<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Einstein/Noah Bagel Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF EINSTEIN/NOAH BAGEL CORP. APPEARS HERE]
14103 DENVER WEST PARKWAY, P.O. BOX 4086, GOLDEN, COLORADO 80401-4086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
You are cordially invited to attend the annual meeting of stockholders of
Einstein/Noah Bagel Corp. (the "Company") which will be held at the Denver
Marriott West, 1717 Denver West Boulevard, Golden, Colorado, on Thursday, May
21, 1998, at 10:00 a.m., Mountain Time, for the following purposes:
1. To elect directors.
2. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 27, 1998 are
entitled to vote at the meeting. A list of such stockholders will be available
for examination by any stockholder for any purpose germane to the meeting,
during normal business hours, at the offices of the Company, Golden, Colorado,
for a period of 10 days prior to the meeting.
It is important that your shares be represented at the meeting regardless of
the size of your holdings. Whether or not you intend to be present at the
meeting in person, we urge you to mark, date and sign the enclosed proxy and
return it in the envelope provided for that purpose, which does not require
postage if mailed in the United States.
[SIGNATURE OF AMY S. POWERS APPEARS HERE]
Amy S. Powers
Secretary
Golden, Colorado
May 5, 1998
YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Einstein/Noah Bagel Corp. (the "Company") of proxies for
use at the annual meeting of stockholders of the Company to be held at the
Denver Marriott West, 1717 Denver West Boulevard, Golden, Colorado, on
Thursday, May 21, 1998, at 10:00 a.m., Mountain Time, and at any postponements
or adjournments thereof. Proxies properly executed and returned in a timely
manner will be voted at the meeting in accordance with the directions noted
thereon. If no direction is indicated, they will be voted for the election of
the nominees named herein as directors and, on other matters presented for a
vote, in accordance with the judgment of the persons acting under the proxies.
Any stockholder giving a proxy has the power to revoke it at any time before
it is voted, either in person at the meeting, by written notice to the
Secretary of the Company, or by delivery of a later-dated proxy.
Nominees for director receiving the affirmative vote of the holders of a
plurality of the shares of the Company's Common Stock, par value $0.01 per
share, present in person or represented by proxy and entitled to vote at the
meeting will be elected as directors. In general, approval of any other matter
submitted to the stockholders for their consideration requires, in each case,
the affirmative vote of the holders of a majority of the shares of the Common
Stock present in person or by proxy and entitled to vote at the meeting. An
automated system administered by the Company's transfer agent, representatives
from whom will serve as inspectors of election, will be used to tabulate the
votes. Abstentions, directions to withhold authority, and broker non-votes are
counted as shares present and entitled to vote in the determination of whether
the shares of Common Stock represented at the meeting constitute a quorum.
Pursuant to the Company's bylaws, abstentions are not counted in tabulations
of the votes cast on proposals presented to stockholders. Broker non-votes are
deemed not entitled to vote on proposals for which brokers do not have
discretionary authority and, therefore, have no effect with respect to such
proposals.
The Company's principal executive offices are located at 14103 Denver West
Parkway, P.O. Box 4086, Golden, Colorado 80401-4086 (telephone 303/215-9300).
It is expected that proxy materials will be mailed to stockholders beginning
on or about May 5, 1998.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on March 27, 1998 are
entitled to vote at the annual meeting of stockholders. The Common Stock is
the only voting stock of the Company outstanding, of which 33,333,681 shares
were outstanding as of the close of business on March 27, 1998. Each share of
Common Stock is entitled to one vote.
ELECTION OF DIRECTORS
Six directors are to be elected at the meeting. The persons named below have
been designated by the Board of Directors as nominees for election as
directors for a term expiring at the annual meeting of stockholders in 1999.
All of the nominees are serving as directors of the Company as of the date of
this Proxy Statement.
The six nominees for director receiving the highest number of votes cast at
the meeting will be elected. Unless otherwise instructed, properly executed
proxies that are returned in a timely manner will be voted for election of the
Board's six nominees. If, however, any of such nominees should be unable or
should fail to act as a nominee, the proxies will be voted for such other
person as will be determined by the holders of the proxies in their
discretion, or the Board of Directors may make an appropriate reduction in the
number of directors to be elected.
<PAGE>
Robert M. Hartnett, age 46, became Chief Executive Officer and a director of
the Company in February 1998 and became President and Chairman of the Board of
the Company in May 1998. Mr. Hartnett has also served as Vice President-
Eastern Zone of the general partner of Einstein/Noah Bagel Partners, L.P., a
majority owned subsidiary of the Company ("Bagel Partners"), since December
1997. From March 1996 to February 1998, Mr. Hartnett served as President and
Chief Executive Officer of one of the Company's former area developers. From
August 1992 until March 1996, Mr. Hartnett was Chief Executive Officer of R&A
Foods, L.L.C., an area developer of Boston Chicken, Inc. ("Boston Chicken").
J. Michael Jenkins, age 51, became a director of the Company in May 1998.
Also in May 1998, Mr. Jenkins became Chairman, Chief Executive Officer and
President of Boston Chicken. From August 1996 until May 1998, Mr. Jenkins was
Chief Executive Officer of Vicorp Restaurants, Inc. ("Vicorp") and from August
1994 until August 1996, served as Co-Chief Executive Officer and President of
Vicorp. Mr. Jenkins also served as a director of Vicorp from August 1994 until
May 1998. From February 1992 until August 1994, Mr. Jenkins was Chairman of
the Board and Chief Executive Officer of El Chico Restaurants, Inc.
M. Laird Koldyke, age 36, became a director of the Company in March 1995.
Mr. Koldyke has served as a general partner of the Frontenac Company, a
venture capital company, in Chicago, Illinois since 1989.
Gail A. Lozoff, age 47, became Chief Marketing Officer of the Company in
March 1998 and served as Chief Concept Officer of the Company from October
1997 until March 1998. Ms. Lozoff has been a director of the Company since
April 1995. From September 1996 until October 1997, Ms. Lozoff served as a
Vice President of the Company and from April 1995 until September 1996, she
served as Vice President-Design and Merchandising of the Company. Prior
thereto, Ms. Lozoff was President and Chief Executive Officer of Bagel &
Bagel, Inc. from May 1992 until its acquisition by the Company in March 1995.
John H. Muehlstein, Jr., age 43, became a director of the Company in March
1995. Since 1986, he has been a partner at the Chicago law firm of Pedersen &
Houpt.
David G. Stanchak, age 39, became a director of the Company in March 1995
and from such date until April 1998 he also served as Chief Development
Officer of the Company. From June 1992 until March 1995, he served as a Senior
Vice President of Boston Chicken, and from August 1989 until June 1992, Mr.
Stanchak was the National Director of Real Estate and Real Estate Legal
Counsel for Blockbuster Entertainment Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
FOREGOING NOMINEES FOR DIRECTOR.
2
<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 27, 1998 by: (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock; (ii) each director and nominee for director; (iii) each
executive officer named in the Summary Compensation Table below; and (iv) all
directors and executive officers as a group. The beneficial ownership
reflected in the following table is calculated in accordance with Rule 13d-3
of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Unless
otherwise indicated, ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME NUMBER(1) PERCENT
---- ------------ --------
<S> <C> <C>
Boston Chicken, Inc. (2)........................... 18,770,751 53.9%
Robert M. Hartnett................................. 77,500 *
W. Eric Carlborg................................... 38,142 *
David G. Stanchak (3).............................. 86,778 *
Paul A. Strasen (4)................................ 48,120 *
J. Michael Jenkins (5)............................. 0 *
M. Laird Koldyke (6)............................... 495,610 1.5%
Gail A. Lozoff (7)................................. 526,524 1.6%
John H. Muehlstein, Jr............................. 23,759 *
Lloyd D. Ruth (8).................................. 57,943 *
Scott A. Beck (9).................................. 131,652 *
Jeffrey L. Butler (10)............................. 533,117 1.6%
Mark R. Goldston (11).............................. 413,640 1.2%
Loomis, Sayles & Company, L.P (12)................. 1,930,144 5.5%
All directors and executive officers as a group
(excluding Messrs. Butler and Goldston) (10
persons) (13)..................................... 1,493,830 4.5%
</TABLE>
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*Less than 1%.
(1) Includes shares of Common Stock subject to options granted by the Company
which were exercisable within 60 days of March 27, 1998 as follows: Mr.
Hartnett--67,500; Mr. Butler--28,863; Mr. Carlborg--10,283; Mr.
Stanchak--30,341; Mr. Strasen--36,868; Mr. Koldyke--7,002; Ms. Lozoff--
20,331; Mr. Muehlstein--7,002; Mr. Ruth--7,002; Mr. Goldston--36,709; and
all executive officers and directors as a group (including such
individuals, except Messrs. Butler and Goldston)--192,579. Also includes
the following shares of Common Stock subject to warrants that the
following individuals and all executive officers and directors as a group
have received as a result of their ownership interest in Bagel Store
Development Funding, L.L.C.; Mr. Carlborg--2,869; Mr. Stanchak--9,563;
Mr. Beck--55,432; Mr. Muehlstein--2,391; Mr. Ruth--1,913; and all
executive officers and directors as a group--72,168.
(2) Includes 599,086 shares of Common Stock on which Boston Chicken and its
subsidiaries have granted options to purchase to certain individuals
(including Mr. Goldston), of which options to purchase 397,875 shares of
Common Stock are exercisable within 60 days of March 27, 1998. Includes
1,467,949 shares subject to options granted by the Company which are
exercisable within 60 days of March 27, 1998. The address of Boston
Chicken is 14123 Denver West Parkway, Golden, Colorado 80401-4086. See
"Relationship with Boston Chicken."
(3) Mr. Stanchak resigned as Chief Development Officer of the Company in
April 1998. See "Certain Transactions--Employment, Consulting and
Termination Agreements."
(4) Includes 3,653 shares held by a trust, of which Mr. Strasen is a trustee
and beneficiary, and 5,099 shares held by a limited liability company
controlled by Mr. Strasen and his spouse.
(5) Excludes the aggregate number of shares of Common Stock shown above as
owned by Boston Chicken that may be deemed to be beneficially owned by
Mr. Jenkins because he may be deemed to be an affiliate of
3
<PAGE>
Boston Chicken. Mr. Jenkins disclaims any beneficial ownership of such
shares.
(6) Includes 488,608 shares of Common Stock held by a limited partnership,
the general partner of which is a partnership of which Mr. Koldyke is a
general partner.
(7) Includes 489,475 shares of Common Stock held by a corporation, of which
Ms. Lozoff's spouse is the sole stockholder.
(8) Includes 48,405 shares of Common Stock held by two limited partnerships,
the general partner of each of which Mr. Ruth is a general partner. Mr.
Ruth is not standing for re-election to the Board of Directors.
(9) Includes 17,948 shares held by a limited partnership, of which Mr. Beck
is the general partner. Mr. Beck resigned as Chairman of the Board of the
Company in May 1998 and is not standing for re-election to the Board of
Directors.
(10) Mr. Butler resigned as President and a director of the Company in May
1998. See "Certain Transactions-- Employment, Consulting and Termination
Agreements."
(11) Includes 344,673 shares of Common Stock subject to options from Boston
Chicken which are currently exercisable. Mr. Goldston resigned as
President of the Company in September 1997 and resigned as Chief
Executive Officer and a director of the Company in December 1997. See
"Certain Transactions-- Employment, Consulting and Termination
Agreements."
(12) In February 1998, the Company received a copy of a statement on Schedule
13G filed pursuant to Rule 13d-1 under the Exchange Act by Loomis, Sayles
& Company, L.P. ("Loomis, Sayles"). The statement indicated that Loomis,
Sayles is an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940. The address for Loomis, Sayles is One
Financial Center, Boston, Massachusetts 02111. The statement also
indicated that the shares of Common Stock shown in the table above are
issuable upon conversion of $41,015,560 principal amount of the Company's
7 1/4% convertible subordinated debentures due 2004.
(13) Includes 650 shares held by the spouse of an executive officer as to
which the executive officer disclaims beneficial ownership.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than 10% of the
Common Stock, to file reports of ownership with the Securities and Exchange
Commission. These persons also are required to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of copies of
such forms, the Company believes that Jeffrey L. Butler, the former President
and a director of the Company, failed to timely file a Form 4 reporting the
acquisition of 1,567 shares of Common Stock pursuant to a distribution from a
limited partnership to its members, including Mr. Butler. The Company believes
that all other executive officers, directors and greater than 10% stockholders
of the Company complied with applicable Section 16(a) filing requirements.
4
<PAGE>
OWNERSHIP OF BOSTON CHICKEN COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Boston Chicken common stock as of March 27, 1998 by (i) each
director and nominee for director; (ii) each executive officer named in the
Summary Compensation Table below; and (iii) all directors and executive
officers as a group. The beneficial ownership reflected in the following table
is calculated in accordance with Rule 13d-3 under the Exchange Act. Unless
otherwise indicated, ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME NUMBER PERCENT
---- ------------ ----------
<S> <C> <C>
Robert M. Hartnett................................ 0 *
W. Eric Carlborg (1).............................. 0 *
David G. Stanchak (1)............................. 135,688 *
Paul A. Strasen................................... 296 *
J. Michael Jenkins................................ 0 *
M. Laird Koldyke.................................. 0 *
Gail A. Lozoff (2)................................ 80,550 *
John H. Muehlstein, Jr. (3)....................... 5,000 *
Lloyd D. Ruth..................................... 0 *
Scott A. Beck (4)................................. 4,855,168 6.7%
Jeffrey L. Butler................................. 567,288 *
Mark R. Goldston.................................. 0 *
All directors and executive officers as a group
(excluding Messrs. Butler and Goldston) (10
persons)......................................... 5,076,702 7.1%
</TABLE>
- --------
*Less than 1%.
(1) Excludes 39,644 and 28,135 shares of common stock subject to options
granted to Messrs. Carlborg and Stanchak, respectively, which options
continue to vest pursuant to agreements with Boston Chicken. No such
options were exercisable within 60 days of March 27, 1998.
(2) Represents shares owned jointly by Ms. Lozoff and her spouse.
(3) Represents shares owned jointly by Mr. Muehlstein and his spouse.
(4) Excludes (a) 1,360,000 shares of common stock gifted by Mr. Beck to
charitable foundations and other charitable organizations during 1997 and
(b) 3,327,874 shares of common stock distributed to persons other than Mr.
Beck upon liquidation of (i) a trust, the trustee of which was a
corporation controlled by Mr. Beck, (ii) certain partnerships, of which
the general partner was the same corporation referenced in clause (i)
above, and (iii) the corporation referenced in clause (i) above. Includes
(a) 24,719 shares of common stock issuable upon conversion of $660,000
aggregate principal amount of Boston Chicken's 7 3/4% convertible
subordinated debentures due 2004, (b) 2,664,343 shares held by limited
liability companies controlled by Mr. Beck, (c) 577,500 shares subject to
options which were exercisable within 60 days of March 27, 1998, and (d)
10,610 shares owned by Mr. Beck's spouse, as to which he disclaims
beneficial ownership. In addition, the amount included in the table does
not reflect the sale of 2,031,880 shares of common stock by a third-party
lender to which a limited liability company controlled by Mr. Beck had
pledged such shares as security under a loan, the proceeds of which sale
were utilized to satisfy the limited liability company's obligations under
the loan.
5
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The four standing committees of the Board of Directors of the Company in
1997 were the Audit Committee, the Compensation Committee, the Reporting
Person Stock Option Committee and the Stock Option Committee, the functions
and membership of which are described below. Mr. Ruth, who is a member of each
of the standing committees of the Board of Directors, and Mr. Beck, who is a
member of two such committees, are not standing for re-election to the Board
of Directors. The Board of Directors does not have a standing nominating
committee. The Board of Directors held an aggregate of 11 regular and special
meetings in 1997 and also acted by unanimous written consent four times.
Audit Committee. In 1997, the Audit Committee consisted of two non-employee
directors: Messrs. Koldyke and Ruth. The Audit Committee met two times during
fiscal 1997. The Audit Committee's functions include making recommendations to
the Board of Directors on the selection of the Company's auditors, reviewing
the arrangements for, and scope of, the independent auditors' examination,
meeting with the independent auditors, the Board of Directors and certain
officers of the Company to review the adequacy of internal controls and
reporting, and performing any other duties or functions deemed appropriate by
the Board of Directors. Following the Annual Meeting, the Board of Directors
intends to appoint another independent director to the Audit Committee to
replace Mr. Ruth.
Compensation Committee. In 1997, the Compensation Committee consisted of
four directors: Messrs. Beck, Koldyke, Muehlstein and Ruth. The Compensation
Committee met one time during fiscal 1997. The Compensation Committee is
responsible for establishing policies for, and making recommendations to, the
Board of Directors regarding salaries and certain other compensation to be
paid to officers of the Company.
Reporting Person Stock Option Committee. In 1997, the Reporting Person Stock
Option Committee consisted of two non-employee directors: Messrs. Koldyke and
Ruth. The Reporting Person Stock Option Committee met two times during fiscal
1997 and was responsible for the administration of, and the granting of all
options under, the Company's Amended and Restated 1995 Employee Stock Option
Plan, the Amended and Restated 1997 Stock Option Plan and the Restated 1997
ENBP Stock Option Plan (collectively, the "Employee Plans") to persons subject
to Section 16 of the Exchange Act and the rules promulgated thereunder
("Reporting Persons"). Beginning in 1998, the entire Board of Directors will
approve stock option grants to Reporting Persons.
Stock Option Committee. In 1997, the Stock Option Committee consisted of
four directors: Messrs. Beck, Koldyke, Muehlstein and Ruth. The Stock Option
Committee met seven times during fiscal 1997. The Stock Option Committee is
responsible for the administration of the Employee Plans and the granting of
all options under the Employee Plans to persons other than Reporting Persons.
In fiscal 1997, during the time each director served in such capacity, no
director attended less than 75% of the aggregate of all meetings of the Board
and all meetings held by committees of the Board on which such director
served.
Nominations for election of directors are made by the Board of Directors
and, pursuant to the Company's bylaws, may be made by a committee appointed by
the Board or by any stockholder entitled to vote in the election of directors.
See "Submission of Stockholder Proposals for the 1999 Annual Meeting" for
procedures with respect to nominations by stockholders.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for each of the fiscal years
ended December 28, 1997, December 29, 1996 and December 31, 1995 received by,
or payable to, individuals who served as Chief Executive Officer of the
Company and the Company's four other most highly compensated executive
officers during fiscal year 1997 (the "named executive officers"). The Company
does not have a restricted stock award program or a long-term incentive plan
pursuant to which executive officers or directors of the Company may
participate.
<TABLE>
<CAPTION>
SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (#)(1) COMPENSATION
------------------ ---- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Butler (2).... 1997 $226,923 $ 0 $ 0 330,217 $ 0
Former President 1996 121,154 0 0 62,931 9,676
1995 0 0 0 55,614(3) 0
W. Eric Carlborg......... 1997 188,462 75,000 0 216,182 0
Chief Financial Officer 1996 136,154 0 0 41,667 1,000
1995 0 0 0 10,195(3) 0
David G. Stanchak (4).... 1997 188,462 0 0 181,182 58,790(5)
Former Chief Development
Officer 1996 149,038 0 0 45,518 0
1995 90,865 0 0 42,483 4,629
Paul A. Strasen.......... 1997 175,962 175,000 0 55,152 0
Senior Vice President
and General Counsel 1996 125,000 0 0 37,931 0
1995 81,731 0 0 42,483 58,693
Mark R. Goldston (6)..... 1997 360,000 0 0 101,632
Former President and 1996 256,154 400,000 0 139,030 0
Chief Executive Officer 1995 -- -- -- -- --
Scott A. Beck (7)........ 1997 0 0 0 0 0
Former Chairman of the
Board and Chief 1996 0 0 0 0 0
Executive Officer 1995 0 0 0 0 0
</TABLE>
- --------
(1) Amounts reported for 1997 include the following number of options granted
in January 1997 which were canceled, with the consent of the option
holders, in exchange for options granted in October 1997: Mr. Butler--
10,042; Mr. Carlborg--10,042; Mr. Stanchak--10,042; Mr. Strasen--8,368;
Ms. Lozoff--8,368; and Mr. Goldston--26,778. See "--Option Grants in Last
Fiscal Year," "--Option Repricings" and "Report of the Compensation
Committee--Stock Options." In addition, certain options previously granted
to Messrs. Butler, Goldston and Stanchak were canceled upon their
respective resignations from the Company. See "Certain Transactions--
Employment, Consulting and Termination Agreements."
(2) Mr. Butler resigned as President and a director of the Company in May
1998. See "Certain Transactions--Employment, Consulting and Termination
Agreements."
(3) Represents options granted to Messrs. Butler and Carlborg in 1995 as
consultants to the Company.
(4) Mr. Stanchak resigned as Chief Development Officer of the Company in April
1998. See "Certain Transactions--Employment, Consulting and Termination
Agreements."
(5) Amount constitutes taxable income in connection with the exercise of stock
options.
(6) Mr. Goldston resigned as President of the Company in September 1997 and
resigned as Chief Executive Officer and a director of the Company in
December 1997. See "Certain Transactions--Employment, Consulting and
Termination Agreements."
(7) Mr. Beck assumed the responsibilities of Chief Executive Officer from
December 1997 until February 1998. Mr. Beck resigned as Chairman of the
Board of the Company in May 1998 and is not standing for re-election to
the Board of Directors.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the named executive officers during the fiscal year ended December 28, 1997.
See "--Option Repricings" and "Report of the Compensation Committee--Stock
Options." Mr. Beck has no options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED EXERCISE FOR OPTION TERM(3)
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION ---------------------
NAME GRANT(1) GRANTED(2) IN FISCAL YEAR PRICE DATE 5% 10%
---- ------- --------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey L. Butler....... 1/16/97 10,042 .04% $29.875 1/16/2007 $ 188,671 $ 478,130
10/2/97 320,175 1.38 10.6875 10/2/2007 2,151,996 5,453,580
W. Eric Carlborg........ 1/16/97 10,042 .04 29.875 1/16/2007 188,671 478,130
10/2/97 206,140 .89 10.6875 10/2/2007 1,385,531 3,511,208
David G. Stanchak....... 1/16/97 10,042 .04 29.875 1/16/2007 188,671 478,130
10/2/97 171,140 .74 10.6875 10/2/2007 1,150,285 2,915,049
Paul A. Strasen......... 1/16/97 8,368 .04 29.875 1/16/2007 157,220 398,426
10/2/97 46,784 .20 10.6875 10/2/2007 314,450 796,878
Mark R. Goldston........ 1/16/97 26,778 .12 29.875 1/16/2007 503,111 1,274,982
10/2/97 74,854 .32 10.6875 10/2/2007 503,117 1,274,997
</TABLE>
- --------
(1) All options granted on January 16, 1997 were canceled, with the consent of
the optionholders, in exchange for options granted on October 2, 1997 to
purchase the same number of shares. See "--Option Repricings." In
addition, certain options previously granted to Messrs. Butler, Goldston
and Stanchak were canceled upon their respective resignations from the
Company. See "Certain Transactions--Employment, Consulting and Termination
Agreements."
(2) Options granted become exercisable with respect to 10% of the total number
of shares on the first anniversary of the date of grant, an additional 20%
on the second anniversary of the date of grant, an additional 30% on the
third anniversary of the date of grant and the balance on the fourth
anniversary of the date of grant.
(3) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Common Stock; therefore, amounts reflected in this
table may not be achieved.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for the named executive officers aggregated
information concerning each exercise of stock options during the fiscal year
ended December 28, 1997 and the fiscal year-end value of unexercised options.
Mr. Beck has no options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey L. Butler....... 0 0 21,277/415,744 0/0
W. Eric Carlborg........ 0 0 7,224/250,778 0/0
David G. Stanchak....... 4,551 58,790 8,497/241,841 0/0
Paul A. Strasen......... 0 0 16,537/110,661 0/0
Mark R. Goldston........ 0 0 13,903/35,291 0/0
</TABLE>
8
<PAGE>
OPTION REPRICINGS
The following table provides information concerning all repricings of stock
options of executive officers since August 1, 1996 (the date on which the
Company became subject to the reporting requirements of the Exchange Act)
through fiscal year 1997. See "Report of the Compensation Committee--Stock
Options." Mr. Beck has no options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
MARKET
NUMBER OF PRICE LENGTH OF
SHARES OF COMMON EXERCISE ORIGINAL OPTION
UNDERLYING STOCK AT PRICE AT NEW TERM REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- ------- ---------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Butler (1)... 10/2/97 10,402 $10.6875 $29.875 $10.6875 9 years 3 months
W. Eric Carlborg........ 10/2/97 10,402 10.6875 29.875 10.6875 9 years 3 months
David G. Stanchak (2)... 10/2/97 10,402 10.6875 29.875 10.6875 9 years 3 months
Paul A. Strasen......... 10/2/97 8,368 10.6875 29.875 10.6875 9 years 3 months
Gail A. Lozoff.......... 10/2/97 8,368 10.6875 29.875 10.6875 9 years 3 months
Mark R. Goldston (3).... 10/2/97 26,778 10.6875 29.875 10.6875 9 years 3 months
</TABLE>
- --------
(1) Mr. Butler resigned as President of the Company in May 1998. See "Certain
Transactions--Employment, Consulting and Termination Agreements."
(2) Mr. Stanchak resigned as Chief Development Officer of the Company in April
1998. See "Certain Transactions--Employment, Consulting and Termination
Agreements."
(3) Mr. Goldston resigned as President of the Company in September 1997 and
resigned as Chief Executive Officer and a director of the Company in
December 1997. See "Certain Transactions--Employment, Consulting and
Termination Agreements."
DIRECTOR COMPENSATION
In addition to annual option grants to purchase shares of Common Stock
having a fair market value of $50,000 on the date of grant under the Company's
1996 Stock Option Plan for Non-Employee Directors, each director who is not an
officer or employee of, or a consultant to, the Company or its affiliated
companies receives $500 cash compensation for each Board of Directors meeting
at which he is present and for each committee meeting at which he is present
not held in conjunction with a meeting of the Board of Directors. Outside
directors are also reimbursed for their expenses for each Board and committee
meeting attended. Beginning in 1998, such directors will also receive annual
compensation in the amount of $10,000 in addition to the per meeting
compensation described above.
In October 1997, in connection with the Company's acquisition of a majority
interest in Bagel Partners, as more fully described elsewhere herein under the
heading "Certain Transactions--Interests of Certain Persons in Einstein/Noah
Bagel Partners, L.P.," the Board of Directors established a special committee
of the Board (the "Special Committee") comprised of Messrs. Koldyke and Kyle
T. Craig, a former director of the Company. In connection with their service
on the Special Committee, Messrs. Koldyke and Craig each received $25,000 and
were reimbursed for their expenses.
The Company has also entered into employment, consulting and termination
agreements with certain of its current and former executive officers and
directors. See "Certain Transactions--Employment, Consulting and Termination
Agreements."
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of the
Board of Directors during the year ended December 28, 1997: Scott A. Beck, M.
Laird Koldyke, John H. Muehlstein, Jr., and Lloyd D. Ruth.
Currently, no executive officer of the Company serves as a member of the
compensation committee or as a director of any other entity, one of whose
executive officers serves on the Compensation Committee or is a director of
the Company. During 1997, Mr. Beck, former Chairman of the Board of the
Company, was also Co-Chairman of the Board of Boston Chicken, and Mr.
Goldston, the former President, Chief Executive Officer and a director of the
Company, was Vice Chairman of the Board and a director of Boston Chicken.
Neither Mr. Beck nor Mr. Goldston served on the compensation committee of
Boston Chicken's board of directors during 1997.
Mr. Hartnett owned a minority equity interest in a former area developer of
the Company. Messrs. Beck, Muehlstein, Ruth and Stanchak each own a direct
equity interest in Bagel Store Development Funding, L.L.C., which owns an
approximately 21% equity interest in Bagel Partners. See "Certain
Transactions--Interests of Certain Persons in Einstein/Noah Bagel Partners,
L.P."
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Report of the
Compensation Committee" and "Performance Graph" will not be deemed to be filed
or to be proxy soliciting material or incorporated by reference in any prior
or future filings by the Company under the Securities Act of 1933 (the
"Securities Act") or the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE
During 1997, the Board of Directors had two standing committees responsible
for executive officer compensation. The Compensation Committee had overall
responsibility for cash compensation and the Reporting Person Stock Option
Committee had overall responsibility for stock option grants to executive
officers, including grant approval and plan administration. The following
report on executive compensation is furnished by the members of both such
committees (together, the "Committees"). Beginning in 1998, the entire Board
of Directors will approve stock option grants to executive officers.
GENERAL POLICIES
The Company's compensation program is intended to attract, motivate, reward
and retain the management talent required to achieve corporate objectives in a
dynamic environment operating in a highly competitive industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives
to its senior management to achieve both short-term and long-term objectives.
For 1997, the Company's executive compensation consisted of salary and stock
options and, in certain cases, incentive bonuses.
CASH COMPENSATION
For 1997, cash compensation for executive officers consisted of salary and,
in certain cases, a cash bonus. Base salaries and bonuses are determined by an
assessment of responsibilities and position within the Company, individual
performance and the Company's overall performance. Base salaries for 1997 were
increased from 1996 levels based on an assessment of the factors described
above.
In 1998, the Company's compensation program will provide employees of the
Company, including executive officers, with the opportunity to earn incentive
compensation in addition to their annual base salary, based upon the Company
achieving certain consolidated financial targets for the fiscal year and based
upon individual objectives. Individual objectives for executive officers will
be determined by the Compensation Committee based on management
recommendations.
10
<PAGE>
STOCK OPTIONS
The Compensation Committee considers incentive compensation in the form of
stock options to be an integral and important part of executive compensation
in particular and employee compensation generally. The Compensation Committee
believes that stock options directly align the interests of management with
the Company's stockholders to increase stockholder value over a period of
years.
In 1997, the Reporting Person Stock Option Committee had sole discretion
with respect to the granting of stock options to executive officers. Beginning
in 1998, the entire Board of Directors will approve stock option grants to
executive officers. Options are generally granted to executive officers upon
commencement of employment and annually. Options granted have an exercise
price equal to the fair market value of the Common Stock on the grant date.
Factors considered when granting stock options to executive officers include
salary, position and responsibilities, factors related to recruiting and
employment offers, significant salary changes and promotions and other factors
relating to performance. Option grants relating to recruiting and employment
offers and special circumstances are recommended by management.
Based primarily on the factors noted above, in January 1997 the Reporting
Person Stock Option Committee made annual stock option grants to the Company's
executive officers with an exercise price of $29.875 per share. In October
1997, the Stock Option Committee made annual stock option grants to other
employees of the Company with an exercise price of $10.6875 per share, the
then current market price of the Common Stock. At that time, the Reporting
Person Stock Option Committee determined that, given the substantial
difference in the exercise price of options granted to executive officers in
January 1997 and options granted to other employees in October 1997, and in
order to provide incentives to the Company's executive officers to remain with
the Company, it was in the best interests of the Company to offer such
executive officers the opportunity to exchange their January 1997 option
grants for new options to purchase the same number of shares exercisable for
$10.6875 per share. All of the Company's executive officers consented to such
exchange. In addition, the Reporting Person Stock Option Committee approved
additional option grants to executive officers at such time. See "Executive
Compensation--Option Grants in Last Fiscal Year" and "Executive Compensation--
Option Repricings."
CHIEF EXECUTIVE OFFICER COMPENSATION
Mark R. Goldston joined the Company as President, Chief Executive Officer
and a director in April 1996. In September 1997, Mr. Goldston resigned as
President and in December 1997, he resigned as Chief Executive Officer and a
director of the Company. Upon Mr. Goldston's resignation, Scott A. Beck
assumed the duties of Chief Executive Officer of the Company until February
1998, when Robert M. Hartnett was named Chief Executive Officer of the
Company. Mr. Beck did not receive any compensation for his services as Chief
Executive Officer.
Mr. Goldston's 1997 compensation consisted of a base salary and stock
options and was the result of arms' length negotiations with the Company in
connection with his employment. Factors considered by the Board of Directors
and the Compensation Committee in determining and approving Mr. Goldston's
compensation included his entrepreneurial drive, extensive retail experience
and leadership abilities. With respect to Mr. Goldston's annual stock option
grant, the Reporting Person Stock Option Committee considered the same factors
that were used to determine stock option grants to all executive officers
discussed above.
The Company and Mr. Goldston are parties to a termination agreement with
respect to his resignation as Chief Executive Officer and a director of the
Company. Pursuant to such agreement, certain options previously granted to Mr.
Goldston were canceled upon his resignation. See "Certain Transactions--
Employment, Consulting and Termination Agreements."
POLICY REGARDING RULE 162(M)
In general, Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the tax deductibility of annual compensation paid to
certain executive officers of a publicly held corporation to $1
11
<PAGE>
million, subject to an exception for "performance-based" compensation plans as
defined under that Section. Generally, the Board of Directors and the
Compensation Committee, or any other Board committee responsible for executive
officer compensation, reserve the right to grant compensation to executive
officers in amounts deemed appropriate, regardless of whether such
compensation is deductible for federal income tax purposes. When making
decisions concerning executive compensation, the deduction limits under
Section 162(m), as well as other factors, including economic and industry
trends, competition for talented executives and the contribution of the
executive officers to the development of the Company's business, are taken
into account. Options to purchase shares of Common Stock granted to executive
officers in fiscal 1997 are potentially subject to limits on permitted federal
income tax deductions upon exercise of such options, including under Section
162(m). The option grants were made because the grants and their associated
incentives were determined to be more important to the Company and its
stockholders than the potential loss of related compensation deductions. The
policy of the Board of Directors and the Compensation Committee, or any other
Board committee responsible for executive officer compensation, is to
maintain, where feasible, a compensation structure that will permit all
executive compensation to be tax deductible by the Company. However, each
member of the Board of Directors believes that it is vital for the Company's
long-term interest to ensure that talented individuals will continue to serve
the Company. As a result, the Board of Directors and the Compensation
Committee, or any other Board committee responsible for executive officer
compensation, may continue to authorize, in appropriate circumstances,
compensation that is not entirely deductible.
CONCLUSION
The Company intends to continue providing a portion of executive
compensation in the form of at-risk, incentive-based compensation, such as
stock options. The Board of Directors and Compensation Committee believe that
such a policy, which directly aligns the financial interests of management
with the financial interests of stockholders, provides the proper incentives
to attract, reward and retain high quality management. The Board of Directors
and Compensation Committee intend to review the executive compensation
structure at least annually, review salary levels, make additional option
grants and provide an incentive-based bonus compensation program, all as
appropriate to continue attracting and retaining management with the necessary
experience and expertise to further the Company's growth.
1997 COMPENSATION 1997 REPORTING PERSON STOCK
COMMITTE MEMBERS OPTION COMMITTEE MEMBERS
Scott A. Beck M. Laird Koldyke
M. Laird Koldyke Lloyd D. Ruth
John H. Muehlstein, Jr.
Lloyd D. Ruth
12
<PAGE>
PERFORMANCE GRAPH
The Company has determined that a peer group which is representative of its
line of business and its stage of commercial development is appropriate for
performance comparison purposes. The members of the peer group are Applebees
International, Inc., Au Bon Pain Co. Inc., BAB Holdings, Inc., Boston Chicken,
Inc., Brinker International Inc., Manhattan Bagel Co., Inc., McDonald's Corp.,
New York Bagel Enterprises, Papa John's International Inc., Quality Dining,
Inc., Sbarro Inc. and Starbucks Corp. (the "Peer Group Index"). The following
graph compares the percentage change in the cumulative total returns on the
Common Stock, the Peer Group Index and the Standard & Poor's 500 Index
(assuming reinvestment of any dividends) for the period beginning on August 1,
1996, the effective date of the registration of the Common Stock under Section
12 of the Exchange Act, and ending on December 26, 1997, the last day on which
shares of Common Stock traded on the Nasdaq National Market prior to December
28, 1997, the last day of the Comany's 1997 fiscal year.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
8/1/96 9/30/96 12/27/96 3/31/97 6/30/97 9/30/97 12/26/97
------ ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Einstein/Noah Bagel
Corp................... $100 $150.00 $145.73 $122.56 $ 58.23 $ 53.66 $ 27.13
Peer Group.............. $100 $102.26 $ 98.94 $ 98.70 $100.60 $100.78 $ 94.11
S&P 500................. $100 $107.86 $116.85 $119.98 $140.93 $151.48 $155.83
</TABLE>
- --------
(1) Assumes $100 invested on August 1, 1996 in Common Stock, the Peer Group
Index and the S&P 500 Index. Historical results are not necessarily
indicative of future performance.
13
<PAGE>
CERTAIN TRANSACTIONS
INTERESTS OF CERTAIN PERSONS IN EINSTEIN/NOAH BAGEL PARTNERS, L.P.
GENERAL.
The Company owns an approximately 78% interest in Einstein/Noah Bagel
Partners, L.P. ("Bagel Partners"), formerly Noah's Pacific, L.L.C. ("Noah's"),
the surviving entity of a merger of the Company's five former area developers,
Colonial Bagels, L.P. ("Colonial"), Great Lakes Bagels, L.P. ("Great Lakes"),
Gulfstream Bagels, L.P. ("Gulfstream"), Sunbelt Bagels, L.L.C. ("Sunbelt") and
Noah's. The Company acquired its interest in Bagel Partners by exercising its
conversion and option rights under its secured loan agreements with such area
developers. In 1997, certain executive officers and directors of the Company
and Boston Chicken had (i) direct equity interests in the former area
developers of the Company or Bagel Partners and/or (ii) indirect equity
interests in such entities through investments in Bagel Store Development
Funding, L.L.C. Upon consummation of the Company's loan conversions and the
area developer merger (together with certain related transactions, the
"Transactions"), the interests of holders of equity interests in Bagel
Partners represented by promissory notes, including certain of such officers
and directors, were redeemed. See "--Redemption of Bagel Partners Equity
Interests".
FORMER AREA DEVELOPERS OF THE COMPANY.
Colonial. Lawrence Beck, Scott Beck's father, was a minority investor in the
general partner of Colonial prior to consummation of the Transactions. In
fiscal 1997, Colonial paid to the Company an aggregate of $3,353,800 in
development, franchise, royalty, real estate, software license, software
maintenance, miscellaneous and accounting fees and deposits, as well as
$441,300 in national and $882,600 in local advertising fund contributions. In
addition, in fiscal 1997, Colonial paid to the Company $2,466,300 in interest
on its loans with the Company. The Company believes that the terms of the area
development agreement and each franchise agreement entered into with Colonial
were as favorable to the Company as those with other area developers of the
Company. The Company also believes that the terms of the secured loan
agreement with Colonial were as favorable to the Company as those with other
area developers of the Company to whom the Company had loaned money.
Great Lakes. Mr. Butler is a minority investor in BC Great Lakes, L.L.C., a
majority-owned subsidiary of Boston Chicken, which had a minority interest in
Great Lakes prior to the consummation of the Transactions. In fiscal 1997,
Great Lakes paid to the Company an aggregate of $9,869,600 in development,
franchise, royalty, real estate, software license, software maintenance,
miscellaneous and accounting fees and deposits, as well as $1,141,700 in
national and $2,283,400 in local advertising fund contributions. In addition,
in fiscal 1997, Great Lakes paid to the Company $4,099,200 in interest on its
loans with the Company. The Company believes that the terms of the area
development agreement and each franchise agreement entered into with Great
Lakes were as favorable to the Company as those with other area developers of
the Company. The Company also believes that the terms of the secured loan
agreement with Great Lakes were as favorable to the Company as those with
other area developers of the Company to whom the Company had loaned money.
Gulfstream. Mr. Hartnett owned a minority equity interest in Gulfstream
prior to consummation of the Transactions. In fiscal 1997, Gulfstream paid to
the Company an aggregate of $5,186,900 in development, franchise, royalty,
real estate, software license, software maintenance, miscellaneous and
accounting fees and deposits, as well as $833,400 in national and $1,666,800
in local advertising fund contributions. In addition, in fiscal 1997,
Gulfstream paid to the Company $2,991,200 in interest on its loan with the
Company. The Company believes that the terms of the area development agreement
and each franchise agreement entered into with Gulfstream were as favorable to
the Company as those with other area developers of the Company. The Company
also believes that the terms of the secured loan agreement with Gulfstream
were as favorable to the Company as those with other area developers of the
Company to whom the Company had loaned money.
14
<PAGE>
Noah's. Noah Alper, a former director of the Company, owned a minority
equity interest in Noah's prior to the Transactions. In fiscal 1997, Noah's
paid to the Company an aggregate of $4,890,300 in development, franchise,
royalty, real estate, software license, software maintenance, miscellaneous
and accounting fees and deposits. In addition, in fiscal 1997, Noah's paid to
the Company $4,248,500 in interest on its loan with the Company. The Company
believes that the terms of the area development agreement and each franchise
agreement entered into with Noah's were as favorable to the Company as those
with other area developers of the Company. The Company also believes that the
terms of the secured loan agreement with Noah's were as favorable to the
Company as those with other area developers of the Company to whom the Company
had loaned money.
Sunbelt. Lawrence Beck was a minority investor in BCE West, L.L.C. ("BCE
West") prior to the merger of BCE West into Sunbelt in April 1997, and, as a
result of such merger, was a minority investor in Sunbelt from April 1997
until consummation of the Transactions. In fiscal 1997, BCE West and Sunbelt
paid to the Company an aggregate of approximately $6,953,600 in development,
franchise, royalty, real estate, software license, software maintenance,
miscellaneous and accounting fees and deposits, as well as $962,500 in
national and $1,925,000 in local advertising fund contributions. In addition,
in fiscal 1997, BCE West and Sunbelt paid to the Company $3,325,600 in
interest on their loans with the Company. The Company believes that the terms
of the area development agreements and each franchise agreement entered into
with BCE West and Sunbelt were as favorable to the Company as those with other
area developers of the Company. The Company also believes that the terms of
the secured loan agreements with BCE West and Sunbelt were as favorable to the
Company as those with other area developers of the Company to whom the Company
had loaned money.
BAGEL STORE DEVELOPMENT FUNDING, L.L.C.
Bagel Store Development Funding, L.L.C. ("Bagel Funding") has invested a
total of approximately $89.6 million, representing an approximately 21% equity
interest, in Bagel Partners. The Company is the manager of Bagel Funding, but
has no equity interest in Bagel Funding. Bagel Funding has the right in
certain circumstances 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 (the "Put Rights"). The Put Rights become
exercisable 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 Bagel
Funding's equity interest in Bagel Partners or the termination of certain
rights and obligations under franchise or license agreements between the
Company and Bagel Partners. The Put Rights are 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 method of determining the valuation
of Bagel Partners for purposes of calculating the put price is a multiple of
the annualized average cash flow for the highest of the two fiscal quarters
prior to the quarter in which the Put Rights are exercised. The Company or
Bagel Partners may pay the purchase price for Bagel Funding's equity interest
in Bagel Partners with shares of Common Stock and if so paid, the Bagel
Funding unitholders have been granted resale registration rights with respect
to such shares.
Messrs. Scott Beck, Butler, Carlborg, Muehlstein, Ruth and Stanchak and
Lawrence Beck each own a direct equity interest in Bagel Funding. In the
aggregate, such interests represent approximately 10.4% of the outstanding
equity interest in Bagel Funding. In addition, certain current and former
executive officers and directors of Boston Chicken own direct or indirect
equity interests in Bagel Funding. In the aggregate, such interests, excluding
interests owned by Scott Beck, represent approximately 7.7% of the outstanding
equity interest in Bagel Funding.
REDEMPTION OF BAGEL PARTNERS EQUITY INTERESTS.
Mr. Hartnett and certain other officers of the Company and Lawrence Beck
purchased their equity interests in certain of the Company's former area
developers by delivery of promissory notes. Such area developer equity
interests were converted into equity interests in Bagel Partners pursuant to
the Transactions, and the Bagel
15
<PAGE>
Partners interests were subsequently redeemed in exchange for cancellation of
the promissory notes. The aggregate principal amounts of such notes for
Messrs. Lawrence Beck and Hartnett were $350,000 and $500,000 respectively,
and the aggregate principal amount of such canceled notes for other officers
of the Company was $1.25 million.
EMPLOYMENT, CONSULTING AND TERMINATION AGREEMENTS
On March 24, 1995, the Company entered into an employment agreement with Ms.
Lozoff, pursuant to which Ms. Lozoff became a Vice President and a director of
the Company. The employment agreement terminates August 1, 1998. Ms. Lozoff
currently receives an annual salary of $200,000 and reimbursement of
reasonable business expenses. In addition, at the time she entered into the
employment agreement, Ms. Lozoff was granted options to purchase 42,483 shares
of Common Stock under the Company's Amended and Restated 1995 Stock Option
Plan with an exercise price of $5.88 per share. Ms. Lozoff has exercised
12,744 of such options.
On July 1, 1996, the Company entered into a transition and consulting
agreement with Kyle T. Craig, in connection with his resignation as Chairman
of the Board of the Company, pursuant to which Mr. Craig continued as a full-
time employee of the Company until June 30, 1997 and thereafter would provide
consulting services to the Company until June 30, 1998. In July 1997, the
agreement was amended to provide that Mr. Craig would continue as an employee
of the Company through June 30, 1998. Mr. Craig was paid approximately $7,900
biweekly through June 30, 1997 and from such date until June 30, 1998 has
received, and will continue to receive, $1,923 bi-weekly. In addition, in
September 1997, the Company agreed to amend Mr. Craig's Confidentiality and
Non-Compete Agreement to permit Mr. Craig's employment by a third party food
service company.
In April 1996, the Company entered into a letter agreement with Mr. Goldston
in connection with his employment as the President and Chief Executive Officer
of the Company. Pursuant to the terms of such agreement, in 1997, the Company
paid to Mr. Goldston an annual salary of $360,000. In addition, pursuant to
the terms of the agreement, Mr. Goldston was granted options to purchase
114,030 shares of Common Stock at an exercise price of $10.52 per share. In
connection with his employment, Mr. Goldston also purchased 28,508 shares of
Common Stock at a price of $10.52 per share.
In September 1997, Mr. Goldston resigned as President of the Company and in
December 1997, Mr. Goldston resigned as Chief Executive Officer and director
of the Company. The Company and Mr. Goldston are parties to a termination
agreement pursuant to which the Company paid to Mr. Goldston $200,000 and
agreed to pay Mr. Goldston an aggregate of $360,000 in 26 equal bi-weekly
installments beginning in January 1998. In addition, the Reporting Person
Stock Option Committee agreed that previously granted options to purchase an
aggregate of 49,194 shares of Common Stock at exercise prices ranging from
$10.52 to $12.00 per share would continue to vest for a period of one year and
remain exercisable for two years from the date of Mr. Goldston's resignation.
The balance of 164,690 shares of Common Stock subject to such previously
granted options were canceled upon Mr. Goldston's resignation. Mr. Goldston is
not eligible to receive any future stock option grants from the Company.
In December 1997, Boston Chicken and Mr. Goldston entered into a termination
agreement in connection with Mr. Goldston's resignation as Vice Chairman of
the Board and a director of Boston Chicken, pursuant to which Boston Chicken
paid Mr. Goldston $300,000 and agreed to pay Mr. Goldston an aggregate of
$240,000 payable in 26 bi-weekly installments. In addition, (i) all options
previously granted by Boston Chicken to purchase 225,362 shares of Boston
Chicken common stock, at exercise prices ranging from $16.00 to $27.94 per
share, continue to vest in accordance with their terms and remain exercisable
for a period of one year after they have vested and (ii) all options
previously granted by Boston Chicken to purchase 344,673 shares of the
Company's Common Stock pursuant to contractual agreement continue to vest for
a period of one year and remain exercisable for two years from the date of the
termination agreement. Mr. Goldston is not eligible for any future stock
option grants from Boston Chicken.
16
<PAGE>
In April 1998, the Company entered into a letter agreement with Mr. Hartnett
in connection with Mr. Hartnett's employment as Chief Executive Officer of the
Company. Under the terms of the letter agreement, the Company agreed to pay
Mr. Hartnett an annual base salary of $300,000, subject to an annual
performance review and an annual bonus equal to 50% of Mr. Hartnett's base
salary, which bonus will be based one-third on the Company's revenue
performance, one-third on the Company's profitability and one-third on the
Company's overhead, in each case, measured against mutually agreed upon
targets. In connection with his employment, the Company granted Mr. Hartnett
options to purchase 210,000 shares of Common Stock at an exercise price of
$4.5625 under the Company's Amended and Restated 1997 Stock Option Plan. The
letter agreement also provided for reimbursement to Mr. Hartnett of reasonable
relocation costs and a $30,000 relocation allowance; provided, however, that
such amounts must be repaid by Mr. Hartnett in the event he voluntarily
terminates his employment with the Company or in the event he is terminated
for cause on or before one year from the date of his employment with the
Company. The letter agreement also provides that the Company will continue Mr.
Hartnett's base salary for one year in the event his employment is terminated
for any reason other than for cause on or before the fourth anniversary of the
date of the letter agreement and, in such case, Mr. Hartnett would also be
entitled to a pro-rata portion of the annual performance bonus described above
for the year in which such termination occurs. The Company also agreed to
continue Mr. Hartnett's base salary for two years following a change in
control of the Company (as defined in the letter agreement) if Mr. Hartnett's
termination in such circumstances is other than for cause or if his
termination is voluntary as the result of a material reduction in compensation
or benefits or any relocation in excess of 60 miles from Golden, Colorado.
In April 1998, the Company entered into a letter agreement with Mr. Stanchak
in connection with his resignation as Chief Development Officer of the
Company. Pursuant to the letter agreement, the Company agreed to pay Mr.
Stanchak a salary of $150,000 beginning in April 1998 and continuing through
August 29, 1999 and also to continue Mr. Stanchak's health insurance benefits
through such date. In addition, the Reporting Person Stock Option Committee
agreed that options previously granted to Mr. Stanchak to purchase 130,540
shares of Common Stock, with exercise prices ranging from $5.88 to $10.6875
per share, would continue to vest until January 21, 2000. Options to purchase
79,198 of such shares will remain exercisable for a period of five days after
January 21, 2000, and options to purchase the balance of such shares will
remain exercisable for a period of 15 days after January 21, 2000. The balance
of 119,798 shares of Common Stock subject to previously granted options were
canceled upon Mr. Stanchak's resignation. Mr. Stanchak is not eligible to
receive any future stock option grants from the Company.
In May 1998, the Company entered into a termination agreement with Mr.
Butler in connection with his resignation as President and a director of the
Company. Pursuant to such agreement, the Company paid to Mr. Butler $50,000
upon execution of the agreement and agreed to pay Mr. Butler an aggregate of
$300,000 in 26 equal bi-weekly installments beginning in May 1998. In
addition, the Reporting Person Stock Option Committee agreed that options
previously granted to Mr. Butler to purchase 6,797 shares of Common Stock,
with an exercise price of $5.88 per share, will continue to vest until July
1999 and remain exercisable for a period of two years from the date of Mr.
Butler's resignation. The Reporting Person Stock Option Committee also agreed
that options previously granted to Mr. Butler to purchase 141,971 shares of
Common Stock, with exercise prices ranging from $3.75 to $12.00 per share,
will continue to vest for a period of one year, and remain exercisable for a
period of two years, from the date of Mr. Butler's resignation. Options to
purchase 80,044 of such shares, with an exercise price of $3.75 per share,
were granted contingent upon the cancellation of options to purchase the same
number of shares with an exercise price of $10.6875 per share. The balance of
288,253 shares of Common Stock subject to previously granted options were
canceled upon Mr. Butler's resignation. Mr. Butler is not eligible to receive
any future stock option grants from the Company.
LOANS TO EXECUTIVE OFFICERS
On March 31, 1995, in connection with the Company's acquisition of the
assets of Offerdahl's Bagel Gourmet, Inc. ("OBG"), of which John A. Offerdahl,
a former director of the Company, and his spouse were majority stockholders,
the Company made a non-recourse loan to OBG in the principal amount of
$437,497, the
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proceeds of which were used to purchase an aggregate of 74,345 shares of
Common Stock, which shares secure the payment of principal and interest under
such loan. Also on March 31, 1995, the Company made a non-recourse loan to OBG
in the principal amount of $1,312,500, the proceeds of which were used to
purchase an equity interest in BC Equity Funding, L.L.C., a Delaware limited
liability company which invests in Boston Chicken area developers ("BCEF"),
which equity interest secures the payment of principal and interest under such
loan. Each loan described above accrues interest on the principal amount at
the reference rate announced by Bank of America Illinois from time to time
plus 1%. The principal balance of each loan and all accrued but unpaid
interest thereon are due and payable on April 15, 2001, but may be required to
be repaid earlier under certain circumstances. As of April 19, 1998, an
aggregate of $3,956,712 in principal and accrued interest was outstanding
under such loans.
Also in connection with the Company's acquisition of the assets of OBG, on
each of April 15, 1995, June 15, 1995, September 15, 1995 and January 15,
1996, the Company made an interest-free loan to OBG in the principal amount of
$46,100, and on April 15, 1996, the Company made an additional interest-free
loan to OBG in the principal amount of $1,502,276. The proceeds of each such
loan were used to satisfy income tax obligations arising from the acquisition.
Each such loan is secured by units of membership interest in BCEF owned by
OBG. The principal balance of each loan and all accrued but unpaid interest
thereon are due and payable on April 15, 2001, but may be required to be
repaid in whole or in part under certain circumstances.
OTHER RELATIONSHIPS
Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
stockholders, leases to the Company the land and building on which a store is
located. The Company subleases such land and building to one of its area
developers. The annual rental payments under the lease and sublease, each of
which terminates in May 2009, aggregate $72,000.
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RELATIONSHIP WITH BOSTON CHICKEN
The Company has granted to Boston Chicken an option (the "BCI Option") to
maintain ownership of shares of common stock of the Company having up to 52%
of the voting power of all of the outstanding shares of capital stock of the
Company having the power generally to vote in the election of directors. The
BCI Option is exercisable at a per share exercise price equal to (i) the
weighted average price per share at which the Company's common stock is issued
or sold in a transaction pursuant to which the BCI Option becomes exercisable,
in the case of a transaction in which such price per share is readily
ascertainable, or (ii) in all other cases, the average of the closing sale
prices for the common stock on the Nasdaq National Market (or such other
principal exchange or market on which the common stock may then be trading)
for the five trading days ending on the fifth trading day prior to the date of
the transaction pursuant to which the BCI Option becomes exercisable. The BCI
Option terminates if (i) Boston Chicken sells or transfers shares of the
Company's common stock and as a result owns less than a majority of the then
outstanding shares of the Company's voting stock or (ii) the percentage of
outstanding shares of voting stock of the Company owned by Boston Chicken is
reduced below 50% other than as a result of Boston Chicken's voluntary sale or
transfer of shares of the Company's common stock and Boston Chicken fails to
acquire a sufficient number of shares of common stock so that it owns at least
a majority of the then outstanding shares of voting stock of the Company by
July 31 of the calendar year next following the calendar year in which such
reduction occurs. In addition, the percentage ownership level of 52% is
subject to reduction to the extent voluntary sales or transfers by Boston
Chicken reduce its ownership of the outstanding shares of voting stock of the
Company to less than 52% but do not otherwise result in termination of the BCI
Option. In determining the percentage ownership of the voting stock of the
Company owned by Boston Chicken for purposes of the BCI Option, the following
shares are excluded: (i) 599,086 shares of the Company's common stock subject
to options granted by Boston Chicken and its subsidiaries, (ii) any shares of
common stock held by officers, directors or employees of Boston Chicken, and
(iii) any shares of common stock held by any person or entity that would not
be counted under generally accepted accounting principles in determining
whether Boston Chicken owns a majority of the voting stock for consolidated
financial statement purposes. Pursuant to such calculation, as of April 19,
1998, Boston Chicken owned approximately 50.1% of the outstanding common stock
of the Company and had the right to purchase 1,467,949 shares of common stock
of the Company at prices ranging from $10.30 to $30.75 per share. The Company
also granted Boston Chicken, pursuant to a registration rights agreement, five
demand and unlimited piggyback registration rights under the Securities Act,
with respect to shares of the Company's common stock owned by Boston Chicken.
The Company has an unsecured subordinated, non-convertible credit facility
with Boston Chicken providing for borrowings of up to $50.0 million. As of
April 19, 1998, there was no balance outstanding under the facility. The loan
terminates on June 14, 1998 if the Company has not drawn any amounts under the
loan as of such date. Interest on the loan is based on the reference rate of
the Bank of America National Trust and Savings Association, plus 1.5%. Any
borrowings outstanding are payable on June 15, 2003. Boston Chicken may
satisfy its funding obligations under the loan facility in either cash or
shares of Boston Chicken common stock. Boston Chicken has agreed to guarantee
the price of any shares of common stock delivered to the Company in
satisfaction of its obligations under the loan facility and thereafter sold by
the Company. Although the Company has not requested funding under the Boston
Chicken credit facility, there can be no assurance that, if requested, Boston
Chicken would have the resources available, or would use its available
resources, to fund the credit facility.
During fiscal 1997, the Company and Boston Chicken were parties to fee
service agreements, pursuant to which Boston Chicken provided the Company with
accounting and administration services and computer and communications
services. Boston Chicken continues to provide such services to the Company. In
addition, Boston Chicken subleases to the Company approximately 26,450 square
feet of office space (and certain common areas, including parking areas) for
the Company's support center located in Golden, Colorado. The sublease
currently provides for rental payments of $26,450 per month and has an initial
term expiring in December 2001. The Company is also party to a sublease,
pursuant to which the Company is entitled to the non-exclusive use of aircraft
leased by Boston Chicken from an unaffiliated third party leasing company. The
Company was party to
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a second such sublease with Boston Chicken in 1997. During fiscal 1997, the
Company and its area developers paid Boston Chicken an aggregate of
approximately $15.6 million pursuant to such agreements. The interruption of
the services provided by Boston Chicken under the above-described agreements
or a material adverse change in Boston Chicken's business or financial
condition could have a material adverse effect on the Company.
APPOINTMENT OF AUDITORS
The Board of Directors has selected the accounting firm of Arthur Andersen
LLP to serve as the independent auditors of the Company for its current fiscal
year ending December 27, 1998, pursuant to the recommendation of the Audit
Committee. Arthur Andersen LLP has served as the Company's independent
auditors since 1995. Representatives of Arthur Andersen LLP are expected to be
present at the annual meeting and they will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions from stockholders.
SOLICITATION OF PROXIES
Proxies will be solicited by the Board of Directors through the use of the
mail. Proxies may also be solicited by directors, officers and a small number
of other employees of the Company personally or by mail, telephone, facsimile,
or otherwise, but such persons will not be compensated for their services.
Brokerage firms, banks, fiduciaries, voting trustees or other nominees will be
requested to forward the soliciting material to the beneficial owners of stock
held of record by them. The entire cost of the Board of Directors'
solicitation will be borne by the Company.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material to be distributed by the Company in connection with the 1999 Annual
Meeting must do so no later than January 4, 1999. Any such proposal should be
submitted in writing to the Secretary of the Company at its principal
executive offices. In addition, the Company's bylaws require that in order for
any business to be properly brought before any meeting of stockholders,
including nominations for the election of directors, a stockholder must
provide written notice delivered to the Secretary of the Company at the
principal executive offices of the Company not less than 30 nor more than 60
days before the meeting date; provided, however, that in the event that less
than 40 days notice or prior public disclosure of the date of the meeting is
given or made to stockholders, the stockholder notice, in order to be timely,
must be received prior to the date of the meeting and not later than the close
of business on the tenth day following the day on which notice or disclosure
of the meeting date has been given or made. The stockholder notice must
include the stockholder's name and address as it appears on the Company's
records and the class and number of shares of the Company's capital stock
beneficially owned by such stockholder on the record date for the meeting. In
addition, (i) for proposals other than nominations for the election of
directors, such notice must include a description of the business desired to
be brought before the meeting, the reasons for conducting such business at the
meeting, and any material interest of the stockholder in such business, and
(ii) for proposals relating to stockholder nominations for the election of
directors, such notice must also include, with respect to each person
nominated, the information required by Regulation 14A under the Exchange Act.
OTHER MATTERS
Management knows of no other matters to be brought before the annual meeting
other than those described above. If any other business should come before the
meeting, it is intended that the persons named in the enclosed proxy will vote
the shares in accordance with their best judgment on any such matter.
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GENERAL
It is important that proxies be returned promptly. If you are unable to
attend the meeting, you are urged, regardless of the number of shares owned,
to date, sign, and return without delay your proxy card in the enclosed
addressed envelope.
By Order of the Board of Directors
[SIGNATURE OF AMY S. POWERS
APPEARS HERE]
Secretary
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PROXY PROXY
EINSTEIN/NOAH BAGEL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- MAY 21, 1998
THE UNDERSIGNED HEREBY APPOINTS ROBERT M. HARTNETT AND
J. MICHAEL JENKINS, OR EITHER OF THEM, EACH WITH FULL
POWER OF SUBSTITUTION, TO ACT AS PROXIES FOR THE
UNDERSIGNED, AND TO VOTE ALL SHARES OF COMMON STOCK OF
EINSTEIN/NOAH BAGEL CORP. (THE "COMPANY"), WHICH THE
UNDERSIGNED WOULD BE ENTITLED TO VOTE IF PERSONALLY
PRESENT AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE
COMPANY TO BE HELD ON THURSDAY, MAY 21, 1998 AT THE
DENVER MARRIOTT WEST, 1717 DENVER WEST BOULEVARD,
GOLDEN, COLORADO, AT 10:00 A.M., MOUNTAIN TIME, AND AT
ANY AND ALL ADJOURNMENTS OR POSTPONEMENTS THEREOF, AS
FOLLOWS:
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED,
BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE
VOTED FOR EACH OF THE NOMINEES LISTED. IF ANY OTHER
BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY
WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL
MEETING.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
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EINSTEIN/NOAH BAGEL CORP.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
For Withhold For All
1. Election of Directors: All All Except
Nominees: Robert M. Hartnett, [_] [_] [_]
J. Michael Jenkins, M. Laird Koldyke,
Gail A. Lozoff, John H. Muehlstein, Jr.
and David G. Stanchak
The Board recommends a vote "FOR" each of the nominees listed above.
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Nominee Exception
Should the undersigned be present and elect to vote at the Annual Meeting or at
any adjournment or postponement thereof, and after notification to the
Secretary of the Company at the Annual Meeting of the stockholder's decision to
terminate this proxy, then the power of such proxies shall be deemed terminated
and of no further force and effect. This proxy may also be revoked by filing a
written notice of revocation with the Secretary of the Company or by duly
executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the execution
of this proxy, of notice of the Annual Meeting, a Proxy Statement and the
Company's Annual Report to Shareholders.
In their discretion, the proxies are authorized to vote on any other business
that may come before the Annual Meeting or any adjournment or postponement
thereof.
Date: _______________________, 1998
_______________________________________________
Signature of Stockholder
_______________________________________________
Signature if held jointly
Please sign exactly as your name(s) appear(s)
on this card. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full title. If shares are held
jointly, each holder should sign.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
