $2.1 million for the prior comparable period. The
increases were due to an increase in the average number of Company stores in
operation to 557 for the two quarters ended July 12, 1998 from seven Company
stores for the prior comparable period.
As a result of the Transactions, the Company did not have any royalties and
franchise-related fees for the quarter or two quarters ended July 12, 1998.
Royalties and franchise-related fees were $8.0 million and $17.3 million for
the quarter and two quarters ended July 13, 1997.
Store Costs and Expenses. There were no Company stores in operation in the
quarter ended July 13, 1997 and there was an average of seven Company stores in
operation in the two quarters ended July 13, 1997. Because of the significant
change in the Company store base resulting from the transition to a Company-
controlled system, the Company does not believe that store costs and expenses
for the 1998 periods presented are readily comparable to the corresponding 1997
periods.
Store costs and expenses increased to $184.5 million for the two quarters
ended July 12, 1998 from $1.8 million for the prior comparable period. The
increase in store costs and expenses was due to an increase in the number of
Company stores resulting from the transition to a Company-controlled system.
Store costs and expenses as a percentage of store revenue for the two quarters
ended July 12, 1998 were 93.0%, compared to 84.5% for the prior comparable
period. This increase was due to larger stores, more complex store
configurations and higher food costs associated with different menu offerings in
the two quarters ended July 12, 1998, compared to the prior comparable period.
Store costs and expenses for the two quarters ended July 12, 1998 also included
certain costs and expenses associated with the closing of a bagel production
plant. Such increases were offset by a decrease in marketing expenses as a
percentage of store revenue to 3.8% for the two quarters ended July 12, 1998
from 6.0% for the prior comparable period. Such decrease was the result of a
change in marketing strategy.
9
<PAGE>
Salaries, Benefits, General and Administrative. Salaries, benefits, general
and administrative expenses increased to $8.0 million for the quarter ended July
12, 1998 from $3.8 million for the prior comparable quarter. Salaries,
benefits, general and administrative expenses increased to $22.9 million for the
two quarters ended July 12, 1998 from $9.8 million for the prior comparable
period. The increases were due to the transition to a Company-controlled
system, under which expenses previously incurred by the Company's area
developers are now reflected on the Company's consolidated financial statements.
In addition, the Company incurred a severance charge of $1.5 million for
terminated employees in the first quarter of 1998.
In May 1998, the Stock Option Committee of the board of directors authorized
a stock option exchange program to provide employees the opportunity to exchange
existing options for new options priced at fair market value on the date of
exchange. Approximately 2.4 million vested and unvested outstanding options
with original exercise prices ranging from $4.56 to $33.13 per share were
cancelled in exchange for the grant of the same number of new options with an
exercise price of $3.65 per share. New options issued upon cancellation of
options originally granted in 1995 vest 50% on each of November 11, 1999 and May
11, 2000. New options issued upon cancellation of options originally granted
after 1995 vest 33-1/3% on each of November 11, 1999, May 11, 2000 and May 11,
2001.
Depreciation and Amortization. Non-store depreciation and amortization
(excluding goodwill amortization) remained relatively consistent at $0.8 million
for the quarter ended July 12, 1998, compared to $0.9 million for the prior
comparable quarter and $1.8 million for the two quarters ended July 12, 1998,
compared to $2.0 million for the prior comparable period. Goodwill amortization
increased to $2.5 million for the quarter ended July 12, 1998 from $0.5 million
for the prior comparable quarter and increased to $5.7 million for the two
quarters ended July 12, 1998 from $1.1 million for the prior comparable period.
The increases in goodwill amortization were due to amortization resulting from
the Transactions.
Other Expense. The Company incurred other expense of $6.3 million for the
quarter ended July 12, 1998 compared to other expense of $0.8 million in the
prior comparable quarter. The Company incurred other expense of $9.6 million
for the two quarters ended July 12, 1998 compared to other expense of $0.6
million in the prior comparable period. The increases were due to the interest
on the Company's convertible subordinated debentures issued in the second
quarter of 1997 and a $3.4 million charge associated with the write-off of
certain notes receivable in the second quarter of 1998.
Minority Interest. The minority interest in losses of Bagel Partners was
$1.2 million for the quarter ended July 12, 1998 and $3.8 million for the two
quarters ended July 12, 1998.
Income Taxes. Because of the uncertainty of utilizing the loss incurred in
1998, no income tax benefit was established.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the two quarters ended July 12, 1998 was $20.0
million, compared to $11.6 million of cash provided from operations for the two
quarters ended July 13, 1997. The increase in cash usage was due primarily to
paydown of accounts payable and accrued expense balances and other changes in
working capital for the two quarters ended July 12, 1998 of $15.9 million,
compared to cash provided of $82,000 in the prior comparable period. Also,
salaries, benefits, general and administrative costs increased by $13.1 million
in the two quarters ended July 12, 1998 as compared to the prior comparable
period. The increase was due to the transition to a Company-controlled system,
where costs previously incurred by the Company's area developers are now
incurred by the Company, and a severance charge of $1.5 million for terminated
employees in the first quarter of 1998.
For the two quarters ended July 12, 1998, the Company's primary capital
requirements have consisted of store development, development and maintenance of
its corporate infrastructure and investments in food production facilities.
During the two quarters ended July 12, 1998, the Company expended $12.7 million
on construction of new stores, a majority of which were opened during the fourth
quarter of 1997, and on investments in food production facilities. In the prior
comparable period, the Company expended $6.2 million related to corporate
infrastructure and investments in food production facilities.
Cash provided by financing activities was $1.8 million for the two quarters
ended July 12, 1998. During this period, the Company borrowed $21.7 million and
made $19.9 million in payments under its credit facilities. For the two
quarters ended July 13, 1997, financing activities provided $135.0 million in
cash, primarily from the issuance of convertible subordinated debt.
10
<PAGE>
The Company is party to a secured credit agreement with Bank of America
National Trust and Savings Association and the lenders named therein (the
"Credit Facility"), that consists of a secured term loan facility, under which
$27.0 million was outstanding at July 12, 1998, and a $25.0 million secured
revolving credit facility, of which $4.8 million was outstanding as of July 12,
1998. Amounts available under the $25.0 million revolving credit facility
increase in increments through September 1998, and availability is subject to an
incurrence test based on the ratio of senior indebtedness to cash flow. There
was $12.5 million available to the Company under the Credit Facility as of July
12, 1998. The Credit Facility contains financial covenants that require
maintaining certain minimum average weekly net sales levels and cash flow
ratios.
On June 25, 1998, the Company agreed to terminate its $50.0 million unsecured
non-convertible revolving credit facility with Boston Chicken. There was no
balance outstanding under the facility as of the termination date. See Note 3 of
Notes to the Company's Consolidated Financial Statements.
The Company's primary uses of capital for the remainder of 1998, other than
providing working capital for normal operating expenses, are expected to consist
primarily of satisfaction of current liabilities, expenditures related to
building and opening new stores and refreshing existing stores, and payment of
principal and interest on outstanding indebtedness. In the event the Company
requires additional capital for working capital needs, there can be no assurance
that the Company will be able to raise such capital on satisfactory terms, if at
all. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 8.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Note 2 of the Company's Notes to
Consolidated Financial Statements contained in Part I of this Form 10-Q is
incorporated herein by reference thereto.
Item 2. Changes in Securities
(c) During the second quarter of 1998, the Company issued and sold 750,000
shares of the Company's common stock to Einstein/Noah Bagel Partners, L.P., its
majority-owned subsidiary, for an aggregate purchase price of $2,924,500. Such
shares were issued and sold without registration under the Securities Act of
1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting was held on May 21, 1998. The only matter
voted upon at the meeting was the election of directors. The votes cast for and
withheld for each individual nominated as a director were as follows:
Director For Withheld
-------- --- --------
Robert M. Hartnett 20,894,005 97,054
J. Michael Jenkins 20,885,375 105,684
M. Laird Koldyke 20,893,050 98,009
Gail A. Lozoff 20,890,900 100,159
John H. Muehlstein, Jr. 20,887,225 103,834
David G. Stanchak 20,878,750 112,309
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: See Exhibit Index appearing elsewhere herein, which is
incorporated herein by reference.
B. Reports on Form 8-K: During the second quarter ended July 12,
1998, the Company filed two current reports on Form 8-K dated May
6, 1998 and May 27, 1998. The Form 8-K dated May 6, 1998 reported
under Item 5. (Other Events) the resignations of Scott A. Beck as
Chairman of the Board and Jeffrey L. Butler as President, the
naming of Robert M. Hartnett as Chairman of the Board and
President and the election of J. Michael Jenkins as a director of
the Company. The Form 8-K dated May 27, 1998 reported under Item
5. (Other Events) Boston Chicken's announcement that it had
retained financial advisors to assist it in evaluating a sale to
one or more third parties of all or a portion of the shares of
the Company's common stock owned by Boston Chicken.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP.
Date: August 25, 1998 /s/ Robert M. Hartnett
----------------------------------------
Robert M. Hartnett
Chairman of the Board,
Chief Executive Officer and President
Date: August 25, 1998 /s/ W. Eric Carlborg
----------------------------------------
W. Eric Carlborg
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
10.1* Amended and Restated Project and Approved Supplier Agreement dated May
1, 1998 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").
10.2 Amended and Restated Option Agreement dated May 1, 1998 among the
Company, Harlan Bagel Supply and the Harlans.
10.3 Amended and Restated Right of First Refusal Agreement among the
Company, Harlan Bakeries and the Harlans.
10.4 Second Amendment dated June 25, 1998 to the Amended and Restated
Accounting and Administrative Services Agreement between the Company
and Boston Chicken, Inc. ("Boston Chicken").
10.5 Second Amendment dated June 25, 1998 to the Amended and Restated
Computer and Communications Systems Services Agreement between the
Company and Boston Chicken.
10.6 Termination Agreement dated June 25, 1998 between the Company and
Boston Chicken terminating the Loan Agreement dated May 17, 1996, as
amended, between the Company and Boston Chicken.
10.7 First Amendment to Office Sublease effective as of May 1, 1998 between
the Company and Boston Chicken.
10.8 Letter agreement dated April 29, 1998 by and between the Company and
Robert M. Hartnett (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended April
19, 1998).
10.9 Termination Agreement dated May 1, 1998 by and between the Company and
Jeffrey L. Butler (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended April
19, 1998).
10.10 Severance Agreement dated May 8, 1998 between the Company and Robert
M. Hartnett.
10.11 Severance Agreement dated May 8, 1998 between the Company and W. Eric
Carlborg.
10.12 Severance Agreement dated May 8, 1998 between the Company and Gail A.
Lozoff.
10.13 Severance Agreement dated May 8, 1998 between the Company and Paul A.
Strasen.
27 Financial Data Schedule.
- -------------------------------------------
* Confidential treatment requested.
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
PROJECT AND
APPROVED SUPPLIER AGREEMENT
May 1, 1998
among
EINSTEIN/NOAH BAGEL CORP.,
HARLAN BAGEL SUPPLY COMPANY, LLC,
HARLAN BAKERIES, INC.,
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
AMENDED AND RESTATED
PROJECT AND
APPROVED SUPPLIER AGREEMENT
This amended and restated agreement (the "Agreement") is made and
entered into as of this 1/st/ day of May, 1998 by and among Einstein/Noah Bagel
Corp., a Delaware corporation ("ENBC"), Harlan Bagel Supply Company, LLC, an
Indiana limited liability company (the "Supplier"), Harlan Bakeries, Inc., an
Indiana corporation ("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H.
Harlan. The Supplier and Harlan are herein sometimes collectively referred to
as the "Harlan Companies", and Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan
are herein sometimes collectively referred to as the "Harlans."
RECITALS
--------
ENBC, directly and through its wholly-owned subsidiaries, owns and
operates retail bagel stores, and ENBC has also granted franchise rights to own
and operate retail bagel stores under trademarks owned by ENBC and its
subsidiaries and using ENBC's system. The Supplier previously entered into a
Project and Approved Supplier Agreement with ENBC dated as of May 24, 1996,
which agreement was amended and restated as of August 1, 1997 (the "Prior
Project Agreement") pursuant to which ENBC designated Supplier as an approved
supplier of ENBC to supply frozen bagel dough products to ENBC and its
subsidiaries and franchisees. The parties desire to amend and restate the Prior
Project Agreement, all as hereinafter set forth.
COVENANTS
---------
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE 1.0 DEFINITIONS
1.1 As used herein the following terms shall have the meanings given
them below:
"Accounting Period" shall mean one of twelve (12) periods of four or
five consecutive weeks in each fiscal year of the Supplier during the Term that
is designated by the Supplier as an accounting period.
"Authorized Recipients" shall have the meaning ascribed to it in Section
6.3.
"Bagel Lines" shall mean the Original Bagel Line and the Second Bagel
Line.
"Category A Products" shall mean Products consisting of frozen bagels
produced by Supplier that are intended for resale under any brand name owned by
ENBC and produced using Formulations, Proprietary Information or patented
technology owned by ENBC.
<PAGE>
"Category B Products" shall mean Products consisting of frozen bagels
produced by Supplier that are not Category A Products.
"ENBC Allocated Charges" shall mean those costs of ENBC charged to the
Supplier as described in Section 7.7.
"ENBC Franchisee" shall mean a franchisee or licensee of ENBC.
"ENBC Subsidiary" shall mean a subsidiary of ENBC.
"Encumbrances" shall mean liens, mortgages, pledges, charges,
encumbrances, assessments, restrictions, covenants, easements or title defects
of any nature whatsoever.
"Equipment Lease" shall mean that certain amended and restated lease
agreement between the Supplier and ENBC contemplated by Section 2.1 hereof
(including any equipment schedule thereto).
"Equipment Financing Documents" shall mean the Equipment Lease,
together with all other agreements, instruments and documents contemplated by
such agreement.
"Financing Documents" shall mean the Equipment Financing Documents and
the Working Capital Financing Documents.
"Formulations" shall have the meaning ascribed to it in Section 6.5.
"Lease" shall mean that certain Lease Agreement dated August 27, 1996
between Harlan and the Supplier.
"Leasehold Premises" shall have the meaning ascribed to it in Section
3.6.
"Materials Cost" shall mean the Supplier's cost of ingredients and
packaging used in manufacturing the Products during each Quarterly Period,
determined in the manner set forth in Exhibit A hereto. For this purpose,
ingredients shall include corn meal used in manufacturing the Products.
"Mortgage" shall mean the existing mortgage loan on the land and
buildings owned by Harlan, consisting of the Production Facility and the
facility adjacent thereto, made by the Mortgage Holders.
"Mortgage Holders" shall mean LaSalle National Bank and KeyBank
National Association.
"Occupancy Cost" shall mean building rental expense, real estate
taxes, utilities, maintenance and repair and property casualty insurance.
2
<PAGE>
"Option Agreement" shall mean that certain amended and restated option
agreement of even date herewith among ENBC, the Supplier and the Harlans.
"Original Bagel Line" shall mean the first Winkler bagel line owned by
ENBC and leased to and operated by the Supplier, together with the other
components of such bagel production line installed in the Production Facility,
including without limitation mixers, bagel cooking unit, proofer, retarder,
blast freezer and packaging equipment.
"Procedures" shall have the meaning ascribed to it in Section 6.5.
"Production Facility" shall mean Harlan's 575,000 square foot
production facility in Avon, Indiana as described in the Lease.
"Products" shall mean frozen bagel dough products.
"Proprietary Information" shall have the meaning ascribed to it in
Article 12.0.
"Quarterly Period" shall mean the first three Accounting Periods of
the Supplier during each fiscal year of the Supplier during the Term and each
subsequent period of three Accounting Periods thereafter during said fiscal
year.
"Second Bagel Line" shall mean the second Winkler bagel line owned by
ENBC and leased to and operated by the Supplier, together with the other
components of such bagel production line installed in the Production Facility,
including without limitation mixers, bagel cooking unit, additional components
for the proofer and retarder constituting a portion of the Original Bagel Line,
modifications to the blast freezer constituting a portion of the Original Bagel
Line, and packaging equipment.
"Specifications" shall have the meaning ascribed to it in Section 6.5.
"Term" shall mean the period commencing on the date hereof and
continuing until the date this Agreement expires or is terminated pursuant to
Article 13.0 hereof.
"Title Policy" shall mean that certain Leasehold Loan Policy dated
August 30, 1996 issued by Chicago Title Insurance Company (Policy No. 15-0140-
109-0000001).
"Working Capital Financing" shall mean the loan by the Working Capital
Lenders to the Supplier.
"Working Capital Financing Documents" shall mean the revolving credit
agreement between the Working Capital Lenders and the Supplier, together with
all other agreements, instruments and documents contemplated by such agreement.
3
<PAGE>
"Working Capital Lenders" shall mean LaSalle National Bank and KeyBank
National Association.
ARTICLE 2.0 CLOSING OF THE AGREEMENT
2.1 On the date hereof, the parties shall enter into an amended and
restated lease agreement and related equipment schedule, governing the
Supplier's lease of equipment from ENBC, in the form agreed by the Supplier and
ENBC.
2.2 On the date hereof, the parties to the amended and restated option
agreement dated as of August 15, 1997 and the right of first refusal agreement
dated as of August 27, 1996 among ENBC, Harlan and the Harlans, shall enter into
an amended and restated option agreement and an amended and restated right of
first refusal agreement, respectively, in the form agreed by them.
2.3 ENBC shall cause Einstein/Noah Bagel Partners, L.P., a subsidiary
of ENBC, to pay to Supplier $100,000 in cash, within 15 days after the execution
and delivery of this Agreement.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF THE HARLAN COMPANIES
In order to induce ENBC to enter into this Agreement and to perform its
obligations hereunder, the Harlan Companies jointly and severally represent and
warrant to ENBC that:
3.1 Each of the Harlan Companies is duly organized and validly
existing under the laws of the jurisdiction of its incorporation, with full
corporate power and authority to enter into this Agreement and to carry out the
transactions and agreements contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of each of the Harlan Companies.
3.2 This Agreement has been duly executed and delivered by each of the
Harlan Companies and is a valid and binding obligation of each of them,
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement by the Harlan Companies nor the consummation of the transactions
contemplated hereby will: (a) conflict with or violate any provision of its
organizational documents, or of any law, ordinance or regulation or any decree
or order of any court or administrative or other governmental body which is
either applicable to, binding upon or enforceable against either of the Harlan
Companies or (b) result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under, any mortgage, contract,
agreement, indenture, will, trust or other instrument which is either binding
upon or enforceable against either of the Harlan Companies or the assets and
properties of either of them, except pursuant to the Working Capital Financing
Documents and the Mortgage. No permit, consent, approval or authorization of, or
declaration to or filing with, any regulatory or other governmental authority is
required in connection with the execution and delivery of this Agreement by the
Harlan Companies and the consummation by them of the transactions contemplated
hereby, except for
4
<PAGE>
such of the foregoing as are identified in Schedule 3.8 previously furnished to
ENBC, all of which have been obtained, and except for documents the Harlan
Companies have executed and which are to be recorded pursuant to the Financing
Documents.
3.3 Schedule 3.3 previously furnished to ENBC accurately and
completely sets forth, with respect to each of the Harlan Companies: (a) the
number of shares of each class of its capital stock or other units of equity
interest which are issued and outstanding and (b) the name and address of, and
the number of shares of each class of capital stock or other units of equity
interest owned by, each of its shareholders or other equity owners. All voting
rights in each of the Harlan Companies are vested exclusively in its shares of
capital stock, in the case of Harlan, and in units of equity interest, in the
case of the Supplier, and other than shareholder agreements or operating
agreements which have been provided to ENBC (the "Shareholder Agreements"),
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting of the capital stock or other units of equity interest of
either of the Harlan Companies. Except pursuant to the Shareholder Agreements
and the right of first refusal granted to ENBC pursuant to that certain Right of
First Refusal Agreement dated as of August 27, 1996 among ENBC and the Harlans,
there are no outstanding warrants, options or rights of any kind to acquire from
either of the Harlan Companies, or from the shareholders or other equity owners
of either of the Harlan Companies, any shares of capital stock or other units of
equity interest of either of the Harlan Companies, and neither of the Harlan
Companies has any obligation to acquire any of its issued and outstanding shares
of capital stock or other units of equity interest from any holder thereof.
3.4 Set forth in Schedule 3.4 are the following financial statements
of the Harlan Companies:
3.4.1 balance sheets of (a) Harlan at December 31, 1996 and
January 3, 1998; and (b) the Supplier at December 31, 1996 and January 3,
1998; and
3.4.2 statements of operations and cash flow of (a) Harlan for
the years ended December 31, 1996 and January 3, 1998; and (b) the Supplier
for the partial year ended December 31, 1996 and the year ended January 3,
1998.
Such financial statements, together with the balance sheet of Harlan at December
31, 1995 and the statement of operations and cash flow of Harlan for the year
ended December 31, 1995 previously delivered by Harlan to ENBC, present fairly
in all material respects the financial position of each of the Harlan Companies
covered thereby at said balance sheet dates and the results of operations and
cash flows of each of the Harlan Companies for each of the said periods covered,
and they have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The balance sheet of Harlan at
January 3, 1998 is herein sometimes referred to as the "Harlan Balance Sheet,"
and the balance sheet of the Supplier at January 3, 1998 is herein sometimes
referred to as the "Supplier Balance Sheet."
3.5 Neither of the Harlan Companies has any liabilities or
obligations, accrued, absolute, contingent or otherwise, except: (a) to the
extent reflected or taken into account in
5
<PAGE>
determining net worth in the Harlan Balance Sheet or the Supplier Balance Sheet
and not heretofore paid or discharged; (b) contractual obligations of the Harlan
Companies incurred in the ordinary course of business; (c) liabilities of the
Harlan Companies incurred in the ordinary course of business since the date of
the Harlan Balance Sheet and the Supplier Balance Sheet; (d) obligations of the
Harlan Companies under this Agreement and the other documents now or hereafter
executed in connection therewith, and (e) obligations of the Harlan Companies
under contracts identified in Schedule 3.9 previously furnished to ENBC.
3.6 The premises covered by the Lease (the "Leasehold Premises"): (a)
have direct access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
reasonably anticipated transportation requirements of the Supplier's business to
be conducted at the Leasehold Premises; and (b) are served by all utilities,
including but not limited to water, electricity, natural gas, sewer and
telephone, in such quantity and quality as are sufficient to satisfy the
reasonably anticipated production levels and business activities of the
Supplier's business to be conducted at the Leasehold Premises. Neither of the
Harlan Companies has received notice of: (a) any condemnation proceeding with
respect to any portion of the Leasehold Premises, and, to the best of their
knowledge, no proceeding is contemplated by any governmental authority; or (b)
any special assessment which may affect the Leasehold Premises and to the best
of their knowledge, no such special assessment is contemplated by any
governmental authority.
3.7 The Supplier has good and marketable title to all of its assets
and properties, free and clear of all Encumbrances, except as set forth in the
Financing Documents or the Title Policy or on Schedule 3.7 previously furnished
to ENBC.
3.8 The Harlan Companies possess all licenses and other required
governmental or official approvals, permits or authorizations, the failure to
possess which would have a material adverse effect on the business, financial
condition or results of operations of either of the Harlan Companies. All such
licenses, approvals, permits and authorizations are in full force and effect,
the Harlan Companies are in material compliance with their requirements, and no
proceeding is pending or to the best of the knowledge of the Harlan Companies,
threatened to revoke or amend any of them. Schedule 3.8 previously furnished to
ENBC contains an accurate and complete list of all such licenses, approvals,
permits and authorizations. None of such licenses, approvals, permits and
authorizations are or will be impaired or in any way affected by the execution
and delivery of this Agreement or the Schedule to the Equipment Lease or the
consummation of the transactions contemplated hereby.
3.9 Schedule 3.9 previously furnished to ENBC accurately and
completely lists each contract to which either of the Harlan Companies is a
party related to the construction of the Production Facility, and each contract
to which either of the Harlan Companies is a party related to the acquisition of
equipment for use in the Production Facility. None of such contracts has been
further amended or modified and each of them is in full force and effect.
Except in connection with a dispute with Greenfield Builders pertaining to the
completion of caulking work, neither of the Harlan Companies is in breach of or
default under any of such contracts, and no event has occurred which with the
passage of time or the giving of notice or both would cause
6
<PAGE>
a material breach of or default under any such contract. Except in connection
with a dispute with Greenfield Builders pertaining to the completion of caulking
work, neither of the Harlan Companies is aware of any breach of or default under
any such contract by the other party thereto.
3.10 Except as set forth on Schedule 3.10 previously furnished to
ENBC, there are no actions, suits, claims, governmental investigations or
arbitration proceedings ("Actions") pending or, to the best of the knowledge of
the Harlan Companies, threatened against or adversely affecting either of the
Harlan Companies or any of their assets or properties and, to the best of the
knowledge of the Harlan Companies, there is no basis for any of the foregoing.
Except for Harlan's settlement agreement with the West Central Conservancy
District, there are no outstanding orders, decrees or stipulations issued by any
federal, state, local or foreign judicial or administrative authority in any
proceeding to which either of the Harlan Companies is or was a party.
3.11 Each of the Harlan Companies is in material compliance with all
laws, regulations and orders applicable to it, its assets, properties and
business. Neither of the Harlan Companies has received notification of any
asserted past or present failure to comply with any laws, and to the best of
their knowledge, no proceeding with respect to any such violation is
contemplated.
3.12
3.12.1 Neither of the Harlan Companies has transported, stored,
treated or disposed, nor has either of them allowed or arranged for
any third parties to transport, store, treat or dispose of Hazardous
Substances or other waste to or at any location other than a site
lawfully permitted to receive such Hazardous Substances or other waste
for such purposes, nor has either of them performed, arranged for or
allowed by any method or procedure such transportation, storage,
treatment or disposal in contravention of any laws or regulations.
Neither of the Harlan Companies has disposed, or allowed or arranged
for any third parties to dispose, of Hazardous Substances or other
waste upon the Leasehold Premises, except as permitted by law. For
purposes of this Section 3.12.1, the term "Hazardous Substances" shall
have the meaning given it in the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Sections 9601, et seq.), as
amended, and the regulations promulgated pursuant thereto ("CERCLA"),
or any similar state law.
3.12.2 Since the acquisition of the Leasehold Premises, Harlan
has not permitted to occur, nor is there presently occurring, a
Release of any Hazardous Substance on, into or beneath the surface of
the Leasehold Premises, except that the parties acknowledge that
Harlan discharges wastewater into the sewage treatment plant of the
West Central Conservancy District. For purposes of this Section
3.12.2, the term "Release" shall mean releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping.
7
<PAGE>
3.12.3 Neither of the Harlan Companies has transported or
disposed, nor has it allowed or arranged for any third parties to
transport or dispose, any Hazardous Substance or other waste to or at
a site which, pursuant to CERCLA or any similar state law: (a) has
been placed on the National Priorities List or its state equivalent,
or (b) the Environmental Protection Agency or the relevant state
agency has proposed or is proposing to place on the National
Priorities List or its state equivalent. Neither of the Harlan
Companies has received notice, or has any knowledge of any facts which
could give rise to any notice, that either of the Harlan Companies is
a potentially responsible party for a federal or state environmental
cleanup site or for corrective action under CERCLA or any other
applicable law or regulation. Neither of the Harlan Companies has
submitted nor was either of them required to submit any notice
pursuant to Section 103(c) of CERCLA with respect to the real estate
that is covered by the Lease. Neither of the Harlan Companies has
received any written or oral request for information in connection
with any federal or state environmental cleanup site. Neither of the
Harlan Companies has undertaken (or been requested to undertake) any
response or remedial actions or clean-up action of any kind at the
request of any federal, state or local governmental entity, or at the
request of any other person or entity.
3.12.4 Neither of the Harlan Companies uses, or has used, any
Underground Storage Tanks, and, except as set forth in Schedule 3.12
previously furnished to ENBC, the Harlan Companies are not aware of
any Underground Storage Tanks previously or currently on or under the
Leasehold Premises. For purposes of this Section 3.12.4, the term
"Underground Storage Tanks" shall have the meaning given it in the
Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.).
3.12.5 Schedule 3.12 previously furnished to ENBC (together
with information furnished to ENBC in writing on April 17, 1998)
identify (a) all environmental audits, assessments or occupational
health studies relating to the assets, properties or business of
either of the Harlan Companies undertaken by governmental agencies or
either of the Harlan Companies or their agents; (b) the results of any
ground, water, soil, air or asbestos monitoring undertaken with
respect to the Leasehold Premises, except for tests of sewage
discharge, which test results are available to ENBC, if requested; (c)
all written communications between either of the Harlan Companies and
any environmental agencies within the past three years; and (d) all
citations issued to either of the Harlan Companies within the past
three years under the Occupational Safety and Health Act (29 U.S.C.
Sections 651 et seq.).
ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF ENBC
In order to induce the Harlan Companies to enter into this Agreement
and to perform their obligations hereunder, ENBC represents and warrants to the
Harlan Companies that:
4.1 ENBC is duly organized and legally existing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and to carry out the transactions and agreements contemplated hereby.
The execution, delivery and performance
8
<PAGE>
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of ENBC.
4.2 This Agreement has been duly executed and delivered by ENBC and
is a valid and binding obligation of ENBC, enforceable in accordance with its
terms. Neither the execution and delivery of this Agreement by ENBC nor the
consummation of the transactions contemplated hereby will: (a) conflict with or
violate any provision of the certificate of incorporation of bylaws of ENBC or
of any decree or order of any court or administrative or other governmental body
which is either applicable to, binding upon or enforceable against ENBC; or (b)
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel, or
require any notice under, any mortgage, contract, agreement, indenture or other
instrument which is either binding upon or enforceable against ENBC. No permit,
consent, approval or authorization of, or declaration to or filing with, any
regulatory or other government authority is required in connection with the
execution and delivery of this Agreement by ENBC and the consummation of the
transactions contemplated hereby.
4.3 There are no Actions pending or, to the best of the knowledge of
ENBC, threatened against or affecting ENBC or any of its assets or properties
which Actions are related to this Agreement or ENBC's obligations hereunder and,
to the best of the knowledge of ENBC, there is no basis for any of the
foregoing. There are no outstanding orders, decrees or stipulations issued by
any federal, state, local or foreign judicial or administrative authority in any
proceeding to which ENBC is or was a party related to this Agreement or ENBC's
obligations under this Agreement.
4.4 ENBC is in material compliance with all laws, regulations and
orders applicable to its performance under this Agreement. ENBC has received no
notification of any asserted past or present failure to comply with any such
laws, and to the best of its knowledge, no proceeding with respect to any such
violation is contemplated.
ARTICLE 5.0 CERTAIN COVENANTS OF ENBC AND THE HARLAN COMPANIES
5.1 The Harlan Companies agree that (a) the use of any portion of the
Production Facility or the Bagel Lines for production of any products for
persons other than ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized
Recipients shall be subject to ENBC's prior written approval, which may be
subject, by way of illustration and not limitation,hall not be unreasonably
withheld; provided that ENBC hereby consents to the Harlan Companies' use of the
Production Facility in the manner identified on Schedule 5.3 previously
furnished to ENBC. The parties agree that ENBC's approval will be deemed to be
unreasonably withheld if the following conditions are met: (i) ENBC has
consented to the waiver of its rights under Section 6.2 hereof (which ENBC may
grant or withhold in its sole discretion), (ii) it is demonstrated to ENBC's
satisfaction that Proprietary Information or other intellectual property
(including patent rights) of ENBC will not be subject to a risk of unauthorized
use or disclosure by reason of such use of the Production Facility, and (iii) it
is demonstrated to ENBC's satisfaction that such use of the Production Facility
will not interfere with or otherwise adversely effect the use of the Production
Facility to produce Category A
9
<PAGE>
Products under this Agreement, it being understood that ENBC may condition its
consent to any such production on the terminability of such production, upon not
less than six (6) months notice, by ENBC, if ENBC determines that such
termination is required to accommodate the needs of ENBC, ENBC Subsidiaries,
ENBC Franchisees and Authorized Recipients for Category A Products.
5.2 The parties agree to use reasonable efforts to notify each other of
opportunities for bagel production business available within the geographic
markets they are able to service from their existing production capacity (e.g.,
business east of the eastern boundaries of Montana, Wyoming, Colorado and New
Mexico, in the case of Supplier, and business west of such boundaries in the
case of ENBC).
5.3
5.3.1 On the terms and subject to the conditions set forth herein, in
the event that Category A Products shipped by Supplier are less than the
following minimum amounts during the periods provided below, then, subject to
Section 5.3.2, ENBC (or such ENBC Subsidiaries, ENBC Franchisees or Authorized
Recipients as ENBC shall select) shall make a payment ("Make-Whole Payment") as
hereinafter provided:
(a) 3,747,000 dozen Category A Products during the first
Quarterly Period of 1998;
(b) 4,095,000 dozen Category A Products during the second
Quarterly Period of 1998;
(c) 4,125,000 dozen Category A Products during the third
Quarterly Period of 1998;
(d) 4,000,000 dozen Category A Products during the fourth
Quarterly Period of 1998;
(e) 4,100,000 dozen Category A Products during the first
Quarterly Period of each year thereafter;
(f) 4,260,000 dozen Category A Products during the second
Quarterly Period of each year thereafter;
(g) 4,260,000 dozen Category A Products during the third
Quarterly Period of each year thereafter; and
(h) 4,100,000 dozen Category A Products for the fourth
Quarterly Period of each year thereafter (such amount to be prorated for the
partial Quarterly Period immediately prior to the end of the term of this
Agreement).
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5.3.2 Notwithstanding the terms of Section 5.3.1, if the minimum
volume requirements in Section 5.3.1 are not satisfied for any Quarterly Period,
no Make-Whole Payment will be payable by ENBC if the aggregate production of
Category A Products and Category B Products for such Quarterly Period exceeds
7,140,000 dozen bagels in the aggregate.
5.3.3 In the event the minimum volume requirements provided for in
Section 5.3.1 or Section 5.3.2, if applicable, are not satisfied for any
Quarterly Period (the "Measuring Quarter"), then the Make-Whole Payment shall be
equal to the excess of the minimum amounts for the Measuring Quarter over the
amounts actually shipped during the Measuring Quarter, multiplied by [ ]* per
bagel. Such Make-Whole Payment shall be made within the Quarterly Period
following the Measuring Quarter.
5.3.4 In the event production of Category A Products for any
Measuring Quarter exceeds 7,140,000 dozen bagels, then Supplier shall pay to
ENBC, within the Quarterly Period following the Measuring Quarter, an amount
equal to the excess of the production of Category A Products shipped for the
Measuring Quarter over the minimum amounts for the Measuring Quarter, multiplied
by [ ]* per bagel.
5.4
5.4.1 In the event the Supplier does not ship an amount of Category B
Products at least equivalent to the following minimum amounts for the periods
indicated, then ENBC shall have the right to purchase Category B Products from
Supplier for resale to purchasers of Category B Products for a price per bagel
equivalent to that otherwise charged under this Agreement (but with a Toll
Charge of [ ]* per bagel adjusted in the manner provided in Section 7.3):
(a) 250,000 dozen Category B Products for the fourth Quarterly
Period of 1998;
(b) 600,000 dozen Category B Products for the first Quarterly
Period of 1999;
(c) 900,000 dozen Category B Products for the second Quarterly
Period of 1999; and
(d) 1,200,000 dozen Category B Products for the third Quarterly
Period of 1999; and
(e) 1,500,000 dozen Category B Products for each Quarterly
Period thereafter.
Bagels purchased by ENBC pursuant to this Section 5.4 shall be purchased
pursuant to this Agreement and otherwise subject to its terms as they relate to
Products or Category A Products generally, but shall constitute Category B
Products.
*Confidential Treatment Requested.
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5.4.2 Notwithstanding anything contained herein to the contrary,
in allocating available production in the Production Facility, the parties
acknowledge that subject to the terms of Section 5.1, production of Category A
Products shall take priority. Notwithstanding the terms of Section 5.4.1,
production by the Harlan Companies of Category B Products shall take priority
over production for ENBC of Category B Products pursuant to Section 5.4.1.
5.5 Commencing on the date hereof, and continuing until the later of
any exercise of the option by ENBC pursuant to the Option Agreement or the
termination or expiration of this Agreement, the Harlan Companies agree to
deliver to ENBC the financial statements required to be provided to the Mortgage
Holders and Working Capital Lenders under their respective credit agreements
with said Mortgage Holders and Working Capital Lenders as in effect on the date
hereof (whether or not such credit agreements hereafter remain in effect or are
amended or modified), together with any copies of any amendments or
modifications to such credit agreements promptly upon their becoming effective.
Article 6.0 DESIGNATION OF THE SUPPLIER AS AN APPROVED SUPPLIER; PURCHASE AND
SALE OF THE PRODUCTS
6.1 ENBC hereby designates the Supplier as an approved supplier of
Products to ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized Recipients
(as hereinafter defined). On the terms and subject to the conditions set forth
herein, and during the Term hereof, the Supplier agrees to sell to ENBC, ENBC
Subsidiaries, ENBC Franchisees and Authorized Recipients Products produced by
the Supplier at the Production Facility.
6.2 The Harlan Companies jointly and severally agree that during the
Term, and for a period of one year thereafter, none of the Harlan Companies or
any Affiliate of the Harlan Companies shall, without the prior written consent
of ENBC, produce any bagels or bagel dough at the Production Facility for sale
or distribution to any Specialty Retailer (as hereinafter defined). For this
purpose, a "Specialty Retailer" shall mean (A) any food service establishment
that prepares, serves or sells, and derives more than 30% of its revenues from,
bagels and/or bagel-related products (including but not limited to cream cheese
and other spreads, bagel sandwiches and bagel chips), other than delicatessens
located in supermarkets, convenience stores or grocery stores that do not use a
brand name of a Specialty Retailer, or (B) any food service establishment, at
least 30% of the revenue of which is derived from coffee and related products
(e.g., whole bean coffee and specialty coffee drinks). In addition, the Harlan
Companies jointly and severally agree that during the Term, none of the Harlan
Companies or any Affiliate of the Harlan Companies shall enter into any
agreement to produce pre-proofed raw frozen bagels for Maplehurst Bakeries, Inc.
("Maplehurst") or any Affiliate of Maplehurst unless Maplehurst has agreed in
writing that the restrictions set forth in Section 3.1 of the supply agreement
dated as of August 2, 1994 between Harlan and Maplehurst do not apply to the
supply of Products by the Harlan Companies under this Agreement. For purposes of
this Section 6.2, an "Affiliate" shall mean any person or entity that controls
or is controlled by, or is under common control with, such person, and the term
"control" (including the terms "controlling," "controlled by" and "under common
control with") shall mean the possession, direct or indirect, of the power
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to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or otherwise.
Notwithstanding the first sentence of this Section 6.2, in the event any of the
Harlan Companies or their Affiliates is producing bagels or bagel dough for a
Specialty Retailer at the end of the Term pursuant to a written consent of ENBC
given prior to such time, the restriction set forth herein shall not apply to
continued sales to such Specialty Retailer after the Term hereof. Upon
Supplier's request, ENBC shall advise Supplier in writing of the identity of the
persons ENBC considers to constitute Specialty Retailers under this Section 6.2
as of the time of such request.
6.3 Notwithstanding any other provision of this Agreement to the
contrary, ENBC may at any time arrange upon reasonable notice to the Supplier
for the Products to be sold to ENBC, ENBC Subsidiaries and ENBC Franchisees
through one or more subsidiaries, affiliates, joint ventures, area developers,
franchisees, vendors, processors or other persons ("Authorized Recipients") or
for the Products otherwise to be sold directly to such other Authorized
Recipients, subject to the Supplier's right to be reasonably satisfied as to the
creditworthiness of any Authorized Recipients. In such event (a) orders may be
placed with the Supplier by such Authorized Recipients, rather than by ENBC,
ENBC Subsidiaries or ENBC Franchisees, and the obligation to pay for the
Products delivered to any Authorized Recipient shall be solely that of the
Authorized Recipient and not the obligation of ENBC or any ENBC Subsidiary or
ENBC Franchisee, (b) the provisions of this Article governing the purchase and
sale of the Products shall continue to govern the purchase and sale of such
Products, (c) the provisions of Article 7.0 shall govern the pricing of the
Products to Authorized Recipients, subject to the provisions of Section 5.4.1 as
to Category B Products, and (d) the product warranties in Article 9.0, the
covenants in Sections 10.1 and 10.2, and the indemnification and insurance
provisions in Article 11.0 shall be made for the benefit of ENBC or the ENBC
Subsidiary or ENBC Franchisee that ultimately purchases the Products, as well as
for the benefit of the Authorized Recipient. The Supplier may cease the supply
of Products to ENBC or any ENBC Subsidiary, ENBC Franchisee or Authorized
Recipient, as the case may be, if any balance owed to the Supplier by such
entity is not paid within 30 days after it has become due. ENBC will cooperate
with Supplier to resolve any disputes with ENBC Subsidiaries, ENBC Franchisees
or Authorized Recipients.
6.4 ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized
Recipients shall notify the Supplier from time to time of the quantity of
Products they wish to purchase from the Supplier by placing purchase orders with
the Supplier. Each order shall be filled by the Supplier within seven days
after the Supplier's receipt of the order. During the term hereof, the Supplier
shall sell to ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized
Recipients the Products ordered by them, up to a maximum aggregate of (a)
2,630,880 dozen bagels per Accounting Period which consists of four weeks, and
(b) 3,288,600 dozen bagels per Accounting Period which consists of five weeks.
ENBC agrees to use reasonable best efforts to provide the Supplier, at the
beginning of each Accounting Period, with rolling good faith estimates of the
volume of Products it expects to be ordered from the Supplier under this Section
6.4 in such Accounting Period and the five succeeding Accounting Periods, but
such estimates shall be used for planning purposes only and shall not be deemed
orders or otherwise create any commitment whatsoever on the part of ENBC.
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6.5 The Category A Products shall be produced (a) using such
formulations as ENBC shall specify from time to time in writing (the
"Formulations"), (b) in accordance with such size, weight and other
specifications as ENBC shall establish from time to time in writing (the
"Specifications"), and (c) in accordance with such manufacturing procedures as
ENBC shall specify from time to time in writing (the "Procedures"). The
Supplier agrees that it shall not analyze or reverse engineer any such
Formulations, Specifications and Procedures or any ingredients supplied for use
therein. All Formulations, Specifications and Procedures are subject to change
upon reasonable written notice from ENBC to the Supplier at any time, except
that (x) the Supplier shall have such time as may be reasonably necessary for
the Supplier to implement such changed Formulations, Specifications and
Procedures in its production of the Category A Products, and (y) certain changes
in Formulations, Specifications and Procedures may result in an adjustment to
the Toll Charge, as provided in Section 7.4. All Formulations, Specifications
and Procedures shall be owned exclusively by ENBC but the Supplier shall have a
royalty-free nonexclusive license, without the right to grant sublicenses, to
use such Formulations, Specifications and Procedures and other intellectual
property of ENBC (including U. S. patent no. 5,707,676) to produce Category A
Products for sale to ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized
Recipients under this Agreement, and the Supplier shall have a license to use
the Formulations, Specifications and Procedures and other intellectual property
of ENBC (including U. S. patent no. 5,707,676) to produce Category B Products,
to the extent and on the terms granted by ENBC, it being understood that any
such license may be granted or withheld by ENBC in its sole discretion. Upon
Supplier's request, ENBC shall advise Supplier in writing of the Formulations,
Specifications, Procedures and other intellectual property of ENBC used to
produce Category A Products.
6.6 ENBC shall have the right to have one or more of its employees or
representatives who are engaged in ENBC's product development present at the
Production Facility at any time that the Supplier is producing the Products and
all such individuals will comply with the Supplier's established policies and
procedures applicable to similarly situated employees and will be bound by the
confidentiality provisions of Article 12.0 hereof.
6.7 The Category A Products shall be packaged using such packaging
materials and labeling as shall be determined by ENBC. The Supplier agrees to
maintain an inventory of such packaging materials and labels which shall be
consistent with the quantity of Category A Products estimated in the rolling
good faith estimates made by ENBC pursuant to Section 6.4 above or as otherwise
reasonably directed by ENBC. All trademarks, trade names and trade dress
appearing on or in packaging and labeling shall be the exclusive property of
ENBC but the Supplier shall have a royalty-free nonexclusive license, without
the right to grant sublicenses, to use such trademarks and trade dress solely to
package and label the Category A Products
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manufactured in accordance with the provisions of this Agreement for sale to
ENBC, ENBC Subsidiaries, ENBC Franchisees and Authorized Recipients under this
Agreement.
6.8 ENBC shall be responsible for arranging for the procurement of
ingredients and raw materials used to produce the Category A Products on
standard vendor terms and, at ENBC's option, ENBC may supply any ingredients or
raw materials directly to the Supplier (with ENBC, at its option, owning such
ingredients or raw materials).
6.9 Products supplied hereunder shall be shipped F.O.B. the
Production Facility, and ownership and risk of loss with respect to the Products
supplied hereunder shall pass to ENBC or the ENBC Subsidiary, ENBC Franchisee or
Authorized Recipient when delivered to a carrier at the F.O.B. point.
6.10 Payment terms shall be (a) net 15 days, together with interest at
a rate of 12% per annum from the date any amounts are past due or (b) such other
terms as are mutually agreed by the Supplier, on the one hand, and any of the
ENBC Subsidiaries or ENBC Franchisees or Authorized Recipients that purchase
Products from the Supplier, on the other hand. In no event shall ENBC be
construed as a guarantor of payment (or any other obligation) of any ENBC
Franchisee or Authorized Recipient, but ENBC will be responsible for any
obligation of any ENBC Subsidiaries. The parties agree that any amounts owed by
either party under Section 5.3 hereof shall bear interest at a rate of 12% per
annum during any period such amounts are due but remain unpaid.
ARTICLE 7.0 PRICING
7.1 The Products shall be sold to ENBC, ENBC Subsidiaries, ENBC
Franchisees and Authorized Recipients at the Materials Cost plus the Loss
Factor, plus a toll charge per bagel (the "Toll Charge"). The Toll Charge for
Category A Products will be [ ]* per bagel from the date hereof through the
balance of the Term hereof. The Toll Charge shall be subject to adjustment as
provided in Sections 7.3, 7.4 and 7.7 hereof. The Loss Factor will be equal to
[ ]* multiplied by the Materials Cost.
7.2 The Materials Cost shall be determined based upon a Statement of
Materials Cost for each Accounting Period which shall be prepared by the
Supplier in accordance with the provisions of Exhibit A. The Materials Cost
shall be redetermined as of the end of each Accounting Period during the Term as
set forth in Section 7.2 hereof and the prices based upon such redetermination
shall take effect beginning with products shipped on or after the first business
day of the Accounting Period following the redetermination. Each Statement of
Materials Cost shall be delivered to ENBC within ten business days after the end
of the Accounting Period to which it relates and shall include the information
required by Exhibit A. Within 90 days after the end of each calendar year
during the Term, the Supplier shall cause to be delivered the Statement of
Materials Cost for the last Accounting Period in each of the Quarterly Periods
during which this Agreement was in effect during such calendar year, accompanied
by a report of Ernst & Young, or such other independent accountants as the
Supplier may select from time to time to do the regular annual review of its
financial statements and who may be approved
* Confidential Treatment Requested
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by ENBC (such approval not to be unreasonably withheld), in the form set forth
in Exhibit B. The fees and expenses of such independent accountants shall be
borne by the Supplier. The Supplier acknowledges that a copy of each Statement
of Materials Cost (and each report of independent accountants thereon) may be
provided by ENBC to any ENBC Franchisee.
7.3 The Toll Charge shall be adjusted, effective as of the first day
of the third Quarterly Period of each fiscal year during the Term hereof,
beginning in fiscal year 1999. The amount of the adjustment shall equal the
Toll Charge in effect immediately before such adjustment minus 0.25c minus the
Fixed Costs, and then multiplying such result by the percentage increase in the
Consumer Price Index for the urban area including Indianapolis, Indiana,
published by the Department of Labor for the 12 month period ending on March 31
of the year in which the Toll Charge adjustment is to take place. For this
purpose, "Fixed Costs" shall mean the building rental expense for the 12
previous Accounting Periods ending on the last day of the third Accounting
Period of the fiscal year divided by 342,720,000. In the event the Consumer
Price Index ceases to be published for any reason, the parties shall select
another index designed to approximate as closely as practicable the Consumer
Price Index.
7.4 In the event that changes in Formulations, Specifications or
Procedures result in additional costs or savings to Harlan or the Supplier that
are not reflected in Materials Cost, the parties shall make appropriate
adjustments in the Toll Charge and/or the Loss Factor to reflect such costs or
savings. In addition, the parties agree that ENBC shall bear as part of its
research and development, the cost of Product losses and production related
costs that arise from the development of Category A Products (or Category B
Products purchased pursuant to Section 5.4.1) or test runs of the Category A
Products (or Category B Products purchased pursuant to Section 5.4.1). The
Supplier shall invoice ENBC for each such cost in a timely manner, and in any
event no later than sixty (60) days from the date on which such cost first
arose. Costs associated with such research and development shall be reimbursed
within 30 days of invoice.
7.5 [Intentionally Omitted.]
7.6 The Supplier shall provide to ENBC and the accountants referred
to in Section 7.2 all information requested by them in order to permit (a) the
preparation of each report referred to in Section 7.2 and the determination of
the Materials Cost therefrom, and (b) each adjustment to the Toll Charge
provided for herein. The Supplier shall also permit ENBC (and its
representatives) and such accountants to have access to its books and records,
and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours. The Supplier shall also permit
accountants selected by ENBC to have access to its books and records, and to
meet with members of the Supplier's management, at any time upon reasonable
notice during normal business hours, provided, however, that (a) the fees and
expenses of such accountants shall be borne by ENBC, and (b) it shall be a
condition to the covenant of the Supplier in this Section 7.6 to give such
accountants access to the Supplier's books and records that such accountants
shall agree in writing to be bound by the confidentiality provisions of Article
12.0 hereof.
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7.7 ENBC may charge the Supplier for various costs incurred by ENBC
in connection with research and development, product development, procurement or
other costs related to the development, production, distribution and sale of the
Category A Products, and such costs shall result in an addition to the purchase
price for the Category A Products over a period comparable to the length of a
Quarterly Period.
ARTICLE 8.0 [Intentionally Omitted.]
ARTICLE 9.0 PRODUCT WARRANTIES
9.1 The Supplier warrants to ENBC and all ENBC Subsidiaries and ENBC
Franchisees that purchase Products from the Supplier that:
9.1.1 each shipment of Products supplied hereunder shall be
manufactured in accordance with the provisions of Section 6.5 hereof, shall be
of good and merchantable quality and shall be fit for the purposes for which
they are intended to be used, except to the extent any lack of merchantability
or lack of fitness for the intended purposes is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications;
9.1.2 none of the Products supplied hereunder shall be
adulterated or misbranded within the meaning of the Federal Food Drug and
Cosmetics Act, as amended, except to the extent misbranding is attributable to
the use of the Formulations, Procedures or Specifications, and none of the
Products will be an article which may not be introduced into interstate commerce
under the provisions of Section 404, 409 or 706 of that Act; and
9.1.3 none of the Products supplied hereunder shall be
adulterated or misbranded within the meaning of any applicable provision of any
state or municipal law, which provision is similar to any provision of the
Federal Food, Drug and Cosmetics Act, as amended, except to the extent
misbranding is attributable to the use of the Formulations, Procedures or
Specifications.
The foregoing warranties shall survive inspection and acceptance of any of the
Products, and payment therefor, by ENBC, ENBC Subsidiaries and ENBC Franchisees.
ARTICLE 10.0 OTHER COVENANTS OF THE PARTIES
10.1 Each party agrees to comply with all governmental laws,
regulations and orders applicable to its operations under this Agreement, and to
bear any and all taxes, fees or other governmental charges applicable to its
operations. Harlan and the Supplier agree to comply with the Lease.
10.2 The Supplier agrees to permit representatives of ENBC to inspect
the Leasehold Premises at any time to assure compliance with the terms of this
Agreement and all such individuals will comply with the Supplier's established
policies and procedures applicable to
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similarly situated employees and will be bound by the confidentiality provisions
of Article 12.0 hereof.
10.3 Harlan and the Supplier agree that they shall not, without the
prior written consent of ENBC, amend or modify the Lease. The Supplier also
agrees that it shall not, without the prior written consent of ENBC, agree to
amend or modify the Subordination and Nondisturbance Agreement dated August 27,
1996.
10.4 Except as may be contemplated by the Option Agreement, each of
ENBC, on the one hand, and the Supplier and Harlan, on the other hand, agrees
that they will not, directly or indirectly, at any time prior to the first
anniversary of the expiration of the Lease, solicit or hire any employee of any
other party, unless such employee has been terminated by the other party, or
unless such employee terminated his or her employment with the other party at
least one year prior to the date of the first such solicitation or hiring.
10.5 Harlan agrees to devote to Supplier such of its resources as may
be necessary to assist Supplier in timely and completely performing all of the
Supplier's obligations under this Agreement.
ARTICLE 11.0 INDEMNIFICATION AND INSURANCE
11.1 The Supplier agrees to indemnify ENBC and all ENBC Subsidiaries
and ENBC Franchisees for, and hold ENBC and all ENBC Subsidiaries and ENBC
Franchisees that purchase Products harmless from and against, all expenses,
losses, costs, deficiencies, liabilities and damages (including related counsel
fees) incurred or suffered by them resulting from: (a) any breach of any
representation or warranty made by the Supplier in or pursuant to this
Agreement; (b) any default in the performance of any of the covenants or
agreements made by the Supplier in this Agreement; (c) any claim or action by
any consumer or any other third party arising out of the production or sale of
the Products by the Supplier (including any claims or actions for personal
injury and any products liability claims or action), provided, however, that the
Supplier shall have no obligation to indemnify ENBC or any ENBC Subsidiary or
ENBC Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to ENBC or any ENBC Subsidiary or ENBC Franchisee
or is attributable to the use by the Supplier of the Formulations, Procedures
and Specifications; or (d) any claim or action brought by any federal, state,
local or foreign governmental agency in connection with the production or sale
of the Products by the Supplier (including without limitation any claim or
action under any law or regulation relating to public health, the sale of food
and drugs, and the safe conduct of business), provided, however, that the
Supplier shall have no obligation to indemnify ENBC or any ENBC Subsidiary or
ENBC Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to ENBC or any ENBC Subsidiary or ENBC Franchisee
or is attributable to the use by the Supplier of the Formulations, Procedures
and Specifications.
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11.2 ENBC agrees to indemnify the Supplier for, and to hold the
Supplier harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
the Supplier resulting from: (a) any breach of any representation or warranty
made by ENBC in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by ENBC in this
Agreement; (c) any claim or action by any consumer, governmental agency or any
other third party, including any claim of infringement or violation of, or
conflict with, any patent or trade secret of any third party, to the extent such
claim or action is attributable to the use by the Supplier of the Formulations,
Procedures and Specifications or is attributable to the alteration, handling or
misbranding of Products after they have been delivered to ENBC, or any ENBC
Subsidiary, ENBC Franchisee or Authorized Recipient; or (d) any claim or action
by any third party alleging infringement or violation of, or conflict with, any
trademarks, trade names or trade dress, to the extent such claim or action is
attributable to the use of trademarks, trade names or trade dress used in
accordance with ENBC's instructions pursuant to Section 6.7.
11.3 The parties agree that each party shall have the exclusive right
to control the defense (and the right to establish the terms of any settlement)
of any claim or action by any third party that could result in such party having
an indemnification obligation under Section 11.1 or Section 11.2 with counsel of
such party's selection, that each party will promptly give the other party
written notice of any claim or action of which it becomes aware that could
result in such other party having an indemnification obligation under Section
11.1 or Section 11.2, and that each party will fully cooperate with the other
party in the defense of any claim or action by the other party hereunder.
11.4 ENBC and the Supplier acknowledge and agree that ENBC, ENBC
Subsidiaries and ENBC Franchisees, on the one hand, and the Supplier, on the
other hand, may be required to enter into indemnity agreements with Authorized
Recipients. ENBC and the Supplier agree that (a) in the event ENBC or any ENBC
Subsidiary or ENBC Franchisee is obligated to make indemnity payments under any
such agreement resulting from any of the matters described in clauses (a)
through (d), inclusive, of Section 11.1 hereof, the Supplier shall indemnify
ENBC or such ENBC Subsidiary or ENBC Franchisee for, and hold ENBC and such ENBC
Subsidiary or ENBC Franchisee harmless from and against, such payment in
accordance with Section 11.1 hereof, and (b) in the event the Supplier is
obligated to make indemnity payments under any such agreement resulting from any
of the matters described in clauses (a) through (d), inclusive, of Section 11.2
hereof, ENBC shall indemnify the Supplier, and hold the Supplier harmless from
and against, such payment in accordance with Section 11.2 hereof.
11.5 The Supplier represents and warrants that it carries: (a)
policies of worker's compensation and employer's liability insurance that comply
with all state and federal laws, and (b) policies of comprehensive general
liability insurance covering the Supplier's premises and operations, including
premises and operations coverage, owner's and contractor's protective coverage,
products and completed operations coverage, full blanket contractual coverage
and broad form property damage coverage, with a combined single limit of
$9,000,000 naming ENBC as an additional insured and containing endorsements (i)
providing that the Supplier's comprehensive general liability coverage
(including products liability) (the "Supplier CGL
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Coverage") is primary relative to ENBC or any ENBC Subsidiary or ENBC
Franchisee, and that any other insurance maintained by ENBC or any ENBC
Subsidiary or ENBC Franchisee with respect to the risks covered by the Supplier
CGL Coverage is excess and non-contributing, and (ii) waiving any and all rights
of subrogation against ENBC, ENBC Subsidiaries and ENBC Franchisees with respect
to the Supplier CGL Coverage, and (iii) providing for a continuation of the
Supplier CGL Coverage beyond the expiration or termination of this Agreement for
claims made following such expiration or termination that are attributable to
the manufacture of Products by the Supplier during the Term. The Supplier also
represents and warrants that all premiums which have become due on such policies
have been paid, that such policies are in full force and effect, and that such
policies may not be canceled, changed or allowed to lapse through non-renewal,
failure to pay premiums or otherwise except upon not less than 60 days' prior
written notice to the Supplier and ENBC, except that such notice period need not
exceed 10 days in the case of failure to pay premiums. The Supplier has
previously delivered to ENBC evidence of the foregoing insurance coverages by
providing to ENBC a satisfactory Accord Certificate of Coverage of ENBC as an
additional insured, and will hereafter provide ENBC with a satisfactory Accord
Certificate of Coverage upon the issuance of any renewal or replacement
policies. The Supplier agrees to maintain such policies in full force and
effect, in the amount set forth above, throughout the term of this Agreement,
and to maintain ENBC as an additional insured under such policies.
ARTICLE 12.0 CONFIDENTIALITY
12.1 As used in this Agreement, the term "Proprietary Information"
shall mean any knowledge or information, written or oral, which relates in any
manner to the respective businesses of the Supplier and ENBC which is
confidential and proprietary information of the disclosing party, whether or not
disclosed prior to, on or after the date hereof, including, without limitation,
the business concepts, recipes, food preparation methods, equipment, operating
techniques, marketing methods, financial information, demographic and trade area
information, prospective site locations, market penetration techniques, plans,
or schedules, customer profiles, preferences, or statistics, menu breakdowns,
itemized costs, franchisee composition, territories, and development plans,
products, production techniques and all related trade secrets or confidential or
proprietary information treated as such by the disclosing party, whether by
course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary. Proprietary Information shall include all
information furnished to Supplier in writing pursuant to Section 6.1 or Section
6.5. As used in this Article 12.0, the term "disclosing party" shall mean the
party to this Agreement which discloses or makes available Proprietary
Information to the receiving party, and the term "receiving party" shall mean
the party to this Agreement to whom Proprietary Information is disclosed or made
available by the disclosing party.
12.2 Without limiting the generality of Section 12.1 hereof, the
parties acknowledge and agree that the Formulations, Specifications and
Procedures are the Proprietary Information of ENBC and will be treated as
Proprietary Information that does not become stale with the passage of time for
purposes of the last sentence of Section 12.3 hereof.
20
<PAGE>
12.3 The receiving party shall hold all Proprietary Information in
strict confidence, shall use such Proprietary Information only for the benefit
of the disclosing party and shall disclose such Proprietary Information only to
the receiving party's employees and agents who have a need to know such
Proprietary Information in order to assist the receiving party in performing its
obligations under this Agreement provided such employees and agents each have
individually entered into a confidentiality agreement in form satisfactory to
the disclosing party or are otherwise obligated by a written agreement with the
receiving party to maintain the confidence of the Proprietary Information, which
agreement the parties hereby agree may be directly enforced by the disclosing
party. The receiving party shall not disclose Proprietary Information to any
other person or entity. The obligations hereunder to maintain the
confidentiality of Proprietary Information shall continue: (a) for five years
from the date of disclosure of the Proprietary Information, in the case of
Proprietary Information that by its nature becomes stale with the passage of
time (e.g., financial information, development plans) and (b) indefinitely, in
the case of the Proprietary Information that by its nature does not become stale
with the passage of time (e.g. trade secrets, production techniques, recipes).
12.4 The obligations of the parties specified in Section 12.3 shall
not apply to any Proprietary Information which (a) is disclosed in a printed
publication available to the public prior to the date of this Agreement, or
becomes known to the public through no act of the receiving party or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the receiving party, provided, however, that a
combination of ingredients or processes that has not been disclosed to, or
become known by, the public shall remain subject to Section 12.3 notwithstanding
the fact that the identity of such ingredients or processes may be known, (b) is
approved for release by written authorization of an officer of the disclosing
party, (c) can be established by the receiving party by documentary evidence to
have been in the legitimate and lawful possession of the receiving party at the
time revealed by the disclosing party to the receiving party, (d) is lawfully
received by the receiving party without restriction from a third party
subsequent to this Agreement, which third party did not obtain the Proprietary
Information through improper means or disclose the Proprietary Information
without authorization, or (e) is required to be disclosed by law or regulation
or by proper order of a court of applicable jurisdiction after adequate notice
to the disclosing party, sufficient to permit the disclosing party to seek a
protective order therefor, the imposition of which protective order the
receiving party agrees to approve and support. In addition, after consultation
with the disclosing party, the receiving party may disclose only that
Proprietary Information that the receiving party believes in good faith it is
required to disclose (x) in connection with any filing that is made or
disclosure document that is prepared for the purpose of complying with federal
or state securities or franchise laws, rules or regulations or (y) to comply
with the rules of any stock exchange or quotation system or any other regulatory
requirements; provided, however, that in any event trade secrets, production
techniques, recipes and similar Proprietary Information of a disclosing party
will not be disclosed by the receiving party without the written consent of the
disclosing party.
12.5 The receiving party (and each employee, agent, or other person or
entity which has received such Proprietary Information from or through the
receiving party) shall, upon the request of the disclosing party, return all
documents and other tangible manifestations of
21
<PAGE>
Proprietary Information received from the disclosing party, including all copies
and reproductions thereof. The receiving party will thereafter certify in
writing to the disclosing party that all Proprietary Information has either been
returned to the disclosing party or destroyed.
ARTICLE 13.0 TERM
13.1 The initial term of this Agreement shall commence on the date
hereof and continue until April 16, 2005, except that this Agreement shall
terminate upon the exercise by ENBC of its option under the Option Agreement.
13.2 The provisions of Articles 9.0, 10.0, 11.0 and 12.0 and any other
provisions hereof requiring performance by a party following termination shall
survive the expiration or any termination of this Agreement.
13.3 Upon expiration or termination of this Agreement for any reason,
ENBC shall purchase from the Supplier all finished Products in inventory, all
packaging materials and labeling in inventory purchased by the Supplier pursuant
to Section 6.7 hereof, and the ingredients and raw materials in the Supplier's
inventory, at the Supplier's cost, F.O.B. the Production Facility, and (a) ENBC
shall pay to the Supplier any Make-Whole Payment under Section 5.3 and any
amounts charged to, but not previously recovered by, the Supplier under Section
7.7, and (b) the Supplier shall pay to ENBC any amount that has not previously
been paid under Section 5.3.4.
ARTICLE 14.0 MISCELLANEOUS
14.1 ENBC and the Supplier may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
14.2 Each party to this Agreement shall pay all of the expenses
incurred by it in connection with this Agreement, including without limitation
its legal and accounting fees and expenses, and the commission, fees and
expenses of any person employed or retained by it to bring about, or to
represent it in, the transactions contemplated hereby.
14.3 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Supplier may not assign its rights or delegate its duties hereunder without the
prior written consent of ENBC.
14.4 This instrument and the exhibits attached hereto contain the
entire agreement of the parties hereto with respect to the purchase and sale of
the Products from the Supplier and the other transactions contemplated herein,
and supersede all prior understandings and agreements of the parties with
respect to the subject matter hereof. Any reference herein to this Agreement
shall be deemed to include the exhibits attached hereto. In the event of any
inconsistency between this Agreement and any purchase order, confirmation or
similar document or instrument of ENBC, any ENBC Subsidiary or ENBC Franchisee
or the Supplier, this Agreement shall govern.
22
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14.5 Except as expressly set forth in this Agreement or hereafter
agreed in writing by the Supplier and ENBC, (a) ENBC is not promising,
committing to or guaranteeing that any business relationship with the Supplier
or the Supplier's status as an approved supplier will continue for any specified
time period, and (b) ENBC is not agreeing to reimburse the Supplier for any
costs, expenses, investments or other amounts incurred or expended by the
Supplier (and no such amounts have been or will be incurred or expended in
reliance on continued business from ENBC or ENBC Subsidiaries or ENBC
Franchisees).
14.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
14.7 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.8 Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or the document
shall be deemed duly given three business days after it is sent by registered or
certified mail, postage prepaid, to the intended recipient, addressed as
follows:
If to the Supplier or Harlan, addressed to such party at the
following address:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P. O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
23
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If to ENBC, addressed as follows:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, Colorado 80401
Attention: Senior Vice President - Supply Chain
with a copy to:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice , request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
14.9 This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts made and to be
performed wholly therein.
14.10 In the event of a breach or threatened breach of any of the
provisions of Section 6.2 or Article 12.0 of this Agreement, the parties
acknowledge and agree that the non-breaching party will not have an adequate
remedy at law and therefore will be entitled to enforce any such provision by
temporary or permanent injunctive or mandatory relief as a remedy for any such
breach, and that such remedy shall not be deemed to be the exclusive remedy for
any such breach but shall be in addition to all other remedies, subject,
however, to the provisions of Section 14.11 hereof.
14.11 In no event shall either party hereto seek, or be liable to the
other party hereto for, speculative, exemplary or punitive damages.
14.12 No press release or other public or trade announcement or statement
related to this Agreement or the transactions contemplated hereby (or the
existence of any discussions or negotiations between the parties regarding any
other possible transactions) will be issued, and no disclosure of this Agreement
or the terms hereof will made, by either of the Harlan Companies without the
prior approval of ENBC. ENBC agrees to use reasonable best efforts to consult
with the Harlan Companies prior to issuing any press release or public or trade
announcement or statement relating to this Agreement or the transactions
contemplated hereby.
24
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Paul A. Strasen
--------------------------------------
Senior Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Hugh P. Harlan
--------------------------------------
HARLAN BAKERIES, INC.
By /s/ Hugh P. Harlan
--------------------------------------
/s/ Hal P. Harlan
----------------------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
----------------------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
----------------------------------------
Doug H. Harlan
25
<PAGE>
Exhibits
--------
Exhibit A Determination of Materials Cost
Exhibit B Form of Statement of Independent Accountants
<PAGE>
Schedules
---------
Schedule 3.4 Financial Statements of the Harlan Companies
Schedule 5.3 Permitted Production Facility Uses
<PAGE>
Exhibit A
---------
Determination of
Materials Cost
--------------
<PAGE>
Exhibit B
---------
Form of Statement
of
Independent Accountants
-----------------------
Board of Directors
Einstein/Noah Bagel Corp.
Ladies and Gentlemen:
At your request, we have performed certain agreed upon procedures, as
enumerated below, with respect to the Statements of Materials Cost of Harlan
Bagel Supply Company, LLC, for each of the Quarterly Periods in the year ended
December 31, 19__. These procedures, which were specified by the Board of
Directors of Einstein/Noah Bagel Corp., and the Board of Managers of Harlan
Bagel Supply Company, LLC were performed solely to meet the requirements of the
Project and Approved Supplier Agreement among Einstein/Noah Bagel Corp., Harlan
Bagel Supply Company, LLC, and Harlan Bakeries, Inc., Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (the "Approved Supplier Agreement"). It is
understood that this report is solely for your information and should not be
used by those who did not participate in determining the procedures.
a. We have compared the costs as reported in the Statements of
Materials Cost to the costs and expenses as reflected in the
general ledger of Harlan Bagel Supply Company, LLC, and
reconciled any material differences.
b. We have compared the Statements of Materials Cost to the listing
of costs as per Exhibit A of the referenced Approved Supplier
Agreement and noted any material addition of cost categories.
c. We have compared the total reported number of bagels produced
with the Production Log and reconciled any material differences.
d. We have tested the Statements of Materials Cost for mathematical
accuracy.
Because the procedures described above do not constitute an
examination of financial statements in accordance with the Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants, we do not express an opinion on whether the
financial statement is presented in conformity with AICPA guidelines.
In connection with the procedures referred to above, no matters came
to our attention that caused us to believe that the Statements of Materials Cost
were not reflective of the general ledger, that cost categories were included
that were not reflected in Exhibit A of the Approved Supplier Agreement, that
the number of bagels reported was materially different than those
<PAGE>
shown on the Production Log or that any of the Statements of Materials Cost is
mathematically inaccurate. Had we performed additional procedures or had we made
an examination in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants, matters might have come to our attention that would have been
reported to you. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
<PAGE>
Exhibit 10.2
AMENDED AND RESTATED
OPTION AGREEMENT
dated May 1, 1998
among
EINSTEIN/NOAH BAGEL CORP.
HARLAN BAGEL SUPPLY COMPANY, LLC
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article 1.0 The Option................................................................. 1
1.1 The Option................................................................. 1
1.2 Exercise of the Option..................................................... 2
1.3 Regulatory Compliance...................................................... 3
1.4 Purchase Price upon Exercise of the Option................................. 3
1.5 Allocation of Purchase Price Among Option Assets........................... 3
1.6 Valuation of ENBC Stock or BCI Stock....................................... 4
1.7 Closing of Option Exercise................................................. 4
1.8 Procedure at each Closing.................................................. 4
Article 2.0 Representations and Warranties of Supplier and the Members................. 5
2.1 Organization, Power and Authority of Supplier.............................. 5
2.2 Due Authorization; Binding Agreement of Supplier........................... 5
2.3 Ownership Interests in Supplier............................................ 5
2.4 Ownership of Interests by the Members...................................... 6
2.5 Title to Supplier's Assets................................................. 6
2.6 Accuracy of Information Furnished by Supplier and the Members.............. 6
2.7 Investment Banker's and Broker's Fees...................................... 7
Article 3.0 Representations and Warranties of ENBC..................................... 7
3.1 Organization, Power and Authority of ENBC.................................. 7
3.2 Due Authorization; Binding Agreement of ENBC............................... 7
3.3 Investment Bankers' and Brokers' Fees...................................... 7
Article 4.0 Additional Covenants of Supplier and the Prior to the Termination.......... 8
4.1 Reasonable Best Efforts.................................................... 8
4.2 Conduct of Business........................................................ 8
4.3 Access to Supplier's Properties and Records................................ 9
4.4 Notice of Material Developments............................................ 9
4.5 No Disclosure.............................................................. 9
4.6 No Other Discussions; Retention of Shares.................................. 9
Article 5.0 Conditions to the Closing of the Option Exercise by ENBC................... 10
5.1 Accuracy of Representations and Warranties and Compliance with Obligations. 10
5.2 HSR Act Waiting Period..................................................... 10
5.3 Receipt of Necessary Consents.............................................. 10
5.4 No Adverse Litigation...................................................... 10
5.5 No Material Adverse Change................................................. 10
5.6 Delivery of Information.................................................... 10
</TABLE>
i
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<TABLE>
<S> <C>
Article 6.0 Certain Additional Covenants................................................ 11
6.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 10
6.2 HSR Act Waiting Period...................................................... 10
6.3 Receipt of Necessary Consents............................................... 10
6.4 No Adverse Litigation....................................................... 10
Article 7.0 Indemnification............................................................. 10
7.1 Execution of Further Documents.............................................. 10
7.2 Cooperation of Supplier and the Members..................................... 10
7.3 Subsequent Audited Financial Statements..................................... 11
7.4 Confidential Information.................................................... 11
7.5 Remedies; Waiver............................................................ 12
7.6 Employment by ENBC of Supplier's Employees.................................. 12
7.7 No Obligation of ENBC to Employ............................................. 13
Article 8.0 Indemnification............................................................. 13
8.1 Agreement by Supplier and the Members to Indemnify.......................... 13
8.2 Agreement by ENBC to Indemnify.............................................. 14
8.3 Tax Effect of Damages and Indemnity Payments................................ 14
8.4 Legal Proceedings........................................................... 14
Article 9.0 Miscellaneous
9.1 Amendment and Modification.................................................. 15
9.2 Payment of Expenses......................................................... 15
9.3 Binding Effect.............................................................. 15
9.4 Entire Agreement............................................................ 15
9.5 Headings.................................................................... 15
9.6 Execution in Counterpart.................................................... 15
9.7 Notices..................................................................... 15
9.8 Governing Law............................................................... 16
9.9 Publicity................................................................... 16
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED OPTION AGREEMENT
This amended and restated option agreement (the "Agreement") is made
and entered into this 1/st/ day of May, 1998 by and among Einstein/Noah Bagel
Corp. a Delaware corporation ("ENBC"), Harlan Bagel Supply Company, LLC, an
Indiana limited liability company ("Supplier"), and Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (collectively, the "Members").
Recitals
--------
ENBC, the Supplier, and Harlan Bakeries, Inc. and the Members
previously entered into a project and approved supplier agreement dated as
of May 24, 1996, as amended (the "Prior Approved Supplier Agreement"). ENBC
desires to obtainAs contemplated by the Prior Approved Supplier Agreement, ENBC
obtained an option to acquire all of the assets of Supplier, and Supplier
desires to grant such an option, all on the terms and subject topursuant to that
certain Option Agreement among ENBC, Supplier, and the Members dated August 27,
1996, as amended (the "Prior Option Agreement"). The Supplier and ENBC have
entered into an Amended and Restated Projected Approved Supplier Agreement of
even date herewith (the "Approved Supplier Agreement") to amend and restate
certain of the terms and conditions of the conditions set forth herein.Prior
Approved Supplier Agreement and desire to amend and restate certain of the terms
and conditions of the Prior Option Agreement. In order to reflect the parties'
understanding with respect to the option, and to amend, restate, replace and
substitute in full the obligations under the Prior Option Agreement, the parties
desire to enter into this Agreement.
Covenants
---------
In consideration of the mutual representations, warranties and
covenants and subject to the conditions herein contained herein and in the
Approved Supplier Agreement, the parties hereto agree as follows:
Article 1.0 The Option
1.1 The Option. Upon the terms and subject to the conditions
hereof, Supplier hereby grants to ENBC an irrevocable option (the "Option") to
purchase, at the purchase price provided for in Section 1.4 hereof, all of the
assets of Supplier (the assets subject to the option being herein sometimes
referred to as the "Option Assets"). Without limiting the generality of the
foregoing, the Option Assets shall include:
1.1.1 all of Supplier's machinery, equipment, tools,
supplies, leasehold improvements, construction in progress, furniture
and fixtures, and other fixed assets ("Fixed Assets");
1.1.2 all inventories and raw materials of Supplier;
1.1.3 all receivables of Supplier including without
limitation any receivables under Sections 7.5 and 7.87 of the Approved
Supplier Agreement;
1
<PAGE>
1.1.4 all real estate owned by Supplier, if any, and all of
the interest of, and the rights and benefits accruing to, Supplier as
lessee under all leases of real property and all improvements thereto
and buildings thereon, and all leases or rental agreements covering
machinery, equipment, tools, supplies, vehicles, furniture and
fixtures and other fixed assets or personal property;
1.1.5 all of the rights and benefits accruing to Supplier
under the Approved Supplier Agreement and under all sales orders,
sales contracts, supply contracts, purchase orders and purchase
commitments made by Supplier in the ordinary course of business, all
other agreements to which Supplier is a party or by which it is bound
and all other choices in action, causes of action and other rights of
every kind, but excluding contracts relating solely to the production
or the sale of products other than the Products (as defined in the
Approved Supplier Agreement) ("Excluded Contracts");
1.1.6 all operating data and records of Supplier,
including, without limitation, customer lists, financial, accounting
and credit records, correspondence, budgets and other similar
documents and records (although Supplier may retain copies thereof at
its own expense for its tax or other legitimate business purposes);
1.1.7 all of the proprietary rights of Supplier, including,
without limitation, all trademarks, trade names (but expressly
excluding the name "Harlan" or any name including the name "Harlan"),
patents, patent applications, licenses, trade secrets, technology,
know-how, formula, designs and drawings, computer software, slogans,
copyrights, processes, operating rights, other licenses and permits,
and other similar intangible property and rights, if any; and
1.1.8 all cash and investments, and all prepaid and
deferred items of the Supplier, including, without limitation, prepaid
rentals, insurance, taxes and unbilled charges and deposits.
The Option shall be exercisable at any time from and after the date hereof and
on or before the later of (a) the expiration or termination date of that
certain Lease Agreement of even date herewith between ENBC and Supplier
("Equipment Lease"), or (b) the expiration or termination date of the Approved
Supplier Agreement ("Termination Date"), but only in the event Supplier: (x)
fails to make any payment required to be made to ENBC under the Equipment Lease
and does not correct such failure within thirty (30) days of the payment due
date; or (b) y) is in default under any of the Working Capital Financing
Documents (as defined in the Approved Supplier Agreement) or any other third
party indebtedness and such default is not cured within (xi) thirty (30) days
after notice of default or (yii) the applicable grace period specified in the
noticea notice of default. The Option will be exercisable for ninety (90) days
from the date on which it first arises and will be exercisable only in the event
all amounts payable by ENBC pursuant to the Approved Supplier Agreement have
been paid. The Option will be exercisable with respect to any and every default
meeting the requirements of this paragraph. For purposes hereof, the term
"other third party indebtedness" shall not include indebtedness owed to Hal P.
Harlan or trade payables of the Supplier incurred in the ordinary course of
business.
2
<PAGE>
1.2 EXERCISE OF THE OPTION. In the event that ENBC elects to exercise the
Option it shall give written notice of such exercise to Supplier in the manner
provided herein for the giving of notice, which notice shall specify the
consideration which ENBC elects to deliver upon the Closing (as hereinafter
defined), which may consist of the Promissory Note (hereinafter defined), shares
of common stock of ENBC ("ENBC Stock"), shares of common stock ("BCI Stock") of
Boston Chicken, Inc. ("BCI"), cash, or any combination of the foregoing, having
an aggregate value equal to the Supplier Value (as defined in Section 1.4),
provided, however, that such consideration may consist of ENBC Stock or BCI
Stock (the issuer of such stock being referred to herein as the "Issuer") only
if (a) the average closing sales price per share of such stock of the Issuer as
quoted on the NASDAQ National Market, as quoted on such other market or exchange
on which such shares are traded, for the ten consecutive trading days ending on
the second business day prior to the Closing Date (as hereinafter defined) (the
"Share Price") is at least $10, and (b) the value of the Issuer (defined as the
product of the Share Price and the total number of outstanding shares of such
stock of the Issuer) is at least $300 million. In the event ENBC elects to
deliver upon the Closing shares of ENBC Stock or shares of BCI Stock, such
shares shall be registered under the Securities Act of 1933, as amended, and
shall be accompanied by a written undertaking of ENBC to pay to the Supplier in
cash the excess, if any, of the value of the shares so delivered , determined in
the manner provided in Section 1.6 hereof, over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by the Supplier to its members to the extent any such shares are
assigned to such members.
1.3 REGULATORY COMPLIANCE. Upon the exercise of the Option each of the
parties shall promptly prepare and file with the Federal Trade Commission
("FTC") and the United States Department of Justice ("Justice Department") any
notification required to be filed with respect to the transactions contemplated
hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
amended, or any rules or regulations thereunder (the "HSR Act"). Each party
represents and warrants to the other parties hereto that any such filing made by
it shall be true and accurate in all material respects and shall conform to the
requirements of the HSR Act. Each party shall promptly complete and file any
required responses to requests by the FTC or the Justice Department for
additional data and information. Each party shall also make available to the
other parties hereto such information relative to its business, assets and
property as may be required for the preparation of such notifications and
reports.
1.4 PURCHASE PRICE UPON EXERCISE OF THE OPTION. The purchase price payable
by ENBC upon the exercise of the Option shall consist of: (i) (a) ENBC Stock,
BCI Stock, cash or any combination of the foregoing (determined in accordance
with Section 1.2) having an aggregate value equal to the Supplier Value as of
the Closing Date (as hereinafter defined) or (b) the Promissory Note and (ii)
the assumption by ENBC of Supplier's accounts payable, accrued expenses,
outstanding indebtedness for money borrowed and contractual obligations, except
that ENBC shall not be obligated to assume any liability or obligation under the
Excluded Contracts or any liability or obligation the existence of which
constitutes a breach of any representation and warranty made by Supplier or the
Members in this Agreement or incurred in violation of any covenants or
agreements of Supplier made in this Agreement (such liabilities to be assumed by
3
<PAGE>
ENBC being herein referred to as the "Assumed Liabilities"). For this purpose,
the "Supplier Value" as of the Closing Date shall be determined in the manner
set forth in Exhibit A.
1.5 ALLOCATION OF PURCHASE PRICE AMONG OPTION ASSETS. The purchase price
for the Option Assets shall be allocated among each item or class of the Option
Assets as determined by the parties. Supplier and ENBC agree that they will
prepare and file their federal and any state or local income tax returns based
on such allocation of the purchase price. Supplier and ENBC agree that they will
prepare and file any notices or other filings required pursuant to Section 1060
of the Internal Revenue Code of 1986, as amended, and that any such notices of
filings will be prepared based on such agreed allocation of the purchase price.
1.6 VALUATION OF ENBC STOCK OR BCI STOCK. ENBC Stock or BCI Stock
delivered upon the Closing (as hereinafter defined) shall be deemed to have a
value equal to the average closing sales price per share of such stock as quoted
on the NASDAQ National Market, as reported in the Wall Street Journal (Western
Edition), or as quoted on such other market or exchange on which such shares are
traded, for the ten consecutive trading days ending on the second business day
prior to the Closing Date (as hereinafter defined).
1.7 CLOSING OF OPTION EXERCISE. The closing of the exercise of the Option
shall take place at the offices of ENBC at 9:00 A.M., local time, on the fifth
business day after the date of the notice of such exercise referred to in
Section 1.2, or, if later, the second business day after the satisfaction or
waiver of all other conditions to the exercise of the Option provided for in
Articles 5.0 and 6.0 hereof. Throughout this Agreement, such event is referred
to as "Closing" and such date and time are referred to as "Closing Date".
1.8 PROCEDURE AT THE CLOSING. At the Closing: (i) Supplier shall
execute and deliver to ENBC instruments of assignment in form and substance
satisfactory to ENBC sufficient to convey to ENBC all right, title and interest
of Supplier in and to the Option Assets, all necessary consents or approvals of
third parties (including any governmental entities) to the transactions
contemplated hereby, subscription agreements of Supplier and the Members
satisfactory in form and substance to ENBC, in the event ENBC has elected to
deliver ENBC Stock or BCI Stock at the Closing, and an opinion of Henderson,
Daily, Withrow & DeVoe, or other counsel reasonably acceptable to ENBC, dated
as of the Closing Date and in a form reasonably acceptable to ENBC, to the
effect that: (A) Supplier is a limited liability company duly organized and
validly existing under the laws of the State of Indiana with full power and
authority to own or lease its properties, to carry on its business as it is
being conducted and to convey the Option Assets to ENBC pursuant to this
Agreement, (B) the sale of the Option Assets has been duly authorized by all
necessary action of Supplier under Indiana law, its articles of incorporation
and bylaws, (C) the sale of the Option Assets will not conflict with or violate
any provision of the articles of organization or operating agreement of
Supplier, conflict with or violate any order, judgment or decree known to such
counsel applicable to Supplier or the Members or by which any of Supplier's
properties are affected, or result in a breach of, or constitute a default (or
any event which with notice or lapse of time would become a default) under, or
give to others any rights of first refusal, termination, amendment, acceleration
or cancellation of, or result in the creation of any lien or encumbrance on any
of the Option Assets
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pursuant to, any notice, bond, mortgage, indenture contract, agreement, lease or
other instrument or obligation known to such counsel by which Supplier or any of
the Members is bound or by which any of the Supplier's properties are affected,
(D) the sale of the Option Assets will not, require any consent, approval,
exemption, authorization or permit of, filing with or notification, or other
action by, any court, administrative agency or governmental or regulatory
authority, under any provision of Indiana or Federal law, except for such
consents and approvals as shall have been obtained and filings which shall have
been made, and (E) to such counsel's knowledge, there are no actions, suits,
proceedings or governmental inquiries pending or threatened against Supplier or
any of the Members seeking to prevent the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected to have a
material adverse effect on the Option Assets or the ability of Supplier and the
Members to perform their obligations under this Agreement, and (ii) in the event
ENBC has not elected to pay the purchase price by delivering cash, ENBC Stock or
BCI Stock, ENBC shall deliver to Supplier a promissory note, in the form of
Exhibit B attached hereto, in the principal amount of the purchase price, (the
"Promissory Note"), and (iii) ENBC shall deliver to Supplier an instrument of
assumption in form and substance satisfactory to Supplier, assuming the Assumed
Liabilities, and releases of any guarantees made by the Members in connection
with the Assumed Liabilities, to the extent such releases may be obtained
through ENBC's reasonable efforts (which the parties agree shall not require
ENBC to expend money or provide security to the holder of any of the Assumed
Liabilities). ENBC acknowledges that the legal opinion referred to above will be
subject to review by Henderson, Daily's opinion committee prior to the time of
issuance of such opinion so that such opinion is consistent with prevailing
opinion letter practice at such time. The Promissory Note shall provide that the
purchase price shall be payable to the Supplier on the six (6) month anniversary
of the Closing Date unless the purchase price exceeds $1,000,000, in which event
$1,000,000 will be payable to the Supplier on the six (6) month anniversary of
the Closing Date with the balance of the purchase price payable in equal
installments of principal, with interest, on each of the twelve (12), sixteen
(16eighteen (18), and twenty-four (24) month anniversaries of the Closing Date.
Interest shall be payable on the purchase price from and after the Closing Date.
ARTICLE 2.0 REPRESENTATIONS AND WARRANTIES OF SUPPLIER AND THE MEMBERS
In order to induce ENBC to enter into this Agreement and to consummate
the transactions contemplated hereunder, Supplier and the Members jointly and
severally make the following representations and warranties:
2.1 ORGANIZATION, POWER AND AUTHORITY OF SUPPLIER. The Company
Supplier is a limited liability company duly organized and validly existing
under the laws of Indiana, and has full corporate power and authority to own or
lease its properties and to carry on its business as it is now being conducted
and to enter into this Agreement and to carry out the transactions and
agreements contemplated hereby. Supplier is legally qualified to transact
business, and is in good standing, in any jurisdictions in which its business or
property is such as to require that it be thus qualified, except where the
failure to be so qualified would not have a material adverse effect on its
business, properties or financial condition.
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2.2 DUE AUTHORIZATION; BINDING AGREEMENT OF SUPPLIER AND MEMBERS.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary action of Supplier, including the approval of the Members of Supplier.
This Agreement has been duly executed and delivered by Supplier and the Members
and is a valid and binding obligation of Supplier and the Members, enforceable
in accordance with its terms. Neither the execution and delivery of this
Agreement by Supplier or the Members nor the consummation of the transactions
contemplated hereby will: (i) conflict with or violate any provision of the
articles of organization or operating agreement of Supplier or of any decree or
order of any court or administrative or other governmental body which is either
applicable to, binding upon or enforceable against Supplier or the Members or
the assets and properties of Supplier or the Members; or (ii) result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice under, any mortgage, contract, agreement, indenture or other instrument
which is either binding upon or enforceable against Supplier or the Members or
the assets and properties of Supplier or the Members. No permit, consent,
approval or authorization of, or declaration to or filing with, any regulatory
or other government authority is required in connection with the execution and
delivery of this Agreement by Supplier or the Members and the consummation by it
of the transactions contemplated hereby, except pursuant to the HSR Act.
2.3 OWNERSHIP INTERESTS IN SUPPLIER. All voting rights in Supplier
are vested exclusively in its membership interests (the "Interests"), and there
are no voting trusts, proxies or other agreements or understandings with respect
to the voting of the Interests of Supplier, except for the operating agreement
among the Supplier and the Members (the "Operating Agreement"). Supplier has
previously furnished to ENBC copies of Supplier's articles of organization and
the Operating Agreement, and such copies are correct and complete in all
respects. There are no outstanding warrants, options or rights of any kind to
acquire from Supplier any interests or securities of any kind, and there are no
pre-emptive rights with respect to the issuance or sale of interests of
Supplier. Supplier has no obligation to acquire any of its issued and
outstanding interests or any other security issued by it from any holder
thereof, except pursuant to the Operating Agreement.
2.4 OWNERSHIP OF INTERESTS BY THE MEMBERS. The Members are the
lawful owners of all of the outstanding Interests of Supplier and have valid
marketable title thereto, free and clear of all liens, pledges, encumbrances,
security interests, restrictions on transfer, claims and equities of every kind,
other than restrictions under federal and state securities laws. There are no
outstanding warrants, options or rights of any kind to acquire from the Members
any of the Interests.
2.5 TITLE TO SUPPLIER'S ASSETS. Supplier has good and marketable
title to all of its assets and properties, free and clear of all liens,
mortgages, pledges, encumbrances or charges of every kind, nature, and
description whatsoever, and upon the Closing ENBC will acquire good and
marketable title to the Option Assets, free and clear of all liens, mortgages,
pledges, encumbrances or charges of every kind, nature and description
whatsoever, except for (i) security interests securing any indebtedness for
money borrowed or other contractual obligations but only
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if such indebtedness or obligations are assumed by ENBC or (ii) such liens,
mortgages, pledges, encumbrances or charges as shall have been approved by ENBC
in writing.
2.6 ACCURACY OF INFORMATION FURNISHED BY SUPPLIER AND THE MEMBERS.
No representation, statement or information made or furnished by Supplier or the
Members to ENBC, including without limitation those contained in this Agreement
and the various schedules attached hereto, when taken as a whole, contains or
shall contain any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained therein not
misleading.
2.7 INVESTMENT BANKERS' AND BROKERS' FEES. Neither the Members nor
Supplier have any obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF ENBC
In order to induce Supplier and the Members to enter into this
Agreement and to consummate the transactions contemplated hereunder, ENBC makes
the following representations and warranties:
3.1 ORGANIZATION, POWER AND AUTHORITY OF ENBC. ENBC is a
corporation duly organized and validly existing under the laws of the State of
Delaware, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby.
3.2 DUE AUTHORIZATION; BINDING AGREEMENT OF ENBC. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of ENBC This Agreement has been duly executed and delivered by
ENBC and is a valid and binding obligation of ENBC, enforceable in accordance
with its terms. Neither the execution and delivery of this Agreement by ENBC
nor the consummation of the transactions contemplated hereby will: (i) conflict
with or violate any provision of the certificate of incorporation or bylaws of
ENBC or of any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or enforceable
against ENBC, or its assets and properties; or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture or other instrument which is
either binding upon or enforceable against ENBC, or its assets and properties.
No permit, consent, approval of authorization of, or declaration to or filing
with, any regulatory or other government authority is required in connection
with the execution and delivery of this Agreement by ENBC and the consummation
by it of the transactions contemplated hereby.
3.3 INVESTMENT BANKERS' AND BROKERS' FEES. ENBC has no obligation
to pay any fees or commissions to any investment banker, broker, finder or agent
with respect to the transactions contemplated by this Agreement.
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ARTICLE 4.0 ADDITIONAL COVENANTS OF SUPPLIER AND THE MEMBERS PRIOR TO THE
TERMINATION DATE
4.1 REASONABLE BEST EFFORTS. Supplier and the Members will use
reasonable best efforts to cause to be satisfied as soon as practicable and
prior to the Closing Date all of the conditions set forth in Articles 5.0 and
6.0. Without limiting the generality of the foregoing Supplier and the Members
will not, without ENBC's written consent, take any action that would result in a
requirement that any third party consent or approval be obtained in connection
with exercise of the Option.
4.2 CONDUCT OF BUSINESS. From and after the execution and delivery
of this Agreement and until the earlier of the Closing Date or the Termination
Date, except as otherwise provided by the prior written consent of ENBC:
4.2.1 Supplier will use reasonable best efforts to (i)
preserve its business organization intact, (ii) keep
available the services of its officers, employees, and
agents, and (iii) preserve its relationships with suppliers
and others having dealings with Supplier;
4.2.2 Supplier will maintain all of its properties in
customary repair, order and condition, reasonable wear and
use and damage by unavoidable casualty excepted; and
4.2.3 Supplier will not (a) sell, lease, transfer or
otherwise dispose of assets other than in the ordinary
course of business, (b) redeem, purchase or otherwise
acquire from any of its Members all or any part of their
equity interest in the Supplier or pay any dividends or make
any other distributions or payments to such Members, or
persons or entities related to them, except for (i)
distributions to the members to permit payment by them of
income taxes on income of Supplier allocated to them, which
shall be based on a tax rate equal to the highest effective
combined statutory rate of federal and state income tax
(giving effect to the deductibility of state income taxes
for federal income tax purposes) imposed on taxable income
of an individual residing in the State of Indiana, and (ii)
other cash distributions and compensation payments that are
permitted to be made by the Financing Documents (as defined
in the Approved Supplier Agreement), (c) incur indebtedness
other than the indebtedness provided for in the Financing
Documents (as defined in the Approved Supplier Agreement),
(d) incur any material obligations or liabilities (other
than its obligations under this Agreement and the Approved
Supplier Agreement), or enter into any material transaction
(other than transactions contemplated by this Agreement or
the Approved Supplier Agreement) other than in the ordinary
course of business, (e) merge or consolidate with any other
entity, effect any change in its capital structure, make any
investment in any other entity, liquidate or dissolve, (f)
amend its articles of organization or the Operating
Agreement, (g) enter into any transaction with any
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affiliate except on terms at least as favorable as those
that could be obtained from an unrelated third party or (h)
agree to do any of the foregoing.
4.3 ACCESS TO SUPPLIER'S PROPERTIES AND RECORDS. From and after the
execution and delivery of this Agreement and until the earlier of the Closing
Date or the Termination Date, Supplier will afford to the representatives of
ENBC access, during normal business hours and upon reasonable notice, to
Supplier's premises and books and records sufficient to enable ENBC to inspect
the assets and properties of Supplier and to determine the Supplier Value (as
defined in Exhibit A hereof), and Supplier will furnish to such representatives
during such period all such information relating to the foregoing investigation
as ENBC may reasonably request; provided, however, that any furnishing of such
information to ENBC and any investigation by ENBC shall not affect the right of
ENBC to rely on the representations and warranties made by Supplier and the
Members in or pursuant to this Agreement, and provided further, that ENBC shall
maintain the confidentiality of any information so furnished to it in accordance
with the provisions of Article 12.0 of the Approved Supplier Agreement. Without
limiting the generality of the foregoing, Supplier shall furnish to ENBC on or
before the date on whichwithin five (5) business days after the Option is first
exercisable, within fifteen business days after the end of each calendar quarter
thereafter and within fifteen business days after any notice of exercise of the
Option, a statement setting forth the Supplier Value (as defined in Exhibit A
hereof) determined as of the end of such calendar quarter (or as of the
applicable date under Exhibit A, in the event of the exercise of the Option),
which statement shall be prepared in accordance with Exhibit A and shall set
forth with specificity the calculation of Supplier Value.
4.4 NOTICE OF MATERIAL DEVELOPMENTS. From and after the execution
and delivery of this Agreement and until the earlier of the Closing Date or the
Termination Date, Supplier will give prompt written notice to ENBC of any
material development affecting the assets, properties, business, business
prospects, financial condition or results of operations of Supplier, including
without limitation any development which results in the inaccuracy of any of the
representations and warranties of Supplier and the Members made herein.
4.5 NO DISCLOSURE. Without the prior written consent of ENBC,
neither Supplier nor any of the Members will, prior to the earlier of the
Closing Date or the Termination Date, disclose the existence of or any term or
condition of this Agreement to any person or entity except that such disclosure
may be made (i) to any lender or financing source of Supplier or any person in a
business relationship with Supplier to whom such disclosure is necessary in
order to satisfy any of the conditions or obligations which are set forth in
this Agreement, and (ii) to the extent Supplier believes in good faith that such
disclosure is required by law (in which case Supplier will consult with ENBC
prior to making such disclosure).
4.6 NO OTHER DISCUSSIONS; RETENTION OF INTERESTS. Neither the
Members nor Supplier will, prior to the earlier of the Closing Date or the
Termination Date, enter into discussions or negotiate with or entertain or
accept the unsolicited offer of any other party concerning the potential sale or
exchange of all or any part of the assets of or interests in Supplier to, or
the merger or consolidation of Supplier with, any person other than ENBC The
Members will not, prior to the earlier of the Closing Date or the Termination
Date, sell, assign, transfer, pledge, encumber or otherwise dispose of any of
the Interests owned by them, except for Exempt Transactions permitted by the
Operating Agreement.
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ARTICLE 5.0 CONDITIONS TO ENBC' OBLIGATION TO CLOSE THE OPTION EXERCISE.
The obligation of ENBC to purchase the assets of Supplier upon the
exercise of the Option shall be subject to the fulfillment or waiver by ENBC at
or prior to the Closing Date of each of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Supplier and the Members
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. Supplier and the Members shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Members
shall have delivered to ENBC a certificate, dated as of the Closing Date and
signed by each of the Members, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
5.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
5.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals
of third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to ENBC.
5.4 NO ADVERSE LITIGATION. There shall not be any pending or
threatened action or proceeding by or before any court or other governmental
body which shall seek to restrain, prohibit or invalidate the purchase of the
assets of Supplier or any other transaction contemplated hereby, and no
injunction or other order prohibiting the purchase of the Option Assets or any
other transaction contemplated hereby shall have been entered by any court or
other governmental body.
5.5 NO MATERIAL ADVERSE CHANGE. Since the date of the exercise of the
Option, there shall have been no changes in the business or properties of
Supplier, or in its financial condition, other than changes which in the
aggregate shall not have had a material adverse effect.
5.6 DELIVERY OF INFORMATION. Supplier shall have delivered to ENBC any
information required to have been delivered to ENBC pursuant to Section 4.3
hereof.
ARTICLE 6.0 CONDITIONS TO THE SUPPLIER'S OBLIGATION TO CLOSE THE OPTION
EXERCISE
The obligation of Supplier to sell the assets of Supplier upon the
exercise of the Option shall be subject to the fulfillment or waiver by Supplier
at or prior to the Closing Date of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of ENBC contained in this
Agreement shall
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have been true and correct in all material respects at and as of the date
hereof, and they shall be true and correct in all material respects at and as of
the Closing Date with the same force and effect as though made at and as of that
time. ENBC shall have performed and complied with all of its obligations
required by this Agreement to be performed or complied with at or prior to the
Closing Date. ENBC shall have delivered to Supplier a certificate, dated as of
the Closing Date and signed by ENBC, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
6.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act
with respect to the exercise of the Option shall have expired or been
terminated.
6.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals
of third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Supplier.
6.4 NO ADVERSE LITIGATION. There shall not be any pending or
threatened action or proceeding by or before any court or other governmental
body which shall seek to restrain, prohibit or invalidate the sale of the assets
of Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
ARTICLE 7.0 CERTAIN ADDITIONAL COVENANTS
7.1 EXECUTION OF FURTHER DOCUMENTS. From and after the Closing, upon
the reasonable request of ENBC, Supplier and the Members shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to convey and
transfer to and vest in ENBC the Option Assets and as may be appropriate
otherwise to carry out the transactions contemplated by this Agreement.
7.2 COOPERATION OF SUPPLIER AND THE MEMBERS. Each of the Members
acknowledges and agrees that ENBC may have need of information concerning
Supplier and the Members in order to comply with applicable securities laws and
regulations in connection with future public and private debt and equity
offerings by ENBC ("Offerings"). The Members jointly and severally agree that
they will cooperate with ENBC in connection with any Offerings and that they
will, at ENBC's expense: (i) furnish ENBC with such information concerning
Supplier and the Members as ENBC may reasonably require to comply with
applicable securities laws and regulations (the "Company Information"); (ii) use
diligent efforts to review, comment on, and otherwise assist ENBC as reasonably
necessary for the preparation of, descriptions concerning Supplier and the
Members to be used in connection with Offerings; and (iii) represent and warrant
to ENBC in connection with any Offerings that Company Information will not
contain any untrue statement of a material fact or omit any material fact
necessary to make the information contained therein not misleading.
7.3 SUBSEQUENT AUDITED FINANCIAL STATEMENTS. Each of the Members
covenants and agrees with ENBC that if ENBC shall determine that audited
financial statements of ENBC
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or Supplier for the periods prior to the Closing are necessary or advisable in
connection with an initial public offering, another transaction or offering, or
otherwise, each shall cooperate fully with ENBC's accountants in the preparation
of such audited financial statements, at ENBC's expense, and each shall make
such reasonable representations and warranties to the applicable certified
public accountants as are customary in connection with the preparation of
audited financial statements.
7.4 CONFIDENTIAL INFORMATION.
7.4.1 The Members may possess certain confidential and proprietary
information and trade secrets including, but not limited to,
information, methods, techniques, procedures and knowledge developed by
or for Supplier respecting the business of Supplier (the "Confidential
Information"). Each of the Members acknowledges and agrees that neither
such Shareholder nor any other person or entity has acquired by or
through such Members any interest in or right to use the Confidential
Information other than the right to utilize it in the operation of the
businesses of Supplier and ENBC, and that the use or duplication of the
Confidential Information in any other business would constitute an
unfair method of competition with Supplier and ENBC. Notwithstanding the
foregoing, however, ENBC acknowledges that the Members are actively
involved as Members, officers and directors of Harlan Bakeries, Inc. and
that certain Confidential Information may be shared with Harlan
Bakeries, Inc. The foregoing is not intended to prevent Harlan Bakeries
from using such Confidential Information in its business generally, but
Confidential Information relating specifically to ENBC or its
Formulations, Specifications and Procedures (as defined in the Approved
Supplier Agreement) may not be used by Harlan Bakeries except to the
extent such use is solely for the benefit of ENBC.
7.4.2 Subject to Section 7.4.1 hereof, each of the Members
acknowledges and agrees that the Confidential Information is
confidential to and a valuable asset of Supplier, is proprietary, and
includes trade secrets of Supplier and that such Member: (i) will not
use the Confidential Information in any other business or capacity; (ii)
will maintain the absolute secrecy and confidentiality of the
Confidential Information; and (iii) will not make unauthorized copies of
any portion of the Confidential Information disclosed in written or
other tangible form.
7.4.3 Notwithstanding the foregoing, the obligations of the
Members specified above shall not apply to any Confidential Information
which (i) is disclosed in a printed publication available to the public,
or is otherwise in the public domain through no act of any of the
Members, their agents or any person or entity which has received such
Confidential Information from or through any of the Members, (ii) is
approved for release by written authorization of an officer of ENBC,
(iii) is required to be disclosed by proper order of a court of
applicable jurisdiction after adequate notice to ENBC to seek a
protective order therefor, the
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imposition of which protective order the Members agree to approve and
support, or (iv) in the written opinion of the disclosing Member's
counsel, is necessary to be made by such Member in order that the Member
not violate any law, rule or regulation applicable to him.
7.5 REMEDIES; WAIVER.
7.5.1 Each of the Members agrees that the provisions and
restrictions set forth above in Section 7.4 are necessary to protect
ENBC and its successors and assigns in the protection of the Option
Assets ENBC is entitled to acquire pursuant to this Agreement. Each of
the Members agrees that damages cannot compensate ENBC in the event of a
violation of the covenants contained in Section 7.4 hereof, and that
injunctive relief shall be essential for the protection of ENBC and its
successors and assigns. Accordingly, each of the Members agrees and
consents that, in the event he shall violate or breach any of said
covenants ENBC shall be entitled to obtain (and he hereby consents to)
such injunctive relief against such Shareholder, without bond, in
addition to such further or other relief as may appertain at equity or
law. The exercise or enforcement by ENBC of any right or remedy
hereunder shall not preclude the exercise or enforcement by ENBC of any
other right or remedy hereunder or which ENBC has the right to enforce
under applicable law.
7.5.2 Failure by any party to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or remedy hereunder at any one or more times
be deemed a waiver or relinquishment of such right or remedy at any
other time or times.
7.6 EMPLOYMENT BY ENBC OF SUPPLIER'S EMPLOYEES. Supplier shall use its
reasonable best efforts to aid ENBC in engaging such of its employees as are
employed on the Closing Date, if any, whom ENBC desires to engage after the
Closing Date, and except with the written consent of ENBC, neither Supplier nor
any Affiliate (as hereinafter defined) of Supplier shall employ, for a period of
one year after the Closing Date, any person employed by Supplier at or at any
time within six months prior to the Closing Date unless such person was either
not offered employment by ENBC or was terminated by ENBC. As used in this
Agreement, the term "Affiliate" means, with respect to a specified person, any
other person which directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified, and the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
shares, by contract, or otherwise.
7.7 NO OBLIGATION OF ENBC TO EMPLOY. ENBC shall have no obligation to
employ any of the persons employed by Supplier at the time of the Closing, if
any, or to continue, or
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institute any replacement or substitution for, any vacation, severance,
incentive, bonus, profit sharing, pension or other employee benefit plan or
program of Supplier.
ARTICLE 8.0 INDEMNIFICATION
8.1 AGREEMENT BY SUPPLIER AND THE MEMBERS TO INDEMNIFY. Subject to the
qualifications and limitations set forth in this Section 8.1, Supplier and the
Members jointly and severally agree that from and after the Closing, if any,
they will indemnify and hold ENBC harmless in respect of the aggregate of all
ENBC Indemnifiable Damages (as hereinafter defined). For this purpose, ENBC
Indemnifiable Damages shall mean the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including related counsel fees and
expenses) incurred or suffered by ENBC (or any successor to all or any part of
the assets or business of Supplier) (i) resulting from any inaccurate
representation or warranty made by Supplier and the Members in or pursuant to
this Agreement, (ii) resulting from any default in the performance of any of the
covenants or agreements made by Supplier or the Members in this Agreement, or
(iii) resulting from the failure of Supplier to pay, discharge or perform any
liability or obligation that is not required to be assumed by ENBC hereunder
("Excluded Liabilities"). Without limiting the generality of the foregoing,
with respect to the measurement of ENBC Indemnifiable Damages, ENBC shall have
the right to be put in the same financial position as it would have been in had
each of the representations and warranties of Supplier and the Members been true
and correct, had each of the covenants and agreements of Supplier and the
Members been performed in full and had each of the Excluded Liabilities been
paid or performed in full. The foregoing obligation to indemnify ENBC shall be
subject to each of the following principles or qualifications:
8.1.1 Each of the representations and warranties made by the Supplier
and the Members in this Agreement or pursuant hereto, shall survive for a
period of eighteen (18) months after the exercise of the Option and
thereafter all such representations and warranties shall be extinguished,
provided, however, that the representations and warranties made in Sections
2.1, 2.2, 2.3, 2.4 and 2.7 hereof shall in each case survive forever. No
claim for the recovery of ENBC Indemnifiable Damages based upon the
inaccuracy of such representations and warranties may be asserted by ENBC
after such representations and warranties shall be thus extinguished;
provided, however, that claims first asserted in writing within the
applicable period (whether or not the amount of any such claim has become
ascertainable within such period) shall not thereafter be barred.
8.1.2 The Supplier and the Members shall be liable for any claim for
ENBC Indemnifiable Damages arising out of any inaccuracy of any
representation or warranty only to the extent the aggregate amount of all
such ENBC Indemnifiable Damages do exceed $25,000.
8.1.3 The liability of the Supplier and the Members for claims for
all ENBC Indemnifiable Damages arising out of inaccuracies of
representations and warranties of the Supplier and the Members shall in no
event exceed the amount of the purchase price payable under Section 1.4.
14
<PAGE>
8.2 AGREEMENT BY ENBC TO INDEMNIFY. ENBC agrees that from and after
the Closing, if any, it will indemnify and hold Supplier and the Members
harmless in respect of the aggregate of all Supplier Indemnifiable Damages (as
hereinafter defined). For this purpose, Supplier Indemnifiable Damages shall
mean the aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages (including related counsel fees and expenses) incurred or suffered by
Supplier or the Members (i) resulting from any inaccurate representation or
warranty made by ENBC in or pursuant to this Agreement, (ii) resulting from any
default in the performance of any of the covenants or agreements made by ENBC in
this Agreement, (iii) resulting from the failure of ENBC to discharge any
Assumed Liabilities (including any Assumed Liabilities that may have been
guaranteed by one or more of the Members) after Closing or (iv) resulting from
the operation of the business utilizing the Option Assets by ENBC after Closing
(except to the extent arising from any inaccurate representation or warranty
made by the Supplier and the Members herein). Without limiting the generality of
the foregoing, with respect to the measurement of Supplier Indemnifiable
Damages, Supplier and the Members shall each have the right to be put in the
same financial position as they would have been in had each of the
representations and warranties of ENBC been true and correct, had each of the
covenants and agreements of ENBC been performed in full and had each of the
Assumed Liabilities been paid or performed in full.
8.3 TAX EFFECT OF DAMAGES AND INDEMNITY PAYMENTS. In determining the
amount of ENBC Indemnifiable Damages payable under Section 8.1 and Supplier
Indemnifiable Damages payable under Section 8.2, there shall be taken into
account both tax benefits, if any, arising from the incurrence of damages and
tax detriments, if any, arising from the receipt of payments hereunder.
8.4 LEGAL PROCEEDINGS. In the event Supplier, the Members or ENBC
become involved in any legal, governmental or administrative proceeding which
may result in indemnification claims hereunder, such party shall promptly notify
the other parties in writing of such proceeding. The other parties may, at their
option and expense, defend any such proceeding if the proceeding could give rise
to an indemnification obligation hereunder. If any party elects to defend any
proceeding, such party shall have full control over the conduct of such
proceeding, although the party being indemnified shall have the right to retain
legal counsel at its own expense and shall have the right to approve any
settlement of any dispute giving rise to such proceeding, such approval not to
be withheld unreasonably by the party being indemnified; provided, that, in the
event the indemnifying party shall fail to initiate a defense of a claim within
twenty days of the notice to the indemnified party of a claim, the indemnified
party shall have the option to conduct the defense of such claim as it may in
its discretion deem proper. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
ARTICLE 9.0 MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by them in
writing.
15
<PAGE>
9.2 PAYMENT OF EXPENSES. Each party to this Agreement shall pay all of
the expenses incurred by it in connection with this Agreement, including without
limitation its legal and accounting fees and expenses.
9.3 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs and legal representatives.
9.4 ENTIRE AGREEMENT. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the option to
purchase the Option Assets and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto.
9.5 HEADINGS. The descriptive headings in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
9.6 EXECUTION IN COUNTERPART. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
9.7 NOTICES. Any notice, request, information or other document to be
given hereunder shall be in writing. Any notice, request, information or other
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Supplier addressed as follows:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
with a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
16
<PAGE>
If to ENBC, addressed as follows:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401
Attention: Senior Vice President-Supply Chain
with a copy to:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
P. O. Box 4086
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice, request, information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed wholly therein.
9.9 PUBLICITY. No press release or other public announcement related
to this Agreement or the transactions contemplated hereby (or the existence of
any discussions or negotiations among the parties regarding any other possible
transactions) will be issued, and no disclosure of this Agreement or the terms
hereof will be made, by Supplier or any of the Members without the prior
approval of ENBC. ENBC agrees to use reasonable best efforts to consult with
Supplier prior to issuing any press release or public or trade announcement or
statement relating to this Agreement or the transactions contemplated hereby.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Paul A. Strasen
------------------------------------
Senior Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Doug H. Harlan
------------------------------------
/s/ Hal P. Harlan
--------------------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
--------------------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
--------------------------------------
Doug H. Harlan
18
<PAGE>
EXHIBITS
--------
Exhibit A Determination of Supplier Value
Exhibit B Promissory Note
1
<PAGE>
EXHIBIT A
---------
SUPPLIER VALUE
--------------
"Supplier Value" as of the Closing Date shall be the net asset value of the
Supplier determined in accordance with generally accepted accounting principles.
"Net asset value" shall mean the net book value of the Supplier's assets.
1
<PAGE>
EXHIBIT B TO THE OPTION AGREEMENT
1
<PAGE>
THIS PROMISSORY NOTE IS NON-NEGOTIABLE, NON-ASSIGNABLE
AND NON-TRANSFERABLE
PROMISSORY NOTE
$_______________ _________, _______
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation
(the "Company"), promises to pay to Harlan Bagel Supply Company, LLC ("HBSC"),
at such place as HBSC may from time to time designate in writing,
________________________________ DOLLARS ($______________); and to pay interest
on the unpaid principal balance hereof from time to time outstanding, at the per
annum rate equal to the Interest Rate until the indebtedness evidenced hereby is
paid in full, and at the Interest Rate plus two percent (2%) in respect of any
principal amount not paid when due, for the period from the date such principal
is due until such unpaid amount has been paid in full (whether before or after
judgment). The term "Interest Rate" shall mean the rate designated and
announced by Bank of America Illinois or its successor in interest (the "Bank")
from time-to-time as its "reference rate" in effect at its principal office in
Chicago, Illinois. The Interest Rate shall be adjusted from time-to-time on the
same day on which the Bank adjusts its reference rate.
Principal and interest on this Note shall be payable as follows:
Principal of $___________ shall be payable on _________________ (being the Six
Month Anniversary Date). One-third (1/3) of the remaining outstanding principal
amount of this Note together with all accrued but unpaid interest thereon shall
be due and payable on each of _______________ (being the twelve month
anniversary of the date hereof), ____________________ (being the eighteen month
anniversary of the date hereof), and __________ (being the twenty-four month
anniversary of the date hereof).
Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
All or any part of the principal amount of this Note and any accrued
interest due on any of the respective payment dates or otherwise may be paid at
the Company's option in lawful money of the United States of America in
immediately available funds, shares of common stock of the Company (the "ENBC
Stock"), shares of common stock of Boston Chicken, Inc. ("BCI Stock") (the
issuer of ENBC Stock or BCI Stock being referred to herein as the "Issuer") or
any combination of the foregoing, provided that with respect to ENBC Stock and
BCI Stock, same shall be valued at the average of the closing sales prices per
share of the Common Stock quoted on the Nasdaq National Market, as reported in
the Wall Street Journal (Western Edition), for the five (5) trading days
immediately prior to the second business day before the respective date of
payment (the "Average Price"). The Company may make a payment hereunder with
ENBC Stock or BCI Stock only if (a) the Average Price per share of such stock of
the Issuer as quoted on the NASDAQ National Market, as quoted on such other
market or exchange on which such shares are traded is at least $10, and (b) the
value of the Issuer (defined as the product of the Share Price and the total
number of outstanding shares of such stock of the Issuer) is at least $300
million. In the event ENBC elects to deliver shares of ENBC Stock or shares of
BCI Stock, such shares shall be registered under the Securities Act of 1933, as
amended, and shall be accompanied by a written undertaking of ENBC to pay to
HBSC in cash the excess, if any, of the value of the shares so delivered over
the proceeds (net of commissions) from the sale of the shares, assuming all
shares are sold in accordance with such reasonable conditions on the timing,
<PAGE>
daily volume and manner of sale as may be set forth in such undertaking. Such
undertaking shall be assignable by HBSC to its members to the extent any such
shares are assigned to such members.
This Note may be prepaid at any time without premium or penalty. All
payments made hereunder shall be applied first to interest and then to
outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday, under the laws of the State of Colorado, the due date thereof
shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any
other formality are hereby expressly waived by the Company and any endorser or
guarantor.
If the Company fails to make any payment hereunder when due and such
failure continues for a period of ten (10) days, then this Note shall become
immediately due and payable, without notice, at HBSC's option. If this Note is
not paid at maturity, whether by acceleration or otherwise, HBSC shall have all
of the rights and remedies provided by law or in equity.
If this Note is placed in the hands of an attorney for collection, or
is collected through any court, including any bankruptcy court, the Company
promises to pay to HBSC, HBSC's reasonable attorneys' fees and court costs
incurred in collecting or attempting to collect this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF, THE STATE OF COLORADO APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Any provision herein or any other document executed or delivered in
connection herewith or therewith, or in any other agreement or commitment,
whether written or oral, expressed or implied, to the contrary notwithstanding,
HBSC shall in no event be entitled to receive or collect, nor shall any amounts
received hereunder be credited, so that HBSC shall be paid, as interest, a sum
greater than the maximum amount permitted by applicable law to be charged to the
person primarily obligated to pay this Note at the time in question. If any
construction of this Note or any and all other papers, agreements, or
commitments, indicate a different right given to HBSC to ask for, demand, or
receive any larger sum as interest, such is a mistake in calculation or wording
which this clause shall override and control, it being the intention of the
parties that this Note and all other documents executed or delivered in
connection herewith shall in all ways comply with applicable law and proper
adjustments shall automatically be made accordingly. In the event that HBSC
ever receives, collects, or applies as interest, any sum in excess of the
maximum amount permitted by applicable law, if any, such excess amount shall be
applied to the reduction of the unpaid principal balance of this Note, and if
this Note is paid in full, any remaining excess shall be paid to the Company.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum amount permitted by applicable law, if any, the
Company and HBSC shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment as an expense or fee rather than as
interest, and (b) "spread" the total amount of interest throughout the entire
term of this Note.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed in
its corporate name by the undersigned officer, thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP., a
Delaware corporation
By:______________________________
Its:_____________________________
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AGREEMENT
This amended and restated right of first refusal agreement (the
"Agreement") is entered into as of May 1, 1998 by and among Einstein/Noah Bagel
Corp., a Delaware corporation ("ENBC"), Harlan Bakeries, Inc., an Indiana
corporation ("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan
(collectively, the "Harlans").
RECITALS
--------
The Harlans own all of the outstanding capital stock of Harlan. Harlan has
constructed a new production facility (the "Production Facility") adjacent to
its existing production facility in Avon, Indiana, and Harlan Bagel Supply
Company, LLC, an Indiana limited liability company (the "Supplier"), ENBC,
Harlan and the Harlans have previously entered into a project and approved
supplier agreement dated as of May 24, 1996, as amended (the "Prior Approved
Supplier Agreement"), pursuant to which the Supplier has agreed to supply raw
frozen bagel dough products to ENBC and other approved purchasers, and
concurrent with the execution and delivery of this agreement they are entering
into an Amended and Restated Project and Approved Supplier Agreement (the
"Approved Supplier Agreement").
ENBC, Harlan and the Harlans have previously entered into a right of first
refusal agreement, pursuant to which ENBC has a right of first refusal to obtain
the shares of capital stock or assets of Harlan (the "Prior Right of First
Refusal Agreement"). In order to reflect the parties' understanding with respect
to the option, and to amend, restate, replace and substitute in full under the
prior Right of First Refusal Agreement, the parties desire to enter into this
Agreement.
COVENANTS
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. RESTRICTIONS ON TRANSFER. Subject to the provisions of Section 7
------------------------
hereof, each of the Harlans agrees that he shall not, at any time prior to the
Termination Date (as hereinafter defined), sell, assign, transfer, pledge or
otherwise dispose of any shares of capital stock of Harlan ("Shares") owned by
him, except in accordance with the provisions of Section 2 hereof or in a
Permitted Transfer (as hereinafter defined). All certificates representing
Shares owned or hereafter acquired by the Harlans, or any transferee of the
Harlans bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
"The sale or other disposition of any of the shares
represented by this certificate is restricted by a Right
of First Refusal Agreement among the registered owner
<PAGE>
of this certificate, ENBC and the other shareholders of
the Company, a copy of which is available for inspection
at the offices of the Company."
2. RIGHT OF FIRST REFUSAL TO PURCHASE SHARES OF CAPITAL STOCK.
----------------------------------------------------------
Subject to the provisions of Sections 7 and 8 hereof, in the event Harlan or any
of the Harlans (the "Seller") desires to sell any Shares, at any time prior to
the Termination Date, except in a Permitted Transfer, the Seller shall first
give written notice (a "Share Sale Notice") to ENBC of any such proposed sale,
which Notice shall state the name and address of the proposed purchaser, the
number of Shares to be sold and the price, terms of payment and conditions of
such proposed sale. ENBC shall thereupon have the right, for a period of 45
days from the date of the Share Sale Notice, to purchase such Shares at the
price and, except as provided herein as to the medium of payment, on the terms
and conditions stated in the Share Sale Notice. ENBC may exercise such right by
giving a notice of exercise to the Seller, which notice shall specify a place of
closing, a closing date, which shall not be later than 30 days following the
date of such notice of exercise, (or, if later, two business days after the
expiration or termination of any waiting period under the HSR Act (as
hereinafter defined)) and the consideration which ENBC elects to deliver upon
the closing, which may consist of the medium of payment provided for in the
Share Sale Notice, shares of common stock of ENBC ("ENBC Stock"), shares of
common stock ("BCI Stock") of Boston Chicken, Inc. ("BCI"), cash, or any
combination of the foregoing, provided, however, that such consideration may
consist of ENBC Stock or BCI Stock (the issuer of such stock being referred to
herein as the "Issuer") only if (a) the average closing sales price per share of
such stock of the Issuer as quoted on the NASDAQ National Market, as reported in
the Wall Street Journal (Western Edition), or as quoted on such other market or
exchange on which such shares are traded, for the ten consecutive trading days
ending on the second business day prior to the Closing Date (as hereinafter
defined) (the "Share Price") is at least $10, and (b) the value of the Issuer
(defined as the product of the Share Price and the total number of outstanding
shares of such stock of the Issuer) is at least $300 million. In the event ENBC
elects to deliver upon closing shares of ENBC Stock or shares of BCI Stock, such
shares shall be registered under the Securities Act of 1933, as amended (the
"1933 Act"), and shall be accompanied by a written undertaking of ENBC to pay to
the Seller in cash the excess, if any, of the value of the shares so delivered,
determined in the manner provided in Section 6 hereof, over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. At the closing, ENBC
shall pay the purchase price for the Shares and the Seller shall deliver to ENBC
certificates evidencing the Shares accompanied, in the case of a sale of Shares
by any of the Harlans, by duly executed stock powers together with a certificate
signed by the Seller stating that the Shares are being sold free and clear of
all liens, claims, encumbrances, charges and restrictions or transfer, except
for restrictions on transfer imposed by federal and state securities laws
("Encumbrances"). In the event ENBC does not elect to purchase the Shares as
provided in this Section 2 the Seller may sell such Shares to the proposed third
party purchaser on the terms and conditions stated in the Share Sale Notice, but
only if such sale is consummated within 60 days after the expiration of the 45-
day period referred to above.
2
<PAGE>
3. PERMITTED TRANSFERS. The provisions of Section 2 hereof shall not
-------------------
apply to (i) sales of shares by Harlan or the Harlans in an initial public
offering, (ii) sales of shares by Harlan in a private placement (other than to
Permitted Transferees), provided that the Harlans own at least 51% by vote and
by value of the outstanding capital stock of Harlan after any such offering and
provided further that Harlan has first offered to ENBC the opportunity to
purchase the shares so offered on terms no less favorable to ENBC than the terms
offered in such private placement, and (iii) transfers of Shares by any of the
Harlans among themselves or to any of their spouses or descendants, any trust
solely for the benefit of one or more of the Harlans, their spouses or
descendants, or any corporation, partnership or limited liability company all of
the stockholders, partners or members of which consist solely of one or more
such persons or trusts ("Permitted Transferees"), provided that the transferee
in any such transfer agrees in writing to be bound by the provisions of this
Agreement ("Permitted Transfers").
4. RIGHT OF FIRST REFUSAL TO PURCHASE ASSETS. Subject to the
-----------------------------------------
provisions of Sections 7 and 8 hereof, in the event Harlan desires to sell all
or substantially all of its assets, then Harlan shall first given written notice
(the "Asset Sale Notice") to ENBC of any such proposed sale, which Asset Sale
Notice shall state the name and address of the proposed purchaser, the assets to
be sold and the price, terms of payment and conditions of such proposed sale.
ENBC shall thereupon have the right, for a period of 45 days from the date of
the Asset Sale Notice, to purchase such assets at the price and, except as
provided herein as to the medium of payment, on the terms and conditions stated
in the Asset Sale Notice. ENBC may exercise such right by giving a notice of
exercise to Harlan, which notice shall specify a place of closing and a closing
date which shall not be later than 30 days following the date of such notice of
exercise (or, if later, two business days after the expiration or termination of
any waiting period under the HSR Act (as hereinafter defined)), and the
consideration which ENBC elects to deliver upon the closing, which may consist
of the medium of payment provided for in the Asset Sale Notice, shares of ENBC
Stock, shares of BCI Stock, cash, or any combination of the foregoing, provided,
however, that such consideration may consist of ENBC Stock or BCI Stock (the
issuer of such stock being referred to herein as the "Issuer") only if (a) the
average closing sales price per share of such stock of the Issuer as quoted on
the NASDAQ National Market, as reported in the Wall Street Journal (Western
Edition), or as quoted on such other market or exchange on which such shares are
traded, for the ten consecutive trading days ending on the second business day
prior to the Closing Date (as hereinafter defined) (the "Share Price") is at
least $10, and (b) the value of the Issuer (defined as the product of the Share
Price and the total number of outstanding shares of such stock of the Issuer) is
at least $300 million. In the event ENBC elects to deliver upon closing shares
of ENBC Stock or shares of BCI Stock, such shares shall be registered under the
1933 Act, and shall be accompanied by a written undertaking of ENBC to pay to
Harlan in cash the excess, if any, of the value of the shares so delivered,
determined in the manner provided in Section 6 hereof, over the proceeds (net of
commissions) from the sale of the shares, assuming all shares are sold in
accordance with such reasonable conditions on the timing, daily volume and
manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by Harlan to its shareholders to the extent any such shares are
assigned to such shareholders. At the closing, ENBC shall pay the purchase
price for the assets and Harlan shall execute and deliver to ENBC instruments of
transfer sufficient to convey to ENBC all right, title and interest in and to
the assets, free and clear of all Encumbrances, except as may be specified
3
<PAGE>
in the Asset Sale Notice. In the event ENBC does not elect to purchase the
assets as provided in this Section 4 Harlan may sell such assets to the proposed
third party purchaser on the terms and conditions stated in the Notice, but only
if such sale is consummated within 60 days after the expiration of the 45-day
period referred to above.
5. REGULATORY COMPLIANCE. Upon the exercise by ENBC of its right to
---------------------
purchase Shares or its right to purchase assets of Harlan the parties shall
promptly prepare and file with the Federal Trade Commission ("FTC") and the
United States Department of Justice ("Justice Department") any notification
required to be filed with respect to the transactions contemplated hereby under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any
rules or regulations thereunder (the "HSR Act"). Each party represents and
warrants to the other parties hereto that any such filing made by it shall be
true and accurate in all material respects and shall conform to the requirements
of the HSR Act. Each party shall promptly complete and file any required
responses to requests by the FTC or the Justice Department for additional data
and information. Each party shall also make available to the other parties
hereto such information relative to its business, assets and property as may be
required for the preparation of such notifications and reports.
6. VALUATION OF ENBC STOCK OR BCI STOCK. ENBC Stock or BCI Stock
------------------------------------
delivered upon the closing of any transaction contemplated hereby shall be
deemed to have a value equal to the average closing sales price per share of
such stock as quoted on the NASDAQ National Market, as reported in the Wall
Street Journal (Western Edition), or as quoted on such other market or exchange
on which such shares are traded, for the ten consecutive trading days ending on
the second business day prior to the date of closing.
7. TERMINATION. This Agreement shall terminate upon the later of the
-----------
expiration of the Approved Supplier Agreement or the expiration of the Lease (as
defined in the Approved Supplier Agreement) (the "Termination Date"), provided,
however, that if the Approved Supplier Agreement expires prior to the expiration
of the Lease, then after the expiration of the Approved Supplier Agreement,
ENBC shall thereafter, until expiration of the Lease, have only a right of first
refusal to purchase the land and buildings owned by Harlan that consist of the
Production Facility, the adjacent building and the land on which they are
situated.
8. CERTAIN CONDITIONS FOR EXERCISE. The exercise by ENBC of its
-------------------------------
rights under Sections 2 and 4 hereof shall be subject to the condition that ENBC
shall have paid all amounts owed by it pursuant to the Approved Supplier
Agreement. In the event of a disagreement regarding any amounts payable under
such agreement, the time periods for ENBC's exercise of such rights provided for
in Sections 2 and 4 shall not begin to run until such disagreement has been
resolved by the entry of a final nonappealable order of a court (or other
decision of an arbitrator or other adjudicator that is final and binding on the
parties to such agreement) or the execution and delivery of a written settlement
agreement by the parties to such agreement.
9. AMENDMENTS. The parties hereto may amend, modify and supplement
----------
this Agreement in such manner as may be agreed upon by them in writing.
4
<PAGE>
10. EXPENSES. Each party to this Agreement shall pay all of the
--------
expenses incurred by such party in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees and expenses, and the commissions, fees and expenses of any
person employed or retained by such party to bring about, or to represent it in,
the transactions contemplated hereby.
11. BINDING AGREEMENT. This Agreement shall be binding upon and
-----------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
12. ENTIRE AGREEMENT. This instrument contains the entire agreement
----------------
of the parties hereto with respect to the subject matter hereof and supersedes
all prior understandings and agreements of the parties with respect to the
subject matter hereof.
13. HEADINGS. The descriptive headings in this Agreement are
--------
inserted for convenience only and do not constitute a part of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original.
15. NOTICES. Any notice, request, information or other document to
-------
be given hereunder shall be in writing. Any notice, request, information or the
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Harlan, or any of the Harlans, addressed to such party at the
following address:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
5
<PAGE>
If to Einstein Bros., addressed as follows:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, Colorado
Attention: Senior Vice President - Supply Chain
with a copy to:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed wholly therein.
17. INJUNCTIVE RELIEF. In the event of a breach or threatened breach
-----------------
of any of the provisions of this Agreement, the parties acknowledge and agree
that the non-breaching party will not have an adequate remedy at law and
therefore will be entitled to enforce any such provision by temporary or
permanent injunctive or mandatory relief as a remedy for any such breach, and
that such remedy shall not be deemed to be the exclusive remedy for any such
breach but shall be in addition to all other remedies.
18. PUBLICITY. No press release or other public or trade
---------
announcement or statement related to this Agreement or the transactions
contemplated hereby (or the existence of any discussions or negotiations between
the parties regarding any other possible transactions) will be issued, and no
disclosure of this Agreement or the terms hereof will be made, by Harlan or any
of the Harlans without the prior approval of ENBC. ENBC agrees to use reasonable
best efforts to consult with Harlan and the Harlans prior to issuing any press
release or public or trade announcement or statement relating to this Agreement
or the transactions contemplated hereby.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Paul A Srasen
-------------------------
Senoir Invice President
HARLAN BAKERIES, INC.
By /s/ Hugh P. Harlan
-------------------------
/s/ Hal P. Harlan
---------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
---------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
---------------------------
Doug H. Harlan
7
<PAGE>
EXHIBIT 10.4
SECOND AMENDMENT TO
AMENDED AND RESTATED
ACCOUNTING AND ADMINISTRATIVE
SERVICES AGREEMENT
This Second Amendment to Accounting and Administrative Services
Agreement ("Second Amendment") is made and entered into this 25/th/ day of June,
1998 by and between Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), and Boston Chicken, Inc., a Delaware corporation ("BCI").
RECITALS
--------
The Company and BCI are parties to an amended and restated accounting
and administrative services agreement dated May 28, 1996, as amended (the
"Services Agreement"). The parties have previously agreed to extend the term of
the Services Agreement past March 26, 1998, on a month-to-month basis, and the
parties now desire to extend the term of the Services Agreement to May 31, 1999
and to amend the Services Agreement as hereafter set forth.
COVENANTS
---------
In consideration of the matters recited above and the mutual covenants
of the parties, the parties hereto agree as follows:
1.1 Amendment. The Services Agreement shall be amended as of the date
---------
hereof as follows:
(a) The Services Agreement is amended by changing "Einstein Bros.
Bagels, Inc." to "Einstein/Noah Bagel Corp." and "EBBI" to "ENBC" each
place where such terms appear.
(b) Section 1.1 of the Services Agreement is hereby amended by
deleting clause (b).
(c) Section 2.1 of the Services Agreement is hereby amended by:
(i) deleting clauses (h), (i), (j) and (l) therefrom;
(ii) relettering clause (k) as clause (h); and
(iii) adding the following clause (i):
"(i) administration and maintenance of corporate
payroll, and administration of the processing of payroll and
calculation of applicable tax and other withholdings relating to
the Units or Entities."
<PAGE>
(d) Section 3.1 of the Services Agreement is hereby amended by
deleting such section in its entirety and substituting therefor the
following:
"3.1(a) In consideration of the Services and Admin. Items, ENBC agrees
to pay to BCI an accounting and administrative fee per four- or five-
week accounting period of BCI ("Accounting Period"), which shall be
determined for fiscal 1998 by taking the "ENBC Portion" of fees for
Accounting, Payroll & Admin. and Peoplesoft for 1998, as shown on
Exhibit B hereof, deducting therefrom fees previously paid by ENBC
hereunder for fiscal 1998 and dividing the balance by the number of
Accounting Periods remaining in fiscal 1998 for which ENBC has not yet
made payment. Such fee shall be determined for Accounting Periods
after fiscal 1998 by taking the "ENBC Portion" of fees for Accounting,
Payroll and Admin. and Peoplesoft for the applicable fiscal year (as
set forth on a revised Exhibit B prepared by BCI, based on its budget
for such fiscal year, in the same manner as Exhibit B hereof) and
dividing such amount by 13. All such fees shall be subject to
adjustment as provided in Section 3.1(b) hereof.
3.1(b) To the extent BCI's actual overhead for its accounting
department, payroll and administration departments and its
"Peoplesoft" project (including, without limitation, any salary bonus,
severance or other compensation paid to employees assigned to such
departments or projects but excluding severance paid to employees
terminated prior to fiscal 1998) for any fiscal quarter is greater or
less than the applicable proportion of the amount shown on Exhibit B
for such category of overhead, then the fees payable pursuant to
Section 3.1(a) hereof for such fiscal quarter shall be recomputed, in
the manner provided in Section 3.1(a), and any difference shall be
paid to the party entitled thereto in three equal increments over the
three Accounting Periods following the fiscal quarter for which such
adjustment is made. BCI agrees to give ENBC upon ENBC's request all
information reasonably requested by ENBC regarding the amounts BCI has
budgeted or incurred for the foregoing overhead categories.
(e) Section 4.1 of the Services Agreement is hereby amended by
deleting such section in its entirety and substituting therefor the
following:
"4.1(a) The term of this Agreement shall expire on May 31, 1999,
unless the parties mutually agree to extend such term; provided that
either party may terminate this Agreement during the term upon 180
days' prior written notice to the other party; provided, further, that
BCI may terminate this Agreement without notice and cease rendering
the Services and Admin. Items hereunder 15 days after notice of any
non-payment of the fees and expenses provided for herein when such
fees and expenses are
2
<PAGE>
due and payable, unless such non-payment is cured within such 15 day
period. In connection with any termination of this Agreement (except
where termination is based on ENBC's non-payment of fees and
expenses), BCI agrees to provide to ENBC, at ENBC's expense, all
assistance that may be reasonably requested by ENBC to assist ENBC in
effecting a smooth and orderly transition from the provision of
services hereunder by BCI to the provision of such services by ENBC
employees or other service providers. In addition to the foregoing,
and notwithstanding anything to the contrary, in the event that BCI
sells to a third party that is not an affiliate of BCI all or the
majority of its shares in ENBC and such third party purchaser desires
to transition all of the services described in this Agreement away
from BCI or desires to relocate ENBC's support center, this Agreement
may be terminated on 90 days' notice (a) in either event by ENBC, at
the direction of such purchaser or (b) by BCI in the event of a
relocation of ENBC's support center.
4.1(b) BCI and ENBC further agree that in the event ENBC gives notice
to BCI that ENBC desires to cease the purchase of such services as it
may specify in such notice (but less than all of the services being
provided by BCI hereunder), then BCI and ENBC agree that (i) ENBC
shall be permitted to cease purchasing such services within a
reasonable period of time (but in any event not more than 90 days),
provided that BCI has not reasonably concluded that the discontinuance
of such services would materially interfere with its ability to
continue to provide other services that it is obligated to provide
hereunder, and (ii) they shall negotiate in good faith to determine
the amount by which ENBC's fees hereunder should be reduced, it being
agreed that ENBC shall be entitled to a reduction in such fees to
reflect the marginal reduction to BCI in the overhead necessary to
provide services hereunder resulting from the discontinuance of such
services."
2.1 Continuing Effect of Services Agreement. The Services Agreement, as
---------------------------------------
amended hereby, is ratified and confirmed and remains in full force and effect.
3.1 GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
4.1 Counterparts. This Second Amendment may be executed in counterparts,
------------
each of which shall be deemed an original, but each of which together shall
constitute but one and the same instrument.
3
<PAGE>
5.1 Headings. The headings of the sections of the Second Amendment are
--------
inserted for convenience only and shall not be deemed to constitute a part of
this Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to be
effective on the date provided herein.
BOSTON CHICKEN, INC. EINSTEIN/NOAH BAGEL CORP.
By: /s/ Michael R. Daigle By: /s/ Paul A. Strasen
------------------------- -----------------------
Its:Senior Vice President and Its:Senior Vice President
------------------------- -----------------------
General Counsel
---------------
4
<PAGE>
<TABLE>
<CAPTION>
1998 ENBC/BCI
Fees Enbc Fee
Calculation
Exhibit B
Allocation Factors ENBC Fee Calculation
----------------------------------- --------------------------------------------------------------------------------------
Basis for ENBC
Number of Stores 1998 Budget Allocation Factor Portion
---------------- ------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
- Number of BM Stores 1,150 68% ^
Number of EMBC Stores 250 32% ^ Systems $12,080,000 # Stores 32% $3,908,235
-------
1,700
Accounting $2,658,252 # Stores 32% $860,023
Number of People (12/31/97)
Number of BM People 69% ^ Payroll & Admin.
Number of ENBC People 31% ^ (Including Teleservices) $2,594,395 # People 31% $804,262
-------
100% PeopleSoft Project Set-up
(less Hardware)* $2,016,718 Half 50% $1,008,359
PeopleSoft Project
Hardware $470,000 # People 31% $146,700
------------- ------------
Total BCI Budget $19,819,365 $6,726,679
* BCI shall include $939,236 of its PeopleSoft Development Cost in its 1999 budget and
$704,427 of its PeopleSoft Development Cost in its 2000 budget. Such amounts
represent financed project costs payable by BCI after 1998, and shall be allocated 50%
to ENBC. In the event the agreement is terminated prior to the time ENBC's share of
such amounts has been recovered by BCI, then ENBC shall pay the remaining amounts to
BCI at a rate of $117,405 per fiscal quarter. BCI agrees to take all actions required
under its agreement with PeopleSoft, Inc. to assure that ENBC shall not have any
obligation to PeopleSoft to pay license fees for Peoplesoft software provided to ENBC
hereunder, including without limitation executing and delivering appropriate
assignment documents under Section 13 of such agreement.
</TABLE>
<PAGE>
EXHIBIT 10.5
SECOND AMENDMENT TO
AMENDED AND RESTATED
COMPUTER AND COMMUNICATIONS SYSTEMS
SERVICES AGREEMENT
This Second Amendment to Computer and Communications Systems Services
Agreement ("Second Amendment") is made and entered into this 25/th/ day of June,
1998 by and between Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), and Boston Chicken, Inc., a Delaware corporation ("BCI").
RECITALS
--------
The Company and BCI are parties to an amended and restated computer
and communications systems services agreement dated May 28, 1996, as amended
(the "Services Agreement"). The parties now desire to amend the Services
Agreement as hereafter set forth.
COVENANTS
---------
In consideration of the matters recited above and the mutual covenants
of the parties, the parties hereto agree as follows:
1.1 Amendment. The Services Agreement shall be amended as of the date
---------
hereof as follows:
(a) The Services Agreement is amended by changing "Einstein Bros.
Bagels, Inc." to "Einstein/Noah Bagel Corp." and "EBBI" to "ENBC" each
place where such terms appear.
(b) Section 3.B of the Services Agreement is hereby amended by
adding the following sentence at the end of the first sentence
thereof:
"ENBC has, as of the date of this Second Amendment, closed
thirty-five ENBC Units with respect to each of which ENBC has
paid a Licensed Program Fee. From and after the date hereof, the
Licensed Program Fee paid for each such closed ENBC Unit shall be
transferred to and applied against the Licensed Program Fee due
for the next thirty-five successive new ENBC Units opened by ENBC
or its licensees, except to the extent BCI is obligated to pay
amounts to third party software licensors with respect to such
new units."
(c) Section 3.C of the Services Agreement is hereby amended by
deleting such section in its entirety and substituting therefor the
following:
<PAGE>
"3.C. DATA CENTER, NETWORK SERVICE AND SOFTWARE SUPPORT FEES
(1) ENBC agrees to pay to BCI, for ongoing Data Center and Network
Service Operations and support of the Infrastructure Programs, and for
software support service, a fee per four or five week accounting
period of BCI ("Accounting Period"), which shall be determined for
fiscal 1998 by taking the "ENBC Portion" of fees for Systems for 1998,
as shown on Exhibit B hereof, deducting therefrom fees previously paid
by ENBC hereunder for fiscal 1998 and dividing the balance by the
number of Accounting Periods remaining in fiscal 1998 for which ENBC
has not yet made payment. Such fee shall be determined for Accounting
Periods after fiscal 1998 by taking the "ENBC Portion" of fees for
Systems for the applicable fiscal year (as set forth on a revised
Exhibit B prepared by BCI, based on its budget for such fiscal year,
in the same manner as Exhibit B hereof) and dividing such amount by
13. All such fees shall be subject to adjustment as provided in
Section 3.C(2) hereof.
(2) To the extent BCI's actual overhead for its systems department
(including, without limitation, any salary bonus, severance or other
compensation paid to employees assigned to such department but
excluding severance paid to employees terminated prior to fiscal 1998)
for any fiscal quarter is greater or less than the applicable
proportion of the amount shown on Exhibit B for such category of
overhead, then the fees payable pursuant to Section 3.C(1) hereof for
such fiscal quarter shall be recomputed, in the manner provided in
Section 3.C(1), and any difference shall be paid to the party entitled
thereto in three equal increments over the three Accounting Periods
following the fiscal quarter for which such adjustment is made. BCI
agrees to give ENBC upon ENBC's request all information reasonably
requested by ENBC regarding the amounts BCI has budgeted or incurred
for the foregoing overhead categories."
(d) Section 3.D of the Services Agreement is hereby amended by
deleting the last sentence thereof.
(e) Section 3.E of the Services Agreement is hereby deleted, and
Sections 3.F and 3.G are relettered Sections 3.E and 3.F, respectively.
(f) The first paragraph of Section 7 of the Services Agreement is
hereby amended by deleting such paragraph in its entirety and substituting
therefor the following:
"The term of this Agreement shall expire on March 26, 2000, unless the
parties mutually agree to extend such term; provided that either party
may terminate this Agreement on not less than six months' prior
written notice;
2
<PAGE>
and provided further that BCI may terminate this Agreement without
notice and cease rendering the services hereunder 15 days after notice
of any non-payment of the fees and expenses provided for herein when
such fees and expenses are due and payable, unless such non-payment is
cured within such 15 day period. In connection with any termination of
this Agreement (except where termination is based on ENBC's non-
payment of fees and expenses), BCI agrees to provide to ENBC, at
ENBC's expense, all assistance that may be reasonably requested by
ENBC to assist ENBC in effecting a smooth and orderly transition from
the provision of services hereunder by BCI to the provision of such
services by ENBC employees or other service providers."
2.1 Third Party Software. BCI represents and warrants that it has
--------------------
furnished ENBC true and correct copies of all third-party software licenses for
software made available to ENBC hereunder and that ENBC has the right to use all
such software made available to it without any liability or obligation by ENBC
to any such third-party.
3.1 Continuing Effect of Services Agreement. The Services Agreement, as
---------------------------------------
amended hereby, is ratified and confirmed and remains in full force and effect.
4.1 GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
5.1 Counterparts. This Second Amendment may be executed in counterparts,
------------
each of which shall be deemed an original, but each of which together shall
constitute but one and the same instrument.
6.1 Headings. The headings of the sections of the Second Amendment are
--------
inserted for convenience only and shall not be deemed to constitute a part of
this Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to be
effective on the date provided herein.
BOSTON CHICKEN, INC. EINSTEIN/NOAH BAGEL CORP.
By: /s/ Michael R. Daigle By: /s/ Paul A. Strasen
------------------------- ----------------------
Its: Senior Vice President and Its: Senior Vice President
------------------------- ----------------------
General Counsel
-------------------------
3
<PAGE>
1998 ENBC/BCI Fees
ENBC Fee calculation
- --------------------
Exhibit B
<TABLE>
<CAPTION>
Allocation Factors ENBC Fee Calculation
- ------------------------------------ ------------------------------------------------------------------------------------------
Basis for ENBC
Number of Stores 1998 Budget Allocation Factor Portion
- ---------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Number of BM Stores 1,150 % ^
Number of ENBC Stores 550 % ^ Systems $12,080,000 # Stores 32% $3,908,235
-------
1,700%
Accounting $ 2,658,252 # Stores 32% $ 6?0,023
Number of People (12/31/97)
Number of BM People % ^ Payroll & Admin. (Including Teleservices) $ 2,594,395 # Stores 31% $ 804,262
Number of ENBC People 31%
-------
100% PeopleSoft Project Set-up (less Hardware)* $ 2,016,716 Half 50% $1,008,359
PeopleSoft Project Hardware $ 470,000 # People 31% $ 146,700
----------- ----------
Total BCI Budget $19,619,365 $6,726,579
</TABLE>
*BCI shall include $939,236 of its PeopleSoft Development Cost in its 1999
budget and $704,427 of its PeopleSoft Development Cost in its 2000 budget. Such
amounts represents financed project costs payable by BCI after 1998, and shall
be allocated 50% to ENBC. In the event the agreement is terminated prior to
the time ENBC's share of such amounts has been recovered by BCI, then ENBC shall
pay the remaining amounts to BCI at a rate of $117,405 per fiscal quarter. BCI
agrees to take all actions required under its agreement with PeopleSoft, Inc. to
assure that ENBC shall not have any obligation to PeopleSoft to pay license
fees for Peoplesoft software provided to ENBC hereunder, including without
limitation executing and delivering appropriate assignment documents under
Section 13 of such agreement.
<PAGE>
EXHIBIT 10.6
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is made and entered into
this 25th day of June, 1998, between Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), and Boston Chicken, Inc., a Delaware corporation
("Boston Chicken").
RECITALS
The Company and Boston Chicken are parties to an amended and restated
loan agreement dated May 17, 1996, as amended (the "Loan Agreement"). The
Company and Boston Chicken are also parties to an amended an restated accounting
and administration services agreement dated May 28, 1996, as amended, and an
amended and restated computer and communications systems services agreement
dated May 28, 1996, as amended (collectively, the "Services Agreements"), and
Einstein/Noah Bagel Partners, L.P., a majority-owned subsidiary of the Company
("ENBP"), and Boston Chicken are parties to a computer and communications
systems conversion and services agreement dated June 17, 1996 (the "ENBP
Agreement").
Concurrently with the execution and delivery of this Agreement, the
Company, and Boston Chicken are entering into amendments to each of the Services
Agreements, and ENBP and Boston Chicken are terminating the ENBP Agreement. In
consideration in part for the agreement of Boston Chicken to amend the Services
Agreements, the Company has agreed to terminate the Loan Agreement, as provided
herein.
COVENANTS
In consideration of the matters recited above and the mutual covenants
of the parties, the parties hereto agree as follows:
1. Termination of the Loan Agreement. The parties hereby agree that
---------------------------------
the Loan Agreement is terminated and that neither party has any remaining right
or obligation under any provision of the Loan Agreement, except as provided in
Section 2 hereof. Without limiting the generality of the foregoing, the Company
agrees that its Advance Request pursuant to the Loan Agreement dated June 11,
1998 is withdrawn and that Boston Chicken has no liability or obligation with
respect thereto.
2. Survival of Boston Chicken Indemnity and Confidentiality
--------------------------------------------------------
Agreement. Notwithstanding the provisions of Section 1 hereof, Sections 9.11,
9.11(b), (c), (d), (e) and (f) and 9.13 of the Loan Agreement (the "Surviving
Provisions") shall survive the execution and delivery of this Agreement and
shall remain in full force and effect in accordance with their terms.
<PAGE>
3. Successors and Assigns. This Agreement and the Surviving
----------------------
Provisions shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
4. Communications and Notices. All communications and notices
--------------------------
provided for in this Agreement or under the Surviving Provisions shall be in
writing and shall be deemed to have been duly given if delivered personally to
the party to whose attention the notice is directed or sent by overnight
express, facsimile transmission, express mail delivery service, or registered or
certified mail, return receipt requested, postage prepaid, and properly
addressed as follows:
If to the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
If to Boston Chicken:
Boston Chicken, Inc.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-5668
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall
be deemed to have been given on the earlier of the date it is actually received
or one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
5. GOVERNING LAW. THIS AGREEMENT AND THE SURVIVING PROVISIONS SHALL
-------------
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
COLORADO APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD
TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
2
<PAGE>
6. Headings. The headings of the sections of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
7. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
8. Entire Agreement. This Agreement and the Surviving Provisions
----------------
contain the entire agreement of the parties hereto with respect to the subject
matter hereof, and collectively supersede all prior understandings and
agreements of the parties with respect to the subject matter hereof. This
Agreement may be amended or modified only by the written agreement of the
parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
-------------------------------------------
Its: Senior Vice President
------------------------------------------
BOSTON CHICKEN, INC.
By: /s/ Michael R. Daigle
-------------------------------------------
Its: Senior Vice President and General Counsel
------------------------------------------
3
<PAGE>
Exhibit 10.7
FIRST AMENDMENT TO OFFICE SUBLEASE
----------------------------------
THIS FIRST AMENDMENT TO OFFICE SUBLEASE (this "AMENDMENT") is
effective as of this 1st day of May, 1998, by and between Boston Chicken, Inc.,
a Delaware corporation ("LANDLORD"), and Einstein/Noah Bagel Corp., a Delaware
corporation ("TENANT").
RECITALS:
R-1. Prudential Insurance Company of America and its successors and
assigns ("PRUDENTIAL"), as landlord, and Landlord, as tenant, are parties to a
Lease Agreement dated December 20, 1996 (the "MASTER LEASE"), wherein Prudential
leased to Landlord and Landlord leased from Prudential, one office building
containing approximately 62,746 square feet, having a street address of 14103
Denver West Parkway, Golden, Colorado 80401 ("BUILDING NO. 1") and one office
Building containing approximately 94,918 square feet, having a street address of
14123 Denver West Parkway, Golden, Colorado 80401 ("BUILDING NO. 2").
R-2. Landlord and Tenant entered into an Office Sublease dated as of
December 20, 1996 (the "SUBLEASE"), wherein Landlord subleased to Tenant and
Tenant subleased from Landlord approximately 32,585 square feet located on the
second floor of Building No. 2 and approximately 5,375 square feet located in
the basement of Building No. 2, known as the test bakery (the "TEST BAKERY"),
for a total of 37,960 square feet (together, the "ORIGINAL PREMISES").
R-3. The term of the Sublease expires on December 30, 2001.
R-4. Tenant desires to (i) retain only that portion of the Original
Premises known as the Test Bakery, and (ii) relocate the office portion of
Tenant's business from the Original Premises to new premises located on the
first floor of Building No. 1, containing approximately 21,625 square feet (the
"NEW OFFICE PREMISES"), and to amend certain other terms of the Sublease as
provided in this Amendment. The Test Bakery and the New Office Premises are
collectively referred to hereafter as the "NEW PREMISES," which contains a total
of approximately 27,000 square feet. The legal description of Building No. 1 is
attached hereto as EXHIBIT A, and the floor plan of the New Office Premises is
attached hereto as EXHIBIT B.
AGREEMENT
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
1. Incorporation of Recitals. The foregoing recitals are incorporated
-------------------------
herein and made a part hereof to the same extent as if set forth herein in full.
<PAGE>
2. Lease of New Premises. Effective as of May 1, 1998 (the "EFFECTIVE
---------------------
DATE"), Landlord leases to Tenant, and Tenant leases from Landlord the New
Office Premises, upon the same terms and conditions as are stated in the
Sublease, except as modified by this Amendment. Landlord shall continue to lease
to Tenant, and Tenant shall continue to lease from Landlord the Test Bakery,
upon the same terms and conditions as are stated in the Sublease, except as
modified by this Amendment. From and after the Effective Date, the term
"Building" as used in the Sublease shall mean Building No. 1, (except that any
references to "Building", as it relates to the Test Bakery only shall mean
Building No. 2) and the term "Premises" as used in the Sublease shall mean the
New Premises.
3. Surrender of Original Premises. On or before the Effective Date,
------------------------------
Tenant shall surrender the Original Premises (except for the Test Bakery) to
Landlord broom clean and in good condition, normal wear and tear excepted.
4. Rent. Notwithstanding anything to the contrary in Section
----
1(a)(vi) of the Sublease, commencing on May 1, 1998, and continuing on the first
day of each month thereafter until December 30, 2001, Tenant shall pay Landlord,
as Rent due under the Sublease for the New Premises, the sum of $27,000.00 per
month.
5. Rent for Extension. Section 1(a)(xi) of the Sublease is hereby
------------------
deleted in its entirety and the following is substituted in its place:
(xi) Rent for Extension(s):
Lease Years Annual Rent Monthly Rent
------------- ----------- ----------------------
6-10 $372,606.00 $31,050.53
11-15 $428,497.00 $35,708.06
16-20 $492,759.00 $41,063.22
21-25 $567,009.00 $47,250.77
26-30 $651,791.00 $54,315.91
6. Common Areas/Taxes and Insurance/Building Operating Costs.
---------------------------------------------------------
Section 8 of the Sublease is hereby deleted in its entirety and the following is
substituted in its place:
8.1. Common Areas. During the Term hereof, Tenant shall have a non-
-------------
exclusive easement to use the common areas in the Building
including the entrances and exits, public hallways, reception
area, stairways, elevator, eating areas, public rest rooms and
work out facilities, excluding, however, areas intended for the
-2-
<PAGE>
exclusive use of the Landlord and other tenants or occupants in
the Building, all as outlined on EXHIBIT C, attached hereto and
incorporated herein by this reference (the "Interior Common
Areas"). During the Term hereof, Tenant shall have a non-
exclusive easement to use the common areas of the Property
including the curb cuts, driveways, parking areas, walkways,
service drives and loading docks on the Property, all as outlined
on EXHIBIT D, attached hereto and incorporated herein by this
reference ( the "Exterior Common Areas"). The Interior Common
Areas and the Exterior Common Areas may hereafter be collectively
referred to as the "Common Areas". Common Areas shall include
those areas and facilities designated from time-to-time by
Landlord , and the use of the Common Areas by Tenant shall be
subject to the use thereof by Landlord, and Landlord's tenants
and its and their officers, directors, employees, shareholders,
customers, invitees, agents and contractors, the exclusive
control and management of Landlord, and the rules and regulations
promulgated from time to time by Landlord in its discretion.
Landlord shall operate, repair, replace and maintain the Common
Areas in a first class manner. Landlord reserves the right to
make changes to the Common Areas, construct and install temporary
or permanent improvements and make such use of the Common Areas
from time to time in Landlord's sole discretion. In the event
that Landlord fails to so operate, repair, replace and maintain
the Common Areas in a first-class manner, after receipt of
written notice by Tenant and an opportunity to cure the same
within a reasonable amount of time, not to exceed fourteen (14)
days, Tenant shall have the right, but not the obligation, to
perform or arrange for the performance of such operation, repair,
replacement and maintenance of the Common Areas to maintain said
Common Areas in a first-class manner. Notwithstanding the
foregoing, if Landlord has commenced to cure the default within
the fourteen (14) day period set forth above, such default is not
capable of being cured within such time frame, and Landlord is
diligently prosecuting the cure, then Landlord shall have an
additional reasonable period of time to effect such cure. If
Tenant so elects to perform or arrange for the performance of
such operation, repair, replacement and maintenance of the Common
Areas, Tenant shall be entitled to an offset or abatement of Rent
in an amount equal to the reasonable cost of such services.
8.2. Taxes and Insurance.
--------------------
8.2.1. Definitions. The following terms shall have the
following meanings with respect to the provisions of this
Sublease:
-3-
<PAGE>
(a) "Base Year" shall mean calendar year 1998.
---------
(b) "Taxes" shall mean any form of assessment, tax, levy,
-----
or charge imposed by any authority having the direct
power to tax, including any city, county, state or
federal government or other improvement or special
district, against the Premises, Building, Common Areas,
or Property, or any legal or equitable interest of
Landlord therein.
(c) "Insurance Costs" shall mean Landlord's cost to
---------------
provide insurance for the Property, Building, Common
Areas and all other improvements to the same.
(d) "Tenant's Prorata Share" shall mean a fraction, the
----------------------
numerator of which shall be 27,000 (the number of
square feet in the Premises), and the denominator of
which shall be 62,079 ( the number of square feet in
the Building). Tenant's Prorata Share as of the
Effective Date is 43.49%. At such time, if ever, any
space is added to or subtracted from the Premises or
the Interior Common Areas, Tenant's Prorata Share shall
be adjusted by Landlord accordingly.
(e) "Tenant's Prorata Share of Taxes and Insurance Costs"
---------------------------------------------------
shall mean Taxes and Insurance Costs multiplied by
Tenant's Prorata Share.
(f) "Base Year Taxes" shall mean the Taxes for the Base
---------------
Year.
(g) "Base Year Insurance Costs" shall mean the Insurance
-------------------------
Costs for the Base Year.
(h) "Tenant's Prorata Share of Base Year Taxes and Base
--------------------------------------------------
Year Insurance Costs" shall mean Base Year Taxes and
--------------------
Base Year Insurance Costs multiplied by Tenant's
Prorata Share.
8.2.2. It is hereby agreed that commencing with calendar year
1999 and each calendar year thereafter until the Expiration
Date, Tenant shall pay Tenant's Prorata Share of Taxes and
Insurance Costs in excess of Tenant's Prorata Share of Base
Year Taxes and Base Year Insurance Costs. Such amount shall
be paid by Tenant in equal monthly installments, as
additional rent hereunder, at the times and in the manner
-4-
<PAGE>
of payment of Rent, in such amounts as are estimated by
Landlord from time to time during the Term.
8.2.3. Landlord shall provide a written reconciliation statement
with respect to Taxes and Insurance Costs to Tenant within
sixty (60) days of the end of each calendar year, and any
amount owed to Landlord shall be paid by Tenant within
twenty (20) days after receipt by Tenant of such written
reconciliation statement from Landlord. Any amount owed to
Tenant by Landlord shall be credited toward the next
estimated payment(s) of Taxes and Insurance Costs.
Notwithstanding the foregoing however, if Tenant's Prorata
Share of Taxes and Insurance Costs for any calendar year is
less than the Tenant's Prorata Share of Base Year Taxes and
Base Year Insurance Costs Tenant shall not be entitled to
any credit or refund for such difference.
8.2.4. Tenant's obligation with respect to its Prorata Share of
Taxes and Insurance Costs shall survive the expiration or
early termination of this Sublease. If the last year of
the Term of this Sublease, as may be extended, ends on any
day other than the last day of December, any payments due to
Landlord of Tenant's Prorata Share of Taxes and Insurance
Costs, shall be prorated on the basis by which the number of
days in such partial year bears to 365.
8.2.5. Upon request by Tenant, Landlord and Tenant shall set up an
escrow account, to be governed and controlled by mutually
acceptable commercially reasonable joint escrow
instructions, with a mutually satisfactory financial
institution or other third party, to be used by Tenant for
the payment of Tenant's Prorata Share of Taxes and Insurance
as contemplated herein.
8.3. Building Operating Costs.
------------------------
8.3.1. Definitions. The following terms shall have the
-----------
following meanings with respect to the provisions of this
Sublease:
(a) "Building Operating Costs" shall mean all costs
------------------------
involved in the ownership, operation, upkeep,
maintenance, repair and replacement of the Building,
Premises and Common Areas during the Term and any
extensions, including without limitation, the
following: any costs, expenses or fees borne or
-5-
<PAGE>
paid by Landlord under the terms of the Master Lease;
utility charges including electrical, gas, water,
sewer, lighting, heating, air-conditioning, and
ventilating services; license, permit and inspection
fees; cost of services of independent contractors,
property management fees, and cost of compensation
(including employment taxes and fringe benefits) of all
persons who perform regular and recurring duties
connected with the day-to-day operation, maintenance,
management and repair of the Building, Premises and
Common Areas; trash removal; landscaping and gardening;
elevator repairs and maintenance; window washing;
reserves for replacement; rental expenses or a
reasonable allowance for depreciation of personal
property used in the maintenance, operation and repair
of the Building. Building Operating Costs shall not
include: (i) Taxes , (ii) Insurance Costs, (iii) the
cost of work performed exclusively for other tenants or
prospective tenants, (iv) the cost of work covered by
insurance proceeds or a condemnation award; (v) leasing
and brokerage commissions; and (vi) amortization of
principal and interest expense with respect to
Landlord's financing.
(b) "Base Year Building Operating Costs" shall mean that
----------------------------------
certain dollar amount to be calculated as follows:
Seven and 00/100 Dollars ($7.00) per square foot minus
Base Year Taxes per square foot, minus Base Year
Insurance Costs per square foot.
(c) "Tenant's Prorata Share of Base Year Building Operating
------------------------------------------------------
Costs" shall mean Base Year Building Operating Costs
-----
multiplied by 27,000 (the number of square feet in the
Premises)
8.3.2. It is hereby agreed that commencing with calendar year 1999,
Tenant shall pay in equal monthly installments, as
additional rent hereunder, at the times and in the manner of
the payment of Rent, the three percent (3%) increases over
the previous years Building Operating Costs as set forth
below. Commencing with calendar year 1999, however, Tenant's
Prorata Share of Base Year Building Operating Costs shall be
increased by three percent (3%) each calendar year until the
Expiration Date, and Tenant shall pay such increases over
the Base Year Building Operating Costs to Landlord as
additional rent. ( For purposes of illustration, if Tenant's
Prorata Share of Base Year Building Operating Costs equal
$5.00 per square foot, then Tenant's Prorata Share of
Building
-6-
<PAGE>
Operating Costs in calendar year 1999, would equal $0.15 per
square foot ($5.00 x 3%); Tenant's Prorata Share of Building
Operating costs in calendar year 2000 would equal $.30 per
square foot ($5.15 x 1.03 -$5.00); and Tenant's Prorata
Share of Building Operating costs in calendar year 2001
would equal $.46 per square foot ($5.30 x 1.03 -$5.00)
etc... ).
8.3.3. Tenant's obligation as set forth in Section 8.3 hereof
shall survive the expiration or early termination of this
Sublease. If the last year of the Term of this Sublease, as
may be extended, ends on any day other than the last day of
December, any payments due to Landlord in accordance with
Section 8.3 hereof, shall be prorated on the basis by which
the number of days in such partial year bears to 365.
7. Access to Test Kitchen and Test Bakery. The parties hereto acknowledge
--------------------------------------
and agree that Landlord, and its officers, directors, employees, shareholders,
customers, invitees, agents and contractors shall continue to have undisturbed
access to and from the Boston Market Test Kitchen identified on EXHIBIT B, and
Tenant, and its officers, directors, employees, shareholders, customers,
invitees, agents and contractors shall continue to have undisturbed access to
and from the Test Bakery identified on EXHIBIT B.
8. Insurance. Section 16 of the Sublease is hereby deleted in its
---------
entirety and the following is substituted in its place:
16.1 Tenant's Insurance.
------------------
16.1.1. Coverage. Tenant shall, at all times during the term of this
--------
Sublease, and at its own cost and expense procure and continue
in force the following insurance coverage:
(a) Comprehensive commercial general liability insurance
(including Tenant's legal liability coverage) with a
combined single limit for bodily injury and property
damage of not less than $1,000,000 per occurrence, or
such higher amounts and coverages as Landlord may
reasonably require.
(b) Property Damage, and Fire Insurance including vandalism,
malicious mischief, and all extended coverage
endorsements in an amount equal to the full replacement
value of all fixtures, furniture and improvements
installed and/or owned by Tenant.
-7-
<PAGE>
16.1.2. Insurance Policies. The aforementioned minimum limits of
------------------
policies shall in no event limit the liability of Tenant
hereunder. The aforesaid insurance shall name Landlord and
Landlord's lender(s) and Master Landlord as additional insureds.
Said insurance shall be with companies having a rating of not
less than a Class A (vii) in "Best's Key Rating Guide". Tenant
shall furnish from the insurance companies or cause the insurance
companies to furnish certificates of coverage. No such policy
shall be cancelable or subject to reduction of coverage or other
modifications or cancellation except after thirty (30) days prior
notice in writing to Landlord by the insurer. All such policies
shall be written as primary policies, not contributing with and
not in excess of the coverage which Landlord may carry. Tenant
shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with renewals or binders. Tenant
agrees that if Tenant does not take out and maintain such
insurance, Landlord may (but shall not be required to) procure
said insurance on Tenant's behalf (excluding insurance on
Tenant's personal property) and charge Tenant the premium
together with a twenty-five percent (25%) handling charge,
payable upon demand. Tenant shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by
Tenant provided such blanket policies expressly afford coverage
to the Premises and to Tenant as required by this Sublease.
16.2. Landlord's Insurance. Landlord shall maintain "All Risk"
--------------------
property insurance on the Property, Common Areas, Building and
all other improvements on the Property for the full replacement
cost thereof. Landlord shall maintain comprehensive general
public liability insurance against claims for bodily injury or
property damage occurring in or about the Property, Building and
Common Areas in the following minimum amounts:
$1,000,000.00 with respect to the injury to or death of a single
person.
$2,000,000.00 with respect to the injury or death of more than
one person.
$250,000.00 with respect to property damage.
or such additional coverages and such increased amounts of
coverage as Landlord in its reasonable judgment shall determine
from time-to-time. At Tenant's request Landlord shall provide
Tenant with a Certificate of Insurance naming Tenant as an
additional insured with respect to the general liability coverage
as to the Common Areas.
16.3. Waiver of Subrogation. Landlord and Tenant each hereby waive
---------------------
any and all rights of recovery against the other or against the
officers, directors, shareholders, employees, agents, contractors
and representatives of the other to
-8-
<PAGE>
the extent that such loss or damage is insured against in any
insurance policy which either party may have in force at the time
of such loss or damage. Tenant shall, upon obtaining the policies
of insurance required under this Sublease, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Sublease. Landlord and Tenant
shall, from time to time, upon request, cause their respective
insurers to issue appropriate waiver of subrogation rights
endorsements to all property insurance policies carried in
connection with the Building or the Premises or the contents of
either.
9. 1998 expenses for Building Operating Expenses, Taxes and Insurance.
------------------------------------------------------------------
Notwithstanding anything contained in the Sublease to the contrary, as of the
Effective Date, and through the end of calendar year 1998, Tenant shall pay to
Landlord Seven and 00/100 Dollars ($7.00) per square foot (on an annual basis)
for its share of Building Operating Expenses, Taxes and Insurance, prorated
based upon eight months of occupancy (May - December, 1998). For purposes of
illustration, Tenant shall pay an amount equal to $126,000.00 ($7.00 x 27,000
sq.ft. x 8/12 = $126,000) payable on a monthly basis in the amount of
$15,750.00 commencing on the Effective Date and monthly thereafter on the first
day of each month through the end of calendar year 1998.
10. Tenant's Notice Address. As of the Effective Date, Tenant's notice
-----------------------
address for all purposes under the Sublease shall be Einstein/Noah Bagel Corp.,
14103 Denver West Parkway, Golden, Colorado 80401, Attn: Legal Department.
11. Non-Disturbance Agreement. Landlord shall use its best efforts to
-------------------------
obtain a non-disturbance agreement from Prudential, in a form reasonably
satisfactory to Tenant, wherein Prudential agrees that, if Landlord is in
default under the Master Lease, Prudential shall not disturb Tenant's rights
under the Sublease, so long as Tenant is not in default thereunder.
12. Ratification of Sublease. All terms and conditions of the Sublease
------------------------
are hereby ratified and affirmed, as modified by this Amendment.
13. Capitalized Terms. All capitalized terms in this Amendment shall have
-----------------
the same meanings as in the Sublease unless expressly provided otherwise herein.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
under seal as of the date first above written.
LANDLORD:
BOSTON CHICKEN, INC.,
a Delaware corporation
By: /s/ Michael R. Daigle
-----------------------------
Name: Michael R. Daigle
---------------------------
Title: Senior Vice President and General Counsel
-------------------------------------------
TENANT:
EINSTEIN/NOAH BAGEL CORP.,
a Delaware corporation
By: /s/ H. Andrew Fox
-----------------------------
Name: H. Andrew Fox
---------------------------
Title: Vice President Real Estate and Development
-------------------------------------------
-10-
<PAGE>
Exhibits:
- --------
Exhibit A - Legal Description of Building No. 2
Exhibit B - Floor Plan of the New Office Premises
Exhibit C - Interior Common Areas (Floor Plan)
Exhibit D - Exterior Common Areas (Floor Plan)
-11-
<PAGE>
EXHIBIT A
---------
Lot 1 of Denver West Properties Amendment No.4, recorded December 19,1996 at
Reception No. F0347080, Plat Book 133 at Page 12, located in the Southwest 1/4
of Section 31, Township 3 South, Range 69 West, County of Jefferson, State of
Colorado, a reconfiguration of the common lot lines in Office Park Activity
Areas 4,5,7 and 8 of Denver West Properties, a subdivision recorded December 14,
1989 in Book 102, at Page 23, Reception No. 89108643.
County of Jefferson
State of Colorado
<PAGE>
Exhibit 10.10
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998, is made by and between Einstein/Noah
Bagel Corp., a Delaware corporation (the "Company"), and Robert Hartnett (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows lows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the
-----------------
date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be ex tended for one additional year unless, not later than
<PAGE>
December 31 of the preceding year, the Company or the Executive shall have given
notice not to extend the Term; and further provided, however, that if a Change
------- -------- -------
in Control shall have occurred during the Term, the Term shall expire twenty-
four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to
------------------------------
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as other wise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
-------------------------
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which is three (3) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
-------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in
effect immediately prior
2
<PAGE>
to the first occurrence of an event or circumstance constituting Good Reason,
together with all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and benefit
plans, programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason,
then the Company shall pay the Executive the amounts, and provide the Executive
the benefits, described in this Section 6.1 ("Severance Payments"), in
addition to any payments and benefits to which the Executive is entitled under
Section 5 hereof. For purposes of this Agreement, the Executive's employment
shall be deemed to have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates his employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated
by the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control
(whether or not a Change in Control ever occurs). For purposes of any
determination regarding the applicability of the immediately preceding sentence,
any position taken by the Executive shall be presumed to be correct unless the
Company establishes to the Board by clear and
3
<PAGE>
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the sum of (i)
12 months' base salary, based on the Executive's salary rate as in effect
immediately prior to the Date of Termination or, if higher, in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, (ii) the amount of the Executive's bonus for any
completed fiscal year or other completed measuring period preceding the
Date of Termination which has not yet been paid, assuming the achievement
of all individual performance goals (including any subjective performance
goals), (iii) a pro rata portion of the Executive's bonus for the fiscal
year or other measuring period in which the Date of Termination occurs,
obtained by multiplying 90% of the Executive's target bonus for such period
by the fraction obtained by dividing the number of full months and any
fractional portion of a month during such period through the Date of
Termination by the total number of months contained in such period, and
(iv) an amount equal to the target bonus for the fiscal year or other
measuring period in which the Date of Termination occurs.
(B) For the 12 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however,
-------- -------
4
<PAGE>
that, unless the Executive consents to a different method, such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 12 month period
following the Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
-------- -------
reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the first occurrence of
an event or circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 12 months
or, if earlier, until the first acceptance by the Executive of an offer
of employment.
6.2 The payments provided in subsection (A) of Section 6.1 hereof
shall be made not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
- -------- -------
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at the reference rate announced from time to time by Bank of America
National Trust and Savings
5
<PAGE>
Association) as soon as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at the reference rate announced from time to
time by Bank of America National Trust and Savings Association). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations.
6.3 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue here
under relating to the termination of the Executive's employment, or in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of a majority of the entire membership of the Board at a meeting of the Board
(after reasonable
6
<PAGE>
notice to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
- -------- -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7
<PAGE>
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 here of, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or other wise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compen-
8
<PAGE>
sation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications pro vided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed, if
to the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged un-
9
<PAGE>
less such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of any lack of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. Except as provided in the last two sentences of this section
11, this Agreement supersedes any other agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof which
have been made by either party; provided, however, that this Agreement shall
supersede any agreement setting forth the terms and conditions of the
Executive's employment with the Company only in the event that the Executive's
employment with the Company is terminated on or following a Change in Control
that has occurred or is deemed to have occurred pursuant to Section 6.1 hereof,
by the Company other than for Cause or by the Executive other than for Good
Reason. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Colorado. All
references to sections of the Exchange Act shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state
or local law and any additional withholding to which the Executive has agreed.
The obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration. Notwithstanding anything in this
Agreement to the contrary, upon the expiration of the term of this Agreement,
the Executive shall be entitled to those benefits, if any, (including without
limitation, severance benefits) described in the letter agreement between the
Executive and the Company, dated as of April 29, 1998 (the "Letter Agreement").
During the Term and following a Change in Control that has occurred or is
deemed to have occurred pursuant to Section 6.1 hereof, provisions of this
Agreement regarding the termination of the Executive's employment with the
10
<PAGE>
Company shall supercede entirely any severance benefits set forth in the
Letter Agreement.
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
11
<PAGE>
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that the Executive has not substantially performed the
Executive's duties, (ii) the misappropriation of funds or other property of the
Company, (iii) the commission of an felony or any crime involving moral
turpitude, (iv) the commission of fraud or theft, or (v) the material breach by
the Executive of any obligation of the Executive under any written
confidentiality or non-compete agreement between the Executive and the Company.
For purposes of this definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the Company and
(y) in the event of a dispute concerning the application of this provision, no
claim by the Company that Cause exists shall be given effect unless the Company
establishes to the Board by clear and convincing evidence that Cause exists.
(E) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
12
<PAGE>
(I) any Person (other than Boston Chicken, Inc.) is or
becomes the Beneficial Owner, directly or in directly, of
securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding
securities; or
(II) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining out standing or by
being converted into voting securities of the surviving entity or
any parent thereof) at least 50% of the combined voting power of
the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person (other than Boston Chicken, Inc.)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates
of a business) representing 40% or more of the combined voting
power of the Company's then outstanding securities; or
(III) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by
13
<PAGE>
the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of the date of any Change in
Control of Boston Chicken (as hereinafter defined) are members
of the Board, cease for any reason to constitute a majority of
the Board. For purposes of paragraph (IV), above a "Change in
Control of Boston Chicken" shall mean (i) the acquisition by any
Person of beneficial ownership, directly or indirectly, through
a purchase, merger or other acquisition transaction or series of
transactions, of shares of capital stock or other voting
securities of Boston Chicken, Inc. entitling such person to
exercise more than 30% of the combined voting power of the
outstanding securities of Boston Chicken, Inc., (ii) a sale of
all or substantially all of the assets of Boston Chicken, Inc. to
any purchaser (a "BCI Purchaser") if any Person is the beneficial
owner of shares of capital stock or other voting securities of
the BCI Purchaser entitling such person to exercise more than 30%
of the combined voting power of the out standing securities of
such BCI Purchaser, or (iii) the individuals who, as of the date
of this letter agreement, are members of the board of directors
of Boston Chicken, Inc. (the "Incumbent Board") cease for any
reason to constitute at least a majority of the board of
directors of Boston Chicken, Inc., provided, however, that
14
<PAGE>
if either the election of any new director of the nomination
for election of any new director by Boston Chicken, Inc.'s
stockholders was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member
of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except in
determining under Section 15(E) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(G) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, the Company shall have given
the Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(J) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(K) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Con-
15
<PAGE>
trol" as references to a "Potential Change in Control"), of any one of the
following acts by the Company, or failures by the Company to act, unless, in the
case of any act or failure to act described in paragraph (I), (V), (VI) or (VII)
below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) a substantial adverse alteration in the nature or status
of the Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
(III) the relocation of the Executive's principal place of
employment to a location more than 60 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect
to such plan, or the failure by the Company to continue the
Executive's partic-
16
<PAGE>
ipation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount or timing
of payment of benefits provided and the level of the Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the Company's life insurance, medical,
health and accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control (except for
across the board changes similarly affecting all executives of the
Company and all executives of any Person in control of the Company),
the taking of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive
at the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which
the Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
17
<PAGE>
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed
to be correct unless the Company establishes to the Board by clear and
convincing evidence that Good Reason does not exist.
(L) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(M) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
(N) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Con trol; or
(III) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has
occurred.
(O) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
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<PAGE>
(P) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
--------------------------------
Name: Paul A. Strasen
Title: Senior Vice President
/s/ Robert M. Hartnett
------------------------------------
Robert Hartnett
Address:
____________________________________
____________________________________
____________________________________
(Please print carefully)
19
<PAGE>
EXHIBIT 10.11
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998, is made by and between
Einstein/Noah Bagel Corp., a Delaware corporation (the "Company"), and Eric
Carlborg (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on
-----------------
the date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be extended for one additional year unless, not later than
<PAGE>
December 31 of the preceding year, the Company or the Executive shall have given
notice not to extend the Term; and further provided, however, that if a Change
------- -------- -------
in Control shall have occurred during the Term, the Term shall expire twenty-
four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is three (3) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in
effect immediately prior
2
<PAGE>
to the first occurrence of an event or circumstance constituting Good Reason,
together with all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and benefit
plans, programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments"), in addition to
any payments and benefits to which the Executive is entitled under Section 5
hereof. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by the Executive with Good Reason, if (i) the Executive's
employment is terminated by the Company without Cause prior to a Change in
Control (whether or not a Change in Control ever occurs) and such termination
was at the request or direction of a Person who has entered into an agreement
with the Company the consummation of which would constitute a Change in Control,
(ii) the Executive terminates his employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the circumstance
or event which constitutes Good Reason occurs at the request or direction of
such Person, or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason and such termination or the
circumstance or event which constitutes Good Reason is otherwise in connection
with or in anticipation of a Change in Control (whether or not a Change in
Control ever occurs). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Board by clear and
3
<PAGE>
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination and in lieu of
any severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to the
sum of (i) 9 months' base salary, based on the Executive's salary rate as
in effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (ii) the amount of the Executive's
bonus for any completed fiscal year or other completed measuring period
preceding the Date of Termination which has not yet been paid, assuming the
achievement of all individual performance goals (including any subjective
performance goals), and (iii) a pro rata portion of the Executive's bonus
for the fiscal year or other measuring period in which the Date of
Termination occurs, obtained by multiplying 90% of the Executive's target
bonus for such period by the fraction obtained by dividing the number of
full months and any fractional portion of a month during such period
through the Date of Termination by the total number of months contained in
such period.
(B) For the 9 month period immediately following the Date
of Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however, that
-------- -------
unless the Executive consents to a different method, such health insurance
benefits shall be provided through a third-party insurer.
4
<PAGE>
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 9 month period following
the Executive's termination of employment (and any such benefits received
by or made available to the Executive shall be reported to the Company by
the Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a period of
9 months or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 The payments provided in subsection (A) of Section 6.1 hereof
shall be made not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
- -------- -------
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with inter est on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at the reference rate announced from time to time by Bank of America
National Trust and Savings Association) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the
5
<PAGE>
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at the reference rate announced from time to
time by Bank of America National Trust and Savings Association). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations.
6.3 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good
6
<PAGE>
faith opinion of the Board, the Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
- -------- -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termina-
7
<PAGE>
tion is extended in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the
8
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Executive's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time
9
<PAGE>
of any breach by the other party hereto of, or of any lack of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control that has occurred or is deemed to have
occurred pursuant to Section 6.1 hereof, by the Company other than for Cause or
by the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Exchange Act shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the
10
<PAGE>
Board of a claim for benefits under this Agreement shall be delivered to the
Executive in writing and shall set forth the specific reasons for the denial and
the specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Board a decision of
the Board within sixty (60) days after notification by the Board that the
Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Denver,
Colorado in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the evidentiary standards set forth in
-------- -------
this Agreement shall apply. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Notwithstanding any provision of this Agreement
to the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure
11
<PAGE>
after the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
misappropriation of funds or other property of the Company, (iii) the commission
of an felony or any crime involving moral turpitude, (iv) the commission of
fraud or theft, or (v) the material breach by the Executive of any obligation of
the Executive under any written confidentiality or non-compete agreement between
the Executive and the Company. For purposes of this definition, (x) no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company and (y) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(E) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(I) any Person (other than Boston Chicken, Inc.) is or
becomes the Beneficial Owner, directly or in directly, of
securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding
securities; or
(II) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
out-
12
<PAGE>
standing or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than
Boston Chicken, Inc.) is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates
other than in connection with the acquisition by the Company or
its Affiliates of a business) representing 40% or more of the
combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of the date of any Change
in Control of Boston Chicken (as hereinafter defined) are members
of the Board, cease for any reason to constitute a majority of
the Board. For purposes of
13
<PAGE>
paragraph (IV), above a "Change in Control of Boston Chicken"
shall mean (i) the acquisition by any Person of beneficial
ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of
shares of capital stock or other voting securities of Boston
Chicken, Inc. entitling such person to exercise more than 30% of
the combined voting power of the outstanding securities of Boston
Chicken, Inc., (ii) a sale of all or substantially all of the
assets of Boston Chicken, Inc. to any purchaser (a "BCI
Purchaser") if any Person is the beneficial owner of shares of
capital stock or other voting securities of the BCI Purchaser
entitling such person to exercise more than 30% of the combined
voting power of the outstanding securities of such BCI Purchaser,
or (iii) the individuals who, as of the date of this letter
agreement, are members of the board of directors of Boston
Chicken, Inc. (the "Incumbent Board") cease for any reason to
constitute at least a majority of the board of directors of
Boston Chicken, Inc., provided, however, that if either the
election of any new director of the nomination for election of
any new director by Boston Chicken, Inc.'s stockholders was
approved by a vote of at least a majority of the Incumbent Board,
such new director shall be considered a member of the Incumbent
Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except in
determining under Section 15(E) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
14
<PAGE>
(G) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(J) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(K) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(I) a substantial adverse alteration in the nature or status
of the Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
15
<PAGE>
(III) the relocation of the Executive's principal place of
employment to a location more than 60 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's life insurance, medical, health
and accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control (except for
across the board changes similarly affect-
16
<PAGE>
ing all executives of the Company and all executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled in accordance
with the Company's normal vacation policy in effect at the time of the
Change in Control; or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(L) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(M) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates,
17
<PAGE>
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(N) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has
occurred.
(O) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
18
<PAGE>
(P) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
--------------------------------------
Name: Robert M. Hartnett
Title: Chairman, Chief Executive
Officer and President
/s/ W. Eric Carlborg
------------------------------------------
Eric Carlborg
Address:
__________________________________________
__________________________________________
__________________________________________
(Please print carefully)
19
<PAGE>
EXHIBIT 10.12
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998, is made by and between Einstein/Noah
Bagel Corp., a Delaware corporation (the "Company"), and Gail Lozoff (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the
-----------------
date hereof and shall continue in effect through May 8, 2000; provided, however,
that commencing on May 8, 2000 and each May 8 thereafter, the Term shall
automatically be extended for one additional year unless, not later than
<PAGE>
December 31 of the preceding year, the Company or the Executive shall have given
notice not to extend the Term; and further provided, however, that if a Change
------- -------- -------
in Control shall have occurred during the Term, the Term shall expire twenty-
four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to
------------------------------
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
-------------------------
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which is three (3) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Pay ments. If the Executive's
-------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in
effect immediately prior
2
<PAGE>
to the first occurrence of an event or circumstance consti tuting Good Reason,
together with all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and benefit
plans, programs or arrange ments as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occur rence of an event or circumstance constituting Good
Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments"), in addition to
any payments and benefits to which the Executive is entitled under Section 5
hereof. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by the Executive with Good Reason, if (i) the Executive's
employment is terminated by the Company without Cause prior to a Change in
Control (whether or not a Change in Control ever occurs) and such termination
was at the request or direction of a Person who has entered into an agreement
with the Company the consummation of which would constitute a Change in Control,
(ii) the Executive terminates his employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the circumstance
or event which constitutes Good Reason occurs at the request or direction of
such Person, or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason and such termination or the
circumstance or event which constitutes Good Reason is otherwise in connection
with or in anticipation of a Change in Control (whether or not a Change in
Control ever occurs). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Board by clear and
3
<PAGE>
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall pay
to the Executive a lump sum severance payment, in cash, equal to the sum of
(i) 6 months' base salary, based on the Executive's salary rate as in
effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (ii) the amount of the Executive's
bonus for any completed fiscal year or other completed measuring period
preceding the Date of Termination which has not yet been paid, assuming the
achievement of all individual performance goals (including any subjective
performance goals), and (iii) a pro rata portion of the Executive's bonus
for the fiscal year or other measuring period in which the Date of
Termination occurs, obtained by multiplying 90% of the Executive's target
bonus for such period by the fraction obtained by dividing the number of
full months and any fractional portion of a month during such period
through the Date of Termination by the total number of months contained in
such period.
(B) For the 6 month period immediately following the Date
of Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however, that,
-------- -------
unless the Executive consents to a different method, such health insurance
benefits shall be provided through a third-party insurer.
4
<PAGE>
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 6 month period following
the Executive's termination of employment (and any such benefits received
by or made available to the Executive shall be reported to the Company by
the Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a period of
6 months or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 The payments provided in subsection (A) of Section 6.1
hereof shall be made not later than the fifth day following the Date of
Termination; provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest on the unpaid
remainder (or on all such payments to the extent the Company fails to make such
payments when due) at the reference rate announced from time to time by Bank of
America National Trust and Savings Association) as soon as the amount thereof
can be determined but in no event later than the thirtieth (30th) day after the
Date of Termination. In the
5
<PAGE>
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at the reference rate announced from time to
time by Bank of America National Trust and Savings Association). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations.
6.3 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agree ment. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evi dence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good
6
<PAGE>
faith opinion of the Board, the Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to
-------------------
any purported termination of the Executive's employment after a Change in
Control and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
`the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
- -------- -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and during the Term and the Date of Termin
a-
7
<PAGE>
tion is extended in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the
8
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Executive's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be
-------------
modified, waived or discharged uless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time
9
<PAGE>
of any breach by the other party hereto of, or of any lack of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control that has occurred or is deemed to have
occurred pursuant to Section 6.1 hereof, by the Company other than for Cause or
by the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Exchange Act shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the
10
<PAGE>
Board of a claim for benefits under this Agreement shall be delivered to the
Executive in writing and shall set forth the specific reasons for the denial and
the specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Board a decision of
the Board within sixty (60) days after notification by the Board that the
Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure
11
<PAGE>
after the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
misappropriation of funds or other property of the Company, (iii) the commission
of an felony or any crime involving moral turpitude, (iv) the commission of
fraud or theft, or (v) the material breach by the Executive of any obligation of
the Executive under any written confidentiality or noncompete agreement between
the Executive and the Company. For purposes of this definition, (x) no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company and (y) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person (other than Boston Chicken, Inc.) is
or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding
securities; or
(II) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger
or consolidation which would result in the voting
securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either
by remaining out-
12
<PAGE>
standing or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or
such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person (other than Boston Chicken, Inc.) is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its
Affiliates of a business) representing 40% or more of the
combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets, other than a sale or disposition by
the Company of all or substantially all of the Company's
assets to an entity, at least 50% of the combined voting
power of the voting securities of which are owned by
stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale; or
(IV) the individuals who, as of the date of any
Change in Control of Boston Chicken (as hereinafter defined)
are members of the Board, cease for any reason to constitute
a majority of the Board. For purposes of
13
<PAGE>
of paragraph (IV), above a "Change in Control of Boston
Chicken" shall mean (i) the acquisition by any Person of
beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series
of transactions, of shares of capital stock or other voting
securities of Boston Chicken, Inc. entitling such person to
exercise more than 30% of the combined voting power of the
outstanding securities of Boston Chicken, Inc., (ii) a sale
of all or substantially all of the assets of Boston Chicken,
Inc. to any purchaser (a "BCI Purchaser") if any Person is
the beneficial owner of shares of capital stock or other
voting securities of the BCI Purchaser entitling such person
to exercise more than 30% of the combined voting power of
the outstanding securities of such BCI Purchaser, or (iii)
the individuals who, as of the date of this letter
agreement, are members of the board of directors of Boston
Chicken, Inc. (the "Incumbent Board") cease for any reason
to constitute at least a majority of the board of directors
of Boston Chicken, Inc., provided, however, that if either
the election of any new director of the nomination for
election of any new director by Boston Chicken, Inc.'s
stockholders was approved by a vote of at least a majority
of the Incumbent Board, such new director shall be
considered a member of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except
in determining under Section 15(E) hereof whether or not any Change in Control
of the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
14
<PAGE>
(G) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination
by the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(J) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(K) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (ii) and (iii) of the
second sentence of Section 6.1 hereof (treating all references in para graphs
(I) through (VII) below to a "Change in Control" as references to a "Potential
Change in Con trol"), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act
is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be
increased from time to time;
15
<PAGE>
(III) the relocation of the Executive's principal place of
employment to a location more than 60 miles from the Executive's
principal place of employment imme diately prior to the Change in
Control or the Company's requiring the Executive to be based
anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on the
Company's business to an extent sub stantially consistent with
the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive
any portion of the Executive's current compensation, within seven
(7) days of the date such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the
Executive's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's participation
relative to other participants, as existed immediately prior to
the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed
by the Executive under any of the Company's life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in
Control (except for across the board changes similarly affect-
16
<PAGE>
ing all executives of the Company and all executives of any
Person in control of the Company), the taking of any other action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to provide
the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(L) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(M) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates,
17
<PAGE>
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(N) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(O) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
18
<PAGE>
(P) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
---------------------------------------
Name: Robert M. Hartnett
Title:Chairman, CEO and President
/s/ Gail A. Lozoff
---------------------------------------
Gail Lozoff
Address:
_______________________________________
_______________________________________
_______________________________________
(Please print carefully)
19
<PAGE>
EXHIBIT 10.13
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998, is made by and between Einstein/Noah
Bagel Corp., a Delaware corporation (the "Company"), and Paul Strasen (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the
-----------------
date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be extended for one additional year unless, not later than
<PAGE>
December 31 of the preceding year, the Company or the Executive shall have given
notice not to extend the Term; and further provided, however, that if a Change
------- -------- -------
in Control shall have occurred during the Term, the Term shall expire twenty-
four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to
------------------------------
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
-------------------------
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of the Company
until the earliest of (i) a date which is three (3) months from the date of such
Potential Change of Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Pay ments. If the Executive's
-------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if higher, the rate in
effect immediately prior to the
2
<PAGE>
first occurrence of an event or circumstance constituting Good Reason,
together with all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and benefit
plans, programs or arrange ments as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments"), in addition to
any payments and benefits to which the Executive is entitled under Section 5
hereof. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by the Executive with Good Reason, if (i) the Executive's
employment is terminated by the Company without Cause prior to a Change in
Control (whether or not a Change in Control ever occurs) and such termination
was at the request or direction of a Person who has entered into an agreement
with the Company the consummation of which would constitute a Change in Control,
(ii) the Executive terminates his employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the circumstance
or event which constitutes Good Reason occurs at the request or direction of
such Person, or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason and such termination or the
circumstance or event which constitutes Good Reason is otherwise in connection
with or in anticipation of a Change in Control (whether or not a Change in
Control ever occurs). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Board by clear and
3
<PAGE>
convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the sum of (i) 9
months' base salary, based on the Executive's salary rate as in effect
immediately prior to the Date of Termination or, if higher, in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, (ii) the amount of the Executive's bonus for any
completed fiscal year or other completed measuring period preceding the
Date of Termination which has not yet been paid, assuming the achievement
of all individual performance goals (including any subjective performance
goals), and (iii) a pro rata portion of the Executive's bonus for the
fiscal year or other measuring period in which the Date of Termination
occurs, obtained by multiplying 90% of the Executive's target bonus for
such period by the fraction obtained by dividing the number of full months
and any fractional portion of a month during such period through the Date
of Termination by the total number of months contained in such period.
(B) For the 9 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason, at no greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however, that,
-------- -------
unless the Executive consents to a different method, such health insurance
benefits shall be provided through a third-party insurer.
4
<PAGE>
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 9 month period following
the Executive's termination of employment (and any such benefits received
by or made available to the Executive shall be reported to the Company by
the Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 9 months or,
if earlier, until the first acceptance by the Executive of an offer of
employment.
6.2 The payments provided in subsection (A) of Section 6.1 hereof
shall be made not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
- -------- -------
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at the reference rate announced from time to time by Bank of America
National Trust and Savings Association) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after the Date of
Termination. In the
5
<PAGE>
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day after demand by the
Company (together with interest at the reference rate announced from time to
time by Bank of America National Trust and Savings Association). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations.
6.3 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement. Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of a majority of the entire membership of the Board at a meeting of the Board
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good
6
<PAGE>
faith opinion of the Board, the Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
- -------- -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termina-
7
<PAGE>
tion is extended in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or other wise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the
8
<PAGE>
Executive's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged un less such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time
9
<PAGE>
of any breach by the other party hereto of, or of any lack of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control that has occurred or is deemed to have
occurred pursuant to Section 6.1 hereof, by the Company other than for Cause or
by the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Exchange Act shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
-----------------------------------
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the
10
<PAGE>
Board of a claim for benefits under this Agreement shall be delivered to the
Executive in writing and shall set forth the specific reasons for the denial and
the specific provisions of this Agreement relied upon. The Board shall afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and shall further allow the Executive to appeal to the Board a decision of
the Board within sixty (60) days after notification by the Board that the
Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Denver,
Colorado in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the evidentiary standards set forth in
-------- -------
this Agreement shall apply. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Notwithstanding any provision of this Agreement
to the contrary, the Executive shall be entitled to seek specific performance of
the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure
11
<PAGE>
after the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, (ii) the
misappropriation of funds or other property of the Company, (iii) the commission
of an felony or any crime involving moral turpitude, (iv) the commission of
fraud or theft, or (v) the material breach by the Executive of any obligation of
the Executive under any written confidentiality or non-compete agreement between
the Executive and the Company. For purposes of this definition, (x) no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company and (y) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(E) A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(I) any Person (other than Boston Chicken, Inc.) is or
becomes the Beneficial Owner, directly or in directly, of
securities of the Company representing 40% or more of the combined
voting power of the Company's then outstanding securities; or
(II) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining out
12
<PAGE>
standing or by being converted into voting securities of the surviving
entity or any parent thereof) at least 50% of the combined voting power of
the securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than Boston
Chicken, Inc.) is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities Beneficially
Owned by such Person any securities acquired directly from the Company or
its Affiliates other than in connection with the acquisition by the Company
or its Affiliates of a business) representing 40% or more of the combined
voting power of the Company's then outstanding securities; or
(III) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition
by the Company of all or substantially all of the Company's assets to an
entity, at least 50% of the combined voting power of the voting securities
of which are owned by stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately prior to such
sale; or
(IV) the individuals who, as of the date of any Change in Control
of Boston Chicken (as hereinafter defined) are members of the Board, cease
for any reason to constitute a majority of the Board. For purposes of
13
<PAGE>
paragraph (IV), above a "Change in Control of Boston Chicken" shall mean
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock or other voting
securities of Boston Chicken, Inc. entitling such person to exercise more
than 30% of the combined voting power of the outstanding securities of
Boston Chicken, Inc., (ii) a sale of all or substantially all of the assets
of Boston Chicken, Inc. to any purchaser (a "BCI Purchaser") if any Person
is the beneficial owner of shares of capital stock or other voting
securities of the BCI Purchaser entitling such person to exercise more than
30% of the combined voting power of the outstanding securities of such BCI
Purchaser, or (iii) the individuals who, as of the date of this letter
agreement, are members of the board of directors of Boston Chicken, Inc.
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the board of directors of Boston Chicken, Inc., provided,
however, that if either the election of any new director of the nomination
for election of any new director by Boston Chicken, Inc.'s stockholders was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall be considered a member of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except in
determining under Section 15(E) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
14
<PAGE>
(G) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(J) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(K) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(I) a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
15
<PAGE>
(III) the relocation of the Executive's principal place of
employment to a location more than 60 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based anywhere
other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation, within seven (7) days
of the date such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, unless an equitable arrangement (embodIed in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants, as existed
immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the Company's life insurance, medical,
health and accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control (except for
across the board changes similarly affect-
16
<PAGE>
ing all executives of the Company and all executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled in accordance
with the Company's normal vacation policy in effect at the time of the
Change in Control; or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(L) "Notice of Termination" shall have the meaning set forth in Section
7.1 hereof.
(M) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates,
17
<PAGE>
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(N) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(O) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
18
<PAGE>
(P) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
-----------------------------------
Name: Robert M. Hartnett
Title:Chairman, CEO and President
/s/ Paul A. Strasen
---------------------------
Paul Strasen
Address:
___________________________
___________________________
___________________________
(Please print carefully)
19
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