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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21097
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EINSTEIN/NOAH BAGEL CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1294908
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14123 DENVER WEST PARKWAY
GOLDEN, CO 80401-4086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 215-9300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, $.01 PAR VALUE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
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, as
amended (the "Exchange Act"), during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days: Yes: X No:
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [_].
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
STOCKHOLDERS WHO WERE NOT AFFILIATES (AS DEFINED BY REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION) OF THE REGISTRANT WAS APPROXIMATELY
$68,092,846 AT MARCH 20, 1998 (BASED ON THE CLOSING SALE PRICE ON THE NASDAQ
NATIONAL MARKET ON MARCH 20, 1998, AS REPORTED BY THE WALL STREET JOURNAL
(WESTERN EDITION)). AT MARCH 20, 1998, THE REGISTRANT HAD ISSUED AND
OUTSTANDING AN AGGREGATE OF 33,333,681 SHARES OF COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE
THOSE SECTIONS OR PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21, 1998 DESCRIBED IN PART III HEREOF
ARE INCORPORATED BY REFERENCE IN THIS REPORT.
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-K UNDER "ITEM 1. BUSINESS", "ITEM 3.
LEGAL PROCEEDINGS", "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", AND ELSEWHERE IN THIS FORM 10-K,
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 THAT 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"), EINSTEIN BROS(R) BAGELS STORES 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 THE BUSINESS OF, BOSTON CHICKEN, INC. ("BOSTON CHICKEN"),
THE COMPANY'S MAJORITY STOCKHOLDER; 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-K. 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.
ITEM 1. BUSINESS
GENERAL
References in this Form 10-K to the "Company" mean the Company, its
predecessors and its and their subsidiaries, including Bagel Partners, unless
the context otherwise requires. Einstein Bros.(R) Bagels and Noah's New York
Bagels(R) are trademarks owned by the Company.
The Company owns and operates specialty retail stores that feature fresh-
baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative soups, salads and sandwiches, primarily under the Einstein Bros. Bagels
brand name and also under the Noah's New York Bagels brand name. The Company's
primary brand, Einstein Bros. Bagels, was developed by the Company after it was
formed in March 1995. The Noah's New York Bagels brand was acquired by the
Company in February 1996. As of December 28, 1997, there were 574 stores in
operation systemwide in 44 designated market areas ("DMAs"), with the Einstein
Bros. Bagels brand in 40 of such DMAs throughout the United States and the
Noah's New York Bagels brand in four of such DMAs, northern California, portions
of Los Angeles, Portland and Seattle/Tacoma. Subsequent to the end of 1997, the
Company closed 25 stores and opened six new stores. In February 1998, the
Company announced that, in order to permit increased organizational focus on the
existing store base, it intended to modify its 1998 development plans and to
develop 25 to 50 stores in 1998. See " Development Agreement." SEE ALSO
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ABOVE.
The key component of the Company's product strategy is its offering of
fresh-baked bagels, produced utilizing proprietary processes that allow for
maximum inclusion of high quality ingredients, such as whole blueberries,
raisins and nuts. Bagels are offered in a wide variety of both traditional and
creative flavors and are baked fresh throughout the day in each store using
steamed-baking processes.
The Company's stores also offer consumers a line of traditional and
creative flavors of cream cheese and an extensive line of beverages featuring
branded coffees and teas, fruit teas, bottled sodas, juices and waters, and a
full line of fountain sodas. The stores also include a menu of creative soups,
salads and sandwiches offering customers a variety of lunch alternatives, as
well as branded retail products that support the major menu categories,
including ground and whole bean coffee, teas, bagel chips, coffee mugs and other
items. Stores are typically in
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leased locations of approximately 2,000 square feet, substantial indoor seating
and when practical, additional outdoor seating.
The Company was incorporated in Delaware in February 1995 under the name
Progressive Bagel Concepts, Inc. The Company's name was subsequently changed to
Einstein/Noah Bagel Corp. in June 1996. The Company's principal executive
offices are located at 14123 Denver West Parkway, Golden, Colorado 80401 and its
telephone number is (303) 215-9300.
LOAN CONVERSIONS AND AREA DEVELOPER MERGER
On December 5, 1997, the Company converted its loans to its area developers
into a majority equity interest in the area developers (the "Loan Conversions")
and purchased additional area developer equity interests, and four of the
Company's five area developers, Colonial Bagels, L.P. ("Colonial"), Great Lakes
Bagels, L.P. ("Great Lakes"), Gulfstream Bagels, L.P. ("Gulfstream"), and
Sunbelt Bagels, L.L.C. ("Sunbelt") merged into the surviving area developer (the
"Area Developer Merger"), Noah's Pacific, L.L.C. ("Noah's"), now known as
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 minority interest owned by Bagel Store Development
Funding, L.L.C. ("Bagel Funding") and management of the former area developers.
Einstein/Noah Bagel Partners, Inc., a wholly-owned subsidiary of the Company, is
the general partner of Bagel Partners (the "General Partner"). By reason of its
holdings, the Company is able to control the affairs and policies of Bagel
Partners, elect the board of directors of the General Partner and approve or
disapprove any matter submitted to a vote of the partners of Bagel Partners,
including a change in control of Bagel Partners.
The Company believes that its area developers substantially assisted the
Company in accomplishing its goal of rapidly developing stores and brand
awareness in targeted local markets to achieve market leadership. However, the
Company believes that during a period of reduced store development, the
Company's business will be strengthened by focusing on a number of business
objectives better accomplished through a Company-controlled system. After
considering a number of alternative transactions, the Company's management
recommended, and the board of directors of the Company approved, the
Transactions. The Company expects that a Company-controlled system will promote
the development and refinement of its brands by unifying store operations and
customer experience, enhancing the Company's focus on store operations, unifying
and strengthening store performance incentives for employees, reducing
systemwide overhead, facilitating debt financing and improving tax efficiency.
Achieving the foregoing goals is dependent on a number of factors, many of which
are beyond the control of the Company. There can be no assurance any of such
goals will be achieved. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS"
ON PAGE 2.
The Company's success is dependent to a significant extent upon the
successful integration of the business operations of the Company's former area
developers and its ability to develop and operate existing and future stores and
manage its organizational and financial resources. There can be no assurance
that the Company will be able to successfully integrate the administrative,
management and service operations of a combined system or that such integration
will occur in a timely and efficient manner. The failure to achieve such
integration could have a material adverse effect on the business, operating
results and financial condition of the Company. The consolidation of the
operations of the Company's former area developers will require the dedication
of management resources and may temporarily distract attention from the day-to-
day business of the Company, which could adversely affect the Company's business
and operating results. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS"
ON PAGE 2.
DEVELOPMENT AGREEMENT
Prior to consummation of the Transactions, the development agreements
between the Company and its area developers provided for the development of a
specified number of bagel stores of a specified brand within a defined
geographic territory in accordance with a schedule of store opening dates. Such
development agreements provided for the opening of 283 stores in the 1998 fiscal
year. The Company's development agreement with Bagel Partners (the "Development
Agreement") currently provides for the development of an aggregate of
approximately 175
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stores in 1998 and each year thereafter during the development term, which was
extended so that it expires in 2002, permitting the total number of stores to be
developed systemwide to remain unchanged. In February 1998, the Company
announced that, in order to permit increased organizational focus on the
existing store base, it intended to modify its 1998 development plans and to
develop 25 to 50 stores in 1998.
The opening and success of stores are dependent on a number of factors,
including the availability of suitable sites, the negotiation of acceptable
lease or purchase terms for such sites, permitting and regulatory compliance,
the ability to meet construction schedules, the ability to hire and train
qualified personnel, the financial and other capabilities of the Company and
general economic and business conditions. Not all of the foregoing factors are
within the control of the Company. The financial resources required by the
Company to achieve systemwide plans will be dependent upon, among other things,
the number and cost of stores developed and store operating results. The cost
to develop a prototype store ranges from between $350,000 and $450,000. There
can be no assurance that the Company will have access to the financial resources
necessary to achieve systemwide plans or that stores will be successfully
developed and operated.
MARKETING AND COMPETITION
The Company believes that a key component in developing both the Einstein
Bros. Bagels and Noah's New York Bagels brands is a strong local and community-
based effort that encourages a close relationship between each store and its
community. The Company utilizes traditional marketing and advertising methods,
including radio, newspapers and other print media (including use of free-
standing inserts and promotional coupons), signage, direct mail and in-store
point-of-purchase displays to promote its brands.
The food service industry is intensely competitive with respect to food
quality, concept, convenience, location, customer service and value. In
addition, there are many well-established food service competitors with
substantially greater financial and other resources and substantially longer
operating histories than the Company. Many of such competitors are less
dependent than the Company on a single, primary product. The Company believes
that it competes with other bagel retailers and bakeries, specialty coffee
retailers, doughnut shops, fast-food restaurants, delicatessens, take-out food
service companies, supermarkets and convenience stores. In addition, the
Company believes that the start-up costs associated with retail bagel and
similar food service establishments are not a significant impediment to entry
into the retail bagel business. The Company believes that its Einstein Bros.
Bagels and Noah's New York Bagels brands compete favorably in the important
factors of food quality, convenience, customer service and value.
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
product, and the type, number and location of competing restaurants. Multi-unit
food service businesses such as the Company can also be substantially adversely
affected by publicity resulting from food quality, illness, injury or other
health concerns (including food-borne illness claims) or operating issues
stemming from one store or a limited number of stores, whether or not the
Company is liable. Claims relating to foreign objects, food-borne illness or
operating issues are common in the food service industry and a number of such
claims may exist at any given time. Dependence on frequent deliveries of
produce and supplies also subjects food service businesses such as the Company
to the risk that shortages or interruptions in supply caused by adverse weather
or other conditions could adversely affect the availability, quality and cost of
ingredients. In addition, material changes in, or the Company's failure to
comply with, applicable federal, state and local government regulations, and
factors such as inflation, increased food, labor and employee benefit costs,
regional weather conditions and unavailability of an adequate number of
experienced managers and hourly employees may also adversely affect the food
service industry in general and the Company's results of operations and
financial condition in particular.
VENDORS
The Company is party to a project and approved supplier agreement with
Harlan Bagel Supply Company, L.L.C. ("Harlan") and the equity owners of Harlan.
Under the agreement, Harlan has agreed to sell frozen bagel dough to the Company
at a price equal to the cost of ingredients and packaging, a predetermined
allowance for product losses and a fixed toll charge (which is subject to
adjustment for inflation, changes in formulations, specifications or procedures
required by the Company or failure of the Company to purchase certain minimum
numbers of bagels). The Company leases to Harlan certain equipment owned by the
Company. Harlan has granted
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to the Company an option, exercisable through the expiration or termination of
the supply agreement or the equipment lease agreement (currently April 2005), to
acquire all of the assets of Harlan at a formula price equal to a multiple of
Harlan's profits from sales of products under the agreement.
The Company also operates two dough production facilities in California.
The Company has determined that the frozen dough requirements previously
satisfied by the two facilities can be met from one facility's production
capacity and the Company expects to close one of the facilities in April 1998.
The Company has a long-term distribution agreement with Marriott
Distribution Services, Inc. ("Marriott"), which provides for distribution of
food, beverages and supplies to stores at a negotiated fixed mark-up above cost.
The Company purchases in excess of 10% of its products and supplies from
Marriott. Certain vendors have provided funds to the Company to be used for
advertising, marketing and promotions.
The Company may be subject to shortages or interruptions in supply caused
by transportation strikes, adverse weather or other conditions which could
adversely affect the quality, availability and cost of ingredients.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including
Einstein Bros(R) and Noah's New York Bagels(R). In addition, the Company has
federal trademark applications pending for a number of trademarks and service
marks, as well as the Einstein Bros. logo and certain other logos used by the
Company. The Company has applied to register Noah's New York Bagels(R) in more
than 30 foreign countries and Einstein Bros(R) in approximately 70 foreign
countries. Most of the applications pending in the United States and foreign
countries were filed in 1995 and 1996. The Company has not yet obtained federal
registrations for certain of the trademarks and service marks used in its
business, and there can be no assurance that such registrations will be
obtained.
The Company considers its intellectual property rights to be important to
its business and actively defends and enforces such rights.
GOVERNMENT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. The Company is subject to laws
governing its relationship with employees, including minimum wage requirements,
overtime, working and safety conditions and citizenship requirements. The
failure to obtain or retain food licenses, or increases in employee benefit
costs or other costs associated with employees, could adversely affect the
Company.
RELATIONSHIP WITH BOSTON CHICKEN
Boston Chicken has 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
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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
December 28, 1997, Boston Chicken owned approximately 50.1% of the outstanding
common stock of the Company and 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. Boston
Chicken also has five demand and unlimited piggyback registration rights under
the Securities Act of 1933, as amended (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
March 20, 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,
the Company subleases from Boston Chicken approximately 38,000 square feet of
office space (and certain common areas, including parking areas) for the
Company's support center located in Golden, Colorado. The sublease has an
initial term of five years 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 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.
EMPLOYEES; LABOR MATTERS
In connection with the Transactions, the Company offered employment to all
of the employees of Bagel Partners. Pursuant to the services agreement dated
December 15, 1997 between the Company and Bagel Partners, the Company provides
to Bagel Partners the services of such employees and certain other employees
hired by the Company and Bagel Partners reimburses the Company for the cost of
such employees. As of March 20, 1998, the Company had approximately 12,225
employees, of which approximately 12,000 were store-level employees.
Certain operations of the Company conducted in northern California under
the Noah's New York Bagels brand have from time to time been the subject of
union organizing activities. One store in the San Francisco Bay area is
currently in union contract negotiations and another Bay area store has received
a petition for a union election. Union affiliation may have a negative impact
upon employee relations and labor costs.
EXECUTIVE OFFICERS
Set forth below are the names and ages of the executive officers of the
Company, the positions they hold with the Company, and summaries of their
business experience. Executive officers are elected by, and serve at the
discretion of the Board of Directors. The executive officers of the Company are
as follows:
Scott A. Beck, age 39, became Chairman of the Board of the Company in July
1996 and has served as a director of the Company since March 1995. From
December 1997 until February 1998, Mr. Beck also served as
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Chief Executive Officer of the Company. He has been a director of Boston Chicken
since June 1992 and has served as Chairman or Co-Chairman of the Boston Chicken
board of directors since that date. Mr. Beck became President of Boston Chicken
in January 1997. From June 1992 until October 1997, Mr.Beck also served as Chief
Executive Officer of Boston Chicken. He was Vice Chairman of the Board of
Blockbuster Entertainment Corporation ("Blockbuster") from September 1989 until
his retirement in January 1992 and Chief Operating Officer of Blockbuster from
September 1989 to January 1991. Since 1980, Mr. Beck also has been President of
Pace Affiliates, Inc., an investment banking firm he founded.
Robert M. Hartnett, age 46, became Chief Executive Officer and a director
of the Company in February 1998. Mr. Hartnett has also served as Vice
President-Eastern Zone of the General Partner of 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.
Jeffrey L. Butler, age 36, has been the President of the Company since
September 1997 and has served as President of the General Partner of Bagel
Partners since December 1997. From May 1996 until September 1997, Mr. Butler
served as President of Einstein Bros. Bagels Concept and from January 1996 until
May 1996, Mr. Butler served as Chief Operating Officer of the Company. Prior to
that time, he was employed by BC Great Lakes, L.L.C., an area developer of
Boston Chicken ("BC Great Lakes"), since June 1995, and also served as President
of the managing member of BC Heartland, L.L.C., also a Boston Chicken area
developer, since August 1995. From June 1993 until June 1995, Mr. Butler served
as President and Chief Executive Officer of the general partner of BC Detroit
L.P., a predecessor of BC Great Lakes. From January 1992 until June 1993, Mr.
Butler served as Vice President -- Human Resources of Boston Chicken.
W. Eric Carlborg, age 34, became Chief Financial Officer in April 1997.
Prior thereto he was Senior Vice President-Finance of the Company since July
1996. From October 1995 through June 1996, he was Vice President of Alignment
and Planning of Boston Chicken. Prior to that time, Mr. Carlborg served as Vice
President-Corporate Finance of Merrill Lynch from January 1994 to October 1995
and served as an Associate of Merrill Lynch from August 1989 through December
1993.
Susan E. Daggett, age 37, became Vice President and Controller in November
1997. From January 1997 to November 1997, Ms. Daggett served as Vice President-
Operations Finance and from October 1995 to January 1997 she served as Director-
Operations Finance. Prior thereto, Ms. Daggett was Director-Financial Planning
and Reporting of Arby's, Inc. from March 1994 until September 1995, and was
Director-Planning, Reporting and Analysis of the Retail Division of Burger King
Corp. from July 1992 to February 1994.
Gail A. Lozoff, age 47, became Chief Concept Officer of the Company in
October 1997 and 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
1995.
David G. Stanchak, age 39, became a director and Chief Development Officer
of the Company in March 1995. From June 1992 until March 1995, he served as a
Senior Vice President of Boston Chicken, and from August 1989 until June 1992,
Mr. Stanchak was the National Director of Real Estate and Real Estate Legal
Counsel for Blockbuster.
Paul A. Strasen, age 41, has been a Senior Vice President of the Company
since February 1997 and has been General Counsel of the Company since April
1995. Mr. Strasen has also served as a Vice President of the General Partner of
Bagel Partners since December 1997 and was a Senior Vice President of Boston
Chicken from May 1997 until December 1997. From April 1995 to February 1997, he
was a Vice President of the Company. Prior to that time, he was a partner at
the Chicago law firm of Bell, Boyd & Lloyd from 1988 to April 1995.
ITEM 2. PROPERTIES
The Company leases its support center facility (containing its principal
executive offices and test bakery) in Golden, Colorado, which consists of
approximately 38,000 square feet of office space (and certain common areas,
including parking areas), from Boston Chicken. The Company and its subsidiaries
also lease sites for stores and commissaries. While the Company expects to
continue to lease sites in the future, the Company may also purchase land and/or
buildings for stores and commissaries to the extent acceptable terms are
available.
Stores and commissaries leased by the Company are typically leased under
"triple net" leases that require the lessee to pay its proportionate share of
real estate taxes, maintenance costs and insurance premiums. In some cases,
store leases require not only base rent but also percentage rent based on sales
in excess of specified amounts. Generally, the Company's store leases have
initial terms of five years with options to renew for two or three additional
five-year periods at market rates.
The Company also leases dough production facilities in San Leandro and
Whittier, California.
ITEM 3. LEGAL PROCEEDINGS
The Company, like others in the food service business, is from time to time
the subject of complaints, threat letters or litigation from customers alleging
illness, injury, or other food quality, health (including food-borne illness
claims), or operational concerns. Claims relating to foreign objects in food,
food-borne illness or operating issues are common in the food service industry,
and a number of such claims may exist at any given time. Adverse publicity
resulting from such allegations may materially adversely affect the Company or
its brands, regardless of whether such allegations are valid or whether the
Company is liable. In addition, the Company encounters complaints and
allegations from former or prospective employees or others from time to time, as
well as other matters which are common for businesses such as the Company. 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, certain of its current and former executive officers and
directors, the underwriters in the Company's initial public offering and the
Company's independent public accountants are defendants in a class
7
<PAGE>
action lawsuit filed in the United States District Court for the District of
Colorado. The lawsuit is comprised of separate actions that have been
consolidated into one action for pre-trial purposes. In addition, an action was
filed in state court in Jefferson County, Colorado, against the Company and
certain of the other defendants, 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 and Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder, as well as certain similar provisions of Colorado state
law. In each case, the plaintiffs are seeking, among other things, (i) to
certify their complaint as a class action on behalf of all persons who purchased
the common stock during the purported class period, (ii) an award of unspecified
compensatory damages, interest and costs to all members of the purported class,
and (iii) equitable relief permitted by law, equity or federal or state
statutes. Although the Company cannot predict the outcome of these lawsuits, the
Company believes the complaints are without merit and intends to vigorously
defend against the allegations made in the complaints. On February 10, 1998 the
Company filed a motion to dismiss the complaint in the federal case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1997.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices of the common
stock during each of the Company's fiscal quarters since its initial public
offering of common stock on August 1, 1996, as quoted on the Nasdaq National
Market as reported by The Wall Street Journal (Western Edition).
High Low
-------- -------
1996:
-----
Third Quarter $36 1/2 $19
Fourth Quarter 36 1/8 29 1/4
1997
----
First Quarter 33 3/4 17
Second Quarter 21 3/4 8 3/4
Third Quarter 15 10
Fourth Quarter 11 3/4 5
On March 20, 1998, the last reported sale price of the common stock on the
Nasdaq National Market was $4 3/4 per share. As of March 20, 1998, there were
approximately 630 record holders of the common stock.
The Company has never paid cash dividends on its common stock and the Board
of Directors intends to continue a policy of retaining any earnings for use in
the Company's operations. The Company does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's current credit
facilities contain prohibitions on the payment of any cash dividends.
During the fourth quarter of 1997, the Company issued an aggregate of 5,625
shares of common stock pursuant to the exercise of warrants for an aggregate
exercise price of $36,394. The shares of common stock issued upon exercise of
such warrants were 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.
Also during the fourth quarter of 1997, the Company issued warrants to
purchase shares of an aggregate of 100,000 shares of common stock at an exercise
price of $9.47 per share. The warrants were issued without registration under
the Securities Act in reliance on Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act.
9
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and store
data for the Company. This data should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
in Item 8 hereof and Management's Discussion and Analysis of Financial Condition
and Results of Operations included in Item 7 hereof.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR ENDED
THROUGH ---------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 (1) 1997 (1)
-------------- ------------ ------------
(In thousands, except per share data and number of stores)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Company stores................................. $25,685 $35,803 $28,436
Royalties and franchise-related fees........... 671 19,918 28,286
Interest income................................ 67 5,986 21,566
-------------- ------------ ------------
Total revenue................................ 26,423 61,707 78,288
Income (loss) from operations................... (43,152)(2) 10,039 3,664(3)
Net income (loss)............................... (43,716) 5,707 (1,402)
Basic earnings (loss) per share................. (7.87) 0.29 (0.04)
Diluted earnings (loss) per share............... (7.87) 0.27 (0.04)
Weighted average number of common and equivalent
shares outstanding:
Basic earnings (loss) per share.............. 5,570 19,286 32,956
Diluted earnings (loss) per share............ 5,570 21,023 32,956
STORE DATA (UNAUDITED):
Systemwide net revenue.......................... $26,410 $138,251 $302,995
Company stores.................................. 47 14 574
Area developer stores........................... 13 301 0
-------------- ------------ ------------
Number of stores at end of year................. 60 315 574
============== ============ ============
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................... $50,299 $332,418 $643,128
Long-term debt (4).............................. 58,875 - 149,000
Stockholders' equity (deficit).................. (20,994) 315,517 330,346
</TABLE>
(1) The Company's fiscal year is the 52/53-week period ending on the last Sunday
in December and normally consists of 13 four-week periods.
(2) Includes a $26.6 million write-off of intangible assets.
(3) Includes an $18.2 million charge associated primarily with the Transactions.
(4) Includes at December 31, 1995, $11.1 million attributable to repurchase
common stock shares and $7.8 million attributable to Series A preferred
stock. See Note 11 of Notes to the Company's Consolidated Financial
Statements. Includes at December 28, 1997, $24.0 million of the Company's
$30.0 million senior term loan ($6.0 million payable in 1998) and $125.0
million of 7 1/4% convertible subordinated debentures due 2004. See Note 6
of Notes to the Company's Consolidated Financial Statements.
PREDECESSOR COMPANIES
The summary historical combined financial data shown below represent the
financial data of the Company's predecessors: Brackman Brothers, Inc.
("Brackman"), Bagel & Bagel, Inc. ("Bagel & Bagel") and Offerdahl's Bagel
Gourmet, Inc. ("Offerdahl's"). The financial data for the period ended March
31, 1995 include the results of operations of the predecessors through their
respective dates of acquisition, which were March 24, 1995 for Brackman and
Bagel & Bagel and March 31, 1995 for Offerdahl's. The financial information is
presented on the historic cost basis of each of the predecessors. The basic and
fully diluted earnings (loss) per share and the weighted average number of
common and equivalent shares outstanding during the period have not been
presented
10
<PAGE>
for these periods because the Company believes this information is not
meaningful. Subsequent to the acquisition of these predecessors, the Company
sold substantially all of their assets. Accordingly, the Company does not
believe that such operating results are meaningful or are indicative of future
operating results of the Company.
<TABLE>
<CAPTION>
Year ended Period from
--------------------------- January 1, 1995
December 31, December 31, through
1993 1994 March 31, 1995
------------ ------------ ---------------
(in thousands)
<S> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenue........................ $12,048 $19,158 $5,882
Income from operations............... 449 1,452 39
Net income (loss).................... 389 696 (158)
COMBINED BALANCE SHEET DATA:
Total assets......................... $ 4,770 $ 9,511
Long-term debt....................... 1,011 2,822
</TABLE>
11
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
The Company believes that its area developers substantially assisted the
Company in accomplishing its goal of rapidly developing stores and brand
awareness in targeted local markets to achieve market leadership. The Company
believes that during a period of reduced store development, the Company's
business will be strengthened by focusing on a number of business objectives
better accomplished through a Company-controlled system. After considering a
number of alternative transactions, the Company's management recommended, and
the board of directors of the Company approved, the Transactions. The Company
expects that a Company-controlled system will promote the development and
refinement of its brands by unifying store operations and customer experience,
enhancing the Company's focus on store operations, unifying and strengthening
store performance incentives for employees, reducing systemwide overhead,
facilitating debt financing and improving tax efficiency. Achieving the
foregoing goals is dependent on a number of factors, many of which are beyond
the control of the Company. There can be no assurance any of such goals will be
achieved. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 2.
As a result of the Transactions, the revenue generated by the Company as a
lender, franchisor and service provider to the area developers prior to the date
of the Transactions is eliminated in consolidation and replaced with store
revenue and operating expenses from and after the date of the Transactions. The
foregoing results are adjusted in the "minority interest" line item to reflect
the minority interests not owned by the Company. As a result of the
Transactions, the operating results for the 1997 fiscal year are not, and for
the 1998 fiscal year will not be, readily comparable to those for the 1996 and
1995 fiscal years.
The Company expects to report positive earnings before interest, income
taxes, depreciation and amortization expenses ("EBITDA") in 1998; however, due
primarily to significant depreciation charges associated with the acquisition of
a Company store base and significant goodwill amortization resulting from the
Transactions, the Company expects to report a net loss in 1998. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 2. The Company's area
developers incurred aggregate net losses of $40.6 million in 1996 and $93.5
million in 1997 (until consummation of the Transactions).
EBITDA is dependent upon a number of factors, including the number of
stores in operation systemwide, the net weekly per store average ("WPSA")
revenue and cash flow of such stores and systemwide overhead expenses. Net WPSA
represents the weekly per store average for all stores after customer and
employee discounts, based upon the actual number of days the stores are open in
the reporting period. The Company considers EBITDA an important indicator of
operational performance. However, EBITDA should not be considered an
alternative to operating or net income as an indicator of the Company's
operational performance, nor as an alternative to cash flows from operating
activities as a measure of liquidity, in each case, determined in accordance
with generally accepted accounting principles.
As of March 20, 1998, Boston Chicken held approximately 51.9% of the voting
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. See "Item 1. Business
- -- Relationship with Boston Chicken." The Company and Boston Chicken are
parties to various agreements, pursuant to which Boston Chicken has agreed to
provide to the Company certain accounting and administration and computer and
communications services. The Company also has a non-convertible unsecured
credit facility from Boston Chicken providing for borrowings of up to $50.0
million. Although the Company has not requested funding under such 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.
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 9 to 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.
12
<PAGE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 29,
1996
The Company's results of operations for fiscal year ended December 28, 1997
reflect primarily the Company's operations as a franchisor. As a result of the
Transactions, the Company's results of operations after December 5, 1997 reflect
results of the Company as the majority owner and operator of stores systemwide.
Revenue. Total systemwide net revenue increased 119.2% to $303.0 million
for 1997 compared to $138.3 million in the prior year. The increase in
systemwide net revenue was due to an increase in the number of stores in
operation systemwide offset by a lower average net WPSA. The lower average net
WPSA was due to a lower proportion of mature stores in the system in 1997
compared to the prior year.
Revenue from Company stores decreased 20.6% to $28.4 million in 1997 from
$35.8 million in the prior year. The decrease was due to a lower average number
of Company stores in 1997 compared to 1996.
Royalties and franchise-related fees increased to $28.3 million for 1997
from $19.9 million in the prior year, due primarily to an increase in royalties,
real estate fees and lease income attributable to the larger base of franchise
stores operating in 1997 compared to 1996.
Interest income from loans to area developers increased to $21.6 million
for 1997 from $6.0 million in the prior year due to higher outstanding loan
balances associated with the increase in stores opened by the Company's area
developers during fiscal 1997.
Cost of Products Sold. Cost of products sold decreased 17.9% to $9.5
million for 1997, compared to $11.5 million in the prior year, due primarily to
the decrease in revenue from Company stores in 1997 compared to 1996. Cost of
products sold, as a percentage of Company store revenue, increased to 33.3% in
1997 from 32.2% in 1996. The cost structure in 1996 reflects primarily the
operation of stores under the Baltimore Bagels and Noah's New York Bagels brand
names; the cost structure in 1997 reflects primarily the operation of stores
under the Company's primary brands.
Salaries and Benefits. Salaries and benefits increased 21.7% to $22.3
million for 1997 compared to $18.3 million in the prior year, due primarily to
an increase in the number of employees at the Company's support center necessary
to support systemwide expansion and a charge of $2.7 million, associated
primarily with the Transactions. On a going forward basis, the Company expects
salaries and benefits to be higher under a Company-controlled system because
salaries and benefits previously paid by the Company's area developers will now
be reflected in the Company's consolidated financial statements.
General and Administrative. General and administrative expenses increased
96.5% to $42.9 million for 1997 compared to $21.8 million in the prior year, due
primarily to an increase in expenditures at the Company's support center
necessary to support systemwide expansion and a charge of $15.5 million,
associated primarily with the Transactions. On a going forward basis, the
Company expects general and administrative expenses to be higher under a
Company-controlled system because such expenses previously paid by the Company's
area developers will now be reflected in the Company's consolidated financial
statements and because of additional depreciation and amortization resulting
from owning stores and goodwill amortization resulting from the Transactions.
Other Expense. The Company incurred other expense of $4.1 million for 1997
compared to $4.3 million in the prior year.
Minority Interest. The minority interest in losses of Bagel Partners was
$4.0 million in 1997.
Income Taxes. The Company had a $5.0 million income tax expense in 1997
resulting primarily from certain non-deductible intangible amortization and the
uncertainty associated with the realization of its deferred tax asset.
13
<PAGE>
FISCAL YEAR ENDED DECEMBER 29, 1996 COMPARED TO THE PERIOD BEGINNING MARCH 24,
1995 (INCEPTION) AND ENDED DECEMBER 31, 1995
Revenue. Total revenue increased 134% for 1996 over the prior period.
Royalties and franchise-related fees were $19.9 million compared to $0.7 million
in the prior period, caused by an increase in stores opened and operated by area
developers, which totaled 301 as of December 29, 1996 compared to 13 as of
December 31, 1995. Interest income was $6.0 million for 1996 compared to
$67,000 in the prior period, due to higher interest income generated on
increased loans made to area developers. Revenue from Company stores increased
39% for 1996 to $35.8 million from $25.7 million in the prior period. The
increase was due to the revenue from acquired stores and stores opened by the
Company prior to being sold to area developers.
Cost of Products Sold. Cost of products sold increased 40% to $11.5
million for 1996 compared to $8.2 million in the prior period. The increase was
due primarily to the increase in revenue from Company stores. Cost of products
sold, as a percentage of Company store revenue, increased to 32.2% in 1996 from
32.1% in 1995.
Salaries and Benefits. Salaries and benefits increased 35% to $18.3
million for 1996 compared to $13.5 million in the prior period. The increase in
salaries and benefits was due to a greater number of Company stores in 1996 and
an increase in the number of employees at the Company's support center necessary
to support systemwide expansion.
General and Administrative. General and administrative expenses decreased
54% to $21.8 million for 1996 compared to $47.8 million in the prior period.
The decrease was due primarily to a $26.6 million write-off of intangible assets
in the prior period. After the acquisition of Brackman, Bagel & Bagel,
Offerdahl's and Baltimore Bagel Co. (collectively the "Founding Companies"), the
Company launched a development project, pursuant to which management analyzed
(i) the Founding Companies' stores, including brand positioning, product
offerings, operational service systems and atmosphere, (ii) the competitive
environment and (iii) the preferences of consumers across the United States.
The project resulted in the development of the Einstein Bros. Bagels brand and
store. In connection with, and as a result of, the development of the Einstein
Bros. Bagels brand and store, management determined to discontinue the use of
the identifiable intangible assets acquired in the acquisitions of the Founding
Companies, including trademarks and recipes. This change in business strategy
resulted in an impairment of such intangible assets and, accordingly, the assets
were written down to their fair market values. In addition, in 1995, certain
acquired store locations were determined to be unsuitable for the Einstein Bros.
Bagels brand and store, resulting in a $2.4 million provision for anticipated
costs required to close those locations. Absent these write-downs, general and
administrative expenses increased 16% for 1996 compared to the prior period.
This increase was due to an increase in expenditures at the Company's support
center necessary to support systemwide expansion and a greater number of Company
stores in 1996.
Included in general and administrative expenses are depreciation and
amortization charges of $5.4 million in 1996 and $1.7 million in the prior
period. The increase in depreciation and amortization charges was attributable
primarily to the goodwill and intangible assets related to the acquisition of
Noah's in February 1996.
Other Expense. The Company incurred other expense of $4.3 million for 1996
compared to $0.6 million in the prior period. The increase reflects higher net
interest expense attributable to borrowings under the Company's loan agreements,
offset by gains recognized on the sale of marketable equity securities.
Income Taxes. No income tax expense was recorded for the year ended
December 29, 1996 or the prior period. During 1996, the Company recognized a
portion of its deferred tax asset that resulted in no tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been from issuances of equity
and debt securities and internally generated cash from operations. Cash
provided from operations in 1997 totaled $27.7 million, an increase of $21.2
million from the cash provided from operations in 1996 of $6.5 million. The
increase was due primarily to an increase in royalties and franchise-related
fees and interest income from loans to area developers attributable to the
larger base of franchise stores operating in 1997 compared to 1996. Cash used
in operations in 1995 was $12.3 million.
14
<PAGE>
Cash provided from financing activities totaled $158.7 million in 1997. In
May 1997, the Company completed a private offering of $125.0 million principal
amount of 7 1/4% convertible subordinated debentures due 2004. As of December
28, 1997, the Company had $34.1 million available in cash and cash equivalents.
In addition, in November 1997, the Company entered into a secured credit
agreement with Bank of America National Trust and Savings Association and the
lenders named therein (the "Credit Facility"), that consisted of a $30.0 million
secured term loan facility and a $40.0 million secured revolving credit
facility. The Company also had a $50.0 million non-convertible credit facility
with Boston Chicken. At December 28, 1997, $30.0 million was outstanding under
the term loan of the Credit Facility and no balance was outstanding under the
facility with Boston Chicken. In March 1998, the Credit Facility was amended to
reduce the amount of the revolving credit facility to $25.0 million, which will
become available in increments through September 1998, subject to the Company's
compliance with certain financial covenants, including a minimum operating cash
flow test. The Credit Facility also contains financial covenants that require
maintaining certain minimum average weekly net sales levels and system and
store cash flow ratios, and that limit overhead levels. See Note 6 of Notes to
the Company's Consolidated Financial Statements. If the Company is unable to
comply with any of the Credit Facility's financial covenants, the Company would
be unable to draw on the revolving credit facility and, upon action of the
lenders under the Credit Facility, all outstanding principal and interest under
the Credit Facility could be accelerated and become immediately due and payable.
To the extent the Company did not have borrowing availability under the Credit
Facility, the Company could be required to seek additional sources of capital
and, if unable to obtain such capital, could be unable to satisfy its
obligations when due.
During 1996, the Company borrowed $80.0 million from Boston Chicken under
its convertible secured loan agreement, resulting in a $120.0 million
outstanding balance. In June 1996, Boston Chicken converted the entire $120.0
million balance of convertible debt into 15,307,421 shares of common stock of
the Company. Also during 1996, the Company raised $174.6 million from the sale
of approximately 8,670,000 shares of its common stock. During 1995, the Company
borrowed $40.0 million from Boston Chicken under its convertible secured loan
agreement (which Boston Chicken converted to equity of the Company in 1996) and
raised $20.8 million from the sale of approximately 3,500,000 shares of its
common stock.
The Company's primary use of capital reflects its effort to establish brand
awareness and market leadership, which historically was done by providing
partial financing to its area developers for use in rapid store development and
working capital needs. Net loan advances to area developers were $190.0 million
in 1997 (consisting of $359.2 million of loan advances, net of $169.2 million of
loan repayments) and $137.3 million in 1996 (consisting of $206.8 million of
loan advances, net of $69.5 million of loan repayments). The majority of the
loan advance and repayment activity reflects the revolving nature of the loans;
that is, amounts were drawn and repaid on a regular basis to optimize cash
management. The increase in loan advances was attributable to the increase in
the number of area developer stores opened in 1997 compared to 1996.
In addition to providing funding to its area developers, the Company's
capital requirements have consisted of store acquisition and development,
development of its corporate infrastructure, which supports systemwide
expansion, and investments in food production facilities. In 1997, the Company
expended $8.2 million on its corporate infrastructure and investments in food
production facilities compared to $10.1 million in 1996. In 1996, the Company
expended $107.9 million on store acquisition and development, including the
acquisition of all the capital stock of Noah's New York Bagels, Inc. for $100.9
million. The Company generated $3.6 million in 1997 and $49.9 million in 1996
from the sale of stores to newly formed area developers. There were no material
gains or losses recognized as a result of these sales.
The Company's primary uses of capital in 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 retrofitting 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 2.
SEASONALITY
Historically, the Company has experienced lower average store revenue
during November, December and January.
YEAR 2000
The Year 2000 issue is the result of computer programs that use two digits
rather than four to define the applicable year. Computer programs used by the
Company that have time sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. The Company is currently
assessing the impact of issues associated with the Year 2000. Based upon its
preliminary assessment, the Company does not believe such issues will materially
impact the Company's business,
15
<PAGE>
financial condition or results of operations. Year 2000 considerations may,
however, impact vendors or financial institutions with which the Company has
relationships, indirectly affecting the Company.
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
results of operations to date. Substantial increases in the cost of labor,
employee benefits, food and other operating expenses could adversely affect
results of store operations.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table shows quarterly unaudited financial results for fiscal
years 1997 and 1996. The first quarter consists of four four-week periods and
the second, third and fourth quarters consist of three four-week periods.
FIRST SECOND THIRD FOURTH
1997: QUARTER QUARTER QUARTER QUARTER
- ----- ------- ------- ------- --------
Revenue................................ $16,728 $13,275 $13,882 $ 34,403
Income (Loss) from Operations.......... 7,232 8,142 9,267 (20,977)
Net Income (Loss)...................... 5,178 5,114 5,364 (17,058)
Basic Earnings (Loss) per Share........ 0.16 0.15 0.16 (0.52)
Diluted Earnings (Loss) per Share...... 0.15 0.15 0.16 (0.52)
1996:
- -----
Revenue................................ $22,379 $18,206 $10,257 $ 10,865
Income (Loss) from Operations.......... (1,270) 2,303 4,235 4,771
Net Income (Loss)...................... (3,317) 295 3,953 4,776
Basic Earnings (Loss) per Share........ (0.53) 0.01 0.14 0.16
Diluted Earnings (Loss) per Share...... (0.53) 0.01 0.13 0.15
17
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
EINSTEIN/NOAH BAGEL CORP.
Report of Independent Public Accountants..................................... 19
Consolidated Financial Statements:
Consolidated Balance Sheets at December 29, 1996 and December 28, 1997.... 20
Consolidated Statements of Operations for the period from March 24, 1995
(inception) through December 31, 1995 and the fiscal years ended December
29, 1996 and December 28, 1997............................................ 21
Consolidated Statements of Stockholders' Equity (Deficit) for the period
from March 24, 1995 (inception) through December 31, 1995 and the fiscal
years ended December 29, 1996 and December 28, 1997....................... 22
Consolidated Statements of Cash Flows for the period from March 24, 1995
(inception) through December 31, 1995 and the fiscal years ended December
29, 1996 and December 28, 1997............................................ 23
Notes to Consolidated Financial Statements................................ 24
BAGEL & BAGEL, INC.
Report of Independent Public Accountants..................................... 38
Financial Statements:
Statements of Operations for the period from December 28, 1994 through
March 23, 1995.......................................................... 39
Statements of Cash Flows for the period from December 28, 1994 through
March 23, 1995.......................................................... 40
Notes to Financial Statements........................................... 41
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
Report of Independent Public Accountants..................................... 42
Combined Financial Statements:
Combined Statements of Operations for the period from January 1, 1995
through April 2, 1995................................................... 43
Combined Statements of Cash Flows for the period from January 1, 1995
through April 2, 1995................................................... 44
Notes to Combined Financial Statements.................................. 45
Report of Independent Public Accountants on Schedule II...................... 46
Supplemental Schedule II..................................................... 47
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Einstein/Noah Bagel Corp.:
We have audited the accompanying consolidated balance sheets of Einstein/Noah
Bagel Corp. (a Delaware corporation) and subsidiaries as of December 29, 1996
and December 28, 1997, and the consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal years ended December
29, 1996 and December 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Einstein/Noah Bagel Corp. and
subsidiaries as of December 29, 1996 and December 28, 1997, and the results of
their operations and their cash flows for the period from March 24, 1995
(inception) through December 31, 1995 and for the fiscal years ended December
29, 1996 and December 28, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 16, 1998
(except Note 6 as to which the
date is March 27, 1998)
19
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents............................ $ 50,741 $ 34,148
Accounts receivable, net............................. 5,589 1,593
Inventories.......................................... 205 9,823
Prepaid expenses and other current assets............ 374 502
------------ ------------
Total current assets................................ 56,909 46,066
Property and Equipment, net........................... 28,213 194,152
Notes Receivable...................................... 146,087 -
Goodwill, net......................................... 68,921 360,155
Trademarks, net....................................... 22,239 22,075
Recipes, net.......................................... 4,758 7,202
Other Assets, net..................................... 5,291 13,478
------------ ------------
Total assets........................................ $332,418 $643,128
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable..................................... $ 3,873 $ 16,140
Accrued expenses..................................... 3,615 38,369
Current portion of senior term loan.................. - 6,000
Deferred franchise revenue........................... 3,000 -
------------ ------------
Total current liabilities........................... 10,488 60,509
Long-Term Portion of Senior Term Loan................. - 24,000
Convertible Subordinated Debentures................... - 125,000
Deferred Franchise Revenue............................ 6,105 -
Other Noncurrent Liabilities.......................... 308 23,225
Minority Interest..................................... - 80,048
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; 32,299,756 shares issued and outstanding
in 1996 and 33,332,594 shares issued in 1997........ 323 333
Additional paid-in capital........................... 353,203 374,685
Treasury Stock, at cost (813,146 shares in 1997)..... - (5,261)
Accumulated deficit.................................. (38,009) (39,411)
------------ ------------
Total stockholders' equity......................... 315,517 330,346
------------ ------------
Total liabilities and stockholders' equity......... $332,418 $643,128
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
20
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR ENDED
THROUGH ---------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Company stores............................... $ 25,685 $35,803 $28,436
Royalties and franchise-related fees......... 671 19,918 28,286
Interest income.............................. 67 5,986 21,566
-------------- ------------ ------------
Total revenue.............................. 26,423 61,707 78,288
Costs and Expenses:
Cost of products sold........................ 8,239 11,546 9,479
Salaries and benefits........................ 13,531 18,302 22,268
General and administrative................... 47,805 21,820 42,877
-------------- ------------ ------------
Total costs and expenses................... 69,575 51,668 74,624
-------------- ------------ ------------
Income (Loss) from Operations................. (43,152) 10,039 3,664
Other Expense, net:
Interest expense, net........................ (1,281) (6,261) (4,129)
Other income, net............................ 717 1,929 -
-------------- ------------ ------------
Total other expense, net................... (564) (4,332) (4,129)
-------------- ------------ ------------
Income (Loss) Before Income Taxes and Minority
Interest..................................... (43,716) 5,707 (465)
Income Taxes.................................. - - 4,973
Minority Interest in Loss of Subsidiary....... - - (4,036)
-------------- ------------ ------------
Net Income (Loss)............................. $(43,716) $ 5,707 $(1,402)
============== ============ ============
Basic Earnings (Loss) per Share............... $ (7.87) $ 0.29 $ (0.04)
============== ============ ============
Diluted Earnings (Loss) per Share............. $ (7.87) $ 0.27 $ (0.04)
============== ============ ============
Weighted Average Number of Shares Outstanding:
Basic Earnings (Loss) per Share............ 5,570 19,286 32,956
============== ============ ============
Diluted Earnings (Loss) per Share.......... 5,570 21,023 32,956
============== ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
21
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR ENDED
THROUGH --------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
-------------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of period.............................. $ - $ 38 $ 323
Conversion of preferred stock, repurchase common stock
and debt................................................... - 175 -
Issuance of common stock.................................... 38 96 2
Exercise of stock options and warrants...................... - 14 8
-------------- ------------ ------------
Balance at end of year...................................... $ 38 $ 323 $ 333
============== ============ ============
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.............................. $ - $ 22,684 $353,203
Conversion of preferred stock, repurchase common stock and
debt....................................................... - 140,270 -
Issuance of common stock, net of offering costs of $500 in
1995, $10,343 in 1996 and $229 in 1997..................... 22,051 182,491 5,369
Exercise of stock options and warrants, including income tax
benefits of $1,597 in 1997................................. - 9,227 6,694
Dividends on Series A preferred stock and accretion of
dividends on repurchase common stock....................... (1,077) (1,708) -
Issuance of options and warrants............................ 1,710 239 1,619
Options to be issued in connection with acquisitions........ - - 7,800
Balance at end of year...................................... $ 22,684 $353,203 $374,685
============== ============ ============
TREASURY STOCK
Balance at beginning of period.............................. $ - $ - $ -
Purchase of 813,146 shares in 1997.......................... - - (5,261)
Balance at end of year...................................... $ - $ - $ (5,261)
============== ============ ============
ACCUMULATED DEFICIT
Balance at beginning of period.............................. $ - $(43,716) $(38,009)
Net income (loss)........................................... (43,716) 5,707 (1,402)
-------------- ------------ ------------
Balance at end of year...................................... $(43,716) $(38,009) $(39,411)
============== ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
22
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995
(INCEPTION) FISCAL YEAR ENDED
THROUGH ---------------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
--------------- ------------------ -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................................................... $(43,716) $ 5,707 $ (1,402)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization....................................... 1,657 5,431 8,502
Minority interest................................................... - - (4,036)
Provision for write-down of assets.................................. 26,575 - 12,773
Warrant and option expense.......................................... 1,710 239 1,619
Gain on the sale of marketable equity securities.................... (719) (1,824) -
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable............................................... (680) (3,966) 5,662
Accounts payable and accrued expenses............................. 1,778 (292) (11,377)
Deferred franchise revenue........................................ 910 8,180 (1,030)
Other assets and liabilities...................................... 173 (7,003) 16,950
--------------- ------------------ -------------
Net cash provided by (used in) operating activities............. (12,312) 6,472 27,661
--------------- ------------------ -------------
Cash Flows from Investing Activities:
Purchase of property and equipment.................................... (18,109) (38,198) (11,189)
Proceeds from sale of assets.......................................... 5,519 49,943 3,600
Acquisitions of Noah's New York Bagels, Inc., net of cash acquired.... - (100,902) -
Purchase of marketable equity securities, net of proceeds from sales.. (22,682) 1,824 -
Purchase of other assets.............................................. (621) (5,608) (5,381)
Issuance of notes receivable.......................................... (10,569) (209,514) (359,218)
Repayment of notes receivable......................................... 3,831 70,694 169,223
--------------- ------------------ -------------
Net cash used in investing activities............................... (42,631) (231,761) (202,965)
--------------- ------------------ -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock................................ 20,311 191,606 10,475
Increase in deferred financing costs.................................. - (944) (6,764)
Proceeds from term loan............................................... - - 30,000
Borrowings under credit facility...................................... - - 62,200
Repayments under credit facility...................................... - - (62,200)
Proceeds from convertible debt........................................ 91,060 352,272 125,000
Repayment of convertible debt......................................... (51,060) (272,272) -
--------------- ------------------ -------------
Net cash provided by financing activities........................... 60,311 270,662 158,711
--------------- ------------------ -------------
Net Increase (Decrease) in Cash and Cash Equivalents................... 5,368 45,373 (16,593)
Cash and Cash Equivalents, beginning of period......................... - 5,368 50,741
--------------- ------------------ -------------
Cash and Cash Equivalents, end of year................................. $ 5,368 $ 50,741 $ 34,148
=============== ================== =============
Supplemental Cash Flow Information:
Interest Paid $ 1,107 $ 7,232 $ 5,098
=============== ================== =============
Income Taxes Paid $ - $ - $ 640
=============== ================== =============
Supplemental Schedule of Non-Cash Activities:
Conversion of debt to common stock.................................. $ - $ 120,000 $ -
=============== ================== =============
Conversion of notes receivable into equity interests and assets..... $ - $ - $ 332,646
=============== ================== =============
Tax benefit of stock options exercised.............................. $ - $ - $ 1,597
=============== ================== =============
Options to be issued in connection with acquisitions................ $ - $ - $ 7,800
=============== ================== =============
Conversion of preferred stock, repurchase common stock and
accrued dividends on preferred stock.............................. $ - $ 20,445 $ -
=============== ================== =============
Exchange of preferred stock, repurchase common stock, common stock
and marketable equity securities for net assets acquired.......... $ 42,742 $ - $ -
=============== ================== =============
Issuance of common stock for note receivable........................ $ 437 $ - $ -
=============== ================== =============
Accretion of dividends on repurchase common stock................... $ 933 $ 1,486 $ -
=============== ================== =============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
23
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Einstein/Noah Bagel Corp. and its subsidiaries (the "Company") operate
specialty retail bagel stores in the United States, primarily under the Einstein
Bros. Bagels and Noah's New York Bagels brand names. At December 28, 1997,
there were 574 stores in operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Einstein/Noah Bagel Corp. and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year. The Company's fiscal year is the 52/53-week period ending on
the last Sunday in December, and normally consists of 13 four-week periods. The
first quarter consists of four periods and each of the remaining three quarters
consist of three periods.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on
hand and on deposit and highly liquid instruments purchased with maturities of
three months or less.
Inventories. Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of food, paper products and supplies.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method with buildings
and improvements being depreciated over 12 to 30 years, leasehold improvements
being amortized over the lesser of their useful lives or their lease terms,
including option periods, furniture, fixtures and equipment being depreciated
over five to eight years and pre-opening costs being depreciated over one year.
Property and equipment additions include acquisitions of buildings and
equipment, costs incurred in the development and construction of new stores, and
major improvements to existing stores. Expenditures for maintenance and repairs
are charged to expense as incurred. Development costs for franchised stores are
expensed when the store opens. Pre-opening costs consist primarily of salaries
and other direct expenses incurred in connection with the set-up and stocking of
stores, employee training and general store management activities incurred prior
to the opening of new stores.
The Accounting Standards Executive Committee of the AICPA has issued for
comment a proposed statement of position ("SOP") titled "Reporting on the Costs
of Start-up Activities." If issued as proposed, the new standard would require
the Company to prospectively expense pre-opening costs as incurred. As currently
proposed, the new SOP would not require restatement of prior periods and would
be applied as of the beginning of the fiscal year in which the SOP is first
adopted. Initial application would be reported as a cumulative effect of a
change in accounting principle. The Company does not believe the SOP will have a
material impact on its financial statements.
Goodwill and Other Intangible Assets. Goodwill, trademarks and recipes are
being amortized over 35, 30 and 10 years, respectively.
Long-Lived Assets. The Company evaluates whether events and circumstances
have occurred that indicate revision to the remaining useful lives or the
remaining balances of long-lived assets may be appropriate. Such events and
circumstances include, but are not limited to, a change in business strategy or
a change in current and long-term projected operating performance. When factors
indicate that the carrying amount of an asset may not be
24
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
recoverable, the Company estimates the future cash flows expected to result from
the use of such asset and its eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, the Company will recognize an impairment loss
equal to the excess of the carrying amount over the fair value of the asset.
Deferred Financing Costs. Deferred financing costs are amortized over the
period of the related financing, which ranges from three to seven years.
Revenue Recognition. Revenue from Company stores is recognized in the
period during which related food and beverage products are sold. Royalties are
recognized in the same period that related franchise store revenue is generated.
Revenue derived from initial franchise fees and area development fees is
recognized when the franchise store opens. Real estate fees are recognized as
earned, and lease income is recognized over the life of the lease on a straight-
line basis. Interest income is recognized as earned. Pursuant to Statement of
Financial Accounting Standards No. 45, "Accounting for Franchise Fee Revenue"
("SFAS No. 45"), commencing with the Company's announcement in October 1997 to
transition from a franchised to a Company-controlled system, the Company ceased
recognizing initial franchise and area development fees for the opening of new
stores. Upon consummation of the Company's conversion of its loans to area
developers into equity interests on December 5, 1997, revenue recognized by the
Company as lender, franchisor and service provider to the area developers is
eliminated in consolidation. The components of royalties and franchise-related
fees are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL PERIOD OR YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Initial franchise and area development fees....... $520 $12,140 $ 9,920
Royalties......................................... 35 6,086 15,487
Real estate fees and lease income................. - 1,564 2,375
Other............................................. 116 128 504
------------ ------------ ------------
Total royalties and franchise-related fees........ $671 $19,918 $28,286
============ ============ ============
</TABLE>
Per Share Data. In February 1997 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Under the new standard, the Company is required to change the method
used to compute earnings (loss) per share and to restate prior periods
presented, resulting in a dual presentation of basic and diluted earnings per
share. Basic earnings (loss) per share are computed by dividing net income
(loss), adjusted for dividends of $0.1 million on Series A preferred stock in
1995 and 1996, by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share are computed by dividing
net income (loss), adjusted for dividends of $0.1 million on Series A preferred
stock in 1995 and 1996, by the weighted average number of common shares and
dilutive Company securities outstanding during the period.
The difference between the weighted average number of common shares
outstanding to compute basic and diluted earnings (loss) per share in 1996
represents the dilutive effect of common stock options and warrants of 1.7
million shares. These securities were excluded for 1997 and 1995 because they
were antidilutive.
The calculation of diluted earnings (loss) per share excludes the Company's
7 1/4% convertible subordinated debentures due June 1, 2004 because of their
antidilutive effect. In addition, stock options and warrants outstanding in 1995
and 1996, which had exercise prices greater than the average market price of the
Company's common stock, were excluded from the 1995 and 1996 computations
because of their antidilutive effect. All stock options and warrants outstanding
in 1997 were excluded from the computation because of their antidilutive effect.
Pursuant to Securities and Exchange Commission ("SEC") rules, common stock
and dilutive securities issued by the Company at prices below the initial public
offering price during the 12-month period
25
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
prior to the offering ("cheap stock") were previously included in the
calculation as if they were outstanding for the entire fiscal year, regardless
of whether or not they were antidilutive. In Staff Accounting Bulletin 98, the
SEC redefined cheap stock as "nominal issuances." As a result, shares and
dilutive Company securities that were originally treated as cheap stock and
included in both the 1995 and 1996 computations have been adjusted in the
mrestated 1995 and 1996 weighted average shares outstanding. Due to the
restatement, 1995 basic and diluted losses per share increased from $4.54 to
$7.87. In 1996 basic earnings per share increased from $0.28 to $0.29 and
diluted earnings per share increased from $0.25 to $0.27.
Advertising Costs. Advertising costs are expensed in the period incurred.
Advertising expenses, primarily contributions to the Company's advertising funds
(See Note 8) were $0.7 million, $0.9 million and $2.2 million in 1995, 1996 and
1997, respectively.
Employee Stock Options. The Company accounts for its employee stock
options in accordance with the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. Required pro forma disclosures of compensation
expense determined under the fair value method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), are presented in Note 11.
Employee Benefit Plan. The Company has a 401(k) plan to which the Company
makes no contributions.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications. Certain reclassifications have been made to the 1996
amounts to conform with the 1997 presentation.
3. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA
Accounts receivable are net of an allowance for doubtful accounts of $0.8
million at December 28, 1997. There was no allowance at December 29, 1996.
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Property and equipment consists of (in thousands of dollars):
Land, buildings and improvements............................ $ 502 $ 1,143
Development in progress..................................... 1,449 -
Leasehold improvements...................................... 9,763 101,790
Furniture, fixtures and equipment........................... 17,962 93,850
Pre-opening expense......................................... - 1,335
------------ ------------
29,676 198,118
Less: Accumulated depreciation and amortization............. (1,463) (3,966)
------------ ------------
Total property and equipment, net.......................... $28,213 $194,152
============ ============
</TABLE>
Included in furniture, fixtures and equipment are assets leased to others
of $14.9 million (net of accumulated depreciation of approximately $0.9 million)
at December 29, 1996 and $8.5 million (net of accumulated depreciation of
approximately $0.7 million) at December 28, 1997.
26
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Accumulated amortization of intangibles consists of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
<S> <C> <C>
Goodwill............................................... $2,200 $ 4,836
Trademarks............................................. 584 1,258
Recipes................................................ 484 1,087
------------ ------------
Total accumulated amortization....................... $3,268 $ 7,181
============ ============
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
Accrued expenses consist of (in thousands of dollars):
Accrued payroll and related benefits................. $ 871 $ 7,997
Accrued interest..................................... 17 1,017
Accrued store closure costs.......................... - 4,716
Accrued purchase price obligation.................... - 4,500
Accrued vendor loss contracts........................ - 3,425
Accrued other........................................ 2,727 16,714
------------ ------------
Total accrued expenses............................. $3,615 $38,369
============ ============
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD OR YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense, net consists of (in thousands of
dollars):
Interest expense................................ $(1,432) $(6,950) $(6,097)
Interest income................................. 151 689 1,968
------------ ------------ ------------
Total interest expense, net................... $(1,281) $(6,261) $(4,129)
============ ============ ============
</TABLE>
4. ACQUISITIONS
In December 1997, the Company converted its outstanding loans to its area
developers into a majority equity interest in the area developers and purchased
additional area developer equity interests by exercising its option under each
of the loan agreements to purchase the amount of equity available under the
unfunded portion of the area developer loans, and the area developers merged
into a single entity now known as Einstein/Noah Bagel Partners, L.P. ("Bagel
Partners"). The Company owns an approximately 78% interest in Bagel Partners.
The acquisitions have been accounted for as a purchase and, accordingly, the
purchase price was allocated to assets (both tangible and intangible) and
liabilities to third parties based upon an estimate of fair values at the date
of acquisition. The following is a summary of each area developer acquisition
(in thousands of dollars):
Loan Option Liabilities
Area Developer Converted Exercise Assumed Goodwill
-------------- --------- -------- ----------- --------
Colonial Bagels, L.P. $46,000 $ - $12,433 $56,337
Great Lakes Bagels, L.P. 87,812 8,688 19,952 76,713
Gulfstream Bagels, L.P. 69,927 16,373 8,918 54,618
Noah's Pacific, L.L.C. 76,862 3,738 19,785 61,685
Sunbelt Bagels, L.L.C. 50,200 - 6,956 47,428
27
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The goodwill resulting from each acquisition (based upon a preliminary
allocation) is being amortized over a 35-year life. In connection with the
acquisitions, the Company committed to issue options to purchase 2,516,829
shares of the Company's common stock in exchange for options to purchase units
of limited partnership interest in Bagel Partners at an exchange rate of one
share of common stock for every 15 units of Bagel Partners limited partnership
interest. Such options were granted in January 1998 at an exercise price of
$6.00 per share, with an estimated fair value of $7.8 million.
The financial statements include the results of operations for the acquired
entities from their dates of acquisition. The following represents the
unaudited pro forma results of operations as if all of the purchase transactions
described above had occurred at the beginning of the periods presented (in
thousands of dollars, except per share data):
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
Revenue........................... $141,920 $307,035
Net loss.......................... (44,876) (83,729)
Basic loss per share.............. (2.33) (2.54)
Diluted loss per share............ (2.33) (2.54)
The pro forma information given above does not purport to be indicative of
the results that actually would have been reported if the transactions had
occurred at the beginning of the periods presented and is not intended to be a
projection of future results or trends.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents. The carrying value approximates fair value due
to the length of maturity of the investments.
Notes Receivable. The estimated fair value of notes receivable (Note 10),
including the conversion option, is based on the discounted value of future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings.
Convertible Debt. The estimated fair value of convertible debt, including
the conversion option, is based on the quoted market price of the convertible
debt.
Senior Term Loan. The estimated value of the senior term loan is based on
the discounted value of future payments using the Company's current borrowing
rate.
The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):
DECEMBER 29, 1996 DECEMBER 28, 1997
------------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
Cash and cash equivalents.... $ 50,741 $ 50,741 $ 34,148 $34,148
Notes receivable............. 146,087 146,087 - -
Convertible debt............. - - 125,000 82,188
Senior term loan............. - - 30,000 30,000
28
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
6. DEBT
The Company has a secured credit facility, consisting of a $30.0 million
secured term loan facility and a $25.0 million secured revolving credit
facility, providing for borrowings through October 31, 2000. Borrowings under
the credit facility may be either floating rate loans with interest at the
lenders' reference rate (the "Reference Rate") plus applicable margin, or
eurodollar rate loans with interest at the eurodollar rate plus applicable
margin. In addition, a commitment fee of .50% of the average daily unused
portion of the loan is required. The credit facility contains covenants that,
among other things, restrict other borrowings, prohibit cash dividends require
maintaining certain minimum average weekly net sales levels and system and store
cash flow ratios, and limit overhead levels. The credit facility is
collateralized by substantially all of the assets of the Company. As of December
28, 1997, $30.0 million was outstanding under the term loan of the credit
facility, bearing an interest rate of 9%. The term loan facility requires
principal payments of $1.5 million on March 1, June 1, September 1 and December
1 of each year, beginning on March 1, 1998 and continuing through October 2000,
at which time the outstanding balance is due.
The Company also has an unsecured non-convertible revolving credit facility
from Boston Chicken, Inc. ("Boston Chicken") providing for borrowings of up to
$50.0 million through June 15, 2003. The loan terminates on June 14, 1998 if
the Company has not drawn any amounts under the loan as of such date. The
facility bears interest at the Reference Rate plus 1.5%. There was no balance
outstanding under the facility as of December 29, 1996 or December 28, 1997.
In May 1997, the Company issued $125.0 million of 7 1/4% convertible
subordinated debentures due June 1, 2004. Interest is payable semi-annually on
June 1 and December 1 of each year. The debentures are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion rate
of $21.25 per share, subject to adjustment under certain conditions. After June
1, 2000, the debentures may be redeemed at the option of the Company initially
at 104.14% of their principal amount and at declining prices thereafter, plus
accrued interest. In addition, the Company is required, as of 40 business days
after the occurrence of a Change in Control (as defined in the indenture related
to the debentures), to purchase all or any part of any debenture at the option
of the debenture holder.
29
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
7. INCOME TAXES
As of December 28, 1997, the Company had cumulative federal and state tax
operating loss carryforwards available to reduce future taxable income of
approximately $6.2 million that begin to expire in 2010.
The primary components of deferred tax assets and liabilities are as
follows (in thousands of dollars):
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
Deferred tax assets:
Accounts payable and accrued expenses...... $ 199 $ 3,180
Deferred franchise revenue................. 3,551 -
Other noncurrent liabilities............... 226 -
Intangible assets.......................... 1,582 4,950
Net operating loss carryforwards........... 6,648 2,410
Other...................................... 63 862
------------ ------------
Total deferred tax assets.............. 12,269 11,402
Deferred tax liabilities:
Property and equipment..................... (1,335) (280)
Other assets............................... (652) (1,318)
------------ ------------
Total deferred tax liabilities......... (1,987) (1,598)
------------ ------------
Net deferred tax assets................ 10,282 9,804
Valuation allowance........................ (10,282) (9,804)
------------ ------------
Net deferred tax assets....................... $ - $ -
============ ============
Income tax expense consists of the following (in thousands of dollars):
FISCAL YEAR ENDED
DECEMBER 29, 1997
-----------------
Current:
Federal............................... $4,208
State................................. 765
-----------------
4,973
Deferred:
Federal............................... -
State................................. -
-----------------
$4,973
=================
For the year ended December 28, 1997, the Company recognized income tax
benefits pertaining to the exercise of stock options of $1.6 million, which are
accounted for as a direct increase in additional paid-in capital and do not
reduce reported income tax expense. As a result of the utilization of deferred
tax assets, during 1996 and 1997, the Company recognized $0.8 million and $2.9
million, respectively, of the change in the valuation allowance as a reduction
of goodwill from prior acquisitions.
The decrease in the valuation allowance of $0.5 million from December 29,
1996 to December 28, 1997 is due to the utilization of a portion of the
Company's operating loss carryforwards offset by allowances on deferred tax
assets added during 1997. The increase in the valuation allowance of $2.6
million from December 31, 1995 to December 29, 1996 is due to uncertainty
regarding the realization of the related tax benefits. The difference between
the Company's actual tax provision and the tax provision that would result from
applying the statutory federal income tax rate to income before income taxes is
attributable to the following (in thousands of dollars):
30
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 29, 1996 DECEMBER 28, 1997
----------------- -----------------
<S> <C> <C>
Income tax expense (benefit) at statutory rate...................... $ 1,997 $ (163)
State tax expense (benefit), net of federal benefit................. 228 (38)
Permanent difference related to goodwill............................ 1,138 1,138
Other permanent differences......................................... - 57
Tax attributes of minority interest in losses of subsidiary......... - 1,574
Change of valuation allowance....................................... (3,363) 2,405
----------------- -----------------
Provision for income taxes.......................................... $ - $4,973
================= =================
</TABLE>
8. NATIONAL AND LOCAL ADVERTISING FUNDS
Prior to the Company's acquisition of its area developers in December 1997
(see Note 4), the Company administered a National Advertising Fund and Local
Advertising Funds (the "Funds") that provided comprehensive advertising and
sales promotion support for stores. Contributions were made by all stores.
Consistent with SFAS No. 45, such funds were accounted for separately and were
not included in the financial statements of the Company because the Company
acted only as an agent for its franchisees in placing orders for advertising and
paying related invoices out of such accounts. Since the Company converted its
loans to its area developers, the Company no longer maintains the Funds.
9. COMMITMENTS AND CONTINGENCIES
The Company leases sites for its stores, commissaries and office space.
Lease terms are generally five to ten years with two or three five-year renewal
options. Most of the leases contain escalation clauses and common area
maintenance charges. The Company leases certain equipment to a vendor of frozen
bagel dough pursuant to an operating lease.
The following is a schedule of future minimum rental payments that are
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year and rental receipts due under leases on
equipment owned by the Company as of December 28, 1997 (in thousands of
dollars):
<TABLE>
<CAPTION>
MINIMUM
RENTAL
RECEIPTS
MINIMUM SUBLEASE NET MINIMUM ON
RENTAL PAYMENTS PROCEEDS RENTAL PAYMENTS EQUIPMENT OWNED
--------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
1998............... $30,440 $733 $29,707 $1,271
1999............... 30,195 647 29,548 1,271
2000............... 29,476 454 29,022 1,271
2001............... 25,318 385 24,933 1,271
2002............... 19,959 238 19,721 1,271
Thereafter......... 72,833 745 72,088 2,932
--------------- -------- --------------- ---------------
$208,221 $3,202 $205,019 $9,287
=============== ======== =============== ===============
</TABLE>
Rental expense, net of sublease income, under operating leases was
approximately $1.9 million for the period from March 24, 1995 (inception)
through December 31, 1995 and $1.6 million and $3.7 million for fiscal 1996 and
1997, respectively.
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
31
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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 $89.6 million, representing an approximately 21% equity
interest, in 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 any 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
intends to vigorously defend against the allegations made in the complaints. On
February 10, 1998 the Company filed a motion to dismiss the complaint in the
federal case.
10. AREA DEVELOPER FINANCING
Prior to the conversion of its loans to its area developers, the Company
offered partial financing to its area developers for use in expansion of their
operations. Area developers were required to expend at least 75% of their
contributed capital toward developing stores prior to drawing on the revolving
loan facilities provided by the Company, up to a predetermined maximum amount
generally equal to four times the amount of the area developer's equity capital.
Interest on the area developer loans was set at the Reference Rate from time to
time (an average of 8.27% for 1996 and 8.44% for 1997, until consummation of the
loan conversions) plus 1%, and was payable each four-week period. The area
developer loans were secured by a pledge of substantially all of the assets of
the area developer.
The following table summarizes credit commitments for area developer
financing as of December 29, 1996 (in thousands of dollars, except number of
area developers):
<TABLE>
<S> <C>
Number of area developers receiving financing............................. 11
Loan commitments.......................................................... $283,200
Unused loans.............................................................. (142,446)
----------
Loans outstanding (included in Notes Receivable).......................... $140,754
==========
Contributed capital....................................................... $75,765
==========
</TABLE>
32
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The following table summarizes area developer financing activity of the
Company during 1996 and 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1997
-------------- ---------------
<S> <C> <C>
Area developer loan balances,
beginning of year........................................................... $ 3,538 $ 140,754
Loan advances................................................................. 206,762 359,218
Loan repayments............................................................... (69,546) (169,171)
Loan conversions.............................................................. - (330,801)
-------------- ---------------
Area developer loan balances, end of year..................................... $ 140,754 $ -
============== ===============
</TABLE>
The majority of the loan advance and repayment activity reflects the
revolving nature of the loans, that is, amounts are drawn and repaid on a
regular basis to optimize cash management.
During 1996, ten area developers were formed, and their data has been
included in the table from the dates of their respective formations. In
addition, one area developer combined with one other area developer with
geographically contiguous territory. The following table sets forth certain
combined financial information, as of and for the year ended December 29, 1996,
provided by all the Company's area developers (in thousands, except number of
area developers and store data):
<TABLE>
<S> <C>
Total number of area developers.......................................... 11
Total number of area developer stores open............................... 301
Balance sheet data:
Total gross assets.................................................... $ 221,156
Total debt:
To the Company..................................................... 140,754
To third parties................................................... -
Total other liabilities (including trade payables).................... 37,033
Total partner/member equity........................................... 33,847
Statement of operations data:
Gross revenue......................................................... $ 109,940
Loss from continuing operations....................................... (40,592)
Statement of cash flows data:
Cash flows used in operating activities............................... $ (16,382)
Cash flows used in investing activities............................... (187,955)
Cash flows from financing activities.................................. 205,756
----------
Net change in cash................................................. $ 1,419
==========
</TABLE>
11. STOCKHOLDERS' EQUITY
Common Stock. On July 8, 1996, the Company effected a 225-for-one split of
the Company's common stock in the form of a stock dividend. Per share amounts,
the number of common shares and capital accounts have been restated to give
retroactive effect to the stock split.
33
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The Company issued 3,536,361 shares of common stock at the time of its
formation, which provided net proceeds of approximately $20.8 million.
In June 1996, Boston Chicken converted its $120.0 million loan to the
Company into 15,307,421 shares of common stock.
In August 1996, the Company completed an underwritten initial public
offering of 3,105,000 shares of its common stock, a concurrent non-underwritten
public offering of 425,000 shares of its common stock and a concurrent private
placement of 2,000,000 shares of its common stock to Boston Chicken raising
aggregate net proceeds of approximately $86.0 million.
In December 1996, the Company completed an additional underwritten public
offering of 2,640,000 shares of its common stock and a concurrent non-
underwritten public offering of 500,000 shares to Boston Chicken. The aggregate
net proceeds of these offerings were approximately $88.6 million.
Preferred Stock. In connection with the acquisition of the net assets of
Baltimore Bagel, Inc. in 1995, the Company issued 6,250 shares of Series A
preferred stock. The Series A preferred stock had a liquidation preference of
$1,000 per share, paid annual dividends of $60 per share, and was automatically
convertible into common stock of the Company upon closing of its initial public
offering, with the number of shares of common stock received being equal to
$1,000 plus accrued and unpaid dividends divided by 80% of the gross offering
price per share to the public. The total number of shares of common stock
issued on conversion was 465,829.
Warrants. In 1996, the Company sold warrants to purchase 1,012,500 shares
of common stock of the Company to Bagel Funding. The warrants have an exercise
price of $6.47 per share and expire in 2000. The Company has issued 345,300
shares of common stock in connection with the exercise of such warrants. Also
in 1996, the Company sold or issued warrants to purchase an aggregate of
1,252,425 shares of common stock of the Company to other third parties at
exercise prices ranging from $6.47 to $11.58 per share. The warrants expire at
various dates through 2001. The Company has issued 1,237,050 shares of common
stock in connection with the exercise of such warrants, all of which were
exercised at a price of $6.47 per share.
In 1997, the Company issued warrants to purchase an aggregate of 100,000
shares of common stock of the Company to third parties at an exercise price of
$9.47 per share. Such warrants expire on November 21, 2000.
Stock Option Plans. The Company has an amended and restated 1995 stock
option plan (the "1995 Plan"), under which options to purchase up to 5,500,000
shares of common stock may be granted to certain employees and officers of, and
consultants to, the Company and its subsidiaries. The option price is equal to
the fair market value of the stock on the date of the grant and each option has
a term of ten years. Options granted under the 1995 Plan generally vest at a
rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year, and the balance
vesting at the end of the fourth year from the date of the grant.
In addition, the Company has an amended and restated 1997 stock option plan
(the "1997 Plan"), under which options to purchase up to 5,500,000 shares of
common stock may be granted to employees and officers of, and consultants to,
the Company and its subsidiaries and affiliated companies. The administrators
of the 1997 Plan, consisting of certain members of the board of directors, have
discretion with respect to the terms of options granted under the 1997 Plan,
including price, term and vesting.
The Company also maintains a restated 1997 ENBP stock option plan (the
"ENBP Plan"), under which options to purchase up to 813,146 shares of common
stock of the Company may be granted to employees and officers of, and
consultants to, the Company and its subsidiaries and affiliated companies. The
shares subject to the ENBP Plan are shares of common stock previously issued and
sold by the Company to its area developers. Pursuant to the loan conversions,
the Company assumed the obligations of the area developers with respect to
options granted
34
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
on such shares and the shares are reflected as treasury stock in the Company's
consolidated financial statements. The terms and provisions of the ENBP Plan are
substantially the same as those of the 1997 Plan.
The Company also has a non-employee directors stock option plan (the
"Directors Plan"), under which options to purchase up to 100,000 shares of the
common stock of the Company may be granted to directors of the Company who are
not officers or employees of the Company. Under the terms of the Directors
Plan, the Company automatically grants to each such director, upon election or
re-election as a director of the Company, options to purchase shares having a
fair market value of $50,000 at the date of the grant, except that initial
grants under the Directors Plan were made on the date the Directors Plan was
adopted by the Company's board of directors. Options are granted at a price
equal to the fair market value of the stock on the date of grant, become
exercisable after the end of one year from the date of grant and have a term of
ten years from the date of grant. The options are subject to termination should
the optionee's service as a director of the Company terminate. At December 28,
1997, 23,690 shares had been granted under the Directors Plan at a weighted
average exercise price of $14.77 per share.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no employee compensation expense has been recognized for the
Company's stock option plans. Had employee compensation expense for the
Company's plans been determined based on the fair value at the grant date for
awards in 1995, 1996 and 1997 consistent with the provisions of SFAS No. 123,
the Company's net income (loss) and basic and diluted earnings (loss) per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
--------- ------- --------
<S> <C> <C> <C>
Net income (loss) - as reported........................ $ (43,716) $ 5,707 $ (1,402)
Net income (loss) - pro forma.......................... (44,395) 3,188 (5,161)
Basic earnings (loss) per share - as reported.......... (7.87) 0.29 (0.04)
Basic earnings (loss) per share - pro forma............ (9.16) 0.16 (0.16)
Diluted earnings (loss) per share - as reported........ (7.87) 0.27 (0.04)
Diluted earnings (loss) per share - pro forma.......... (9.16) 0.15 (0.16)
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ------- --------
<S> <C> <C> <C>
Expected volatility.................................... 38.0% 37.1% 45.0%
Risk-free interest rate................................ 6.8% 6.3% 6.2%
Expected lives......................................... 5 years 5 years 5 years
Dividend yield......................................... 0 0 0
</TABLE>
35
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Activity under the option plans through December 28, 1997 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Granted............................................................ 2,090,248 $ 5.93
Canceled........................................................... (16,778) 5.88
--------- ---------
Outstanding as of December 31, 1995................................ 2,073,470 5.93
Granted.......................................................... 1,959,165 7.94
Exercised........................................................ (353,096) 6.03
Canceled......................................................... (201,464) 7.27
----------- ---------
Outstanding as of December 29, 1996................................ 3,478,075 6.87
Granted.......................................................... 2,327,327 11.48
Exercised........................................................ (269,904) 6.20
Canceled......................................................... (579,611) 11.44
----------- ---------
Outstanding as of December 28, 1997................................ 4,955,887 8.58
=========== =========
Exercisable as of December 28, 1997................................ 557,816 $ 6.56
=========== =========
</TABLE>
Information on options outstanding at December 28, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -------------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICE OF OPTIONS LIFE (YEARS) EXERCISE PRICE OF OPTIONS EXERCISE PRICE
-------------- ---------- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$5.00 - 6.00 1,283,812 7.45 $ 5.88 406,151 $ 5.88
6.01 - 9.00 1,188,333 8.04 6.58 99,718 6.56
9.01 - 12.00 2,456,251 9.60 10.79 50,300 11.44
12.01 - 15.00 5,288 8.58 15.00 523 15.00
18.01 - 21.00 10,736 9.37 18.63 - -
27.01 - 30.00 9,124 8.94 29.59 911 29.59
30.01 - 33.00 1,546 8.77 32.65 137 32.63
33.01 - 34.00 797 8.81 33.66 76 33.67
---------- ------------ -------------- ---------- --------------
Total 4,955,887 8.67 $ 8.58 557,816 $ 6.56
========== ============ ============== ========== ==============
</TABLE>
Boston Chicken Option. The Company has granted to Boston Chicken an option
(the "BCI Option") to purchase such number of shares of the Company's common
stock as will permit Boston Chicken to maintain ownership of shares of common
stock having up to 52% of the voting power of all of the outstanding shares of
the capital stock of the Company having the power generally to vote in the
election of directors. The terms of the BCI Option provide that certain shares
of the Company's common stock owned by Boston Chicken are excluded in
determining the percentage ownership of the voting stock of the Company owned by
Boston Chicken for purposes of the BCI Option. As of December 28, 1997, Boston
Chicken had the right under the BCI Option to purchase 1,467,949 shares of the
Company's common stock at a weighted average price of $25.19.
36
<PAGE>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
As of December 28, 1997, the Company had 15,678,338 shares of common stock
reserved for issuance upon exercise of options and warrants.
12. RELATED PARTY TRANSACTIONS
Boston Chicken is the majority stockholder of the Company. For the
Company's 1995 fiscal year, the Company paid to Boston Chicken approximately
$1.2 million for the purchase of furniture, equipment and other miscellaneous
assets, and Boston Chicken charged the Company amounts aggregating approximately
$3.0 million, $10.2 million and $4.2 million in fiscal 1995, 1996 and 1997,
respectively, for software license, software maintenance, real estate, financial
advisory and accounting fees, and interest.
Pursuant to Statement of Financial Accounting Standards No. 57, "Related
Party Disclosures," all of the Company's former area developers may have been
deemed to be related parties as a result of the parties' lending and franchise
relationships. In addition, certain directors and officers and members of their
families had a direct or indirect equity interest in the Company's area
developers. Total royalties and franchise-related fees earned from all area
developers were $0.7 million, $19.9 million and $28.3 million in 1995, 1996 and
1997, respectively. Total interest income earned from all area developers was
$0.1 million, $6.0 million and $21.6 million in 1995, 1996 and 1997,
respectively. Total notes receivable from all area developers were $140.8
million at December 29, 1996. The Company has also sold to these entities,
stores, inventory, equipment and other miscellaneous net assets for which it
received approximately $5.5 million, $49.9 million and $3.6 million in fiscal
1995, 1996 and 1997, respectively.
Certain officers and directors of the Company and Boston Chicken and
members of their families are investors in Bagel Funding and had invested an
aggregate of $16.3 million in Bagel Funding at December 28, 1997. The Company
is the manager of Bagel Funding but has no equity interest in Bagel Funding.
Bagel Funding paid $0.5 million during 1996 to the Company in its capacity as
manager.
Certain directors and officers of the Company and members of their families
acquired equity interests in the Company's area developers in exchange for
promissory notes. These equity interests were converted into equity interests
in Bagel Partners in December 1997 and were redeemed in exchange for
cancellation of such promissory notes (having an aggregate principal amount of
approximately $2.1 million) in January 1998.
As of December 29, 1996 and December 28, 1997, the Company had notes
receivable from a stockholder of $3.4 million. The notes receivable bear
interest at the applicable Reference Rate plus 1%. Principal and interest are
due April 2001. The notes are collateralized by various assets.
During fiscal 1995 and 1996, the Company paid approximately $86,000 and
$98,000, respectively, to Bowana Aviation, Inc. ("Bowana") for the Company's use
of aircraft owned by Bowana. A director and a member of his family (both
stockholders of the Company) own Bowana. The Company believes that the amounts
charged by Bowana are at rates at least comparable to those charged by
unaffiliated third parties.
13. IMPAIRMENT LOSS
In 1997, the Company recognized an impairment loss on various long-lived
assets of $10.8 million. The loss resulted primarily from the planned closure
of a bagel dough production facility anticipated to be disposed of in 1998. In
addition, as a result of conversion to a Company-controlled system, the Company
wrote off certain store development costs and other store-related programs. The
assets subject to the impairment loss had a net book value of $11.6 million.
The impairment loss is included in general and administrative expenses in the
accompanying consolidated statements of operations.
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Bagel & Bagel, Inc.:
We have audited the accompanying statements of operations and cash flows
for the period from December 28, 1994 to March 23, 1995 of Bagel & Bagel, Inc.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Bagel &
Bagel, Inc. for the period from December 28, 1994 to March 23, 1995 in
conformity with generally accepted accounting principles.
MAYER HOFFMAN MCCANN L.C.
Kansas City, Missouri
April 26, 1996
38
<PAGE>
BAGEL & BAGEL, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM
DECEMBER 28, 1994 TO MARCH 23, 1995
Net Sales...................... $1,887,424
Cost and Expenses:
Cost of products sold....... 735,691
Salaries and benefits....... 534,759
General and administrative.. 653,430
----------
Total costs and expenses.. 1,923,880
----------
Loss from Operations........... (36,456)
Other Expense:
Interest expense............ (79,093)
Other expense, net.......... (14,277)
----------
Total other expense....... (93,370)
----------
Net Loss....................... $ (129,826)
==========
The accompanying notes to the financial statements are an integral part of these
statements.
39
<PAGE>
BAGEL & BAGEL, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
DECEMBER 28, 1994 TO MARCH 23, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss...................................................................... $ (129,826)
Adjustments to reconcile loss to net cash provided
by operating activities:
Depreciation and amortization.............................................. 139,478
Changes in assets and liabilities:
Accounts receivable...................................................... 63,053
Inventories.............................................................. 20,349
Prepaid expenses and other current assets................................ 34,587
Accounts payable and accrued expenses.................................... (115,568)
----------
Net cash provided by operating activities............................. 12,073
Cash Flows from Investing Activities:
Purchase of property and equipment............................................ (525,019)
----------
Net cash used in investing activities................................. (525,019)
Cash Flows from Financing Activities:
Increase in short-term obligations............................................ 2,038,652
Proceeds from long-term obligations........................................... 101,180
Repayment of long-term obligations............................................ (1,672,197)
Net cash provided by financing activities............................. 467,635
----------
Net Decrease in Cash............................................................ (45,311)
Cash, Beginning of Period....................................................... 253,874
Cash, End of Period............................................................. $ 208,563
==========
Supplemental Cash Flow Information:
Interest Paid................................................................. $ 12,701
==========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
40
<PAGE>
BAGEL & BAGEL, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Company operates a chain of bagel stores in the Kansas City
metropolitan area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
The provision for depreciation and amortization has been calculated using
the straight-line and accelerated methods. The following represents the useful
lives over which the assets are depreciated and amortized:
Leasehold improvements................. 8 years
Furniture, fixtures, and equipment..... 5-7 years
Expenditures for maintenance and repairs are expensed as incurred.
Revenue Recognition
Revenue from sales is recognized in the period the related food and
beverage products are sold.
Income Taxes
The Company is organized as a Subchapter S corporation for federal and
state income tax purposes. Any taxable income or loss is the responsibility of
the individual stockholders.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. COMMITMENTS
The Company leases its corporate offices, store premises and commissary
under various noncancelable operating lease agreements. Lease terms are
generally five years with renewal options ranging from one to ten years. Most of
these leases contain escalation clauses and common area maintenance charges.
Total rent expense was $100,000 for the period ended March 23, 1995, including
contingent rental expense of approximately $23,000 for the period ended March
23, 1995.
4. RELATED-PARTY TRANSACTIONS
The Company leases certain facilities from an entity controlled by the sole
stockholder. Total rent paid under this lease was $18,000 for the period ended
March 23, 1995.
5. SALE OF ASSETS
In March 1995, the Company sold substantially all of its net assets in
exchange for consideration with a market value of approximately $8.9 million.
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Offerdahl's Bagel Gourmet, Inc.
and Affiliates:
We have audited the accompanying combined statements of operations and cash
flows of Offerdahl's Bagel Gourmet, Inc. and Affiliates (Florida corporations)
for the period from January 1, 1995 to April 2, 1995. These financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Offerdahl's Bagel Gourmet, Inc. and Affiliates for the period from January 1,
1995 to April 2, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 24, 1996
42
<PAGE>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO APRIL 2, 1995
Net Sales.......................................................... $ 1,712,091
Cost and Expenses:
Cost of products sold............................................ 1,010,311
Salaries and benefits............................................ 776,739
General and administrative....................................... 227,585
Total costs and expenses....................................... 2,014,635
-----------
Loss from Operations............................................... (302,544)
Other income (Expense):
Interest expense................................................. (6,058)
Other income..................................................... 365
Total other expense............................................ (5,693)
Net Loss........................................................... $ (308,237)
===========
The accompanying notes to the financial statements are an integral part of these
statements.
43
<PAGE>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO APRIL 2, 1995
Cash Flows from Operating Activities:
Net loss................................................ $ (308,237)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization......................... 68,321
Changes in assets and liabilities:
Accounts receivable................................. (17,420)
Inventories......................................... 7,592
Prepaid expenses and other current assets........... (9,969)
Accounts payable and accrued expenses............... 879,557
Other............................................... (28,848)
-----------
Net cash provided by operating activities......... 590,996
Cash Flows from Investing Activities:
Purchases of property and equipment..................... (458,380)
-----------
Net cash used in investing activities............. (458,380)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................. 28,080
Distributions to stockholders........................... (32,000)
Repayment of long-term obligations...................... (250,000)
Net cash used in financing activities............. (253,920)
-----------
Net Decrease in Cash...................................... (121,304)
Cash, Beginning of Period................................. 248,142
Cash, End of Period....................................... $ 126,838
===========
Supplemental Cash Flow Information:
Interest paid........................................... $ 6,643
===========
The accompanying notes to the financial statements are an integral part of these
statements.
44
<PAGE>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Offerdahl's Bagel Gourmet, Inc. and Affiliates (the "Company") operates a
chain of bagel stores in Southern Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of
Offerdahl's Bagel Gourmet Inc., Bagel Gourmet (Sheridan), Inc., Bagel Gourmet
(Weston), Inc., Bagel Gourmet (Pembroke), Inc., Bagel Gourmet (Boynton), Inc.,
Bagel Gourmet (Promenade), Inc., Bagel Gourmet, Inc., and Bagel Gourmet
Production, Inc. Bagel Gourmet, Inc. was formed in 1993 through the merger of
Bagel Gourmet (Sheridan), Inc., Bagel Gourmet (Pembroke), Inc., Bagel Gourmet
(Boynton), Inc., Bagel Gourmet (Promenade), Inc. and Bagel Gourmet (Weston),
Inc., with Bagel Gourmet (Weston), Inc. as the surviving corporation. Bagel
Gourmet (Weston), Inc. then changed its name to Bagel Gourmet, Inc. Offerdahl's
Bagel Gourmet, Inc. was formed December 31, 1994 through the merger of Bagel
Gourmet Production, Inc. and Bagel Gourmet, Inc. All the companies are under
common control. All material intercompany accounts and transactions have been
eliminated in combination.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
The provision for depreciation and amortization has been calculated using
the straight-line method. The following represents the useful lives over which
the assets are depreciated and amortized:
Leasehold improvements................. 10 - 15 years
Furniture, fixtures, and equipment..... 5 - 7 years
Expenditures for maintenance and repairs are expensed as incurred.
Revenue Recognition
Revenue from sales is recognized in the period the related food and
beverage products are sold.
Income Taxes
The Company is organized as a Subchapter S corporation for federal and
state income tax purposes. Any taxable income or loss is the responsibility of
the individual stockholders.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. COMMITMENTS
The Company leases its corporate offices, store premises and commissary
under various noncancelable operating lease agreements. Lease terms are
generally five years with two or three five-year renewal options. Most of these
leases contain escalation clauses and common area maintenance charges. Total
rent expense was approximately $97,000 from January 1, 1995 through April 2,
1995.
4. SALE OF ASSETS
In March 1995, the Company sold certain of its net assets in exchange for
consideration with a market value of approximately $10.4 million.
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Einstein/Noah Bagel Corp.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Einstein/Noah Bagel Corp. and
subsidiaries as of December 29, 1996 and December 28, 1997, and for the fiscal
years ended December 29, 1996 and December 28, 1997 included in this Form 10-K,
and have issued our report thereon dated February 16, 1998 (except Note 6 as to
which the date is March 27, 1998). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
supplemental schedule listed in Part IV, Item 14 of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 16, 1998
(except Note 6 as to which the
date is March 27, 1998)
46
<PAGE>
SCHEDULE II
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Additions Deductions
at charged to for Balance
beginning costs and accounts at end of
Classifications of period expenses written-off period
- ----------------------------------------- ----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1997:
Allowance for Doubtful Accounts........ $ - $ 810,000* $ - $ 810,000
Fiscal year ended December 29, 1996:
Allowance for Doubtful Accounts........ 81,000 - (81,000) -
Fiscal year ended December 31, 1995:
Allowance for Doubtful Accounts........ - 81,000 - 81,000
</TABLE>
*Of such amount, $0.8 million was charged to goodwill as the result of
acquisitions made by the Company.
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. The information appearing under the caption "Election of
Directors" in the Company's Proxy Statement dated April 1998 (the "Proxy
Statement") is incorporated herein by reference.
Executive Officers. Information with respect to executive officers of the
Company is set forth under the caption "Executive Officers" in Item 1 of this
report.
Compliance with Section 16(a) of the Exchange Act. The information appearing
under the caption "Principal Stockholders and Securities Ownership of Management
Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Principal Stockholders and
Securities Ownership of Management" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the captions "Certain Transactions" and
"Relationship with Boston Chicken" in the Proxy Statement is incorporated herein
by reference. The Company believes that all related party transactions
discussed under the heading "Certain Transactions" in the Proxy Statement are no
less favorable to the Company than could have been reached with unaffiliated
third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
1. The Company's Consolidated Financial Statements are set forth in Part II,
Item 8.
A. Report of Independent Public Accountants (Arthur Andersen LLP);
B. Consolidated Balance Sheets at December 29, 1996 and December 28,
1997;
C. Consolidated Statements of Operations for the period from March 24,
1995 (inception) through December 31, 1995 and the fiscal years ended
December 29, 1996 and December 28, 1997;
D. Consolidated Statements of Stockholders' Equity for the period from
March 24, 1995 (inception) through December 31, 1995 and the fiscal
years ended December 29, 1996 and December 28, 1997;
E. Consolidated Statements of Cash Flows for the period from March 24,
1995 (inception) through December 31, 1995 and the fiscal years ended
December 29, 1996 and December 28, 1997; and
F. Notes to Consolidated Financial Statements.
48
<PAGE>
2. Bagel & Bagel, Inc. Financial Statements
A. Report of Independent Public Accountants (Mayer Hoffman McCann L.C.);
B. Statements of Operations for the period from December 28, 1994 to
March 23, 1995;
C. Statements of Cash Flows for the period from December 28, 1994 to
March 23, 1995; and
D. Notes to Financial Statements.
3. Offerdahl's Bagel Gourmet, Inc. and Affiliates Financial Statements
A. Report of Independent Public Accountants (Arthur Andersen LLP);
B. Combined Statements of Operations for the period from January 1, 1995
to April 2, 1995;
C. Combined Statements of Cash Flows for the period from January 1, 1995
to April 2, 1995; and
D. Notes to Combined Financial Statements.
4. The following schedules are set forth in Part II, Item 8.
A. Report of Independent Public Accountants (Arthur Andersen LLP); and
B. Schedule II - Valuation and Qualifying Accounts.
5. Exhibits
The exhibits to this report are listed in the Exhibit Index included
elsewhere herein. Included in the exhibits listed therein are the following
exhibits which constitute management contracts or compensatory plans or
arrangements:
(i) The Company's Amended and Restated 1995 Stock Option Plan.
(ii) The Company's 1996 Stock Option Plan for Non-Employee Directors.
(iii) The Company's Amended and Restated 1997 Stock Option Plan.
(iv) The Company's Restated 1997 ENBP Stock Option Plan.
(v) Termination Agreement dated December 26, 1997 between the Company
and Mark R. Goldston.
(vi) Letter Agreement dated as of September 23, 1996 terminating the
Employment Agreement dated March 31, 1995 between the Company and
John A. Offerdahl.
(vii) Consulting Agreement dated as of July 1, 1996 between the Company
and Kyle T. Craig.
(b) Reports on Form 8-K
During the fourth quarter of fiscal 1997, the Company filed reports on Form
8-K dated October 29, 1997, November 21, 1997 and December 26, 1997.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 30, 1998
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
-----------------------------
Robert M. Hartnett
Chief Executive Office
(Principal Executive Officer)
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 on March 30, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Robert M. Hartnett
-------------------------------------------- Chief Executive Officer and Director
Robert M. Hartnett (Principal Executive Officer)
/s/ Jeffrey L. Butler
-------------------------------------------- President & Director
Jeffrey L. Butler
/s/ W. Eric Carlborg
-------------------------------------------- Chief Financial Officer
W. Eric Carlborg (Principal Financial Officer)
/s/ Susan E. Daggett
-------------------------------------------- Vice President - Controller
Susan E. Daggett (Principal Accounting Officer)
/s/ Scott A. Beck
-------------------------------------------- Chairman of the Board and Director
Scott A. Beck
-------------------------------------------- Director
M. Laird Koldyke
/s/ Gail A. Lozoff
-------------------------------------------- Chief Concept Officer and Director
Gail A. Lozoff
/s/ John H. Muehlstein, Jr.
-------------------------------------------- Director
John H. Muehlstein, Jr.
/s/ Lloyd D. Ruth
-------------------------------------------- Director
Lloyd D. Ruth
-------------------------------------------- Chief Development Officer and Director
David G. Stanchak
</TABLE>
50
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT +
----------- -------------------------------------------------------------------------------
<C> <S>
2 Form of Secured Loan Agreement by and between the Company and each of
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 Pacific, L.L.C. ("Noah's") (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated November
21, 1997).
3.1 Restated Certificate of Incorporation of the Company ("Certificate of
Incorporation") (incorporated by reference to Exhibit 3 to the Company's
quarterly report for the quarter ended October 6, 1996).
3.2 Amended and Restated Bylaws of the Company ("Bylaws") (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-28941)).
4.1 Certificate of Incorporation (included in Exhibit 3.1).
4.2 Bylaws (included in Exhibit 3.2).
4.3 Certificate representing Common Stock (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-1 (Registration No.
333-04725)).
4.4 Amended and Restated Registration Rights Agreement dated February 1, 1996 by
and among the Company and certain stockholders of the Company (incorporated
by reference to Exhibit 4.4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-04725)).
4.5 Concurrent Private Placement Agreement dated August 1, 1996 between Boston
Chicken, Inc. ("Boston Chicken") and the Company (incorporated by reference
to Exhibit 10.3 to Boston Chicken's quarterly report on Form 10-Q for the
quarter ended July 14, 1996).
4.6 Registration Agreement dated August 1, 1996 between Boston Chicken and the
Company (incorporated by reference to Exhibit 10.3 to Boston Chicken's
quarterly report on Form 10-Q for the quarter ended July 14, 1996).
4.7 Concurrent Offering Purchase Agreement dated November 26, 1996 between
Boston Chicken and the Company ("Concurrent Offering Purchase Agreement")
(incorporated by reference to Exhibit 10.41 to Boston Chicken's 1996 annual
report on Form 10-K).
4.8 Registration Rights Agreement dated February 24, 1997 by and between the
Company and Alamo Bagels, L.P. (incorporated by reference to the Company's
1996 Annual Report on Form 10-K).
</TABLE>
+ In the case of incorporation by reference to documents filed by the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company's file number under that Act is 0-21097. In the case of
incorporation by reference to documents filed by Boston Chicken, Inc.
("Boston Chicken") under the Exchange Act, Boston Chicken's file number under
that Act is 0-22802.
Exhibit-1
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT +
----------- -------------------------------------------------------------------------------
<C> <S>
4.9 Indenture dated as of May 29, 1997 by and between the Company and Bankers
Trust Company, as Trustee, which includes as Exhibits the forms of Debenture
for the Company's 7-1/4% Convertible Subordinated Debentures due 2004 (the
"Debenture Indenture") (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated May 22, 1997).
4.10 Registration Rights Agreement dated May 22, 1997 by and between the Company
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Alex Brown & Sons Incorporated, and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated May 22, 1997).
10.1(a) Amended and Restated Loan Agreement dated May 17, 1996 between Boston
Chicken and the Company (the "Loan Agreement") (incorporated by reference to
Exhibit 10.1(a) to the Company's Registration Statement on Form S-1
(Registration No. 333-04725)).
10.1(b) First Amendment to the Loan Agreement dated July 19, 1996 (incorporated by
reference to Exhibit 10.1(b) to the Company's Registration Statement on Form
S-1 (Registration No. 333-04725)).
10.1(c) Second Amendment to the Loan Agreement dated September 16, 1996
(incorporated by reference to Exhibit 10.1(c) to the Company's Registration
Statement on Form S-1 (Registration No. 333-12395)).
10.1(d) Third Amendment to the Loan Agreement dated November 21, 1997.
10.2 Concurrent Private Placement Agreement dated August 1, 1996 between Boston
Chicken and the Company (included in Exhibit 4.5).
10.3(a) Secured Demand Note of the Company dated January 30, 1996 payable to Boston
Chicken ("Secured Demand Note") (incorporated by reference to Exhibit
10.23(d) to Boston Chicken's 1995 annual report on Form 10-K).
10.3(b) First Amendment to Secured Demand Note dated as of March 7, 1996
(incorporated by reference to Exhibit 10.3(b) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.3(c) Second Amendment to Secured Demand Note dated as of September 16, 1996
(included in Exhibit 10.1(c)).
10.3(d) Amended and Restated Nonconvertible Note dated November 21, 1997 (included
in Exhibit 10.1(d)).
10.4(a) Amended and Restated Secured Credit Agreement ("Secured Credit Agreement")
dated as of November 21, 1997 among the Company, Bank of America National
Trust and Savings Association ("Bank of America"), as Agent and Issuing
Lender, General Electric Capital Corporation, as Co-Agent and the Lenders
named therein (incorporated by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K dated November 21, 1997).
</TABLE>
+ In the case of incorporation by reference to documents filed by the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company's file number under that Act is 0-21097. In the case of
incorporation by reference to documents filed by Boston Chicken, Inc.
("Boston Chicken") under the Exchange Act, Boston Chicken's file number under
that Act is 0-22802.
Exhibit-2
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT +
----------- -------------------------------------------------------------------------------
<C> <S>
10.4(b) First Amendment and Waiver dated March 27, 1998 to Secured Credit Agreement.
10.5(a) Warrant Certificate to Purchase Shares of Common Stock issued on November
21, 1997 to GECFS, Inc.
10.5(b) Registration Rights Agreement dated November 21, 1997 between the Company
and GECFS, Inc.
10.6(a) Warrant Certificate to Purchase Shares of Common Stock issued on November
21, 1997 to Bank of America.
10.6(b) Registration Rights Agreement dated November 21, 1997 between the Company
and Bank of America.
10.7 The Company's Amended and Restated 1995 Stock Option Plan (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on Form
S-1 (Registration No. 333-04725)).
10.8 The Company's 1996 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.9 Amended and Restated 1997 Stock Option Plan of the Company (incorporated by
reference to Exhibit 4.11 to the Company's Registration Statement on Form
S-8 (Reg. No. 333-44353)).
10.10 Restated 1997 ENBP Stock Option Plan of the Company (incorporated by
reference to Exhibit 4.12 to the Company's Registration Statement on Form
S-8 (Reg. No. 333-44353)).
10.11(a) Amended and Restated Accounting and Administration Services Agreement dated
as of May 28, 1996 between Boston Chicken and the Company (incorporated by
reference to Exhibit 10.12(a) to the Company's Registration Statement on
Form S-1 (Registration No. 333-04725)).
10.11(b) First Amendment to Amended and Restated Accounting and Administration
Services Agreement dated as of June 17, 1996 between Boston Chicken and the
Company (incorporated by reference to Exhibit 10.12(b) to the Company's
Registration Statement on Form S-1 (Registration No. 333-04725)).
10.12(a) Amended and Restated Computer and Communications Systems Services Agreement
dated as of June 17, 1996 between Boston Chicken and the Company
(incorporated by reference to Exhibit 10.15(a) to the Company's Registration
Statement on Form S-1 (Registration No. 333-04725)).
10.12(b) First Amendment to the Amended and Restated Computer and Communications
Systems Services Agreement dated as of June 17, 1996 between Boston Chicken
and the Company (incorporated by reference to Exhibit 10.15(b) to the
Company's Registration Statement on Form S-1 (Registration No. 333-04725)).
</TABLE>
+ In the case of incorporation by reference to documents filed by the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company's file number under that Act is 0-21097. In the case of
incorporation by reference to documents filed by Boston Chicken, Inc.
("Boston Chicken") under the Exchange Act, Boston Chicken's file number under
that Act is 0-22802.
Exhibit-3
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT +
----------- -------------------------------------------------------------------------------
<C> <S>
10.13++ Amended and Restated Project and Approved Supplier Agreement dated August
15, 1997 among the Company, Harlan Bagel Supply Company, L.L.C. ("Harlan
Bagel Supply"), Harlan Bakeries, Inc. ("Harlan Bakeries") and Hal P. Harlan,
Hugh P. Harlan and Doug H. Harlan (the "Harlans") (incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended October 5, 1997).
10.14 Amended and Restated Option Agreement dated August 15, 1997 among Harlan
Bagel Supply, the Harlans and the Company (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended October 5, 1997).
10.15 Right of First Refusal Agreement dated August 27, 1996 among Harlan
Bakeries, the Harlans and the Company (incorporated by reference to Exhibit
10.26 to the Company's Registration Statement on Form S-1 (Registration No.
333-12395)).
10.16 Sixth Amended and Restated Limited Liability Company Agreement of Bagel
Store Development Funding, L.L.C. ("Bagel Funding") dated as of December 5,
1997.
10.17 Area Developer Merger Agreement and Plan of Merger dated as of December 5,
1997 among Colonial, Great Lakes, Gulfstream, Sunbelt and Einstein/Noah
Bagel Partners, L.P. ("Bagel Partners") (formerly Noah's) (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
November 21, 1997).
10.18(a) Limited Partnership Agreement of Bagel Partners (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated November
21, 1997).
10.18(b) First Amendment dated March 25,1998 to Limited Partnership Agreement of
Bagel Partners.
10.19 Loan Agreement dated December 5, 1997 by and between the Company and Bagel
Partners (incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K dated November 21, 1997).
10.20 Amended and Restated Development Agreement dated December 5, 1997 by and
between the Company and Bagel Partners (incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K dated November 21, 1997).
10.21 Services Agreement dated as of December 15, 1997 by and between the Company
and Bagel Partners (incorporated by reference to Boston Chicken's Current
Report on Form 8-K dated December 5, 1997).
</TABLE>
+ In the case of incorporation by reference to documents filed by the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company's file number under that Act is 0-21097. In the case of
incorporation by reference to documents filed by Boston Chicken, Inc.
("Boston Chicken") under the Exchange Act, Boston Chicken's file number under
that Act is 0-22802.
++ Confidential treatment granted.
Exhibit-4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT +
----------- -------------------------------------------------------------------------------
<C> <S>
10.22 Letter Agreement dated as of September 23, 1996 terminating the Employment
Agreement dated March 31, 1995 between the Company and John A. Offerdahl
(incorporated by reference to Exhibit 10.3 to the Company's quarterly report
on Form 10-Q for the quarter ended October 6, 1996).
10.23 Office Sublease dated as of December 20, 1996 between the Company and
Boston Chicken.
10.24 Consulting Agreement dated as of July 1, 1996 between Kyle T. Craig and the
Company (incorporated by reference to Exhibit 10.36 to the Company's
Registration Statement on Form S-1 (Registration No. 333-04725)).
10.25 Termination Agreement dated December 26, 1997 between the Company and Mark
R. Goldston.
10.26 Aircraft Dry Sublease and related Letter Agreement dated as of July 9, 1996
between the Company and Boston Chicken (incorporated by reference to Exhibit
10.37(a) to the Company's Registration Statement on Form S-1 (Registration
No. 333-04725)).
10.27 Concurrent Offering Purchase Agreement (included in Exhibit 4.7).
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP with respect to the Audited Consolidated
Financial Statements of the Company and the Supplemental Schedules Contained
in Part IV.
23.2 Consent of Mayer Hoffman McCann L.C. with respect to the Audited Financial
Statements of Bagel & Bagel, Inc.
23.3 Consent of Arthur Andersen LLP with respect to the Audited Combined
Financial Statements of Offerdahl's Bagel Gourmet, Inc.
27.1 Financial Data Schedule for Fiscal Year Ended December 28, 1997.
27.2 Restated Financial Data Schedule for Fiscal Quarters ended April
20, 1997, July 13, 1997 and October 5, 1997.
27.3 Restated Financial Data Schedule for Fiscal Quarters ended July
14, 1996 and October 6, 1996 and Fiscal Year Ended December 29, 1996.
</TABLE>
+ In the case of incorporation by reference to documents filed by the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Company's file number under that Act is 0-21097. In the case of
incorporation by reference to documents filed by Boston Chicken, Inc.
("Boston Chicken") under the Exchange Act, Boston Chicken's file number under
that Act is 0-22802.
Exhibit-5
<PAGE>
EXHIBIT 10.1(d)
THIRD AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
This Third Amendment to Amended and Restated Loan Agreement ("Third
Amendment") is made and entered into as of the 21st day of November, 1997 by and
between Einstein/Noah Bagel Corp. (formerly known as Einstein Bros. Bagels,
Inc.), a Delaware corporation (the "Company"), and Boston Chicken, Inc., a
Delaware corporation ("Boston Chicken").
RECITALS
--------
A. The Company and Boston Chicken are parties to an Amended and Restated
Secured Loan Agreement dated as of May 17, 1996, as amended by the First
Amendment to Amended and Restated Loan Agreement dated as of July 19, 1996, and
the Second Amendment to Amended and Restated Loan Agreement dated as of
September 16, 1996 (the "Loan Agreement"), pursuant to which Boston Chicken has
agreed, among other things, to make the Company a Convertible Loan, which on
June 17, 1996 was converted by Boston Chicken into common stock of the Company,
and a $50,000,000 Nonconvertible Loan, upon the terms and subject to the
conditions set forth therein.
B. The parties now desire to modify the terms on which the principal
amount of the Nonconvertible Loan is required to be repaid, on the terms and
conditions set forth herein.
COVENANTS
---------
Based upon the above recitals, the parties agree as follows:
1.1 Amendment of Loan Agreement. Upon satisfaction by the Company of the
conditions set forth in Section 3.1 hereof, the Loan Agreement shall be amended
as of the date hereof as follows:
(i) Section 1.4(a) of the Loan Agreement is hereby amended by deleting the
figure "1/2 of 1%" and substituting the figure "1 1/2%" therefor.
(ii) Section 1.5 (a) of the Loan Agreement is hereby amended by
substituting therefor the following new Section 1.5(a):
"(a) If not earlier paid, or if not accelerated for payment, the
outstanding principal amount of the Loan shall, at the close of
business on the Draw Loan Termination Date, thereafter become an
amortized term Loan payable as follows: the principal
<PAGE>
balance of the Loan shall be payable to Boston Chicken in
substantially equal period installments of principal (based on a
schedule amortizing such outstanding principal balance of the Loan at
the close of business on the Draw Loan Termination date in 130
substantially equal periodic installments of principal), plus accrued
but unpaid interest, on the first day of each of Boston Chicken's 13
consecutive four-week accounting periods used for accounting purposes
(each a "Retail Period"), commencing on the first day of the first
Retail Period commencing after the Installment Start Date and
continuing until the first day of the sixth Retail Period in Boston
Chicken's fiscal year 2003, when the entire remaining principal
balance of the Loan and all interest accrued thereon shall be due and
payable. For purposes of this Section, "Installment Start Date" shall
mean the date occurring 91 days after the date on which that certain
Amended and Restated Secured Credit Agreement dated as of November 21,
1997 (as the same may be amended, modified, extended or replaced, the
"Senior Credit Agreement") among certain lenders, General Electric
Capital Corporation, as Co-Agent, and Bank of America National Trust
and Savings Association, as Agent for such lenders, shall have
terminated and all principal, interest and fees thereunder shall have
been paid in full."
2.1 Effect of Amendment to Loan Agreement. From and after the effective
date hereof, reference in the Loan Agreement and all other documents executed
pursuant to the Loan Agreement (as each of the foregoing is amended hereby or
pursuant hereto) to (a) the Loan Agreement shall be deemed to be references to
the Loan Agreement as amended hereby and (b) the Note shall be deemed to be
references to the Amended and Restated Note in the form attached hereto as
Exhibit A, to be delivered hereunder (the "New Note").
3.1 Effective Date: Conditions. This Third Amendment shall not become
effective until:
(1) The Company shall have executed and delivered to Boston Chicken
this Amendment and the New Note.
(2) The Company shall have delivered to Boston Chicken a certificate
of the Company dated as of the effective date hereof in substantially the form
attached hereto as Exhibit B, which shall be signed by a duly authorized officer
of the Company; and
(3) The Company shall have delivered to Boston Chicken such other
documents and instruments as Boston Chicken may request in connection herewith.
2
<PAGE>
4.1 Representations. To induce Boston Chicken to enter into this Second
Amendment, the Company represents to Boston Chicken as of the date hereof that:
(1) The representations and warranties contained in Article IV of the
Loan Agreement are true and correct;
(2) No Default or Event of Default has occurred and is continuing; and
(3) This Third Amendment and the New Note have each been duly
authorized by all required action on the part of the Company, and each of this
Third Amendment and the New Note has been duly executed and delivered by the
Company and constitutes the legal, valid, and binding obligation of the Company
enforceable in accordance with its terms.
5.1 Definitions: Ratification. Any term used but not defined herein or
in the exhibits hereto shall have the meaning ascribed thereto in the Loan
Agreement. Except as expressly contemplated herein, the Loan Agreement and all
related certificates, and other documents, are hereby ratified and confirmed and
shall remain in full force and effect.
6.1 GOVERNING LAW. THIS THIRD 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.
7.1 Counterparts. This Third 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.
8.1 Headings. The headings of the sections of this Third Amendment are
inserted for convenience only and shall not be deemed to constitute a part of
this Third Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Third Amendment to be
effective on the date provided herein.
BOSTON CHICKEN, INC. EINSTEIN/NOAH BAGEL CORP.
By: /s/ Bernadette Dennehy By: /s/ Paul A. Strasen
-------------------------- --------------------------
Vice President Senior Vice President
4
<PAGE>
Exhibit A
5
<PAGE>
RIGHTS OF THE HOLDER TO RECEIVE PAYMENT HEREUNDER ARE SUBJECT TO A SUBORDINATION
AGREEMENT DATED MAY 17, 1996 EXECUTED BY BOSTON CHICKEN, INC. IN FAVOR OF BANK
OF AMERICA ILLINOIS, AS AGENT FOR CERTAIN LENDERS
AMENDED AND RESTATED
NONCONVERTIBLE NOTE
$50,000,000 Golden, Colorado
November 21, 1997
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), promises to pay to the order of Boston Chicken, Inc., a Delaware
corporation ("Boston Chicken"), pursuant to the Loan Agreement (as hereinafter
defined) at such place as Boston Chicken may from time to time designate in
writing, in lawful money of the United States of America and in immediately
available funds, the principal sum of fifty million dollars ($50,000,000) and
any interest thereon, or, if less, the aggregate unpaid amount of the
Nonconvertible Loan (herein called the "Loan") made pursuant to Section 1.1 of
the Loan Agreement and any interest thereon.
This Nonconvertible Secured Note (the "Note") evidences the Loan made
under, and is referred to in and is executed and delivered pursuant to, an
Amended and Restated Loan Agreement of even date herewith between the Company
and Boston Chicken (the "Loan Agreement"), to which reference is hereby made for
a statement of the terms and conditions under which this Note may be repaid and
accelerated. This Note is issued in exchange and replacement for the
Nonconvertible Secured Note dated May 17, 1996 from the Company in favor of
Boston Chicken (the "Prior Note"). The indebtedness evidenced by the Prior Note
is continuing indebtedness, and nothing herein shall be deemed to constitute a
payment, settlement, or novation of the Prior Note, or the release of, or
otherwise adversely affect, any rights of Boston Chicken against the
undersigned, any guarantor, surety, or other party primarily or secondarily
liable for such indebtedness. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
Interest shall accrue daily on the aggregate outstanding principal balance
of the Loan for the period commencing on the date the Loan is made until the
Loan is paid in full, at a per annum rate equal to the rate designated and
announced by National Trust and Savings Association or its successor in interest
(the "Bank") from time to time as its "reference rate" in effect at its
principal office in Chicago, Illinois, plus 1 1/2%. The interest rate shall be
adjusted, from time to time, on the same day on which the Bank adjusts its
"reference rate." Interest on the outstanding principal amount of the Loan
shall be payable in arrears on the first day of each Retail Period during the
Interest Payment
6
<PAGE>
Period, as otherwise provided herein in connection with principal payments, and
at maturity (whether by acceleration or otherwise).
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
Any principal payment due under this Note not paid when due, whether at
stated maturity, by notice of repayment, by acceleration or otherwise, shall, to
the extent permitted by applicable law, thereafter bear interest (compounded
monthly and payable upon demand) at a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Note in respect of such
principal amount until such unpaid amount has been paid in full (whether before
or after judgment).
Except as otherwise provided in the Loan Agreement, unless accelerated, the
outstanding principal amount of the Loan shall be payable to Boston Chicken in
substantially equal periodic installments of principal (based on a schedule
amortizing such outstanding principal balance of the Loan at the close of
business on the Draw Loan Termination Date in 130 substantially equal period
installments of principal), plus accrued but unpaid interest, on the first day
of each Boston Chicken's Retail Periods, commencing on the first day of the
first Retail Period commencing after the Installment Start Date and continuing
until the first day of the sixth Retail Period in Boston Chicken's fiscal year
2003, when the entire remaining principal balance of the Loan and all interest
accrued thereon shall be due and payable. For purposes of this Note,
"Installment Start Date" shall mean the date occurring 91 days after the date on
which that certain Amended and Restated Secured Credit Agreement dated as of
November 21, 1997 (as the same may be amended, modified, extended or replaced,
the "Senior Credit Agreement") among certain lenders, General Electric Capital
Corporation, as Co-Agent, and Bank of America National Trust and Savings
Association, as Agent for such lenders, shall have terminated and all principal,
interest and fees thereunder shall have been paid in full.
This Note may be prepaid, without premium or penalty, at any time. 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.
Loan advances may be made from time to time by Boston Chicken to the
Company in the manner and on the terms and subject to the conditions set forth
in the Loan Agreement. Upon granting each loan advance, Boston Chicken shall
record the
7
<PAGE>
making and amount of such advance on its books in a separate loan account, and
shall also record in the loan account all payments made by the Company with
respect to the Loan. The aggregate amount of all Advances, less the amounts of
payment of principal made by the Company, shall be the principal amount
outstanding under this Note. The loan account shall be prima facie evidence of
the unpaid amount of principal outstanding under this Note; provided, however,
that failure to maintain such account or record any advances therein shall not
relieve the Company of its obligations to repay the outstanding principal amount
of the Loan, all accrued interest thereon, and any amount payable with respect
thereto in accordance with the terms of this Note.
The occurrence of a Default shall be a default under this Note. Upon any
default under this Note, the holder of this Note may declare this Note due and
payable in full and exercise such other rights and remedies as are available to
the holder under the Loan Agreement or applicable law.
If there is any default under this Note, and 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 the order of the
holder hereof such holder's reasonable attorneys' fees and court costs incurred
in collecting or attempting to collect or securing or attempting to secure this
Note.
THIS NOTE HAS BEEN DELIVERED IN, AND 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.
The holder of this Note may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Note (i) extend the time for
payment of either principal or interest from time to time, (ii) release or
discharge any one or more parties liable on this Note, (iii) suspend the right
to enforce this Note with respect to any persons, (iv) change, exchange, or
release any property in which the holder has any interest securing this Note,
and (v) at any time it deems it necessary or proper, call for and, should it be
made available, accept, as additional security, the signature or signatures of
additional parties or a security interest in property of any kind or description
or both.
Any provision herein, or in the Loan Agreement, 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, neither Boston Chicken nor any holder hereof shall in
any event be entitled to receive or collect, nor shall any amounts received
hereunder be credited, so that Boston Chicken or any holder hereof 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 the
8
<PAGE>
Loan Agreement, or any and all other papers, agreements or commitments, indicate
a different right given to Boston Chicken or any holder hereof 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, the Loan Agreement, 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 Boston Chicken or any holder hereof 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 any holder hereof
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.
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.
By: __________________________
9
<PAGE>
Exhibit B
10
<PAGE>
CERTIFICATES
The undersigned, being the Chief Financial Officer of Einstein/Noah Bagel
Corp., a Delaware corporation (the "Company"), hereby represents, warrants, and
certifies that (i) no Default or Event of Default has occurred under the Amended
and Restated Secured Loan Agreement dated as of May 17, 1996 between the Company
and Boston Chicken, Inc., a Delaware corporation, as amended (the "Loan
Agreement"), and (ii) all of the covenants, agreements, representations, and
warranties made by the Company therein and in any writing delivered pursuant to
the Loan Agreement are true and correct and complete and have been fully
complied with as of the date of this Certificate.
By: ________________________
Name: W. Eric Carlborg
Title: Chief Financial Officer
Dated: November 21, 1997
11
<PAGE>
EXHIBIT 10.4(B)
FIRST AMENDMENT AND WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT AND WAIVER (this "Amendment") dated as of March 27,
1998 is entered into by and among Einstein/Noah Bagel Corp., a Delaware
corporation (the "Borrower"), the lenders who are party to the Credit Agreement
referred to below (the "Lenders"), General Electric Capital Corporation, as Co-
Agent (herein, in such capacity, the "Co-Agent"), and Bank of America National
Trust and Savings Association, as Agent for the Lenders (herein, in such
capacity, the "Agent").
W I T N E S E T H:
-----------------
WHEREAS, the Borrower, the Lenders, the Co-Agent and the Agent are parties
to a certain Amended and Restated Secured Credit Agreement dated as of November
21, 1997 (as heretofore amended, called the "Credit Agreement"; terms used but
not otherwise defined herein are used herein as defined in the Credit
Agreement);
WHEREAS, the Borrower desires to amend the Credit Agreement in certain
respects relating to Revolving Loan availability and to waive certain covenant
compliance; and
WHEREAS, subject to the terms and conditions set forth herein the Agent,
the Co-Agent and the Lenders are willing to amend the Credit Agreement in
certain respects and to waive certain covenant compliance;
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Borrower, the Agent, the Co-Agent and the Lenders
hereby agree as follows:
Section 1. Amendment.
Upon satisfaction of the conditions precedent set forth in Section 3 below
---------
and in reliance on the Borrower's warranties set forth in Section 4 below, as of
---------
the date hereof the Credit Agreement is hereby amended as follows:
(a) The following definitions set forth in Article I of the Credit
Agreement are amended to read in their entireties as follows:
""Applicable Margin" means with respect to Eurodollar Loans and
Floating Rate Loans, as the case may be, a margin as follows:
<PAGE>
<TABLE>
<CAPTION>
==============================================================================
Applicable Applicable Floating
Eurodollar Rate Rate Margin
Cash Flow Ratio Margin
------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 3.25% 0.50%
2.00:1
------------------------------------------------------------------------------
Greater than or equal to 2.75% 0.25%
1.50:1 but less than 2.00:1
------------------------------------------------------------------------------
Greater than or equal to 2.25% 0.00%
1.00:1 but less than 1.50:1
------------------------------------------------------------------------------
Less than 1.00:1 1.75% 0.00%
==============================================================================
</TABLE>
The Applicable Margin with respect to Eurodollar Loans and
Floating Rate Loans, as the case may be, shall be adjusted at all time
after the Revolving Loan Effective Date on the first day of the calendar
month following receipt by the Agent of the certificate required pursuant
to subsection 5.8(4), based on the Cash Flow Ratio as of the last day of
-----------------
the fiscal quarter most recently ended; it being understood that if the
Borrower fails to timely deliver the certificate in accordance with
subsection 5.8(4), then until five days following receipt of such
-----------------
certificate by the Agent, the Applicable Margin shall be 3.25% with respect
to Eurodollar Loans and 0.50% with respect to Floating Rate Loans. It is
hereby acknowledged that as of the Restatement Effective Date, the
Applicable Margin for Eurodollar Loans is 3.25% and for Floating Rate Loans
is 0.50%; provided, that, notwithstanding the foregoing, from the Revolving
--------
Loan Effective Date through and including September 6, 1998, with respect
to Revolving Loans, the Applicable Margin for Eurodollar Loans is 3.5% and
the Applicable Margin for Floating Rate Loans is 0.75%."
""Revolving Loan Effective Date" means March 27, 1998."
""Term Loan Commitment" means, at any time as to any Lender,
obligations to make a Term Loan to the Borrower pursuant to Section 2.1(2)
--------------
in an aggregate amount, for each Lender, not to exceed such Lender's
Percentage of the Total Term Loan Commitment Amount."
""Total Revolving Loan Commitment Amount" means, at any time, the
commitments of the Lenders to make Revolving Loans pursuant to Section
-------
2.1(1), in the aggregate amount set forth on Schedule 1.1C, as the same may
------ -------------
be amended pursuant to Section 2.7(2)."
--------------
(b) Section 5.8(1) of the Credit Agreement is amended to read in
its entirety as follows:
-2-
<PAGE>
"(1) Retail Period financial statements. As soon as available and
in any event within twenty (20) days after the end of each Retail Period of
the Borrower (or in the case of (a) the weekly cash forecast for the fifth
(5th) Retail Period, 1998 within ten (10) days after the end of such Retail
Period or (b) the last Retail Period of each fiscal quarter of the
Borrower, within thirty (30) days after the end of such Retail Period),
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Retail Period, consolidated and
consolidating statements of operations of the Borrower and its Subsidiaries
for the period commencing at the end of the previous fiscal year and ending
with the end of such Retail Period and for the period commencing at the end
of the previous Retail Period and ending with the end of such Retail
Period, and consolidated and consolidating statements of cash flows of the
Borrower and its Subsidiaries for the portion of the fiscal year ended with
the last day of such Retail Period and for the period commencing at the end
of the previous Retail Period and ending with the end of such Retail
Period, all in reasonable detail and for statements of operations, stating
in comparative form the respective budget figures for the corresponding
period, and a "flash" report of sales by week by unit in the most complete
form as previously delivered to the Agent;"
(c) Section 5.8(4) of the Credit Agreement is amended to read in
its entirety as follows:
"(4) Certificate of No Default. Together with the financial
-------------------------
statements furnished by the Borrower (a) under the preceding Clause (1)
with respect to the Borrower's fifth (5th) Retail Period, 1998, a
certificate demonstrating compliance with the provisions of Section 7.6 as
of the last day of such Retail Period and (b) under the preceding Clauses
-------
(2) and (3), a duly completed compliance certificate in the form of Exhibit
--- --- -------
M, in each case signed by the Chief Financial Officer or any Vice President
-
of the Borrower (in his or her capacity as such, and without personal
liability therefor);"
(d) Section 5.13(1) of the Credit Agreement is amended to read in
its entirety as follows:
"(1) At the time of each incurrence, and after giving effect
thereto, of Debt under the Agreement during any fiscal period set forth
below (but only at such times and at no other times) demonstrate to the
Agent that the ratio of (a) Senior Indebtedness outstanding immediately
after such incurrence to (b) Annualized System EBITDAL, for the fiscal
quarter then most recently ended for which financial statements have been
delivered to the Agent pursuant to Section 5.8, does not exceed the ratio
-----------
set forth below opposite such fiscal period:
-3-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Period(s) Ratio
- ------------------------------- ----------
<S> <C>
10th Retail Period, 1998 2.25:1.00
4th Fiscal Quarter, 1998 2.00:1.00
Fiscal Year 1999 1.75:1.00
Fiscal Year 2000 1.50:1.00"
</TABLE>
(e) Section 5.13 of the Credit Agreement is amended by adding at
the end of such Section a new clause (3) which reads in its entirety as
follows:
"(3) On September 7, 1998, demonstrate to the Agent that the ratio of (a)
Senior Indebtedness then outstanding to (b) Annualized System EBITDAL, for
the fiscal quarter then most recently ended for which financial statements
have been delivered to the Agent pursuant to Section 5.8, does not exceed
2.25:1.00"
(f) Section 7.1 of the Credit Agreement is amended to read in its
entirety as follows:
"SECTION 7.1. Net Store Revenue. Maintain as of the last day of
-----------------
each Retail Period, an average weekly net revenue (i.e., gross revenue net
of customer coupons and discounts) during such Retail Period per Store for
all Stores (whether operated by the Borrower or a Franchisee) of not less
than the amount set forth below opposite such fiscal period:
<TABLE>
<CAPTION>
Retail Period/Year Covenant Level
------------------ --------------
<S> <C>
3rd, 4th/1998 $ 12,000
5th, 6th, 7th/1998 $ 12,600
8th/1998 through 4th/1999 $ 12,800
5th/1999 through 4th/2000 $ 13,200
5th, 6th, 7th/2000 $ 13,400
thereafter $ 13,700"
</TABLE>
(g) Article VII of the Credit Agreement is amended by adding at
the end of such Article a new Section 7.6 which reads as follows:
"SECTION 7.6 System EBITDAL. Maintain as of the last day of the
--------------
Borrower's fifth (5th ) Retail Period, 1998, for the two consecutive Retail
Periods then ended, an Adjusted Cash of not less than $900,000. For
purposes of the Section, "Adjusted Cash" means, for any fiscal period, cash
provided by the Stores less compensation less total operating expenditures,
all as outlined on the Borrower's weekly cash forecast.
-4-
<PAGE>
(h) Section 8.1(4) of the Credit Agreement is amended to read in
its entirety as follows:
"(4) The Borrower or any Subsidiary shall fail to perform or
observe any term, covenant or agreement contained in (a) Section 5.8(1)
--------------
with respect to the Borrowers fifth (5th) Retail Period, 1998, 5.13(3) or
-------
7.6 or (b) Sections 6.1, 6.2, 6.5, 6.7, 6.8, 6.11, 7.1 through 7.5, 10.6 or
--- ------------ --- --- --- --- ---- --- --- ----
10.12 of this Agreement and such failure shall continue for four (4)
-----
Business Days after the earlier of discovery, notification or final
calculation thereof applicable thereto;"
(i) The Credit Agreement is amended by adding a new Schedule
1.1(C), which reads in its entirety as set forth on Annex I hereto,
immediately after the existing Schedule 1.1(B).
Section 2. Waiver.
Upon satisfaction of the conditions precedent set forth in Section 3 below
---------
and in reliance on the Borrower's warranties set forth in Section 3 below, the
---------
Lenders, the Co-Agent and the Agent hereby waive the Borrower's compliance with
the provisions of Sections 7.2 and 7.4 of the Credit Agreement from the date
hereof through and including the last day of the Borrower's second fiscal
quarter of 1998 (such date being July 12, 1998).
Section 3. Conditions Precedent.
This Amendment shall become effective upon receipt by the Agent of (a) duly
executed counterpart signature pages from the Borrower and the Required Lenders,
and (b) payment in immediately available funds of an amendment fee of $175,000
paid by the Borrower to the Agent for the account of each Lender according to
its respective percentage.
Section 4. Warranties.
To induce the Agent, the Co-Agent and the Lenders to enter into this
Amendment, the Borrower warrants to the Agent, the Co-Agent and the Lenders as
of the date hereof that:
(a) The representations and warranties contained in the Credit
Agreement and Loan Documents are true and correct in all material respects
on and as of the date hereof (except to the extent such representations and
warranties expressly refer to an earlier date); and
(b) No Default or Event of Default has occurred and is continuing.
-5-
<PAGE>
Section 5. GENERAL.
(a) As hereby modified, the Credit Agreement shall remain in full
force and effect and is hereby ratified, approved and confirmed in all
respects.
(b) This Amendment shall be binding upon and shall inure to the
benefit of the Borrower, the Lenders, the Co-Agent and the Agent and
respective successors and assigns of the Lenders, the Co-Agent and the
Agent.
(c) This Amendment may be executed in any number of counterparts
and by the different parties on separate counterparts, and each such
counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Amendment.
* * * * *
-6-
<PAGE>
Delivered at Chicago, Illinois, as of the date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
-------------------------------------
Title: Senior Vice President
----------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ David A. Johanson
-------------------------------------
Title: Vice President
----------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Lender
By: /s/ Marcia Clausen
-------------------------------------
Title: Managing Director
----------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Co-agent and Lender
By: /s/ Fred Maurice
-------------------------------------
Title: Vice President - Risk Manager
----------------------------------
LASALLE NATIONAL BANK
By: /s/ John C. Thurston
-------------------------------------
Title: Assistant Vice President
----------------------------------
-7-
<PAGE>
The undersigned hereby acknowledge the foregoing amendments and reaffirm
their respective duties and obligations arising under the Loan Documents to
which each is a party.
EINSTEIN NOAH BAGEL PARTNERS, INC.
By: /s/ Paul A. Strasen
-------------------------------------
Title: Vice President
----------------------------------
-8-
<PAGE>
Annex I
SCHEDULE 1.1(C)
Total Revolving Loan Commitment Amount
<TABLE>
<CAPTION>
Total Revolving Loan
Period Commitment Amount
------ --------------------
<S> <C>
Revolving Loan Effective Date
through May 31, 1998 $ 5,000,000
June 1, 1998 through June 29, 1998 $12,000,000
June 30, 1998 through September 6, 1998 $12,500,000
Thereafter $25,000,000
</TABLE>
-9-
<PAGE>
EXHIBIT 10.5(a)
This Warrant and the securities issuable upon exercise hereof not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") or under any applicable state securities law, and in
the absence of such registration may not be sold or transferred unless
the issuer of this Warrant has received an opinion of its counsel, or
of counsel reasonably satisfactory to it, that the proposed sale or
transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law.
EINSTEIN/NOAH BAGEL CORP.
WARRANT CERTIFICATE TO PURCHASE
SHARES OF COMMON STOCK
----------------------
Date of Issuance: November 21, 1997 Certificate W-GECFS-1
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), hereby grants to GECFS, Inc. (the "Registered Holder") the right to
purchase from the Company 80,000 shares of the Company's Common Stock, $.01 par
value, at a price per share of $9.47 (as adjusted from time to time in
accordance herewith, the "Exercise Price").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on Date of Issuance of this Warrant set
forth above and ending on the third annual anniversary of the Date of Issuance
(the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) cash (payable by wire transfer of same day funds or a
certified or bank cashier's check) in an amount equal to the product of the
Exercise Price
<PAGE>
multiplied by the number of shares of Company Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price") or, at
the option of the Registered Holder, the Registered Holder may elect to
receive shares of Company Common Stock equal to the value of this Warrant
by surrender of this Warrant to the Company, in which event the Company
shall issue to the Purchaser a number of shares of Company Common Stock
computed using the following formula:
x = y(a-b)
------
a
where: x = The number of shares of Company Common Stock to be
issued to the Purchaser.
y = The number of shares of Company Common Stock purchasable
under this Warrant (at the date of such calculation).
a = The "Fair Market Value" of one share of Company Common
Stock (at the date of such calculation).
b = The Exercise Price (as adjusted to the date of such
calculation).
As used in this Section I.B., the term "Fair Market Value" of a share of
Company Common Stock means the average of the closing prices of sales of
the Company's Common Stock on all securities exchanges or automated
quotation system on which the Company's Common Stock may at the time be
listed or included, or, if there has been no sales on any such exchange or
reported on such quotation system on any day, the average of the highest
bid and lowest asked prices on all such exchanges as reported at the end of
such day, or, if on any day the Company's Common Stock is not so listed or
included in any such quotation system, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the third day immediately prior to the day as of which "Fair
Market Value" is being determined and the 20 consecutive business days
prior to such day.
(ii) Certificates for shares of Common Stock, if any, purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, as soon as reasonably practicable, deliver
such new Warrant to the person designated for delivery in the Exercise
Agreement.
2
<PAGE>
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such shares of Common Stock at the Exercise Time irrespective
of the date of delivery of certificates for shares of Common Stock.
(iv) The issuance of certificates for shares of Common Stock, if any,
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Common Stock (other than the Aggregate Exercise Price).
Each share of Common Stock issuable upon exercise of this Warrant shall, when
issued, be duly and validly issued and free from all taxes, liens, encumbrances,
adverse claims and charges.
(v) The Company shall reasonably assist and cooperate with the
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any reasonable filings
required to be made by the Company), provided, however, that the Company will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph
(v), (B) subject itself to taxation in any such jurisdiction, or (C) consent to
general service of process in any such jurisdiction.
(vi) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock solely for the purpose of issuance upon
the exercise of this Warrant the maximum number of shares issuable upon the
exercise of this Warrant. All shares which are so issuable shall, when issued
in accordance herewith upon the payment of the Exercise Price, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens,
encumbrances, adverse claims and charges. The Company shall take all such
actions as may be reasonably necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock of the Company or their equivalents may be listed (except
for official notice of issuance which shall be immediately delivered by the
Company upon such issuance).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering of the Company or any event described in Section 2B hereof, the
exercise of any portion of this Warrant may, at the election of the Registered
Holder hereof, be conditioned upon the consummation of the public offering or
the event described in Section 2B, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
3
<PAGE>
(viii) Unless the shares of Common Stock to be issued upon exercise
of this Warrant have been registered under the Securities Act of 1933, as
amended, the certificates for such shares shall contain the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), or under any
applicable state securities law, and may not be resold or transferred unless
registered under the Securities Act or unless the Company has received an
opinion of its counsel, or of counsel reasonably satisfactory to it, that the
proposed transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law."
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit IA or IB
hereto, except that if the shares of Common Stock are not to be issued in the
name of the person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the person to whom the shares of Common
Stock are to be issued. Such Exercise Agreement shall be dated the actual date
of execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the number of shares of Common Stock (or other securities)
obtainable upon exercise of this Warrant shall be subject to adjustment from
time to time as provided in this Section 2.
2A. Subdivision or Combination of Shares of Common Stock. If the Company
at any time subdivides (by any split, dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Options and Convertible Securities. If the Company at any time shall
pay a dividend or make a distribution with respect to the Common Stock payable
in Options (as hereinafter defined) or Convertible Securities (as hereinafter
defined), the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution (including shares of Common Stock issuable upon
exercise, conversion or exchange of any Option or Convertible Securities issued
as such dividend or distribution). Upon any adjustment to the Exercise Price
pursuant to this Section 2B, the number of shares of Company Common Stock
issuable upon exercise of this
4
<PAGE>
Warrant shall be adjusted to the product obtained by multiplying the number of
shares of Company Common Stock issuable immediately prior to such adjustment in
the Exercise Price by a fraction (a) the numerator of which shall be the
Exercise Price immediately prior to such adjustment and (b) the denominator of
which shall be the Exercise Price immediately after such adjustment. As used in
this Section 2B, the term "Options" means rights, options or warrants to
subscribe for, purchase or otherwise acquire shares of Common Stock or
Convertible Securities. As used in this Section 2B, the term "Convertible
Securities" means any evidence of indebtedness or shares of stock or other
securities directly or indirectly convertible into or exchangeable for shares of
Common Stock. Any adjustment under this Section 2B shall become effective on the
record date.
2C. Other Securities. If the Company makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company other than shares of Common
Stock, then, and in each such event, provision shall be made so that the
Registered Holder shall receive, upon exercise hereof, in addition to the number
of shares of Company Common Stock receivable upon exercise of this Warrant, the
amount of securities of the Company which the Registered Holder would have
received had this Warrant been exercised for such shares of Company Common Stock
on the date of such event and had the Registered Holder thereafter, during the
period from the date of such event to and including the date of exercise,
retained such securities receivable by the Registered Holder as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 2.
2D. Reorganization, Reclassification, Consolidation or Merger. The shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted as
follows: (a) in the event of any merger, consolidation, reclassification, sale
of all or substantially all of the Company's assets, or reorganization of the
Company with any other person or persons, there shall be substituted, on an
equitable basis, for each such share of Common Stock the number and kind of
shares of stock or other securities to which the holders of each share of Common
Stock of the Company will be entitled pursuant to the transaction and the
Company shall not consummate any such transaction unless provision has been made
for issuance of such stock or other securities upon exercise of this Warrant;
and (b) in the event of any other substantially similar change in the
capitalization of the Company (other than cash dividends in the ordinary course
of business), an equitable adjustment shall be provided in the number of shares
of Common Stock. In the event of any such adjustment the purchase price per
share shall be proportionately adjusted.
2E. Notice of Adjustment. Promptly upon any adjustment of the Exercise
Price or the number of shares of Common Stock issuable upon exercise of this
Warrant, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
Section 3. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a holder
of shares of Common Stock in the Company. No provision hereof, in the absence
of affirmative action by the Registered
5
<PAGE>
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Registered Holder shall give rise to any liability
of such holder for the Exercise Price of Shares of Common Stock acquirable by
exercise hereof or as a holder of shares of Common Stock in the Company.
Section 4. Transferability. Except as provided in this Section 4, this
Warrant and all rights hereunder are not transferable without the prior written
consent of the Company in its sole discretion. The restrictions on transfer of
this Warrant shall continue during the entire term of this Warrant. Subject to
the transfer conditions referred to in the legend endorsed hereon and the
provisions of this Section 4, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant with properly
executed Assignment (in the form of EXHIBIT II hereto) at the principal office
of the Company; provided that no transfer of all or any part of this Warrant may
be made if such transfer would cause the aggregate number of holders of warrants
derived from this Warrant to be held by more than seven persons; and provided,
further, each such transferee must be an "accredited investor" within the
meaning of Regulation D of the Securities Act. The Company shall not impose any
fee or charge for such transfer. No such transferee receiving this Warrant or
any warrant derived herefrom may transfer such warrant or any of its rights
without the prior written consent of the Company in its sole discretion.
Notwithstanding any provision of this Section 4, the Registered Holder and any
transferee receiving this Warrant may transfer this Warrant to any Affiliate of
the Registered Holder or such transferee, so long as the issuer of this Warrant
has received an opinion of its counsel, or of counsel reasonably satisfactory to
it, that the proposed sale or transfer will not violate the registration
requirements of the Securities Act or any applicable state securities law. As
used in this Section 4, the term "Affiliate" means with respect to any
Registered Holder or transferee, any other person directly or indirectly
controlling or controlled by or under direct or indirect control with such
Registered Holder or transferee. Shares issued pursuant to this Warrant or any
warrant derived herefrom shall be subject to the same transfer restrictions as
set forth herein for this Warrant, provided that the restrictions on
transferability of shares issuable upon exercise of any such warrant shall only
apply until (i) such securities shall have been registered under the Securities
Act of 1933, as amended (the "Securities Act") and disposed of in accordance
with a registration statement covering such securities, or (ii) such time as, in
the reasonable opinion of counsel for the Company, or upon the written opinion
of counsel for the holder thereof reasonably acceptable to the Company, such
restrictions are not required in order to comply with the Securities Act.
Whenever such restrictions shall terminate as to any shares issued upon exercise
of any such warrant, the holder thereof shall be entitled to receive from the
Company, without expense, new certificates of like tenor not bearing the
restrictive legends required hereby.
Section 5. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly
6
<PAGE>
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
Section 6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 7. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid), sent
by fax or sent by registered or certified mail, return receipt requested,
postage prepaid, as follows: (i) if given to the Company, at its principal
executive offices and (ii) if given to the Registered Holder of this Warrant, at
such holder's address as it appears in the records of the Company. Each such
notice shall be deemed to have been given upon the earlier of the receipt of
such notice by the intended recipient thereof, two business days after it is
sent by reliable overnight courier or sent by fax, or five business days after
it is mailed by registered or certified mail, return receipt requested.
Section 8. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number or class of shares of
Common Stock obtainable upon exercise of each Warrant without the written
consent of all of the Registered Holders of Warrants.
Section 9. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
Section 10. Fractional Shares. No fractional shares shall be issued in
connection with any exercise of this Warrant, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ PAUL A. STRASEN
____________________________________
Name: Paul A. Strasen
Its: Senior Vice President
[Corporate Seal]
Attest:
/s/ AMY S. POWERS
__________________________________
Secretary
8
<PAGE>
EXHIBIT IB
----------
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W- ), hereby agrees to purchase __________
shares of Common Stock covered by such Warrant for cash and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
___________________________________
Address
___________________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-________________) with respect to the number of the
shares covered thereby set forth below, unto:
Name of Assignee: _________________________________
_________________________________
_________________________________
Address: _________________________________
_________________________________
_________________________________
No. of Shares _________________________________
Accompanying this Assignment is a certificate from the proposed
transferee certifying that such assignment and Assignee meet the requirements of
Section 4 of the Warrant.
Dated: ______________________ Signature: ___________________________
___________________________
Witness: ___________________________
<PAGE>
EXHIBIT 10.5(b)
REGISTRATION RIGHTS AGREEMENT
This registration rights agreement (the "Agreement") is entered into
as of this 21st day of November, 1997, between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and GECFS, Inc. ("GECC").
SECTION 1. CERTAIN DEFINITIONS.
(a) "Business Day" means any day on which the Nasdaq National Market (or any
other domestic stock exchange on which the Common Stock is listed) is open
for trading.
(b) "Closing Date" means November 21, 1997.
(c) "Commission" means the Securities and Exchange Commission or any successor
agency thereto.
(d) "Common Stock" means the common stock, $.01 par value per share, of the
Company.
(e) "Eligible Securities" means those restricted shares of the Company's common
stock, $.01 par value, issuable upon exercise of that warrant certificate
issued to GECC of even date herewith (the "Warrant") or any warrants
derived from such Warrant. Securities shall cease to be Eligible
Securities for all purposes of this Agreement when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) such
securities are permitted to be sold without limitation or restriction
pursuant to Rule 144(k) (or any successor provision to such Rule) under the
Securities Act, (iii) such securities shall have been otherwise transferred
pursuant to an applicable exemption under the Securities Act, new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company and such securities shall
be freely transferable to the public without registration under the
Securities Act, or (iv) a written opinion of counsel of the Company
addressed to the Stockholder owning such securities to the effect that such
securities may be sold without registration under the Securities Act has
been delivered to such Stockholder.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
(g) "Person" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or
other form of business organization, whether or not regarded as a legal
entity under applicable law, a trust (inter vivos or testamentary), an
estate of a deceased, insane or incompetent person, a quasi-governmental
entity, a government or any agency, authority, political subdivision or
other instrumentality thereof, or any other entity.
<PAGE>
(h) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration
statement.
(i) "Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel, accountants and other experts employed by the Company, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration.
(j) "Resale Registration" shall have the meaning set forth in Section 2 hereof.
(k) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall
be in effect at the relevant time.
(l) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered on behalf of the Stockholders and all fees and disbursements of
counsel for the Stockholders.
(m) "Selling Stockholder" means any Stockholder selling Eligible Securities
registered pursuant to Section 2 hereof.
(n) "Stockholder" means GECC and any person holding Eligible Securities to whom
the rights under this Agreement have been transferred in accordance with
Section 6(b) hereof.
SECTION 2. RESALE REGISTRATION.
(a) Resale Registration. The Company hereby agrees, unless otherwise
instructed by GECC, to file under the Securities Act, within the 12-month period
immediately following the Closing Date (such period, subject to extension as
provided below, the "Resale Registration Period"), a registration statement on
Form S-1 or any similar long-form registration statement or Form S-3 or any
similar short-form registration statement, at its election, to register all
Eligible Securities, whether in connection with a primary registration of its
Common Stock or otherwise ("Resale Registration"), and shall use its reasonable
best efforts to cause such Resale Registration to be declared effective by the
Commission. The Company shall have the right, subject to consultation with
GECC, to select the timing of the Resale Registration within the Resale
Registration Period. The Company shall have the right to include in any such
Resale Registration any other securities of the Company, including, but not
limited to, any securities of the Company (the "Earlier Securities") desired to
be registered by persons or entities also having registration rights from the
Company. The Resale Registration Period shall be extended for a period of six
additional months if the Company shall have been advised in writing by a
nationally recognized independent investment banking firm that, in such firm's
opinion, the filing of a registration statement for the Resale Registration
2
<PAGE>
immediately prior to the end of the original Resale Registration Period might
materially and adversely affect the Company (including the price of the Common
Stock)
(b) Restrictions on Resale Registration. The Company may postpone for up
to three months the filing or effectiveness of a registration statement for a
Resale Registration if the Company believes that such Resale Registration would
reasonably be expected to have a material adverse effect on any proposal or plan
by the Company or any of its subsidiaries to engage in any acquisition of assets
(other than in the ordinary course of business) or any merger, consolidation,
tender offer or similar transaction; provided, however, that immediately
following such postponement, the Company shall file or request effectiveness of
the Resale Registration notwithstanding the expiration of the Resale
Registration Period.
(c) Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Section 2. The
Selling Stockholders (as between the Selling Stockholders and the Company) shall
be responsible for all Selling Expenses relating to Eligible Securities
registered on behalf of the Selling Stockholders.
(d) Black-Out Period. The Company may, by notice given to all Selling
Stockholders under the Resale Registration, require such Selling Stockholders
not to make any sale of Eligible Securities pursuant to the registration
statement for the Resale Registration if, in the opinion of the Company, (x)
securities laws applicable to such sale would require the Company to disclose
material non-public information ("Non-Public Information") and (y) the
disclosure of such Non-Public Information would adversely affect the Company.
In the event the sales under the Resale Registration are deferred because of the
existence of Non-Public Information, the Company will notify the Selling
Stockholders promptly upon such Non-Public Information being included by the
Company in a filing with the SEC, being otherwise disclosed to the public (other
than through the actions of a Selling Stockholder) or ceasing to be material to
the Company, and upon such notice being given by the Company, the Selling
Stockholders shall again be entitled to sell Eligible Securities pursuant to the
Resale Registration.
SECTION 3. REGISTRATION PROCEDURES.
------------------------
(a) Registration and Qualification.
------------------------------
(i) The Company shall prepare and file with the Commission such
amendments and supplements to any registration statement registering
Eligible Securities and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective, and comply with
the provisions of the Securities Act with respect thereto and the
disposition of all Eligible Securities, until the earlier of such time as
all of such Eligible Securities have been disposed of in accordance with
the intended methods of disposition by the Selling Stockholders as set
forth in the registration statement or the expiration of two years after
the date such registration statement has become effective; provided,
however, that in the event that the Company shall notify the Selling
Stockholders of the
3
<PAGE>
happening of any event which would cause the prospectus included as part of
such registration statement, as then in effect, to include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholders shall thereafter sell no shares under such registration
statement until the Company has filed an amendment or supplement to the
prospectus to cause the prospectus not to include an untrue statement of a
material fact or omit to state any material facts required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, subject to
Section 2(e) hereof, the Company shall be obligated to promptly amend or
supplement the prospectus so that the prospectus does not include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(ii) The Company will use its reasonable best efforts to register or
qualify the Eligible Securities under the blue sky laws of such
jurisdictions as any Selling Stockholder reasonably requests and to do any
and all other acts which may be reasonably necessary to enable such Selling
Stockholder to consummate the disposition in such jurisdictions of the
Eligible Securities owned by such Selling Stockholder (provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(iii) The Company may require the Selling Stockholders to furnish to
the Company such information regarding the Selling Stockholders and the
distribution of the Eligible Securities as the Company may from time to
time reasonably request in writing and as shall be required by law or by
the Commission in connection with any registration;
(iv) The Company shall provide to each Selling Stockholder such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Selling
Stockholder may reasonably request in order to facilitate the disposition
of the Eligible Securities registered pursuant to such registration
statement; and
(v) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement, and use its reasonable best efforts to cause the Eligible
Securities to be listed on each securities exchange or national market
system on which the Common Stock is then listed.
4
<PAGE>
(b) Underwriting. In the event that any registration pursuant to Section 2
hereof shall involve, in whole or in part, an underwritten offering, the Company
may require Eligible Securities to be included in such underwriting on the same
terms and conditions as shall be applicable to the Common Stock being sold
through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
provided in Section 4. The representations and warranties in such underwriting
agreement by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Selling Stockholders.
SECTION 4. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law, each
Selling Stockholder, and each Person, if any, who controls such Selling
Stockholder within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages or liabilities to which such Selling
Stockholder may become subject by reason of its offer and sale of Eligible
Securities pursuant to the registration statement, and to reimburse such Selling
Stockholder for any reasonable legal or other expenses actually and reasonably
incurred in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, liabilities or actions arise, directly
or indirectly, out of, or are based upon:
(i) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained in or incorporated by reference in
the registration statement or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(ii) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained or incorporated by reference in the
prospectus (as amended or supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), if used within the
period during which the Company is required to keep the registration
statement in which such prospectus is contained current pursuant to the
terms of this Agreement, or the omission or alleged omission to state
therein a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; or
5
<PAGE>
(iii) any violation by the Company of any federal, state or common
law rule or regulation applicable to the Company in connection with the
Resale Registration;
provided, however, that the indemnification agreement contained herein shall not
apply to losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or any such omission or alleged omission,
if such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Company by or on behalf of the Selling Stockholders
expressly for use in connection with the preparation of the registration
statement or any prospectus contained in the registration statement or any such
amendment or supplement thereto.
(b) The Selling Stockholders shall (in the same manner and to the same
extent as set forth in Section 4(a)), severally indemnify, to the extent
permitted by law, the Company, each Person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, and their
directors and officers, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf of
any Selling Stockholder expressly for use in connection with the preparation of
the registration statement or any amendment or supplement thereto; provided,
however, that each Selling Stockholder's obligations hereunder shall be limited
to an amount equal to the net proceeds to such Selling Stockholder of the
Eligible Securities sold pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided, however, that any failure by a person entitled
to indemnification hereunder to give such prompt written notice shall not
adversely affect such person's rights hereunder unless such failure prejudices
the rights of the indemnifying party hereunder) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. The indemnifying party will
not be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of such counsel a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
SECTION 5. REGISTRATION RIGHTS OF OTHER SECURITY HOLDERS. The
---------------------------------------------
registration rights granted pursuant to this Agreement are granted subject to
any and all registration rights granted by the Company to holders of its
securities prior to the date hereof, and no provision herein shall be
interpreted so as to be superior to, inconsistent with, or adversely effect, any
such previously granted registration rights.
6
<PAGE>
SECTION 6. MISCELLANEOUS.
-------------
(a) Amendments. The provisions of this Agreement may be amended only upon
the written consent of the Company and GECC, or, in the event there is more than
one holder of Eligible Securities, only upon the written consent of the Company
and the holders of a majority of the Eligible Securities.
(b) Assignment. This Agreement is binding upon the parties hereto and
their respective successors and assigns. GECC may not assign its rights
hereunder, except in accordance with the terms of the Warrant without the prior
written consent of the Company in its sole discretion, provided that GECC may
transfer rights hereunder to any transferee to which transfer is made under and
in accordance with the Warrant or any such transferee to which transfer is made
under and in accordance with any warrant derived from the Warrant. Such
transferee may not further transfer any rights hereunder except in accordance
with the terms of the Warrant without the prior written consent of the Company
in its sole discretion. Transfer of the Eligible Securities shall not, in
itself, be deemed an assignment of rights hereunder.
(c) Counterparts. This Agreement may be executed in separate counterparts,
each of which will be an original and all of which taken together will
constitute one and the same agreement.
(d) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered if delivered by hand or by electronic
transmission. If sent by reliable overnight delivery service and addressed as
follows, or at such other addresses as the parties hereto may from time to time
designate in writing, such notices, requests, demands and other communications
shall be deemed delivered upon the earlier of actual receipt or two business
days after being so duly sent.
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, Colorado 80401-4086
Attn: General Counsel
Facsimile: (303) 216-3490
If to GECC:
General Electric Capital Corporation
4 Northpark Drive, Suite 500
Hunt Valley, Maryland 21030
Attn: Region Counsel
Facsimile: (410) 229-5979
If to any other holder of Eligible Securities:
At such address as such holder notifies the Company in
writing from time to time.
7
<PAGE>
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ PAUL A. STRASEN
------------------------
Its: Senior Vice President
------------------------
GECFS, INC.
By: /s/ FRED MAURICE
------------------------
Its: Senior Credit Analyst
------------------------
8
<PAGE>
EXHIBIT 10.6(a)
This Warrant and the securities issuable upon exercise hereof not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") or under any applicable state securities law, and in
the absence of such registration may not be sold or transferred unless
the issuer of this Warrant has received an opinion of its counsel, or
of counsel reasonably satisfactory to it, that the proposed sale or
transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law.
EINSTEIN/NOAH BAGEL CORP.
WARRANT CERTIFICATE TO PURCHASE
SHARES OF COMMON STOCK
----------------------
Date of Issuance: November 21, 1997 Certificate W-BOA-1
FOR VALUE RECEIVED, Einstein/Noah Bagel Corp., a Delaware corporation (the
"Company"), hereby grants to Bank of America National Trust and Savings
Association (the "Registered Holder") the right to purchase from the Company
20,000 shares of the Company's Common Stock, $.01 par value, at a price per
share of $9.47 (as adjusted from time to time in accordance herewith, the
"Exercise Price").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on Date of Issuance of this Warrant set
forth above and ending on the third annual anniversary of the Date of Issuance
(the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
<PAGE>
(c) cash (payable by wire transfer of same day funds or a
certified or bank cashier's check) in an amount equal to the product of the
Exercise Price multiplied by the number of shares of Company Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price") or, at
the option of the Registered Holder, the Registered Holder may elect to
receive shares of Company Common Stock equal to the value of this Warrant
by surrender of this Warrant to the Company, in which event the Company
shall issue to the Purchaser a number of shares of Company Common Stock
computed using the following formula:
x = y(a-b)
------
a
where: x = The number of shares of Company Common Stock to be
issued to the Purchaser
y = The number of shares of Company Common Stock purchasable
under this Warrant (at the date of such calculation).
a = The "Fair Market Value'' of one share of Company Common
Stock (at the date of such calculated
b = The Exercise Price (as adjusted to the date of such
calculation).
As used in this Section I.B., the term "Fair Market Value" of a share of
Company Common Stock means the average of the closing prices of sales of
the Company's Common Stock on all securities exchanges or automated
quotation system on which the Company's Common Stock may at the time be
listed or included, or, if there has been no sales on any such exchange or
reported on such quotation system on any day, the average of the highest
bid and lowest asked prices on all such exchanges as reported at the end of
such day, or, if on any day the Company's Common Stock is not so listed or
included in any such quotation system, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the third day immediately prior to the day as of which "Fair
Market Value" is being determined and the 20 consecutive business days
prior to such day.
(ii) Certificates for shares of Common Stock, if any, purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, as soon as reasonably practicable, deliver
such new Warrant to the person designated for delivery in the Exercise
Agreement.
2
<PAGE>
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such shares of Common Stock at the Exercise Time irrespective
of the date of delivery of certificates for shares of Common Stock.
(iv) The issuance of certificates for shares of Common Stock, if any,
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Common Stock (other than the Aggregate Exercise Price).
Each share of Common Stock issuable upon exercise of this Warrant shall, when
issued, be duly and validly issued and free from all taxes, liens, encumbrances,
adverse claims and charges.
(v) The Company shall reasonably assist and cooperate with the
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any reasonable filings
required to be made by the Company), provided, however, that the Company will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph
(v), (B) subject itself to taxation in any such jurisdiction, or (C) consent to
general service of process in any such jurisdiction.
(vi) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock solely for the purpose of issuance upon
the exercise of this Warrant the maximum number of shares issuable upon the
exercise of this Warrant. All shares which are so issuable shall, when issued
in accordance herewith upon the payment of the Exercise Price, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens,
encumbrances, adverse claims and charges. The Company shall take all such
actions as may be reasonably necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock of the Company or their equivalents may be listed (except
for official notice of issuance which shall be immediately delivered by the
Company upon such issuance).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering of the Company or any event described in Section 2B hereof, the
exercise of any portion of this Warrant may, at the election of the Registered
Holder hereof, be conditioned upon the consummation of the public offering or
the event described in Section 2B, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
3
<PAGE>
(viii) Unless the shares of Common Stock to be issued upon exercise
of this Warrant have been registered under the Securities Act of 1933, as
amended, the certificates for such shares shall contain the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), or under any
applicable state securities law, and may not be resold or transferred unless
registered under the Securities Act or unless the Company has received an
opinion of its counsel, or of counsel reasonably satisfactory to it, that the
proposed transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law."
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit IA or IB
hereto, except that if the shares of Common Stock are not to be issued in the
name of the person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the person to whom the shares of Common
Stock are to be issued. Such Exercise Agreement shall be dated the actual date
of execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the number of shares of Common Stock (or other securities)
obtainable upon exercise of this Warrant shall be subject to adjustment from
time to time as provided in this Section 2.
2A. Subdivision or Combination of Shares of Common Stock. If the Company
at any time subdivides (by any split, dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Options and Convertible Securities. If the Company at any time shall
pay a dividend or make a distribution with respect to the Common Stock payable
in Options (as hereinafter defined) or Convertible Securities (as hereinafter
defined), the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution (including shares of Common Stock issuable upon
exercise, conversion or exchange of any Option or Convertible Securities issued
as such dividend or distribution). Upon any adjustment to the Exercise Price
pursuant to this Section 2B, the number of shares of Company Common Stock
issuable upon exercise of this
4
<PAGE>
Warrant shall be adjusted to the product obtained by multiplying the number of
shares of Company Common Stock issuable immediately prior to such adjustment in
the Exercise Price by a fraction (a) the numerator of which shall be the
Exercise Price immediately prior to such adjustment and (b) the denominator of
which shall be the Exercise Price immediately after such adjustment. As used in
this Section 2B, the term "Options" means rights, options or warrants to
subscribe for, purchase or otherwise acquire shares of Common Stock or
Convertible Securities. As used in this Section 2B, the term "Convertible
Securities" means any evidence of indebtedness or shares of stock or other
securities directly or indirectly convertible into or exchangeable for shares of
Common Stock. Any adjustment under this Section 2B shall become effective on the
record date.
2C. Other Securities. If the Company makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company other than shares of Common
Stock, then, and in each such event, provision shall be made so that the
Registered Holder shall receive, upon exercise hereof, in addition to the number
of shares of Company Common Stock receivable upon exercise of this Warrant, the
amount of securities of the Company which the Registered Holder would have
received had this Warrant been exercised for such shares of Company Common Stock
on the date of such event and had the Registered Holder thereafter, during the
period from the date of such event to and including the date of exercise,
retained such securities receivable by the Registered Holder as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 2.
2D. Reorganization, Reclassification, Consolidation or Merger. The shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted as
follows: (a) in the event of any merger, consolidation, reclassification, sale
of all or substantially all of the Company's assets, or reorganization of the
Company with any other person or persons, there shall be substituted, on an
equitable basis, for each such share of Common Stock the number and kind of
shares of stock or other securities to which the holders of each share of Common
Stock of the Company will be entitled pursuant to the transaction and the
Company shall not consummate any such transaction unless provision has been made
for issuance of such stock or other securities upon exercise of this Warrant;
and (b) in the event of any other substantially similar change in the
capitalization of the Company (other than cash dividends in the ordinary course
of business), an equitable adjustment shall be provided in the number of shares
of Common Stock. In the event of any such adjustment the purchase price per
share shall be proportionately adjusted.
2E. Notice of Adjustment. Promptly upon any adjustment of the Exercise
Price or the number of shares of Common Stock issuable upon exercise of this
Warrant, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
Section 3. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a holder
of shares of Common Stock in the Company. No provision hereof, in the absence
of affirmative action by the Registered Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Registered
5
<PAGE>
Holder shall give rise to any liability of such holder for the Exercise Price of
Shares of Common Stock acquirable by exercise hereof or as a holder of shares of
Common Stock in the Company.
Section 4. Transferability. Except as provided in this Section 4, this
Warrant and all rights hereunder are not transferable without the prior written
consent of the Company in its sole discretion. The restrictions on transfer of
this Warrant shall continue during the entire term of this Warrant. Subject to
the transfer conditions referred to in the legend endorsed hereon and the
provisions of this Section 4, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant with properly
executed Assignment (in the form of EXHIBIT II hereto) at the principal office
of the Company; provided that no transfer of all or any part of this Warrant may
be made if such transfer would cause the aggregate number of holders of warrants
derived from this Warrant to be held by more than seven persons; and provided,
further, each such transferee must be an "accredited investor" within the
meaning of Regulation D of the Securities Act. The Company shall not impose any
fee or charge for such transfer. No such transferee receiving this Warrant or
any warrant derived herefrom may transfer such warrant or any of its rights
without the prior written consent of the Company in its sole discretion.
Notwithstanding any provision of this Section 4, the Registered Holder and any
transferee receiving this Warrant may transfer this Warrant to any Affiliate of
the Registered Holder or such transferee, so long as the issuer of this Warrant
has received an opinion of its counsel, or of counsel reasonably satisfactory to
it, that the proposed sale or transfer will not violate the registration
requirements of the Securities Act or any applicable state securities law. As
used in this Section 4, the term "Affiliate" means with respect to any
Registered Holder or transferee, any other person directly or indirectly
controlling or controlled by or under direct or indirect control with such
Registered Holder or transferee. Shares issued pursuant to this Warrant or any
warrant derived herefrom shall be subject to the same transfer restrictions as
set forth herein for this Warrant, provided that the restrictions on
transferability of shares issuable upon exercise of any such warrant shall only
apply until (i) such securities shall have been registered under the Securities
Act of 1933, as amended (the "Securities Act") and disposed of in accordance
with a registration statement covering such securities, or (ii) such time as, in
the reasonable opinion of counsel for the Company, or upon the written opinion
of counsel for the holder thereof reasonably acceptable to the Company, such
restrictions are not required in order to comply with the Securities Act.
Whenever such restrictions shall terminate as to any shares issued upon exercise
of any such warrant, the holder thereof shall be entitled to receive from the
Company, without expense, new certificates of like tenor not bearing the
restrictive legends required hereby.
Section 5. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly
6
<PAGE>
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
Section 6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 7. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid), sent
by fax or sent by registered or certified mail, return receipt requested,
postage prepaid, as follows: (i) if given to the Company, at its principal
executive offices and (ii) if given to the Registered Holder of this Warrant, at
such holder's address as it appears in the records of the Company. Each such
notice shall be deemed to have been given upon the earlier of the receipt of
such notice by the intended recipient thereof, two business days after it is
sent by reliable overnight courier or sent by fax, or five business days after
it is mailed by registered or certified mail, return receipt requested.
Section 8. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number or class of shares of
Common Stock obtainable upon exercise of each Warrant without the written
consent of all of the Registered Holders of Warrants.
Section 9. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
Section 10. Fractional Shares. No fractional shares shall be issued in
connection with any exercise of this Warrant, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ PAUL A. STRASEN
__________________________
Name: Paul A. Strasen
Its: Senior Vice President
[Corporate Seal]
Attest:
/s/ Amy S. Powers
__________________________________
Secretary
8
<PAGE>
EXHIBIT IB
----------
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-___________), hereby agrees to purchase __________
shares of Common Stock covered by such Warrant for cash and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
_______________________________
Address
________________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-________________) with respect to the number of the
shares covered thereby set forth below, unto:
Name of Assignee: _________________________________
_________________________________
_________________________________
Address: _________________________________
_________________________________
_________________________________
No. of Shares _________________________________
Accompanying this Assignment is a certificate from the proposed
transferee certifying that such assignment and Assignee meet the requirements of
Section 4 of the Warrant.
Dated: ______________________ Signature: ___________________________
___________________________
Witness: ___________________________
<PAGE>
EXHIBIT 10.6(b)
REGISTRATION RIGHTS AGREEMENT
This registration rights agreement (the "Agreement") is entered into
as of this 21st day of November, 1997, between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and Bank of America National Trust and
Savings Association ("BOA").
SECTION 1. CERTAIN DEFINITIONS.
--------------------
(a) "Business Day" means any day on which the Nasdaq National Market (or any
other domestic stock exchange on which the Common Stock is listed) is open
for trading.
(b) "Closing Date" means November 21, 1997.
(c) "Commission" means the Securities and Exchange Commission or any successor
agency thereto.
(d) "Common Stock" means the common stock, $.01 par value per share, of the
Company.
(e) "Eligible Securities" means those restricted shares of the Company's common
stock, $.01 par value, issuable upon exercise of that warrant certificate
issued to BOA of even date herewith (the "Warrant") or any warrants derived
from such Warrant. Securities shall cease to be Eligible Securities for
all purposes of this Agreement when (i) a registration statement with
respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) such securities are
permitted to be sold without limitation or restriction pursuant to Rule
144(k) (or any successor provision to such Rule) under the Securities Act,
(iii) such securities shall have been otherwise transferred pursuant to an
applicable exemption under the Securities Act, new certificates for such
securities not bearing a legend restricting further transfer shall have
been delivered by the Company and such securities shall be freely
transferable to the public without registration under the Securities Act,
or (iv) a written opinion of counsel of the Company addressed to the
Stockholder owning such securities to the effect that such securities may
be sold without registration under the Securities Act has been delivered to
such Stockholder.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
(g) "Person" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or
other form of business organization, whether or not regarded as a legal
entity under applicable law, a trust (inter vivos or testamentary), an
estate of a deceased, insane or incompetent person, a quasi-governmental
entity, a government or any agency, authority, political subdivision or
other instrumentality thereof, or any other entity.
<PAGE>
(h) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration
statement.
(i) "Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel, accountants and other experts employed by the Company, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration.
(j) "Resale Registration" shall have the meaning set forth in Section 2 hereof.
(k) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall
be in effect at the relevant time.
(l) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered on behalf of the Stockholders and all fees and disbursements of
counsel for the Stockholders.
(m) "Selling Stockholder" means any Stockholder selling Eligible Securities
registered pursuant to Section 2 hereof.
(n) "Stockholder" means BOA and any person holding Eligible Securities to whom
the rights under this Agreement have been transferred in accordance with
Section 6(b) hereof.
SECTION 2. RESALE REGISTRATION.
--------------------
(a) Resale Registration. The Company hereby agrees, unless otherwise
instructed by BOA, to file under the Securities Act, within the 12-month period
immediately following the Closing Date (such period, subject to extension as
provided below, the "Resale Registration Period"), a registration statement on
Form S-1 or any similar long-form registration statement or Form S-3 or any
similar short-form registration statement, at its election, to register all
Eligible Securities, whether in connection with a primary registration of its
Common Stock or otherwise ("Resale Registration"), and shall use its reasonable
best efforts to cause such Resale Registration to be declared effective by the
Commission. The Company shall have the right, subject to consultation with BOA,
to select the timing of the Resale Registration within the Resale Registration
Period. The Company shall have the right to include in any such Resale
Registration any other securities of the Company, including, but not limited to,
any securities of the Company (the "Earlier Securities") desired to be
registered by persons or entities also having registration rights from the
Company. The Resale Registration Period shall be extended for a period of six
additional months if the Company shall have been advised in writing by a
nationally recognized independent investment banking firm that, in such firm's
opinion, the filing of a registration statement for the Resale Registration
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<PAGE>
immediately prior to the end of the original Resale Registration Period might
materially and adversely affect the Company (including the price of the Common
Stock)
(b) Restrictions on Resale Registration. The Company may postpone for up
to three months the filing or effectiveness of a registration statement for a
Resale Registration if the Company believes that such Resale Registration would
reasonably be expected to have a material adverse effect on any proposal or plan
by the Company or any of its subsidiaries to engage in any acquisition of assets
(other than in the ordinary course of business) or any merger, consolidation,
tender offer or similar transaction; provided, however, that immediately
following such postponement, the Company shall file or request effectiveness of
the Resale Registration notwithstanding the expiration of the Resale
Registration Period.
(c) Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Section 2. The
Selling Stockholders (as between the Selling Stockholders and the Company) shall
be responsible for all Selling Expenses relating to Eligible Securities
registered on behalf of the Selling Stockholders.
(d) Black-Out Period. The Company may, by notice given to all Selling
Stockholders under the Resale Registration, require such Selling Stockholders
not to make any sale of Eligible Securities pursuant to the registration
statement for the Resale Registration if, in the opinion of the Company, (x)
securities laws applicable to such sale would require the Company to disclose
material non-public information ("Non-Public Information") and (y) the
disclosure of such Non-Public Information would adversely affect the Company.
In the event the sales under the Resale Registration are deferred because of the
existence of Non-Public Information, the Company will notify the Selling
Stockholders promptly upon such Non-Public Information being included by the
Company in a filing with the SEC, being otherwise disclosed to the public (other
than through the actions of a Selling Stockholder) or ceasing to be material to
the Company, and upon such notice being given by the Company, the Selling
Stockholders shall again be entitled to sell Eligible Securities pursuant to the
Resale Registration.
SECTION 3. REGISTRATION PROCEDURES.
------------------------
(a) Registration and Qualification.
(i) The Company shall prepare and file with the Commission such
amendments and supplements to any registration statement registering
Eligible Securities and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective, and comply with
the provisions of the Securities Act with respect thereto and the
disposition of all Eligible Securities, until the earlier of such time as
all of such Eligible Securities have been disposed of in accordance with
the intended methods of disposition by the Selling Stockholders as set
forth in the registration statement or the expiration of two years after
the date such registration statement has become effective; provided,
however, that in the event that the Company shall notify the Selling
Stockholders of the
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happening of any event which would cause the prospectus included as part of
such registration statement, as then in effect, to include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholders shall thereafter sell no shares under such registration
statement until the Company has filed an amendment or supplement to the
prospectus to cause the prospectus not to include an untrue statement of a
material fact or omit to state any material facts required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, subject to
Section 2(e) hereof, the Company shall be obligated to promptly amend or
supplement the prospectus so that the prospectus does not include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(ii) The Company will use its reasonable best efforts to register or
qualify the Eligible Securities under the blue sky laws of such
jurisdictions as any Selling Stockholder reasonably requests and to do any
and all other acts which may be reasonably necessary to enable such Selling
Stockholder to consummate the disposition in such jurisdictions of the
Eligible Securities owned by such Selling Stockholder (provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(iii) The Company may require the Selling Stockholders to furnish to
the Company such information regarding the Selling Stockholders and the
distribution of the Eligible Securities as the Company may from time to
time reasonably request in writing and as shall be required by law or by
the Commission in connection with any registration;
(iv) The Company shall provide to each Selling Stockholder such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Selling
Stockholder may reasonably request in order to facilitate the disposition
of the Eligible Securities registered pursuant to such registration
statement; and
(v) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement, and use its reasonable best efforts to cause the Eligible
Securities to be listed on each securities exchange or national market
system on which the Common Stock is then listed.
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(b) Underwriting. In the event that any registration pursuant to Section 2
hereof shall involve, in whole or in part, an underwritten offering, the Company
may require Eligible Securities to be included in such underwriting on the same
terms and conditions as shall be applicable to the Common Stock being sold
through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
provided in Section 4. The representations and warranties in such underwriting
agreement by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Selling Stockholders.
SECTION 4. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law, each
Selling Stockholder, and each Person, if any, who controls such Selling
Stockholder within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages or liabilities to which such Selling
Stockholder may become subject by reason of its offer and sale of Eligible
Securities pursuant to the registration statement, and to reimburse such Selling
Stockholder for any reasonable legal or other expenses actually and reasonably
incurred in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, liabilities or actions arise, directly
or indirectly, out of, or are based upon:
(i) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained in or incorporated by reference in
the registration statement or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(ii) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained or incorporated by reference in the
prospectus (as amended or supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), if used within the
period during which the Company is required to keep the registration
statement in which such prospectus is contained current pursuant to the
terms of this Agreement, or the omission or alleged omission to state
therein a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; or
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(iii) any violation by the Company of any federal, state or common
law rule or regulation applicable to the Company in connection with the
Resale Registration;
provided, however, that the indemnification agreement contained herein shall not
apply to losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or any such omission or alleged omission,
if such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Company by or on behalf of the Selling Stockholders
expressly for use in connection with the preparation of the registration
statement or any prospectus contained in the registration statement or any such
amendment or supplement thereto.
(b) The Selling Stockholders shall (in the same manner and to the same
extent as set forth in Section 4(a)), severally indemnify, to the extent
permitted by law, the Company, each Person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, and their
directors and officers, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf of
any Selling Stockholder expressly for use in connection with the preparation of
the registration statement or any amendment or supplement thereto; provided,
however, that each Selling Stockholder's obligations hereunder shall be limited
to an amount equal to the net proceeds to such Selling Stockholder of the
Eligible Securities sold pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided, however, that any failure by a person entitled
to indemnification hereunder to give such prompt written notice shall not
adversely affect such person's rights hereunder unless such failure prejudices
the rights of the indemnifying party hereunder) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. The indemnifying party will
not be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of such counsel a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
SECTION 5. REGISTRATION RIGHTS OF OTHER SECURITY HOLDERS. The
---------------------------------------------
registration rights granted pursuant to this Agreement are granted subject to
any and all registration rights granted by the Company to holders of its
securities prior to the date hereof, and no provision herein shall be
interpreted so as to be superior to, inconsistent with, or adversely effect, any
such previously granted registration rights.
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SECTION 6. MISCELLANEOUS.
-------------
(a) Amendments. The provisions of this Agreement may be amended only upon
the written consent of the Company and BOA, or, in the event there is more than
one holder of Eligible Securities, only upon the written consent of the Company
and the holders of a majority of the Eligible Securities.
(b) Assignment. This Agreement is binding upon the parties hereto and
their respective successors and assigns. BOA may not assign its rights
hereunder, except in accordance with the terms of the Warrant without the prior
written consent of the Company in its sole discretion, provided that BOA may
transfer rights hereunder to any transferee to which transfer is made under and
in accordance with the Warrant or any such transferee to which transfer is made
under and in accordance with any warrant derived from the Warrant. Such
transferee may not further transfer any rights hereunder except in accordance
with the terms of the Warrant without the prior written consent of the Company
in its sole discretion. Transfer of the Eligible Securities shall not, in
itself, be deemed an assignment of rights hereunder.
(c) Counterparts. This Agreement may be executed in separate counterparts,
each of which will be an original and all of which taken together will
constitute one and the same agreement.
(d) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered if delivered by hand or by electronic
transmission. If sent by reliable overnight delivery service and addressed as
follows, or at such other addresses as the parties hereto may from time to time
designate in writing, such notices, requests, demands and other communications
shall be deemed delivered upon the earlier of actual receipt or two business
days after being so duly sent.
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, Colorado 80401-4086
Attn: General Counsel
Facsimile: (303) 216-3490
If to BOA:
Bank of America National Trust and Savings Association
231 South LaSalle Street
Chicago, IL 60697
Facsimile: (312) 828-1974
If to any other holder of Eligible Securities:
At such address as such holder notifies the Company in writing from
time to time.
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(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the day and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ PAUL A. STRASEN
---------------------
Its: Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ DAVID A. JOHANSON
----------------------
Its: Vice President
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EXHIBIT 10.16
__________________________________________
SIXTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BAGEL STORE DEVELOPMENT FUNDING, L.L.C.
___________________________________________
DECEMBER 5, 1997
<PAGE>
SIXTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BAGEL STORE DEVELOPMENT FUNDING, L.L.C.
(FORMERLY KNOWN AS
EINSTEIN BROS. EQUITY FUNDING, L.L.C.)
This Sixth Amended and Restated Limited Liability Company Agreement of
Bagel Store Development Funding, L.L.C. (formerly known as Einstein Bros. Equity
Funding, L.L.C.) (the "Company") is made as of December 5, 1997.
RECITALS
The Company was formed pursuant to the Delaware Limited Liability
Company Act, 6 Del.C. (S)18-101, et seq., as amended from time to time (the
"Delaware Act"), on December 7, 1995. Additional Members (as defined herein)
were admitted to the Company on December 29, 1995 and March 8, 1996 pursuant to
an Amended and Restated Limited Liability Company Agreement dated as of December
29, 1995 and a Second Amended and Restated Limited Liability Company Agreement
dated as of March 8, 1996. The Members entered into a Third Amended and
Restated Limited Liability Company Agreement dated as of March 29, 1996, a
Fourth Amended and Restated Limited Liability Company Agreement dated as of July
1, 1996 and a Fifth Amended and Restated Limited Liability Company Agreement
dated as of April 1, 1997 (the "Fifth Amendment and Restated Agreement"). This
Sixth Amended and Restated Limited Liability Company Agreement (the
"Agreement"), dated as of December 5, 1997, amends and restates the Fifth
Amended and Restated Limited Liability Company Agreement.
The Company, pursuant to the terms of this Agreement, shall continue
as a limited liability company under the Delaware Act.
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions. Unless the context otherwise requires, the
terms defined in this Article I shall, for the purposes of this Agreement, have
the meanings herein specified.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by, or is under common control
with, the
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specified Person. As used in this definition, the term "control" means the
possession, directly or indirectly, of the Power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agreement" means this Limited Liability Company Agreement, as
amended, modified, supplemented or restated from time to time.
"Area Developer" means a Person who has entered into an area
development agreement with Bagel Corp. and in whom Bagel Corp. has made an
investment in the form of convertible debt.
"Assignee" means any Person who is an assignee of a Member's interest
in the Company, or part thereof, and who does not become a Member pursuant to
Section 13.1 hereof.
"Bagel Corp." means Einstein/Noah Bagel Corp., a Delaware corporation.
"Bagel Partners" means Einstein/Noah Bagel Partners, L.P., a Delaware
limited partnership.
"Bagel Partners Partnership Agreement" means the limited partnership
agreement of Bagel Partners dated as of December 5, 1997, as it may be amended
from time to time.
"Bankruptcy" has the meaning given it in Section 18-101 of the
Delaware Act.
"BCI" means Boston Chicken, Inc., a Delaware corporation.
"Capital Account" means, with respect to any Member or Assignee, the
account maintained for such Member or Assignee in accordance with the provisions
of Section 4.4 hereof.
"Capital Contribution" means, with respect to any Member, the
aggregate amount of money actually contributed to the Company pursuant to
Section 4.1 hereof with respect to the Units held by such Member. In the case
of a Member or Assignee who acquires an interest in the Company by virtue of an
assignment in accordance with the terms of this Agreement, "Capital
Contribution" has the meaning
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set forth in Section 4.4.1 hereof.
"Certificate" means the Certificate of Formation and any and all
amendments thereto and restatements thereof filed on behalf of the Company with
the office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section of the Code refers not only to
such specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"Company" means Bagel Store Development Funding, L.L.C., the limited
liability company heretofore formed under the name Einstein Bros. Equity
Funding, L.L.C. and continued under and pursuant to the Delaware Act and this
Agreement.
"Covered Person" means a Member, any Manager, any Affiliate of a
Member or of any Manager, any officers, directors, shareholders, partners,
employees, representatives or agents of a Member, any Manager or their
respective Affiliates, any member of the Advisory Committee or designated
alternate to the Advisory Committee, or any officer, employee or agent of the
Company or its Affiliates, including without limitation Bagel Corp. and its
officers, directors, shareholders and employees at any time that Bagel Corp. is
providing services to the Company.
"Delaware Act" means the Delaware Limited Liability Company Act,
6 Del.C. (S) 18-101, et seq., as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Member" means a Member which is (i) an "Employee Benefit Plan"
within the meaning of and subject to the provisions of ERISA, (ii) a "Plan"
within the meaning of and subject to Section 4975 of the Code or (iii) an entity
the assets of which constitute assets of an Employee Benefit Plan or a Plan
under Department of Labor Regulations 29 C.F.R. Section 2510.3-101.
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"Excess Warrants" means warrants to purchase 13,640 shares of common
stock of Bagel Corp. held by the Company as of December 5, 1997.
"Fiscal Year" means the accounting period selected by the Manager or
Managers or any portion of such period for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to Article VIII hereof.
"Gross Asset Value" means, with respect to any asset, such asset's
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross
fair market value of such asset, as agreed to by the
contributing Member and the Manager or Managers;
(ii) the Gross Asset Value of all Company assets
shall be adjusted to equal their respective gross fair
market values, as determined by the Manager or Managers, as
of the following times: (a) the acquisition of an additional
interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Company to a Member or Assignee
of more than a de minimis amount of Company assets as
consideration for an interest in the Company; and (c) the
liquidation of the Company within the meaning of Treasury
Regulation Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clause (a) and clause (b) of
this sentence shall be made only if the Manager or Managers
reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of
the Members and Assignees in the Company; and
(iii) the Gross Asset Value of any Com-
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pany asset distributed to any Member or Assignee shall be
the gross fair market value of such asset on the date of
distribution, as determined by the distributee Member or
Assignee and the Manager or Managers.
"Liquidating Trustee" has the meaning set forth in Section 14.3
hereof.
"Majority Vote" means, with respect to any group of Members as of any
particular time, the vote of Members in such group whose Units at such time
exceed one-half of the outstanding Units of all Members in such group at such
time and whose Capital Account balances at such time exceed one-half of the
outstanding Capital Account balances of all Members in such group at such time,
in each case ignoring any Units or Capital Account balances held by Assignees.
"Manager" or "Managers" means the Person or Persons designated by the
Members in Article VI hereof as the manager of the Company within the meaning of
the Delaware Act and shall include all successors appointed pursuant to the
provisions of this Agreement. References to the "Manager", the "Managers" or
the "Manager or Managers" shall all be construed to refer to the Person or
Persons then serving as Managers of the Company.
"Member" means any Person named as a member of the Company on Schedule
A hereto and includes any Person admitted as a Substitute Member pursuant to the
provisions of this Agreement, and "Members" means two or more of such Persons
when acting in their capacities as members of the Company. For purposes of the
Delaware Act, the Members shall constitute one class or group of members.
"Other Business Entity" has the meaning given it in Section 18-209 of
the Delaware Act.
"Permitted Temporary Investments" means Treasury securities, bank
certificates of deposit and time deposits, in each case having a maturity of one
year or less, commercial paper or money-market instruments.
"Person" includes any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company, or other legal entity or organization.
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"Profits" and "Losses" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such Fiscal Year, determined in
accordance with Section 703(a) of the Code (but including in taxable income or
loss, for this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to Section 703(a)(1) of the Code), with the
following adjustments:
(ii) any income of the Company exempt from federal
income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this definition shall be added
to such taxable income or loss;
(iii) any expenditures of the Company described in
Section 705(a)(2)(B) of the Code (or treated as expenditures
described in Section 705(a)(2)(B) of the Code pursuant to
Treasury Regulation Section 1.704-1 (b)(2)(iv)(i)) and not
otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be subtracted from such
taxable income or loss;
(iv) in the event the Gross Asset Value of any Company
asset is adjusted in accordance with paragraph (ii) or
paragraph (iii) of the definition of "Gross Asset Value"
above, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset
for purposes of computing Profits or Losses; and
(v) gain or loss resulting from any disposition of any
asset of the Company with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of such
asset differs from its
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Gross Asset Value.
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 13.1 hereof, and who is named as a Member on Schedule
A to this Agreement.
"Tax Matters Partner" has the meaning set forth in Section 11.1
hereof.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Unit" means an interest in the Company representing such fractional
part of the interest of all Members and Assignees pursuant to this Agreement as
is equal to one divided by the total number of Units.
ARTICLE II
CONTINUATION AND TERM
Section II.1 Continuation.
------------
II.1.1 The Members hereby agree to continue the Company as a
limited liability company under and pursuant to the provisions of the
Delaware Act and agree that the rights, duties and liabilities of the
Members and the Managers shall be as provided in the Delaware Act,
except as otherwise provided herein.
II.1.2 The name and mailing address of each Member and Assignee
shall be listed on Schedule A attached hereto. The Manager or
Managers shall update Schedule A from time to time as necessary to
accurately reflect the information therein. Any amendment or revision
to Schedule A made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this
Agreement to Schedule A shall be deemed to be a reference to Schedule
A as amended and in effect from time to time.
Section II.2 Name. The name of the Company continued hereby is Bagel
Store Development Funding, L.L.C. The business of the Company may be
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conducted upon compliance with all applicable laws under any other name
designated by the Managers. The Managers may amend the Certificate to change the
name of the Company to any name designated by the Managers.
Section II.3 Term. The term of the Company commenced on the date the
Certificate was filed in the office of the Secretary of State of the State of
Delaware and shall continue until December 31, 2005, unless dissolved before
such date in accordance with the provisions of this Agreement.
Section II.4 Registered Agent and Office. The Company's registered
agent and office in Delaware shall be The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. At any time, the
Managers may designate another registered agent and/or registered office.
Section II.5 Principal Place of Business. The principal place of
business of the Company shall be at 14123 Denver West Parkway, Suite 200,
Golden, CO 80401-4086. Upon ten days notice to the Members, the Managers may
change the location of the Company's principal place of business.
Section II.6 Qualification in Other Jurisdictions. The Managers may
cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business. Any Manager, as an authorized person, within the
meaning of the Delaware Act, may execute, deliver and file any certificates (and
any amendments and/or restatements thereof) necessary for the Company to qualify
to do business in a jurisdiction in which the Company may wish to conduct
business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section III.1 Purpose. The Company is formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Company is, (i) investing in equity securities of Area Developers, (ii)
investing in warrants to purchase shares of Bagel Corp. and (iii) engaging in
any and all activities necessary or incidental to the foregoing and any other
legal business.
Section III.2 Powers of the Company. The Company shall have the power
and authority to take any and all actions necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purpose set
forth in Section 3.1, including, but not limited to, the power:
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(a) to conduct its business, carry on its operations and
have and exercise the powers granted to a limited liability
company by the Delaware Act in any state, territory, district or
possession of the United States, or in any foreign country that
may be necessary, convenient or incidental to the accomplishment
of the purposes of the Company;
(b) subject to the provisions of Section 3.1, to purchase,
take, receive, subscribe for or otherwise acquire, own, hold,
vote, use, employ, sell, mortgage, lend, pledge or otherwise
dispose of, and otherwise use and deal in and with, shares or
other interests in or obligations of Area Developers and Bagel
Corp., or rights to acquire any of the foregoing;
(c) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge or otherwise dispose of, and otherwise use and deal in and
with Permitted Temporary Investments;
(d) to enter into, perform and carry out contracts of any
kind, including, without limitation, contracts with any Manager
or any Member or any Affiliate of any of them, or any agent of
the Company necessary to, in connection with, convenient to, or
incidental to the accomplishment of the purpose of the Company;
(e) to lend money;
(f) to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its name;
(g) to elect and designate one or more managers of the
Company in accordance with Article VI hereof and to appoint
officers, employees and agents of the Company, and define their
duties and fix their compensation;
(h) to indemnify any Person in accordance with the Delaware
Act;
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(i) to cease its activities and cancel its Certificate;
(j) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any contract or security agree ment
in respect of any assets of the Company;
(k) to borrow money and issue evidences of indebtedness,
and to secure the same by a mortgage, pledge or other lien on the
assets of the Company;
(l) to take actions to protect and preserve the Company's
assets, including insuring the business and assets of the Company
against risks;
(m) to hold Company assets in the name of the Company or in
the name of one or more nominees;
(n) to open one or more bank accounts in the name of the
Company or in any other name in which the Company's funds are to
be held, make deposits therein, draw funds therefrom and deal in
or with the Company's funds;
(o) to make distributions of the Company's funds or assets
to the Members as provided for by this Agreement;
(p) to make such income tax elections as may be
appropriate or desirable, as contemplated by the Code and the
Treasury Regulations; prepare and file tax returns for the
Company with federal, state and local authorities; file amend
ments to such returns; participate in audits of such returns;
consent to extensions relating to such returns; execute documents
relating to the settlement of tax proceedings involving the
Company or its tax returns; participate in administrative and
judicial proceedings, including appeals, relating to the
Company's tax returns or its tax liabilities; and settle issues
relating to the Company's federal and, to the extent required,
state and local income tax returns even though the Members rather
than the Company shall be subject to tax as so determined;
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(q) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of
or against the Company or to hold such proceeds against the
payment of contingent liabilities; and
(r) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to
the accomplishment of the purposes of the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS,
UNITS, CAPITAL ACCOUNTS AND ADVANCES
Section IV.1 Capital Contributions. Each Member has contributed to
the capital of the Company the amount set forth opposite the Member's name on
Schedule A attached hereto.
Section IV.2 Units. A Member or Assignee's interest in the Company
shall be represented by the "Unit" or "Units" held by such Member or Assignee.
Each Member or Assignee's respective Units shall be set forth on Schedule A
attached hereto. Each Member hereby agrees that its interest in the Company and
in its Units shall for all purposes be personal property. A Member or Assignee
has no interest in specific Company property.
Section IV.3 Status of Capital Contributions.
IV.3.1 No Member or Assignee shall have the right to withdraw
its Capital Contribution or Capital Account or to receive any
interest, salary or drawing with respect to its Capital Contributions
or its Capital Account or for services rendered on behalf of the
Company or otherwise in its capacity as a Member or Assignee, except
as otherwise specifically provided in this Agreement.
IV.3.2 Except as otherwise provided herein and by applicable
state law, the Members shall be liable only to make their Capital
Contributions pursuant to Section 4.1 hereof, and no Member or
Assignee shall be required to lend any funds to the Company or, after
a Member's Capital Contributions have been fully paid pursuant to
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Section 4.1 hereof, to make any additional Capital Contributions to
the Company. No Member or Assignee shall have any personal liability
for the repayment of any Capital Contribution of any other Member or
Assignee.
Section IV.4 Capital Accounts.
IV.4.1 An individual Capital Account shall be established and
maintained for each Member. The original Capital Account established
for any Member or Assignee who acquires an interest in the Company by
virtue of an assignment in accordance with the terms of this Agreement
shall be in the same amount as, and shall replace, the Capital Account
of the assignor of such interest, and, for purposes of this Agreement,
such Member or Assignee and shall be deemed to have made the Capital
Contributions made by the assignor of such interest (or made by such
assignor's predecessor in interest). To the extent such Member or
Assignee acquires less than the entire interest in the Company of the
assignor of the interest so acquired by such Member or Assignee, the
original Capital Account of such Member or Assignee and its Capital
Contributions shall be in proportion to the interest it acquires, and
the Capital Account of the assignor who retains a partial interest in
the Company, and the amount of its Capital Contributions, shall be
reduced in proportion to the interest it retains.
IV.4.2 The Capital Account of each Member or Assignee shall be
maintained in accordance with the following provisions:
(a) to such Member or Assignee's Capital Account there shall
be credited such Member or Assignee's Capital Contributions,
such Member or Assignee's distributive share of Profits and the
amount of any Company liabilities that are assumed by such Member
or Assignee or that are secured by any Company assets distributed
to such Member or Assignee;
(b) to such Member or Assignee's Capital Account there
shall be debited the amount of cash and the Gross Asset Value of
any Company assets distributed to such Member or Assignee
pursuant to any provision of this Agreement, such Member or
Assignee's distributive share of Losses and the amount of any
liabilities of such Member or Assignee that are
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assumed by the Company or that are secured by any property
contributed by such Member or Assignee to the Company; and
(c) in determining the amount of any liability for purposes
of this Section 4.4.2, there shall be taken into account Section
752(c) of the Code and any other applicable provisions of the
Code and the Treasury Regulations.
Section IV.5 Advances. If any Member or Assignee shall advance any
funds to the Company in excess of its Capital Contributions, the amount of such
advance shall neither increase its Capital Account nor entitle it to any
increase in its share of the distributions of the Company. The amount of any
such advance shall be a debt obligation of the Company to such Member or
Assignee and shall be repaid to it by the Company with interest at a per annum
rate equal to the lesser of (i) the rate of interest publicly announced from
time to time by Bank of America Illinois, Chicago, Illinois (or its successor in
interest), as its Prime Rate (or its equivalent) for United States Dollar Loans,
plus 1%, and (ii) the maximum rate permitted by applicable law, and upon such
other terms and conditions as shall be mutually determined by such Member or
Assignee and the Manager or Managers. Any such advance shall be payable and
collectible only out of Company assets, and the other Members and Assignees
shall not be personally obligated to repay any part thereof.
ARTICLE V
MEMBERS
Section V.1 Powers of Members. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement. The Members shall also have the power to
authorize the Manager or Managers, by Majority Vote of the Members, to possess
and exercise any right or power not already vested in the Managers pursuant to
Section 6.4 or any other provision of this Agreement. The Members shall not
have the power to bind the Company.
Section V.2 Partition. Each Member waives, until termination of the
Company, any and all rights that it may have to maintain an action for partition
of the Company's property.
Section V.3 Resignation of Members. A Member may not resign from the
Company without the written consent of the Manager or Managers.
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ARTICLE VI
MANAGERS
Section VI.1 Designation of Managers. The management of the Company's
business shall be vested in one or more Managers designated by the Members as
hereinafter provided. A Manager may be but need not be a Member. The Members
hereby agree to continue Bagel Corp. as the Manager, and Bagel Corp. agrees to
be bound by the terms and conditions of this Agreement.
Section VI.2 Withdrawal of the Managers. Bagel Corp. may not withdraw
or resign as Manager of the Company.
Section VI.3 Power and Authority of the Managers. Subject to the
limitations expressly set forth in this Agreement, the business and affairs of
the Company shall be managed by the Managers, and the Managers shall have full
authority to act for and to bind the Company in all matters in connection with
or relating to the Company's business consistent with the powers of the Company
set forth in Section 3.2. No Person dealing with the Company shall be required
to inquire as to the authority of any Manager or any officer of the Company to
take any action on behalf of the Company.
Section VI.4 Limitations on the Managers' Powers. Notwithstanding the
provisions of Section 6.3, the Managers shall not have the power to take any of
the following actions unless such actions have been approved by a Majority Vote
of the Members (and, in the case of an amendment to this Agreement, such
additional approvals as are required by Section 7.2 hereof):
(a) to make investments other than (i) Permitted
Temporary Investments, (ii) shares or other interests in or
obligations of Area Developers and Bagel Corp. or (iii) rights to
acquire any of the foregoing;
(b) to cause the Company to merge with, or consolidate
into, another Delaware limited liability company or Other
Business Entity;
(c) to determine, at the time such right becomes
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exercisable, whether the Company should exercise the Fund Put
Rights (as defined in the Bagel Partners Partnership Agreement);
(d) to determine, at the time such right becomes
exercisable, whether the Company should exercise any right held
by it to request an Incorporation and Public Offering pursuant to
the Bagel Partners Partnership Agreement;
(e) to determine, at the time such right becomes
exercisable, whether the Company should exercise any right held
by it to request a License Termination;
(f) to determine whether the Company should sell its equity
interests in Bagel Partners;
(g) to determine the vote of the Company with respect to
its equity interests in Bagel Partners;
(h) to resolve any questions with respect to potential
conflicts of interest between ENBC, as manager, on the one hand,
and the Company, on the other hand, as may be presented by ENBC,
as manager, to the Members;
(i) to amend this Agreement; or
(j) to dissolve the Company except as provided in Section
14.2 hereof.
Section VI.5 Reimbursement.
VI.5.1 The Company shall reimburse each Manager for all ordinary
and necessary out-of-pocket expenses incurred by the Manager on behalf
of the Company, including without limitation any fees and expenses (i)
incurred in connection with the organization of the Company or (ii)
incurred in connection with any investment made by the Company.
VI.5.2 Amounts reimbursed pursuant to Section 6.5.1 shall be
treated as expenses of the Company and shall not be deemed to
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constitute a distributive share of Profits or a distribution to any
Manager.
ARTICLE VII
MEETINGS; AMENDMENTS; MERGER
OR CONSOLIDATION
Section VII.1 Meetings of the Members.
VII.1.1 Meetings of the Members may be called by the Managers
and shall state the location of the meeting and the nature of the
business to be transacted. Notice of any such meeting shall be given
to all Members not less than seven business days nor more than thirty
days prior to the date of such meeting. Members may vote in person or
by proxy at such meeting. Whenever a vote, consent or approval of
Members is permitted or required under this Agreement, such vote,
consent or approval may be given at a meeting of Members or may be
given in accordance with the procedure prescribed in Section 7.1.6.
Except as otherwise expressly provided in this Agreement, the Majority
Vote of the Members shall be required to constitute the act of the
Members.
VII.1.2 For the purpose of determining the Members entitled to
vote on, or to vote at, any meeting of the Members or any adjournment
thereof, the Managers may fix, in advance, a date as the record date
for any such determination. Such date shall not be more than thirty
days nor less than ten business days before any such meeting.
VII.1.3 Each Member may authorize any Person to act for it by
proxy on all matters in which a Member is entitled to participate,
including waiving notice of any meeting, or voting or participating at
a meeting. Every proxy must be signed by the Member or its
attorney-in-fact. No proxy shall be valid after the expiration of
eleven months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the Member
executing it.
VII.1.4 An affirmative vote of Members holding at least 20%
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of the outstanding Units shall be sufficient to compel a vote of all
the Members on whether to exercise the modified Fund Put Rights and to
compel a vote of the Members with respect to the actions described in
Sections 6.4(d), (e), (f), (g) and (i).
VII.1.5 Each meeting of Members shall be conducted by the
Managers or by such other Person that the Managers designate.
VII.1.6 Any action which may be taken at a meeting of Members
may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by Members having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting and shall be delivered to the Company by delivery
to its registered office, its principal place of business or to an
officer or agent of the Company having custody of the books in which
proceedings of Members are recorded. Delivery made to the Company's
registered office shall be by hand or by certified or registered mail,
return receipt requested.
Section VII.2 Amendments. Any amendment to this Agreement shall be
adopted and be effective as an amendment hereto only if it receives the approval
of the Manager or Managers and a Majority Vote of the Members; provided,
however, that no such amendment shall (i) extend the term of the Company beyond
that permitted by Section 2.3, (ii) change the purpose of the Company from that
set forth in Section 3.1, (iii) alter the Capital Account of any Member, (iv)
change the allocation provisions of Article VIII hereof, (v) alter the
respective interests of the Members in distributions made by the Company, (vi)
increase the liabilities of any Member beyond those provided for in Section
12.1, (vii) cause the Company to cease to qualify as a limited liability company
under the Delaware Act or (viii) amend this Section 7.2 to delete or alter any
of clauses (i) through (viii), in each case without the consent of any Member
adversely affected thereby, and, in the case of an amendment described in clause
(i), (ii) or (vii), without the consent of all of the Members and, in the case
of an amendment affecting the provisions of Sections 4.1 or 9.1, without the
consent of Members owning two-thirds of the Units. The Manager or Managers may
at any time, without further consent of the Members, prepare a restatement of
this Agreement integrating into a single instrument all of the provisions of
this Agreement which are then in effect as the result of prior amendments
adopted as provided in this Section 7.2.
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Section VII.3 Merger or Consolidation. The Company may merge with,
or consolidate into, one or more other Delaware limited liability companies or
Other Business Entities only with the approval of the Managers and a Majority
Vote of the Members.
ARTICLE VIII
ALLOCATIONS
Section VIII.1 Profits and Losses. Subject to the allocation
rules of Section 8.2 hereof, Profits and Losses for any Fiscal Year shall be
allocated among the Members and Assignees in proportion to the number of Units
held by each of them; provided, however, that Profits allocable to the Excess
Warrants shall be allocated only to the Members and Assignees who have not
previously defaulted in making Capital Contributions.
Section VIII.2 Allocation Rules.
----------------
VIII.2.1 In the event Members are admitted to the Company
pursuant to this Agreement after March 31, 1996, the Profits or Losses
allocated to the Members and Assignees for each Fiscal Year during
which Members are so admitted shall be allocated among the Members and
Assignees in proportion to the number of Units each holds from time to
time during such Fiscal Year in accordance with Section 706 of the
Code, using any convention permitted by law and selected by the
Managers.
VIII.2.2 For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such
other items shall be determined on a daily, monthly or other basis, as
determined by the Managers using any method that is permissible under
Section 706 of the Code and the Treasury Regulations thereunder.
VIII.2.3 Except as otherwise provided in this Agreement, all
items of Company income, gain, loss, deduction and any other
allocations not otherwise provided for shall be divided among the
Members and Assignees in the same proportions as they share Profits
and Losses for the Fiscal Year in question.
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Section VIII.3 Tax Allocations.
VIII.3.1 In accordance with Section 704(c) of the Code and the
Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company
shall, solely for income tax purposes, be allocated among the Members
and Assignees so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax
purposes and its initial Gross Asset Value (computed in accordance
with Section 1.1 hereof).
VIII.3.2 In the event the Gross Asset Value of any Company asset
is adjusted pursuant to paragraph (ii) of the definition of "Gross
Asset Value" contained in Section 1.1 hereof, subsequent allocations
of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset
for federal income tax purposes and its Gross Asset Value in the same
manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder.
VIII.3.3 Any elections or other decisions relating to allocations
under this Section 8.3, including the selection of any allocation
method permitted under proposed Treasury Regulation Section
1.704-1(c), shall be made by the Managers in any manner that
reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 8.3 are solely for purposes of
federal, state and local taxes and shall not affect, or in any way be
taken into account in computing, any Member or Assignee's Capital
Account or share of Profits, Losses, other items or distributions
pursuant to any provision of this Agreement.
ARTICLE IX
DISTRIBUTIONS
Section IX.1 Distributions. Except as otherwise provided in Article
XIV (relating to the dissolution of the Company) or in this Section 9.1, all
distributions shall be made at such times and in such amounts as shall be
determined by the Managers. All distributions shall be made to the Members and
Assignees in proportion to the number of Units held by each of them; provided,
however, that (i)
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Excess Warrants may be distributed only to the Members and Assignees who have
not previously defaulted in making Capital Contributions and (ii) distributions
may be made in redemption of a Member's or Assignee's Units. Except as provided
in the next sentence, any distributions of cash received by the Company with
respect to its equity interest in any Area Developer, whether or not denominated
as tax distributions, shall be promptly distributed by the Company to the
Members. The proceeds (whether in the form of cash or capital stock of Bagel
Corp.) of any redemption or sale (net of any expenses of such redemption or sale
and after payment of any expenses described in Section 6.5) of any equity
interest in an Area Developer owned by the Company shall be distributed promptly
to the Members.
Section IX.2 Withheld Taxes. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any Member
or Assignee shall be treated as a Distribution to the respective Member or
Assignee pursuant to this Article IX for all purposes of this Agreement, except
to the extent such amount exceeds the amount distributed (or treated as
distributed) pro rata to the Members and Assignees in accordance with their
Units, which excess shall be treated as a loan to the respective Member or
Assignee and shall be repaid by the respective Member or Assignee receiving such
loan at the time that the Company is required to pay over such amount to any
federal, state or local government. The Managers are authorized to withhold
from distributions, or with respect to allocations, to the Members or Assignees
and to pay over to any federal, state or local government any amounts required
to be so withheld pursuant to the Code or any provision of any other federal,
state or local law and shall allocate such amounts to those Members or Assignees
with respect to which such amounts were withheld. If the Managers conclude that
the Company is required to withhold any amount as described in the preceding
sentence, it shall provide prompt written notice to the Members and Assignees of
the reasons it believes that the Company is required to so withhold and an
explanation of the calculation of the amounts withheld or to be withheld. For
purposes of this Section 9.2, the Company may assume that any Member or Assignee
who fails to provide to the Company satisfactory evidence of his tax status for
United States federal income tax purposes is a foreign person. Each Member
agrees to provide written notice to the Company within sixty days of any change
in such Member's tax status for United States federal income tax purposes.
Section IX.3 Limitations on Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member or Assignee on account of its interest in the
Company if such distribution would violate Section 18-607 of the Delaware Act
or other applicable law.
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ARTICLE X
BOOKS AND RECORDS
Section X.1 Books, Records and Financial Statements.
X.1.1 At all times during the continuance of the Company, the
Company shall maintain, at its principal place of business, separate
books of account for the Company that shall show a true and accurate
record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with
the operation of the Company's business. Such books of account,
together with a copy of this Agreement and of the Certificate, shall
at all times be maintained at the principal place of business of the
Company and shall be open to inspection and examination at reasonable
times by each Member and its duly authorized representative for any
purpose reasonably related to such Member's interest in the Company.
The books of account and the records of the Company shall be examined
by and reported upon as of the end of each Fiscal Year by a firm of
independent certified public accountants selected by the Managers.
X.1.2 The Managers shall prepare and maintain, or cause to be
prepared and maintained, the books of account of the Company and shall
use their best efforts to cause the following documents to be
transmitted to each Member at the times hereinafter set forth:
(a) Within four months after the close of each Fiscal Year,
the following financial information:
(i) an audited balance sheet of the Company as of
the beginning and close of such Fiscal Year;
(ii) an audited statement of operations of the Company
for such Fiscal Year;
(iii) a statement of such Member's Capital Account as
of the close of such Fiscal Year, and changes therein during
such Fiscal Year; and
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(iv) a statement showing the Partnership Value (as
defined in the Bagel Partners Partnership Agreement), based
upon information received by the Company from Bagel
Partners.
(b) As soon as reasonably practicable after the close of
each Fiscal Quarter, the following Financial Information:
(i) an unaudited interim statement of operations of
the Company as of the beginning and close of such Fiscal
Quarter;
(ii) all reports and other information provided the
Company pursuant to Section 8.2. of the Bagel Partners
Partnership Agreement; and
(iii) a statement of such Member's Capital Account as
of the close of such Fiscal Quarter, and changes therein, if
any, during such Fiscal Quarter.
(c) Within three months after the close of each Fiscal
Year, a statement indicating such Member's share of each item of
Company income, gain, loss, deduction or credit for such Fiscal
Year for income tax purposes.
X.1.3 All information contained in any statement or other
document distributed to any Member pursuant to Section 10.1.2 shall be
deemed accurate, binding and conclusive with respect to such Member
unless written objection is made thereto by such Member to the Company
within 20 business days after the receipt of such statement or other
document by such Member.
Section X.2 Accounting Method. For both financial and tax reporting
purposes and for purposes of determining Profits and Losses, the books and
records of the Company shall be kept on the accrual method of accounting applied
in a consistent manner and shall reflect all Company transactions and be
appropriate and
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adequate for the Company's business.
Section X.3 Confidentiality. Each Member and each Manager hereby
covenant and agree that so long as such Member holds Units, or so long as such
Manager serves as a Manager, and for a period of three years thereafter, such
Member or Manager will hold in confidence all financial and other information
concerning the Company, Bagel Corp. and the Area Developers in which the Company
is an investor and will not, without the prior consent of Bagel Corp., disclose
any of such information to any person. The preceding sentence shall not apply
to information which (i) is disclosed in a printed publication available to the
public, or is otherwise in the public domain through no act of such Member or
Manager or the employees or agents of such Member or Manager or other person or
entity which has received such information from or through such Member or
Manager or (ii) is required to be disclosed by proper order of a court of
applicable jurisdiction after adequate notice to Bagel Corp. sufficient to
permit Bagel Corp. to seek a protective order therefor, the imposition of which
protective order such Member or Manager agrees to approve and support. Each
Member or Manager acknowledges that Bagel Corp. and the Area Developers are
intended third party beneficiaries of the covenants in this Section 10.3 and can
enforce such covenants directly against such Member and Manager.
ARTICLE XI
TAX MATTERS
Section XI.1 Tax Matters Partner.
XI.1.1 The Managers are hereby authorized to designate a Member
of the Company to serve as the tax matters partner of the Company for
purposes of Section 6231(a)(7) of the Code (the "Tax Matters
Partner"). The Tax Matters Partner shall have the power to manage and
control, on behalf of the Company, any administrative proceeding at
the Company level with the Internal Revenue Service relating to the
determination of any item of Company income, gain, loss, deduction or
credit for federal income tax purposes. The Tax Matters Partner may be
a Manager if the Manager is a Member.
XI.1.2 The Tax Matters Partner shall, within ten days of the
receipt of any notice from the Internal Revenue Service in any
administrative proceeding at the Company level relating to the
determination of any Company item of income, gain, loss, deduction or
credit, mail a
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copy of such notice to each Member and Assignee.
XI.1.3 The Managers may at any time hereafter designate a new
Tax Matters Partner; provided, however, that only a Member may be
designated as the Tax Matters Partner of the Company.
Section XI.2 Right to Make Tax Elections. The Managers may, in their
discretion, make or revoke, on behalf of the Company, any tax election under the
Code or the Treasury Regulations, or under state, local or foreign law.
ARTICLE XII
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section XII.1 Liability.
XII.1.1 Except as otherwise provided by the Delaware Act, the
debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Covered Person shall be
obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Covered Person.
XII.1.2 Except as otherwise expressly required by law, a Member,
in its capacity as such, shall have no liability in excess of (i) the
amount of its Capital Contributions, (ii) its share of any assets and
undistributed profits of the Company, (iii) its obligation to make
other payments expressly provided for in this Agreement, and (iv) the
amount of any distributions wrongfully distributed to it.
Section XII.2 Exculpation.
XII.2.1 No Covered Person shall be liable to the Company or any
other Covered Person for any loss, damage or claim incurred by reason
of any act or omission performed or omitted by such Covered
24
<PAGE>
Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of authority conferred on
such Covered Person by this Agreement, except that a Covered Person
shall be liable for any such loss, damage or claim incurred by reason
of such Covered Person's gross negligence or willful misconduct.
XII.2.2 A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any Person
(including any tax advisor) as to matters the Covered Person
reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or
on behalf of the Company, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities,
Profits or Losses or any other facts pertinent to the existence and
amount of assets from which distributions to Members might properly
be paid.
Section XII.3 Duties of Covered Persons.
XII.3.1 In accordance with Section 18-1101(c)(2) of the Delaware
Act the duties and liabilities of the Managers and the Members, in
their capacities as such, shall be limited to those set forth in this
Agreement.
XII.3.2 To the extent that a Covered Person has duties and
liabilities relating to the Company or its Members or to any other
Covered Person, a Covered Person acting under this Agreement shall not
be liable to the Company or its Members or to any other Covered Person
for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the
duties and liabilities of a Covered Person otherwise existing at law
or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Covered Person.
XII.3.3 The Members expressly acknowledge that Bagel Corp. and
its Affiliates have or will have area development, franchise, lending,
real estate and other relationships with the Area Developers in which
the Company will invest and that Bagel Corp. will have a conflict of
interest in making determinations as Manager as to the Area Developers
in which the Company will invest, the amount of any such
25
<PAGE>
investment and any negotiated terms of such investment. The Members
hereby (i) agree that Bagel Corp. may act in its own interest in
making determinations as Manager in any situation in which such a
conflict is present, (ii) ratify and approve all such determinations
made by Bagel Corp. as Manager, (iii) waive any rights they have or
may receive by reason of such conflicts of interest or such
determinations made by Bagel Corp. as Manager and any right to receive
notice of or disclosure concerning any such conflicts of interest or
determinations, and (iv) covenant not to sue Bagel Corp. in connection
with any such determinations or any matter or thing based upon or
arising out of any such determinations.
XII.3.4 Whenever in this Agreement a Covered Person is permitted
or required to make a decision (i) in its "discretion" or under a
grant of similar authority or latitude, the Covered Person shall be
entitled to consider any such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the
Company or any other Person, or (ii) in its "good faith" or under
another express standard, the Covered Person shall act under such
express standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law.
Section XII.4 Indemnification. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except
that no Covered Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Covered Person by reason of gross
negligence or willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 12.4 shall be provided
out of and to the extent of Company assets only, and no Covered Person shall
have any personal liability on account thereof.
Section XII.5 Expenses. To the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by a Covered Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceed-
26
<PAGE>
ing upon receipt by the Company of an undertaking by or on behalf of the Covered
Person to repay such amount if it shall be determined that the Covered Person is
not entitled to be indemnified as authorized in Section 12.4 hereof.
Section XII.6 Outside Businesses. Any Member, Manager or Affiliate
thereof may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Company, and the Company, the Members and the Managers shall
have no rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Company, shall not be deemed
wrongful or improper. No Member, Manager or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Company even
if such opportunity is of a character that, if presented to the Company, could
be taken by the Company, and any Member, Manager or Affiliate thereof shall have
the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment opportunity.
ARTICLE XIII
ASSIGNABILITY AND SUBSTITUTE MEMBERS
Section XIII.1 Assignability of Units.
XIII.1.1 No Member may assign the whole or any part of its Units
or other interests in the Company without the approval of the
Managers, which approval and favorable vote may be given or withheld
in the sole and absolute discretion of the Managers. If the required
approval and favorable vote is obtained for any such assignment, such
assignment shall, nevertheless, not entitle the Assignee to become a
Substitute Member or to be entitled to exercise or receive any of the
rights, powers or benefits of a Member other than the right to receive
distributions to which the assigning Member would be entitled, unless
the assigning Member designates, in a written instrument delivered to
the Managers, its Assignee to become a Substitute Member and such
designation is approved by the Managers, which approval and favorable
vote may be given or withheld in the sole and absolute discretion of
the Managers; and provided further, that such Assignee shall not
become a Substitute Member without having first executed an instrument
reasonably satisfactory to the Managers
27
<PAGE>
accepting and agreeing to the terms and conditions of this Agreement,
including a counterpart signature page to this Agreement, and without
having paid to the Company a fee sufficient to cover all reasonable
expenses of the Company in connection with such Assignee's admission
as a Substitute Member. If a Member assigns all of its interest in the
Company and the Assignee of such interest is entitled to become a
Substitute Member pursuant to this Section, such Assignee shall be
admitted to the Company effective immediately prior to the effective
date of the assignment, and, immediately following such admission, the
assigning Member shall cease to be a member of the Company.
XIII.1.2 Notwithstanding anything to the contrary herein,
(i) the Managers shall not cause or permit Units to become traded on
an established securities market and (ii) the Managers shall withhold
their consent to any Transfer that, to the Managers' knowledge after
reasonable inquiry, would otherwise be accomplished by a trade on a
secondary market (or the substantial equivalent thereof). For purposes
of this subsection the terms "traded on an established securities
market" and "secondary market (or the substantial equivalent thereof)"
shall have the meanings set forth in Sections 469(k)(2) and 7704 of
the Code and any regulations promulgated thereunder that are in effect
at the time of the proposed Transfer.
Section XIII.2 Recognition of Assignment by Company. No assignment,
or any part thereof, that is in violation of this Article XIII shall be valid or
effective, and neither the Company nor the Members shall recognize the same for
the purpose of making distributions pursuant to Section 9.1 hereof with respect
to such Company interest or part thereof. Neither the Company nor the
nonassigning Members shall incur any liability as a result of refusing to make
any such distributions to the assignee of any such invalid assignment.
Section XIII.3 Indemnification. In the case of an assignment or
attempted assignment of an interest in the Company that has not received the
consent required by Section 13.1 hereof, the parties engaging or attempting to
engage in such assignment shall be liable to indemnify and hold harmless the
Company, the Managers, the other Members and the respective Covered Persons of
the Company, the Managers and the other Members from all costs, liabilities and
damages that any of such indemnified Persons may incur (including, without
limitation, incremental tax liability and lawyers' fees and expenses) as a
result of such assignment or attempted
28
<PAGE>
assignment and efforts to enforce the indemnity granted hereby.
Section XIII.4 Effective Date of Assignment. Any valid assignment of a
Member's interest in the Company, or part thereof, pursuant to the provisions of
Section 13.1 hereof shall be effective as of the close of business on the last
day of the calendar month in which the other Members give their written consent
to such assignment (or the last day of the calendar month in which such
assignment occurs, if later). The Company shall, from the effective date of such
assignment, thereafter pay all further distributions on account of the Company
interest (or part thereof) so assigned, to the Assignee of such interest, or
part thereof. As between any Member and its Assignee, Profits and Losses for the
Fiscal Year of the Company in which such assignment occurs shall be apportioned
for federal income tax purposes in accordance with any convention permitted
under Section 706(d) of the Code and selected by the Managers in their
discretion.
ARTICLE XIV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section XIV.1 No Dissolution. The Company shall not be dissolved by
the admission of Substitute Members in accordance with the terms of this
Agreement.
Section XIV.2 Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up only upon the occurrence of any of
the following events:
(i) the expiration of the term of the Company, as
provided in Section 2.3 hereof;
(ii) the approval of the Managers and a Majority Vote
of the Members to dissolve the Company;
(iii) the entry of a decree of judicial dissolution
under Section 18-802 of the Delaware Act; or
(iv) by the Managers at any time that the assets of the
Company consist only of cash, Permitted Temporary
Investments, a warrant to
29
<PAGE>
purchase stock of Bagel Corp., stock of Bagel Corp. or any
combination of the foregoing.
Section XIV.3 Notice of Dissolution. Upon the dissolution of the
Company, the Person or Persons approved by a Majority Vote of the Members to
carry out the winding up of the Company (the "Liquidating Trustee") shall
promptly notify the Members of such dissolution.
Section XIV.4 Liquidation. Upon dissolution of the Company, the
Liquidating Trustee shall immediately commence to wind up the Company's affairs;
provided, however, that a reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the satisfaction of liabilities to
creditors so as to enable the Members to minimize the normal losses attendant
upon a liquidation. The Members and Assignees shall continue to share Profits
and Losses during liquidation in the same proportions, as specified in Article
VIII hereof, as before liquidation. Each Member shall be furnished with a
statement prepared by the Company's certified public accountants that shall set
forth the assets and liabilities of the Company as of the date of dissolution.
The proceeds of liquidation shall be distributed, as realized, in the following
order and priority:
(i) to creditors of the Company, including the
Managers or Members or Assignees who are creditors, to the
extent otherwise permitted by law, in satisfaction of the
liabilities of the Company (whether by payment or the
making of reasonable provision for payment thereof), other
than liabilities for distributions to Members or Assignees;
and
(ii) to distribute to the Members and Assignees the
remaining proceeds of liquidation in accordance with their
Capital Account balances, after giving effect to all Capital
Contributions, distributions and allocations for all
periods. If any Member is owed a Capital Account balance
pursuant to Section 4.1.3, such Member shall share in the
remaining proceeds of liquidation in the proportion that
such Member's Capital Account balance determined in
accordance with Section 4.1.3 compares to
30
<PAGE>
the aggregate Capital Account balances of all of the other
Members, but such Member shall not be entitled to receive
more than the amount determined in accordance with Section
4.1.3.
Section XIV.5 Termination. The Company shall terminate when all of
the assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
Members and Assignees in the manner provided for in this Article XIV, and the
Certificate shall have been canceled in the manner required by the Delaware Act.
Section XIV.6 Claims of the Members. The Members and Assignees shall
look solely to the Company's assets for the return of their Capital
Contributions, and if the assets of the Company remaining after payment of or
due provision for all debts, liabilities and obligations of the Company are
insufficient to return such Capital Contributions, the Members and Assignees
shall have no recourse against the Company or any other Member or the Manager.
ARTICLE XV
MISCELLANEOUS
Section XV.1 Notices. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
sent by Federal Express or other reliable overnight courier, sent by fax or
mailed by registered or certified mail, return receipt requested, as follows:
(i) if given to the Company, in care of the Managers
at the address of the Company's principal place of
business, with a copy to Bagel Corp. at its mailing address
set forth on Schedule A attached hereto;
(ii) if given to the Managers, at their mailing
addresses set forth on Schedule A attached hereto, with a
copy to Bagel Corp.; or
31
<PAGE>
(iii) if given to any Member at the address set forth
opposite its name on Schedule A attached hereto, or at such
other address as such Member may hereafter designate by
written notice to the Company.
Each such notice shall be deemed to have been given upon the earlier
of the receipt of such notice by the intended recipient thereof, two days after
it is sent by Federal Express or other reliable overnight courier or sent by
fax, or five days after it is mailed by registered or certified mail, return
receipt requested.
Section XV.2 Annual Information Session. The Manager of the Company
shall hold an annual information session of Members ("Annual Information
Session") to provide Members with information regarding the operations and
financial condition of the Company and Bagel Partners. The Annual Information
Session shall be held once per fiscal year on such date and at such time as
shall be designated from time to time by the Manager. Written notice of the
Annual Information Session stating the place, date and hour of the Annual
Information Session shall be given to each Member not less than ten nor more
than ninety days before the date of the Annual Information Session.
Section XV.3 Failure to Pursue Remedies. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section XV.4 Cumulative Remedies; Limitation on Damages. The rights
and remedies provided by this Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive its right to use any or
all other remedies. Said rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
Notwithstanding anything to the contrary herein, no party hereto shall be liable
for consequential, indirect, incidental, special, speculative, exemplary or
punitive damages (including, but not limited to, loss of revenue or profit)
whether such claim alleges breach of contract, tortious conduct including, but
not limited to, negligence, or any other theory.
Section XV.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
32
<PAGE>
Section XV.6 Captions. The captions herein are inserted for
convenience of reference only and shall not affect the construction of this
Agreement.
Section XV.7 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section XV.8 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section XV.9 Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one instrument.
Section XV.10 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
Section XV.11 Governing Law. This Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
33
<PAGE>
This Agreement is accepted and agreed to by:
MANAGER:
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
-----------------------------
Name: Paul A. Strasen
Title: Senior Vice President
34
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SCHEDULE A
MANAGER
Name Mailing Address
- ---- ---------------
Einstein/Noah Bagel Corp. 14123 Denver West Parkway
Golden, CO 80401
MEMBERS
Mailing Capital Number
Name Address Contribution of Units
- ---- ------- ------------ --------
ASSIGNEES
Mailing Capital Number
Name Address Contribution of Units
- ---- ------- ------------ --------
1
<PAGE>
Exhibit 10.18(b)
FIRST AMENDMENT
TO
LIMITED PARTNERSHIP AGREEMENT
OF
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
This First Amendment (the "Amendment") to the Limited Partnership Agreement
of Einstein/Noah Bagel Partners, L.P. (the "Partnership") is dated March 25,
1998.
Recitals
WHEREAS, the Partnership was formed in December 1997, at which time its
partners entered into a limited partnership agreement dated as of December 5,
1997 (the "Partnership Agreement").
WHEREAS, the Partnership Agreement provides that the Partnership shall
continue until December 31, 2022; and
WHEREAS, a majority in interest of the partners of the Partnership desire
to extend the term of the Partnership to December 31, 2033.
NOW, THEREFORE, the Partnership Agreement is hereby amended as follows:
1. Amendment of Partnership Agreement. Section 3.1 of the Partnership
----------------------------------
Agreement is hereby amended to provide in its entirety as follows:
"Section 3.1 Term of Partnership. The term of the Partnership
-------------------
shall continue until December 31, 2033, unless the Partnership is
earlier dissolved in accordance with the provisions of this Agreement
or the Act."
2. Continuing Effect of Partnership Agreement. Except as provided herein,
------------------------------------------
all the terms and provisions of the Partnership Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
partners owning a majority in interest of the partnership interests of the
Partnership.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
---------------------
Paul A. Strasen
Senior Vice President
<PAGE>
1
LOCATION: GOLDEN, CO
14123 DENVER WEST PARKWAY
E/NBC SUBLEASE
OFFICE SUBLEASE
---------------
THIS OFFICE SUBLEASE ("Sublease") made and entered into as of December 20,
1996, (the "Effective Date") by and between Boston Chicken, Inc., a Delaware
corporation as sublessor (herein the "Landlord") and Einstein/Noah Bagel Corp.,
a Delaware corporation as sublessee (herein the "Tenant").
1. FUNDAMENTAL TERMS AND ATTACHMENTS.
---------------------------------
(a) FUNDAMENTAL TERMS. The following is a summary schedule of certain
-----------------
fundamental terms of this Sublease and where appropriate the definition of
certain defined terms contained in this Sublease:
(i) Landlord: Boston Chicken, Inc.
Address: 14123 Denver West Parkway
Golden, CO 80401
ATTN: Legal Department
(ii) Tenant: Einstein/Noah Bagel Corp.
Address: 14123 Denver West Parkway
Golden, CO 80401
ATTN: Legal Department
(iii) Address of
Building: 14123 Denver West Parkway
Golden, CO 80401
(iv) Address of
Premises: 14123 Denver West Parkway
Second Floor
Golden, CO 80401
(v) Gross Square Footage of Premises: 37,960 square feet.
Gross Square Footage of the Building: 94,794 square feet
(approximately)
(vi) Rent:
Lease Years Annual Rent Monthly Rent
----------- ----------- ------------
1-5 $455,520.00 $37,960.00
1
<PAGE>
(vii) Commencement Date: The Effective Date
(viii) Expiration Date: December 30, 2001
(ix) Term: Five (5) Years, less one day
(x) Extension(s): Five (5) of Five (5) Years each, except
that each extension period shall expire on December 30 of the Final Year of the
extension period unless extended as provided herein, unless this Sublease has
previously expired or terminated.
(xi) Rent for Extension(s):
Lease Years Annual Rent Monthly Rent
----------- ----------- ------------
6-10 $523,848.00 $43,654.00
11-15 $602,424.00 $50,202.00
16-20 $692,784.00 $57,732.00
21-25 $796,692.00 $66,391.00
26-30 $916,200.00 $76,350.00
(xii) Lease Year: Shall be defined as that twelve (12) month
period (except for the last year of the Term or any
Extension which shall be one (1) day less than a twelve
(12) month period) during the Term or any Extension
commencing on the Commencement Date or the anniversary
thereof, as may be applicable; provided, however, that if
the Commencement Date is a day other than the first day of
a calendar month, then the first Lease Year shall include
that period of time from the Commencement Date up to the
first day of the next calendar month and the following
twelve (12) months, and any subsequent Lease Year shall be
the twelve (12) month period beginning on the anniversary
of the first day of the next calendar month following the
Commencement Date. (Except for the last year of the Term
or any Extension which shall be one (1) day less than a
twelve (12) month period.)
(xiii) Lease Month: Shall be defined as those successive calendar
month periods beginning with the Commencement Date and
continuing through the Term or any Extension (except for
the last month of the Term or any Extension which shall be
one (1) day less than that last month); provided, however,
if the Commencement Date is a day other than the first day
of a calendar month, then the first Lease Month shall
include that period of time from the Commencement Date up
to the first day of the next calendar month, and each
subsequent Lease Month shall be a calendar month period
beginning on the first day of each succeeding calendar
month. (Except for the last month of
2
<PAGE>
the Term or any Extension which shall be one (1) day less
than that last month.)
(xiv) Property: That certain parcel of land together with the
Building and Common Areas, as hereinafter defined, all
structures, improvements and fixtures located thereon from
time to time together with any rights, right of ways
(public or private) easements and servitudes appurtenant
thereto owned by Landlord and legally described on Exhibit
A, attached hereto and incorporated herein by this
reference.
(xv) Building: The three-story plus basement office building
consisting of approximately 94,794 square feet of space
located on the Property in which the Premises is located.
(b) EXHIBITS. The following exhibits are attached hereto and, by this
--------
reference, incorporated herein:
Exhibit A - Legal Description of the Building
---------
Exhibit B - Floor Plan of the Premises
---------
Exhibit C - Term Commencement Agreement
---------
Exhibit D - Master Lease
---------
2. MASTER LEASE. Landlord has as of the Effective Date sold the Building
------------
in which the Premises forms a part and leased back the Building pursuant to that
certain Lease Agreement dated as of the Effective Date herein, as the same may
be amended or restated from time-to-time (the "Master Lease") between the
Prudential Insurance Company of America and its successors and assigns as
landlord (the "Master Landlord") and Landlord as tenant. Tenant agrees
notwithstanding anything to the contrary contained in this Sublease, that this
Sublease and Tenant's rights and remedies hereunder shall be subject and
subordinate to the Master Lease, a copy of which is attached hereto and
incorporated herein by this reference as Exhibit D, and Tenant further agrees
that it will take no action that would violate the Master Lease or cause
Landlord to breach or be in default under the terms and conditions of the Master
Lease.
3. DEMISE OF PREMISES. In consideration of the mutual covenants contained
------------------
herein and subject to the terms and conditions of the Master Lease, Landlord
hereby subleases to Tenant and Tenant hereby subleases from Landlord that
certain premises (the "Premises") located within the Building which Premises is
more particularly depicted and outlined in red on Exhibit B attached hereto and
made a part hereof. Landlord and Tenant agree that it is the intention of the
parties hereto that this Sublease is to be a triple net "care free" sublease.
Except as specifically set forth herein, all costs and expenses associated with
the Premises are to be borne by Tenant.
3
<PAGE>
4. TERM. The Term shall commence on the Commencement Date and expire on
----
the Expiration Date. Landlord and Tenant agree within thirty (30) days
following the Commencement Date to enter into the Term Commencement Agreement,
attached hereto as Exhibit C and made a part hereof, confirming the term, rent
and charges, provided that the term or any extensions hereof shall automatically
terminate in the event of the expiration or earlier termination of the Master
Lease.
5. EXTENSIONS. The Term of this Sublease may be extended for five (5)
----------
additional periods of five (5) years each ("Extension(s)"), commencing at
midnight on the date on which the Term or the preceding Extension expires, under
the same terms and conditions set forth herein except the rent shall increase as
set forth in Section 1(a) (xi) hereof. Each Extension shall be automatic and
the parties shall be bound by this Sublease for such Extension unless Tenant
gives Landlord notice, at least one hundred eighty (180) days prior to the
expiration of the Term or preceding Extension, that Tenant does not intend any
further Extension to occur, in which case the Term or the Extension shall expire
at the end of the Term or the current Extension. Notwithstanding anything to
the contrary contained in this Sublease with respect to the last three (3)
Extension periods granted Tenant hereunder such Extension periods and Tenant's
right of extension hereunder shall only be effective and valid if Landlord
exercises its right to extend the term of the Master Lease. If Landlord fails
or for any reason elects not to exercise its right to extend any extension
period under the Master Lease, it being agreed by Tenant that Landlord has no
duty or obligation to extend the Master Lease, then this Sublease will expire
one (1) day prior to the expiration of the Master Lease.
6. RENT. From and after the Commencement Date, during the Term, Tenant
----
agrees to pay to Landlord Office Space Rent in the amounts set forth in Section
1(a)(vi) or, if during an Extension, the amount set forth in Section 1(a)(xi)
(collectively, "Rent"). Tenant shall pay the Rent to Landlord in equal monthly
installments in advance, without setoff, deduction or abatement, making the
first monthly installment payment no later than five (5) days following the
Commencement Date and each subsequent installment thereafter on the first day of
each and every calendar month during the Term and Extension(s), if exercised.
If Landlord maintains the books and records of Tenant, Landlord at its option
may elect to make automatic transfers of all Rent, additional rent and charges
hereunder and utilize its thirteen (13) period fiscal year accounting schedule
for all payments hereunder.
7. IMPROVEMENT TO THE PREMISES. Landlord has completed all of its
---------------------------
improvements to the Premises and Tenant has accepted the Premises and
improvements and agrees Landlord has no further duty or obligation to improve,
repair or maintain the Premises except as specifically set forth herein.
8. USE OF COMMON AREAS. TAX, ADMINISTRATIVE, INSURANCE AND BUILDING
-----------------------------------------------------------------
OPERATING COSTS. During the Term and Extension(s), if exercised, Tenant shall
- ----------------
have a non-exclusive easement to use the common areas of the Building and
Property ("Common Areas") designated as such by Landlord from time to time.
Such 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,
4
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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.
The term "Common Areas" as used in this Sublease shall mean those areas and
facilities designated from time-to-time by Landlord for the use and benefit of
Tenant in common with Landlord, the other tenants and occupants of the Building
and such other persons Landlord may designate from time-to-time. The exterior
Common Areas shall include the curb cuts, driveways, parking areas, walkways,
service drives and loading docks and the interior Common Areas shall include the
entrances and exits, public hallways, reception area, stairways, elevator, break
rooms, eating areas, conference rooms, storage areas, public rest rooms and work
out facilities excluding areas intended for the exclusive use of the Landlord
and other tenants or occupants in the building.
Landlord shall operate, repair, replace and maintain the Common Areas.
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.
Tenant agrees to reimburse Landlord for its pro rata share of all costs
involved in the ownership, operation, upkeep, maintenance, repair and
replacement of the Building, Premises and Common Areas and all services and
goods supplied to Tenant by Landlord ("Building Operating Costs") during the
Term and Extension(s), if exercised. Building Operating Costs shall mean: All
costs and expenses of operation upkeep, repair, replacement and maintenance of
the Building, Premises, Common Areas and all services and goods supplied to
Tenant by Landlord including without limitation any costs, expenses or fees
borne or paid by Landlord under the terms of the Master Lease, except subleasing
fees and costs, real and personal property taxes and assessments and any tax in
addition to or in lieu thereof, whether assessed against Landlord or Tenant,
insurance including the cost of casualty and liability coverage for the
Property, Building, Common Areas and all other improvements and such other
coverages deemed appropriate by Landlord in its reasonable judgment or required
under the terms of any financing arrangements made by Landlord including a so
called "Sale/Leaseback" transaction, ("Financing") utilities, electrical, gas,
water, sewer, lighting, telephone, wiring, cabling, heating, air-conditioning,
and ventilating services, supplies, license, permit and inspection fees, cost of
services of independent contractors, property management fees, 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,
its equipment and the walks, malls and landscaped areas; maintenance, repair,
replacement and operating expense related to the Building, Premises and Common
Areas, landscaping, parking areas, lighting, signage, drives and truck docks,
kitchen and conference areas, health and recreation facilities,
telecommunication, computer, data and cabling lines and services, administrative
services and facilities including receptionists, secretarial, clerical,
coordination and administrative services and personnel, postal, courier,
delivery and mail facilities and mail distribution, storage and office supplies,
copying and fax services, also including janitorial, trash removal, gardening,
security, parking, operating
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engineer, elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, signage and advertising, reserves
for replacement, and rental expenses or a reasonable allowance for depreciation
of personal property used in the maintenance, operation and repair of the
Building, together with an administrative and management fee not to exceed
fifteen percent (15%) of the Building Operating Costs. "Tenant's Proportionate
Share" of the Building Operating Costs shall be forty percent (40%) of the
Building Operating Costs.
Tenant's Proportionate Share of Building Operating Costs shall be paid by
Tenant in equally monthly installments, as additional rent hereunder, at the
times and in the manner of the payment of Rent, in such amounts as are estimated
by Landlord from time to time during the Term and Extension(s), if exercised.
Landlord's estimates of Building Operating Costs shall be reconciled within
ninety (90) days of the end of each Lease Year. If the total estimated payments
of Building Operating Costs paid by Tenant for the Lease Year are less than
Tenant's Proportionate Share of Building Operating Costs Tenant shall pay the
difference to Landlord within twenty (20) days of notice from Landlord. If the
total estimated payments of Building Operating Costs paid by Tenant for the
Lease Year are greater than Tenant's Proportionate Share of Building Operating
Costs Landlord shall credit the difference toward the next estimated payment(s)
of Building Operating Costs.
The following costs shall be excluded from Building Operating Costs: the
cost of work performed exclusively for other tenants or prospective tenants, the
cost of work covered by insurance proceeds or a condemnation award, leasing and
brokerage commissions, depreciation, amortization of principal and interest
expense with respect to Landlord's financing.
Subject to the reimbursement of Tenant's Proportionate Share, Landlord
shall maintain fire, property, sprinkler, boiler and casualty insurance,
including vandalism, malicious mischief and all other extended coverage
endorsements on the Property, Common Areas, Building and all other improvements
on the Property for the full replacement cost thereof with no deduction for
depreciation. Landlord shall maintain comprehensive general public liability
insurance against claims for personal injury, death 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 or required by any
person or entity providing financing to the Landlord including the requirements
of any purchaser in a Sale/Leaseback transaction . At Tenant's request
Landlord shall provide Tenant with a
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Certificate of Insurance naming Tenant as a coinsured with respect to the
general liability coverage as to the Common Areas.
9. USE
---
9.1 USE. The Premises shall be used and occupied by Tenant for
general office purposes and an approximately 3,600 square foot test kitchen and
for no other purpose without the prior written consent of Landlord.
9.2 SUITABILITY. Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to the
Premises, Building and Common Areas or with respect to the suitability of or for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
this Sublease. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises, Building and Common Areas are fully
satisfactory and acceptable to Tenant.
9.3 USES PROHIBITED.
(a) Tenant shall not do or permit anything to be done in or about
the Premises, Building or Common Areas nor bring or keep anything therein which
will in any way increase the existing rate or affect any fire or other insurance
upon the Premises, Building, Common Areas or any of its contents, or cause a
cancellation of any insurance policy covering Premises, Building Common Areas or
any part thereof or any of its contents, nor shall Tenant sell or permit to be
kept, used or sold in or about said Premises any articles which may be
prohibited by a standard form policy of fire insurance.
(b) Tenant shall not do or permit anything to be done in or about
the Premises which will any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them or use or allow the
Premises to be used for any unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in or about the Premises. Tenant shall
not commit or suffer to be committed any waste in or upon the Premises.
(c) Tenant shall not knowingly use the Premises or knowingly
permit anything to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or governmental rule or regulation or
requirement of duly constituted public authorities now in force or which may
hereafter be enacted or promulgated. Tenant shall at its sole cost and expense
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may be in force hereafter and
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted relating to or affecting the condition, use or
occupancy of the Premises, excluding structural changes not relating to or
affecting the condition, use or occupancy of the Premises, or not related or
afforded by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant, in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinances and governmental rules, regulations or requirements now in
force or
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which may be in force hereafter and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not relating to or affecting the condition, use or occupancy of the
Premises, or not related or afforded by Tenant's improvement or acts, shall be
conclusive of the fact as between Landlord and Tenant.
10. SERVICE AND UTILITIES.
---------------------
10.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the
Premises, subject to reimbursement by Tenant as set forth herein, during
reasonable hours of generally recognized business days, to be determined by
Landlord and subject to the Rules and Regulations of the Building, water, gas
and electricity suitable for the intended use of the Premises, heat and air
conditioning required in Landlord's judgment for the comfortable use and
occupancy of the Premises, scavenger, janitorial and window washing service and
elevator service. Such utilities shall be available on a 24-hour, 7-day basis
upon Tenant's request. Landlord shall also maintain and keep lighted the common
stairs, entries and toilet rooms in the Building.
10.2 TENANT'S OBLIGATIONS. Tenant shall pay for, prior to
delinquency, all telephone services and all other materials and services, not
included in Building Operating Costs, which may be furnished to or used in, on
or about the Premises during the Term of this Sublease and Extension(s), if
exercised.
10.3 NON-LIABILITY. Landlord shall not be liable for, and Tenant
shall not be entitled to, any abatement or reduction of Rent by reason of
Landlord's failure to furnish any of the foregoing services or utility services.
Landlord shall not be liable under any circumstances for loss of or injury to
property or persons occurring, through or in connection with or incidental to
the failure to furnish any of the foregoing, unless due to the negligent or
intentional acts of Landlord, its agents and employees.
11. MAINTENANCE AND REPAIRS
-----------------------
(a) Landlord's Obligations. Landlord shall maintain in good order,
condition and repair the Building, Premises and Common Areas, subject to
reimbursement by Tenant as set forth herein.
(b) Tenant's Obligation.
(1) Tenant at Tenant's sole cost and expense, except for services
furnished by Landlord as set forth herein, shall maintain the Premises in good
order, condition and repair including the interior surfaces of the ceilings,
walls, windows and floors, all doors, partitions, plumbing, pipes, electrical
wiring, switches, fixtures, furniture and equipment.
(2) Upon the expiration or earlier termination of this Sublease,
Tenant shall surrender the Premises in the same condition as received, ordinary
wear and tear
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excepted, and shall promptly remove or cause to be removed at Tenant's expense
from the Premises and the Building, all articles of personal property, business
and trade fixtures, machinery, equipment, furniture and movable partitions owned
by and installed by Tenant and approved by Landlord at its expense.
(3) Tenant agrees to repair any damage to the Premises, Building
and Common Areas caused by or in connection with the removal (whether or not
such removal is requested by Landlord) of any articles of personal property,
business or trade fixtures, machinery, equipment, furniture, movable partitions,
alterations, improvements or additions, including without limitation thereto,
repairing the floor and patching and painting the walls where required by
Landlord to Landlord's reasonable satisfaction, all at Tenant's sole cost and
expense. Tenant shall indemnify the Landlord against any loss or liability
resulting from failure or delay by Tenant in so surrendering the Premises,
including without limitation any claims made by any succeeding tenant founded on
such failure or delay.
(4) In the event Tenant fails to maintain the Premises in good
order, condition and repair, Landlord shall give Tenant written notice to do
such acts as are reasonably required to commence such work and diligently
prosecute it to completion, then Landlord shall have the right to do such acts
and expend such funds at the expense of Tenant as are reasonably required to
perform such work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at ten percent (10%) per annum from the date
of such work. Landlord shall have not liability to Tenant for any damage,
inconvenience or interference with the use of the Premises by Tenant as a result
of performing any such work.
(c) Compliance with Law. Tenant shall at its sole expense do all acts
required to comply with all applicable laws, ordinances, regulations and rules
of any public authority relating to their respective maintenance obligations as
set forth herein.
12. ALTERATIONS AND ADDITIONS
-------------------------
(a) Tenant shall make no alterations, additions or improvements to the
Premises or any part thereof other than as specified in this Sublease, without
in each instance obtaining the prior written consent of Landlord. Such consent
shall not be unreasonably withheld, but will be contingent upon submission to
and approval by Landlord of plans and specifications and contractor. If Tenant
makes any alterations, additions or modifications, then Landlord at its option
and in its sole discretion may accept and retain all or any part of those
alterations, additions or modifications or require Tenant to remove the same in
whole or in part and to repair or restore at Tenant's expense the Premises to
the same conditions as they were in at the time they were accepted by Tenant.
Tenant hereby expressly waives any argument Tenant may have or make, that
Landlord consented to, or waived its right or is estopped by reason of actual or
constructive knowledge to object to or challenge, any alteration, addition or
modification made without such prior written consent.
(b) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion, including
without
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limitation thereto, the manner in which the work is done, a right of approval of
the contractor by whom work is to be performed, and the times during which it is
to be accomplished.
(c) All alterations, additions or improvements shall at the expiration
or earlier termination of the Sublease become the property of Landlord and
remain upon and be surrendered with the Premises, unless Landlord elects prior
to the termination or earlier expiration of this Sublease to require Tenant to
restore the Premises pursuant to Paragraph 11(a) above or to remove promptly
upon the termination or earlier expiration of this Sublease all or certain
specified alterations, additions or improvements made to the Premises, and to
repair any damage to the Premises from such removal. Tenant shall indemnify the
Landlord against any loss or liability resulting from delay by Tenant in so
surrendering the Premises, including without limitation any claims made by any
succeeding Tenant founded on such delay above.
(d) All articles of personal property and all business and trade
fixtures, all movable machinery, equipment, furniture and partitions (excluding
items affixed to walls, ceilings, or floors) owned and installed by Tenant at
its expense and approved by Landlord in the Premises shall be and remain the
property of Tenant, and must be removed by Tenant at Tenant's expense upon the
termination or earlier expiration of this Sublease. Tenant shall reimburse
Landlord upon demand for the cost of any loss, liability or damage caused by or
resulting from such removal or from Tenant's failure to so remove.
13. ENTRY BY LANDLORD
-----------------
Landlord, its employees, agents and contractors reserve and shall have
the right to enter the Premises to inspect the same, to supply janitor service
and any other service to be provided by Landlord to Tenant hereunder, to submit
said Premises to prospective purchasers, lenders or tenants, to post notices of
non-responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing that the
entrance to the Premises shall not be blocked unreasonably thereby, and further
providing that the business of Tenant shall not be interfered with unreasonably.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times retain a key with which to unlock all of
the doors in, upon and about the Premises and Landlord shall have the right to
use any and all means which Landlord may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises and any entry to the
Premises obtained by Landlord by any of said means, or otherwise shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainment of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof.
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14. LIENS
-----
Tenant shall keep the Premises and any Building and Common Areas of
which the Premises are a part free from any liens arising out of work performed,
materials furnished, or obligations incurred by Tenant and shall indemnify, hold
harmless and defend Landlord from any liens and encumbrances arising out of any
work performed or materials furnished by or at the direction of Tenant. In the
event that Tenant shall not, within twenty (20) days following the imposition of
any such lien, cause such lien to be released d of record by payment or posting
of proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation to cause the same to be released
d by such means as it shall deem proper, including payment of the claim giving
rise to such lien. All such sums paid by Landlord and all expenses incurred by
it in connection therewith including attorney's fees and costs shall be payable
to Landlord by Tenant on demand with interest at the rate of ten percent (10%)
per annum. Landlord shall have the right at all times to post and keep posted
on the Premises any notices permitted or required by Law, or which Landlord
shall deem proper, for the protection of Landlord, the Building, Premises,
Common Areas and any other person or entity having an interest therein, from
mechanics' and materialmen's liens, and Tenant shall give to Landlord at least
ten (10) business days prior written notice of the expected date of commencement
of any work relating to alterations or additions to the Premises and Landlord's
prior written consent thereto.
15. INDEMNITY.
---------
15.1 INDEMNITY. Tenant shall indemnify and hold Landlord harmless
from and defend Landlord against any and all claims of liability for any injury
or damage to any person or property whatsoever; (1) occurring in, on or about
any facilities (including, without prejudice to the generality of the term
"facilities," rest rooms, elevators, stairways, passageways, hallways and
parking areas), the use of which Tenant may have in conjunction with other
Tenants of the Building including the Common Areas, when such injury or damage
is caused in part or in whole by the act, neglect, fault or omission of any duty
with respect to the same by Tenant, its agents, contractors, officers,
directors, shareholders, customers, employees or invitees. Tenant shall further
indemnify and hold Landlord harmless from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Sublease, or arising from any act or
negligence of Tenant, or any of its agents, contractors, employees, officers and
directors and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any claim or any action or proceeding
brought thereon. In case any action or proceeding is brought against Landlord
by reason of any such claim, Tenant, upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord,
provided, however, that Tenant shall not be liable for damage or injury
occasioned by the negligence or intentional acts of Landlord and its designated
invitees, agents or employees.
15.2 INDEMNITY. Landlord shall indemnify and hold Tenant harmless
from and defend Tenant against any and all claims of liability for any injury or
damage to
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any person or property whatsoever; (1) occurring in, on or about any facilities
(including, without prejudice to the generality of the term "facilities," rest
rooms, elevators, stairways, passageways, hallways and parking areas), the use
of which Landlord may have in conjunction with other Tenants of the Building
including the Common Areas, when such injury or damage is caused in part or in
whole by the act, neglect, fault or omission of any duty with respect to the
same by Landlord, its agents, contractors, officers, directors, shareholders,
customers, employees or invitees. Landlord shall further indemnify and hold
Tenant harmless from and against any and all claims arising from any breach or
default in the performance of any obligation on Landlord's part to be performed
under the terms of this Sublease, or arising from any act or negligence of
Landlord, or any of its agents, contractors, employees, officers and directors
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any claim or any action or proceeding brought
thereon. In case any action or proceeding is brought against Tenant by reason of
any such claim, Landlord, upon notice from Tenant shall defend the same at
Landlord's expense by counsel reasonably satisfactory to Tenant, provided,
however, that Landlord shall not be liable for damage or injury occasioned by
the negligence or intentional acts of Tenant and its designated invitees, agents
or employees.
Tenant, as a material part of the consideration of Landlord, hereby assumes
all risk of damage to property or injury to persons in, upon or about the
Premises, Building and Common Areas from any cause and Tenant hereby waives all
claims in respect thereof against Landlord, except where such damage or injury
is due to the negligence of Landlord, its agents and employees.
15.3 EXEMPTION OF LANDLORD. Notwithstanding anything to the contrary
contained in Section 14.2 of this Sublease to contrary, Landlord shall not be
liable for injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Tenant, its employees, officers, directors,
shareholders, agents, invitees, or customers, or any other person in or about
the Premises, Building or Common Areas caused by or resulting from fire, steam,
electricity, gas, water or rain, acts of God, casualty loss or matters beyond
Landlord's control which may leak or flow from or into any part of the Premises,
or from the breakage, leakage, destruction, or other defects of the pipes,
sprinklers, wires, appliances, plumbing, air conditioning, heating, lighting
fixtures or other damage, whether the damage by injury from conditions arising
upon the Premises or upon other portions of the Building or Common Areas of
which the Premises are a part, or from other sources, except where such injury
or damage is due to the negligent or intentional acts of Landlord, its agents
and employees. Landlord shall not be liable for any damages arising from acts
of neglect of any other Tenant(s), its, or their officers, directors, employees,
invitees, customers, agents and contractors of the Building.
16. INSURANCE
---------
16.1 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:
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(a) Bodily injury and property damage comprehensive commercial general
liability insurance with a combined single limit for bodily injury and property
damage of not less than $2,000,000, 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 an amount equal to the full
replacement value (no deduction for depreciation) of all fixtures, furniture and
improvements installed and/or owned by Tenant.
16.2 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 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.
16.3 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, on account of loss or damage occasioned to such waiving party or its
property or the property of others under its control to the extent that such
loss or damage is insured against in any fire and extended coverage 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.
17. DAMAGE OR DESTRUCTION.
---------------------
17.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the
Building are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Landlord, then Landlord shall restore such damage
provided insurance proceeds are available to the cost of restoration and
provided such restoration can be completed within sixty (60) days after the
commencement of the work in the opinion of a
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registered architect or engineer appointed by Landlord. In such event this
Sublease shall continue in full force and effect.
17.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the
Building are damaged by a risk not covered by Landlord's insurance, or if the
restoration cannot be accomplished within sixty (60) days after the commencement
of work in the opinion of the registered architect or engineer appointed by
Landlord, then Landlord shall have the option either to (1) repair or restore
such damage, this Sublease continuing in full force and effect, or (2) give
notice to Tenant at any time within sixty (60) days after such damage
terminating this Sublease as of date to be specified in such notice, which date
shall be not less than thirty (30) nor more than sixty (60) days after giving
such notice. In the event of the giving of such notice, this Sublease shall
expire and all interest of Tenant in the Premises shall terminate on such date
so specified in such notice.
17.3 TOTAL DESTRUCTION. In the event the Premises are totally
destroyed or the Premises cannot be restored as required herein under applicable
laws and regulations, notwithstanding the availability of insurance proceeds,
this Sublease shall be terminated effective thirty (30) days after the date of
the damage.
17.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the
contrary contained in this Section 16, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Section 16 occurs during the last
twelve (12) months of the term of this Sublease or any Extension, if exercised.
17.5 LANDLORD'S OBLIGATIONS. The Landlord shall not be required to
repair any injury or damage by fire or other cause, or to make any restoration
or replacement of any paneling, decorations, partitions, railings, floor
covering, office fixtures, furniture or equipment or any other improvements or
property installed in the Premises and owned by Tenant. Tenant shall be
required to restore or replace same in the event of damage. Tenant shall have
no claim against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration; nor shall Tenant have the right to terminate
this Sublease as the result of any statutory provision now or hereafter in
effect pertaining to the damage and destruction of the Premises or the Building,
except as expressly provided herein.
18. CONDEMNATION.
------------
If all or any part of the Premises shall be taken or appropriated for
public or quasi-public use by right of eminent domain with or without litigation
or transferred by agreement in connection with such public or quasi-public use,
either party hereto shall have the right at its option exercisable within thirty
(30) days of receipt of notice of such taking to terminate this Sublease as of
the date possession is taken by the condemning authority, provided, however,
that before Tenant may terminate this Sublease by reason of taking or
appropriation as provided hereinabove, such taking or appropriation shall be of
such an extent and nature as to substantially handicap, impede or impair
Tenant's use of
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the Premises. If any part of the Building other than the Premises shall be so
taken or appropriated Landlord shall have the right at its option to terminate
the Sublease. No award to any partial or entire taking shall be apportioned, and
Tenant hereby assigns to Landlord any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof; provided, however, that nothing
contained herein shall be deemed to give Landlord any interest in or require
Tenant to assign to Landlord any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant and/or for the interruption of or
damage to Tenant's business and/or for Tenant's unamortized cost of leasehold
improvements and any sums prepaid by Tenant. In the event of a partial taking
which does not result in a termination of this Sublease, rent shall be abated in
the proportion which the part of the Premises taken bears to net rented area of
the Premises depicted on Exhibit B immediately prior to the taking. No temporary
taking of the Premises and/or of Tenant's rights therein or under this Sublease
shall terminate the Sublease or give Tenant any right to any abatement of rent.
19. ASSIGNMENT AND SUBLETTING.
-------------------------
19.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate or encumber this Sublease or any interest therein,
and shall not sublet the Premises or any part hereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Sublease.
19.2 NO RELEASE OF TENANT. No consent by Landlord to any assignment,
transfer or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Sublease, whether occurring before or after such
consent, assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment, transfer or subletting. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision of this Sublease or to be a consent to any
assignment, subletting or other transfer. Consent to one assignment, subletting
or other transfer shall not be deemed to constitute consent to any subsequent
assignment, subletting or other transfer.
19.3 ATTORNEY'S FEES. In the event Landlord shall consent to a
sub-sublease or assignment under this Section 18, Tenant shall pay Landlord's
reasonable attorney's fees incurred in connection with giving such consent.
20. SUBORDINATION
-------------
20.1 SUBORDINATION. This Sublease at Landlord's option shall be
subject and subordinate to all ground or underlying lease s which now exist or
may hereafter be executed affecting the Premises or land upon which the Premises
are situated or both, and to the lien of any mortgages or deeds of trust in any
amount or amounts whatsoever now or hereafter placed on or against the land or
improvements or either thereof, of which the
15
<PAGE>
Premises are a part, or on or against Landlord's interest or estate therein, or
on or against any ground or underlying lease without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination, provided Tenant receives a Nondisturbance
Agreement from each lessor, mortgagee or holder of a deed of trust If the holder
of any mortgage, deed of trust or ground or underlying lease shall elect to have
this Sublease prior to the lien of its mortgage, deed of trust or ground or
underlying lease , and shall give written notice thereof to Tenant, this
Sublease shall be deemed prior to such mortgage, deed of trust or ground or
underlying lease , whether this Sublease is dated prior or subsequent to the
date of said mortgage, deed of trust, or ground or underlying lease or the date
of the recording thereof, provided that Tenant's right under this Sublease shall
remain in effect so long as Tenant is not in default.
20.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to
execute and deliver upon demand without charge therefor, such further
instruments evidencing such subordination of this Sublease to such ground or
underlying lease and to the lien of any such mortgages or deeds of trust as may
be required by Landlord, provided that such lessor, mortgagee or holder of the
deed of trust agrees to recognize the rights of Tenant under this Sublease and
agrees so long as Tenant is not in default of this Sublease beyond any
applicable cure periods not to disturb Tenant's possession and occupancy of the
Premises..
20.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that
upon Tenant paying rent and other monetary sums due under the Sublease,
performing its covenants and conditions under the Sublease and upon Tenant
recognizing any future purchaser as Landlord pursuant hereto, Tenant shall and
may peaceably and quietly have, hold and enjoy the Premises for the term,
subject, however, to the terms of this Sublease and of any of the aforesaid
ground or underlying leases , Master Lease, mortgages or deeds of trust
described above and current matters of record.
20.4 ATTORNMENT. In the event any proceedings are brought for
default under any ground or underlying Lease or in the event of foreclosure or
the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, the Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Sublease.
20.5 Tenant agrees to amend this Sublease except for the provisions
relating to Rent, Term and Extension(s) upon the request of any Lender providing
financing to Landlord or any purchaser of the Premises. Landlord upon the sale
of the Premises shall be released d from any and all liability hereunder arising
after the closing of the sale. Landlord's liability under this Sublease is
limited solely to its interest in the Premises.
21. RIGHTS RESERVED TO LANDLORD. Landlord shall have the following
-----------------------------
rights, each of which Landlord may exercise without liability to Tenant for
damage or injury to property, person, or business due to the exercise of those
rights, and the exercise of those rights shall not be deemed to constitute an
eviction or disturbance of
16
<PAGE>
Tenant's use or possession of the premises and shall not give rise to any claim
for setoff, deduction or abatement of Rent or any other claim:
21.1 to change the name of the Building or the Building's street
address;
21.2 to install, affix, and maintain any and all signs on the
exterior and on the interior of the Building;
21.3 to remodel, construct additions, relocate, enlarge, , reduce,
replace or change lobbies, exits, or entrances and other Common Areas in or to
the Building, to remodel, construct additions, relocate, enlarge, reduce,
replace or change any other portion or portions of the Building other than the
Premises and to decorate and to make repairs, alterations, additions, and
improvements, structural or otherwise, in or to the Building. Property and
Common Areas to remodel, construct additions, change, reduce, enlarge,
reconfigure, relocate, replace and restripe the Common Areas outside the
Building including without limitation curb cuts, driveways, parking areas,
walkways, service drives and loading docks, to build additional buildings,
structures and improvements including above and/or below ground parking decks
and structures and to subdivide, resubdivide, plat or replat, including for the
purpose of connection with or entrance into or use of the Building and Common
Areas in conjunction with any adjoining or adjacent building or buildings and
structures, now existing or to be constructed and may for those purposes erect
scaffolding and other structures required by the character of the work to be
performed and during those operations may enter upon the Premises and take into
and upon or through any part of the Building or Property, including the
Premises, all materials contractors, agents, consultants and workmen that may be
required to make those repairs, alterations, improvements, replacements or
additions, and in that connection Landlord may temporarily close public entry
ways, other public spaces, or Common Areas, stairways, or corridors and
interrupt or temporarily suspend any services or facilities agreed to be
furnished by Landlord, all without the same constituting an eviction of Tenant
in whole or in part and without abatement of rent by reason of loss or
interruption of the business of Tenant or otherwise and without in any manner
rendering Landlord liable for damages or relieving Tenant from performance of
Tenant's obligations under this Sublease. Landlord agrees to use reasonable
efforts to minimize interference with Tenant's normal business operations and
not to make any permanent alteration or modification to the Property which would
materially interfere with the rights granted Tenant under the Sublease;
21.4 to retain at all times, and to use in appropriate instances,
keys to all doors within and into the Premises. Notwithstanding the provision
for Landlord's access to the Premises, Tenant relieves and releases Landlord of
all responsibility and liability arising out of theft, robbery, or pilferage.
Upon the expiration of the term or of Tenant's right to possession, Tenant shall
return all keys to Landlord and shall disclose to Landlord the combination of
any safes, cabinets, or vaults left in the Premises;
21.5 to approve the weight, size, and location of safes, vaults,
books, files, and other heavy equipment and personal property and fixtures in
and about the Premises and the Building so as not to exceed the design live load
per square foot designated by the
17
<PAGE>
structural engineer for the Building, and to require all such items and
furniture and similar items to be moved into or out of the Building and the
Premises only at times and in a manner as Landlord shall direct in writing
(Tenant shall not install or operate machinery or any mechanical devices of a
nature not directly related to Tenant's ordinary use of the Premises without the
prior written consent of Landlord, Movement of Tenant's property into or out of
the Building or premises and within the Building are entirely at the risk and
responsibility of Tenant;
21.6 to establish controls for the purpose of regulating all property
and packages, both personal or otherwise, to be moved into or out of the
building and Premises and to establish controls for all persons using the
Building;
21.7 to grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building;
21.8 to regulate delivery of supplies, food, other goods and services
in order to ensure the cleanliness and security of the Premises and the Building
and to avoid congestion of the loading docks, receiving areas, and elevators;
21.9 to show the Premises to prospective tenants at reasonable hours
during the last twelve (12) months of the Term or to prospective mortgagees,
ground lessors, or purchasers of the Property at any time and, if vacated or
abandoned, to show the Premises to prospective tenants at any time and to
prepare the Premises for reoccupancy;
21.10 to erect, use, repair, replace, and maintain concealed pipes,
ducts, wiring, and conduits and appurtenances thereto, in and through the
Property including without limitation walls, below the floor and above the
suspended ceiling;
21.11 to enter the Premises at any reasonable time upon prior notice
(except no notice shall be required in the event of an emergency) to inspect the
Premises; and
21.12 to exercise and enjoy any rights and perform any acts with
respect to the Property not specifically reserved to Tenant.
22. ENVIRONMENTAL PROVISIONS. Tenant shall not, without the prior written
------------------------
consent of Landlord, cause or permit any hazardous substances (defined below) to
be brought or remain upon, kept, used, discharged, leaked, or emitted in or
about, or treated, at the Property. As used in this Sublease, "Hazardous
Substances" means any hazardous, etiological, toxic, or radioactive substance,
material, matter, or waste that is or becomes during the Sublease Term regulated
by any applicable federal, state, or local law, ordinance, order, rule,
regulation, code, or any governmental restriction or requirement, and shall
include but not be limited to asbestos, petroleum products, polychlorinated
biphenyls and the terms "Hazardous Substance" and "Hazardous Waste" as defined
in the Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C.(S)9601, et seq., and the Resources Conservation and Recovery
Act, as amended, 42 U.S.C. (S)6901, et seq.
18
<PAGE>
In addition to, and in no way limiting, Tenant's duties and obligations as
set forth in this Sublease, should Tenant breach any of its duties and
obligations as set forth in this section, or if the presence of any Hazardous
Substances on the Property results in contamination of the Property or any
other property, the atmosphere, or any water or waterway (including groundwater)
or if contamination of the Property by any Hazardous Substances otherwise
occurs for which Tenant is otherwise legally liable to Landlord for damages
resulting therefrom, Tenant shall indemnify, hold harmless and, at Landlord's
option, defend Landlord, and its successors, assigns, contractors, agents,
employees, shareholders, partners, officers, directors, affiliates and any
entity or persons providing financing to the Landlord as well as the Master
Landlord, from any and all claims, demands, damages, expenses, fees, costs,
fines, penalties, suits, proceedings, actions, causes of action, and losses of
any and every kind and nature, including, without limitation, diminution in
value of the Property , damages for the loss or restriction on use of the
rentable or usable space or of any amenity of the Premises or the Building,
damages arising from any adverse impact on marketing space in the Building, and
sums paid in settlement of claims and for attorneys' fees, consultant fees, and
expert fees that may arise during or after the Sublease Term or any Extensions,
if exercised, as a result of that contamination. This includes, without
limitation, costs and expenses incurred in connection with any investigation of
site conditions or any cleanup, remedial, removal, or restoration work required
by any federal, state, or local governmental agency or political subdivision
because of the presence of Hazardous Substances on or about the Property, or
because of the presence of Hazardous Substances anywhere else that came or
otherwise emanated from Tenant or the Property. Without limiting the foregoing,
if the presence of any Hazardous Substances on or about the Property caused or
permitted by Tenant results in any contamination of the Property Tenant shall,
at its sole expense, promptly take all actions and expense as are necessary to
return the Premises and the Building to the condition existing prior tot he
introduction of any Hazardous Substances to the Property; provided, however,
that Landlord's written approval of these actions shall first be obtained.
23. DEFAULT: REMEDIES
------------------
23.1 DEFAULT. The occurrence of any of the following shall
constitute a material default and breach of this Sublease by Tenant:
(a) Any failure by Tenant to pay the rent or any other monetary
sums required to be paid hereunder (where such failure continues for five (5)
business days after written notice by Landlord to Tenant);
(b) The abandonment or vacation of the Premises by Tenant;
(c) A failure by Tenant to observe and perform any other
provision of this Sublease to be observed by Tenant, where such failure
continues for ten (10) days after written notice thereof, by Landlord to Tenant;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within said ten (10) day period, Tenant shall not be
deemed to be in default if Tenant shall within such period
19
<PAGE>
commence such cure and thereafter diligently prosecute the same to completion,
within thirty (30) days thereafter.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or of a petition for reorganization
or arrangement under any law relating to bankruptcy [unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days];
the appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Sublease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Sublease, where such seizure is not discharged within thirty (30) days.
23.2 REMEDIES. In the event of any such material default or breach
by Tenant, Landlord may, at any time thereafter without limiting Landlord in the
exercise of any right or remedy at law or in equity which Landlord may have by
reason of such default or breach:
(a) Maintain this Sublease in full force and effect and recover
the Rent, additional rent and other monetary charges as they become due, without
terminating Tenant's right to possession irrespective of whether Tenant shall
have abandoned the Premises. In the event Landlord elects not to terminate the
Sublease, Landlord shall have the right to attempt to re-let the Premises at
such rent and upon such conditions and for such a term, and to do all acts
necessary to maintain or preserve the Premises as Landlord deems reasonable and
necessary without being deemed to have elected to terminate the Sublease,
including removal of all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant. In the event any such re-letting occurs, this
Sublease shall terminate automatically upon the new Tenant taking possession of
the Premises. Notwithstanding that Landlord fails to elect to terminate the
Sublease initially, Landlord at any time during the term of this Sublease may
elect to terminate this Sublease by virtue of such previous default of Tenant.
(b) Terminate Tenant's right to possession by any lawful means,
in which case this Sublease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default; including without limitation thereto, the following: (1) any
unpaid rent which has been earned at the time of such termination; plus (2) the
amount by which the unpaid rent which would have been earned after termination
until the time of a judicial award exceeds the amount of such rental loss, that
is proved could have been reasonably avoided; plus (3) the amount by which the
unpaid rent for the balance of the term after the time of a judicial award
exceeds the amount of such rental loss that is proved could be reasonably
avoided, discounted to its net present value at ten percent (10%); plus (4) any
other amount necessary to compensate Landlord for all the detriment, loss, cost
and damage, proximately caused by Tenant's failure to perform its obligations
under this Sublease including, but not limited to, Rent, additional rent and
other monetary obligations as they become due, attorney's fees, costs to re-let
and
20
<PAGE>
remodel the Premises, costs of regaining possession, real estate brokers'
commissions and interest on all such sums accruing at a maximum lawful rate from
the date of default until paid in full or which in the ordinary course of events
would be likely to result therefrom; plus (5) at Landlord's election, such other
amounts in addition to or in lieu of the foregoing as may be permitted from time
to time by applicable law. Upon any such re-entry Landlord shall have the right
to make any reasonable repairs, alterations or modifications to the Premises
which Landlord in its sole discretion deems reasonable and necessary. The term
Rent as used in this Section 22, shall be deemed to be and to mean the Rent and
additional rent to be paid pursuant to this Sublease and all other monetary
obligations required to be paid by Tenant pursuant to the terms of the Sublease.
Landlord agrees to take reasonable actions to mitigate damages caused by
Tenant's default hereunder.
23.3 LATE CHARGES. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this Sublease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within five (5) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
three and three quarters percent (3.75%) of such overdue amount each and every
month (or any portion thereof) until said late payment is paid in full. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the cost Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder.
24. ESTOPPEL CERTIFICATE. Tenant and Landlord agree at any time and from
--------------------
time to time, upon not less than ten (10) business days' prior written request
from the other party to execute, acknowledge and deliver to the requesting party
a statement in writing, in form and content reasonable acceptable to both
parties, an estoppel certificate certifying that this Sublease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), the dates
to which Rent, additional rent and charges have been paid and certifying that it
is not in default (or if a default is alleged, stating the nature of the alleged
default), and further certifying such other matters as the requesting party
shall require. It is intended that any such statement delivered pursuant to
this Section may be relied upon by any purchaser, owner, lender, subtenant,
assignee or any entity which is a party to a potential merger, consolidation
with or to the acquisition of substantially all of the assets or stock of
andlord or Tenant. In the event either party shall fail to execute and deliver
any such instrument within the foregoing time period as requested, such party
hereby irrevocably appoints the requesting party as its attorney-in-fact to
execute such instrument in its name, it being agreed that such appointment is
one coupled with an interest and the statements contained in such instrument
shall be deemed to be true and correct and binding on such party, who shall be
estopped from denying or contesting the facts contained in such instrument.
21
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25. SUBLEASE SUBJECT TO MASTER LEASE. It is hereby acknowledged and
---------------------------------
confirmed by Landlord and Tenant that this Sublease is subject, in all respects,
to the terms and conditions of the Master Lease .
Tenant agrees at any time and from time-to-time upon not less than ten (10)
days prior request from Landlord or Master Landlord, to execute, acknowledge and
deliver to Landlord or Master Landlord, a statement in writing certifying that
this Sublease is unmodified and in full force and effect (or if there have been
modifications, that the same are in full force and effect, as modified, and
stating the modifications and the dates to which the fixed rent and other
charges have been paid in advance, if any, and confirming Tenant's acceptance of
the Premises, the commencement of the Term, and the Rent provided hereunder, it
being intended that any such statement delivered pursuant to this subparagraph
may be relied upon by any prospective purchaser or mortgagee of Landlord or
Master Landlord.
Tenant agrees that this Sublease is subject to and subordinate to the
Master Lease and that it will, upon Master Landlord's request (or its
Mortgagee's request), attorn to the Master Landlord (or its Mortgagee) and pay
the Master Landlord (or its Mortgagee) all of the rents and other moneys
required to be paid by the Tenant under this Sublease, and perform all of the
terms, covenants, conditions and obligations contained in this Sublease. If
Master Landlord (or its Mortgagee) request such attornment by Tenant, Tenant's
attornment shall be conditioned upon the Master Landlord's (and if its Mortgagee
requires such attornment, then also such Mortgagee's) recognition of Tenant as
the sublessee under the Sublease and the Tenant's rights under the Sublease
which Master Landlord and Mortgagee agree not to disturb so long as Tenant is
not in default hereunder (beyond any applicable notice and cure periods) and
this Sublease shall continue as a direct lease between Tenant and Master
Landlord (or such Mortgagee, its successors or assigns, if it or such successor
or assign becomes the owner of the Premises) upon all of the terms and
conditions hereof. In no event shall Master Landlord (or any successor owner of
the Premises) have any obligation to perform any of Tenant's obligations under
the Sublease with respect to those obligations that arise prior to the date that
Master Landlord (or its successor owner of the Premises) becomes the direct
landlord hereunder. Any obligation of Master Landlord (or such successor owner
of the Premises) arising under this Sublease after such date shall be without
recourse to Master Landlord (or any such successor owner of the Premises), other
than to the interest of Master Landlord (or such successor owner of the
Premises) in the property demised by this Sublease. The term "Mortgagee" shall
initially mean the holder of any mortgage deed of trust or similar lien against
the Premises given by the Master Landlord or its predecessor in interest, but
upon any judicial or non-judicial foreclosure sale or deed in lieu thereof, the
term "Mortgagee" shall mean the purchaser at such sale or the transferee by deed
in lieu thereof.
26. MISCELLANEOUS.
-------------
(a) Any and all discussions and negotiations between Landlord and
Tenant have been merged into this Sublease. No rights are conferred upon Tenant
until this
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Sublease has been executed by Landlord. Any and all representations and
agreements by either of the parties or their agents made during negotiations
prior to execution of this Sublease and which representations and agreements are
not contained in this Sublease shall not be binding upon either of the parties
hereto.
(b) Landlord and Tenant represent and warrant to each other that
they have not had any dealings with any real estate brokers, finders or agents
in connection with this Sublease. Landlord and Tenant agree to indemnify, defend
and hold each other and their successors and assigns harmless from any and all
claims, costs, commissions, fees or damages by any person or firm claiming to
have negotiated, instituted or brought about this Sublease.
(c) All terms and words used in this Sublease, regardless of the
number and gender in which they are used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context or sense of this Sublease or any portion of
this Sublease may require, the same as if such words had been fully and properly
written in the number and gender.
(d) This Sublease may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
such counterparts together shall constitute but one and the same instrument.
(e) If any provision of this Sublease or the application thereof
to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Sublease, or the application of such term
or provision to persons whose circumstances are other than those as to which it
is held invalid or unenforceable, shall not be affected thereby.
(f) No modification, alteration or amendment of this Sublease
shall be binding unless in writing and executed by the parties hereto.
(g) The headings to the Sections of this Sublease are inserted
only as a matter of convenience and for reference, and in no way confine, limit
or proscribe the scope or intent of any Section of this Sublease, nor in any way
affect this Sublease.
(h) This Sublease is binding upon and shall inure to the benefit
of the parties, hereto and their respective heirs, administrators, executors,
successors and assigns.
(i) Time is of the essence of this Sublease and each provision;
provided, however, if the final (but not any interim) date of any period set
forth herein falls on a Saturday, Sunday or legal holiday under the laws of the
United States of America, the final date of such period shall be extended to the
next business day.
(j) This Sublease shall be governed by and construed and
interpreted in accordance with the laws of the state of Colorado.
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(k) Each party hereto has reviewed and revised (or requested
revisions of) this Sublease, and therefore any usual rules of construction
requiring that ambiguities are to be resolved against a particular party shall
not be applicable in the construction and interpretation of this Sublease or any
Exhibits hereto.
(l) Every notice, approval, consent or other communication
authorized or required by this Sublease shall be effective if given in writing
and either hand delivered, sent by recognized overnight delivery courier
service, or sent by United States Certified Mail, Return Receipt Requested, with
postage prepaid, and addressed to the Landlord at its office address as set
forth above and to Tenant at its office address as set forth above or at such
other address as any party shall from time to time designate to the other in
writing. Every notice shall be deemed to be effective upon delivery, if
delivered, the next business day, if sent by overnight courier service, or on
the second business day after mailing, if mailed.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Sublease to be
executed as of the date first above written
LANDLORD:
BOSTON CHICKEN, INC.
a Delaware corporation
By: /s/ J. Randal Miller
---------------------------------
Name: J. Randal Miller
-------------------------------
Title: Vice President
------------------------------
TENANT:
EINSTEIN/NOAH BAGEL CORP.
a Delaware corporation
By: /s/ David G. Stanchak
---------------------------------
Name: David G. Stanchak
-------------------------------
Title: Chief Development Officer
------------------------------
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EXHIBIT A
---------
LEGAL DESCRIPTION OF THE PROPERTY
---------------------------------
LOT 2 OF DENVER WEST PROPERTIES AMENDMENT NO. 4 RECORDED DECEMBER __, 1996 AT
RECEPTION NO. ________________, LOCATED IN THE SOUTHWEST 1/4 OF SECTION 31,
TOWNSHIP 3 SOUTH, RANGE 69 WEST, COUNTY OF JEFFERSON, STATE OF COLORADO.
25
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EXHIBIT B
----------
FLOOR PLAN OF THE PREMISES
--------------------------
26
<PAGE>
EXHIBIT C
----------
TERM COMMENCEMENT AGREEMENT
---------------------------
THIS AGREEMENT, made this ____ day of ___________, 19____, by and between
______________________________, a ________________ corporation (herein
"Landlord") and _____________________________, a ________________ corporation
(herein "Tenant").
W I T N E S S E T H:
--------------------
WHEREAS, Landlord and Tenant have entered into that certain office Sublease
dated _______________, ______ ("Sublease") for the Premises located at 14123
Denver West Parkway, Second Floor, Golden, CO 80401; and
WHEREAS, Landlord and Tenant wish to set forth their agreements as to the
commencement of the Term of this Sublease.
NOW, THEREFORE, in consideration of the Premises as described in the
Sublease and the covenants set forth therein. Landlord and Tenant agree as
follows:
The Term of the Sublease commenced on __________, 19____.
The initial or base term of the Sublease shall expire on _________, 19____.
Tenant has two (2) options of five (5) years each.
The Rent Commencement Date for purposes of paying Rent additional rent and
charges under the Sublease is _____________, 19____.
Monthly rents payable during the first Sublease Year are as follows:
(a) Rent: ___________________________
(b) Taxes: ___________________________
(c) Insurance: ___________________________
(d) Admin. Serv. ___________________________
Charge: ___________________________
TOTAL MONTHLY: $ ___________________________
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LANDLORD: TENANT:
________________________ _________________________
________________________ _________________________
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EXHIBIT D
----------
MASTER LEASE
------------
<PAGE>
EXHIBIT 10.25
TERMINATION AGREEMENT
This Agreement (the "Agreement") is made this 26th day of December 1997, by
and between Einstein/Noah Bagel Corp., a Delaware corporation (hereinafter
referred to as the "Company"), and Mark R. Goldston (hereinafter referred to as
"Goldston").
RECITALS
--------
Goldston has served as Chief Executive Officer, and a director, of, the
Company. Goldston resigned as Chief Executive Officer and as a director of the
Company effective December 26, 1997. In consideration of the mutual covenants
hereinafter set forth and in full satisfaction of any claim Goldston may have or
assert arising from or in any way relating to his employment or engagement with,
and separation from, the Company, the parties hereto agree as follows:
COVENANTS
---------
In consideration of the mutual promises contained herein, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. TERMINATION PAYMENTS. In full satisfaction of any obligations the
Company may have to Goldston relating in any way to his employment or engagement
with, and separation from, the Company, the Company agrees to pay to Goldston
(a) the sum of $200,000, which shall be payable to Goldston on the later of (i)
January 5, 1998 or (ii) five business days after the expiration of the
revocation period described in Section 11(c) hereof, and (b) the sum of
$360,000, which shall be payable in twenty-six (26) substantially equal
installments over the one-year period commencing upon the expiration of the
revocation period described in Section 11(c) hereof. The Company shall be
entitled to deduct from all such payments all applicable FICA contributions,
federal and state income taxes and any other payroll taxes. The Company shall
have the option to pay the amounts provided for herein in registered shares of
common stock, $.01 par value per share, of the Company.
2. CONFIDENTIALITY. Goldston acknowledges that he is a party to the
Confidentiality and Non-Compete Agreement dated as of the date hereof, a copy
of which is attached hereto as Schedule A (the "Confidentiality Agreement") and
agrees to comply therewith. Goldston acknowledges that he has entered into such
Confidentiality Agreement in consideration in part for the Company's promises in
this Agreement.
<PAGE>
3. INVENTIONS, DESIGNS AND PRODUCT DEVELOPMENTS. All inventions,
innovations, designs, ideas and product developments developed or conceived by
Goldston, solely or jointly with others, whether or not patentable or
copyrightable, at any time during the employment or engagement of Goldston by
the Company and that relate to the actual or then-currently planned business
activities of the Company or its subsidiaries (collectively, the "Developments")
and all of Goldston's right, title and interest therein, shall be the exclusive
property of the Company. Goldston hereby assigns, transfers and conveys to the
Company all of his right, title and interest in and to any and all such
Developments. At any time and from time to time, upon the request of the
Company, Goldston shall execute and deliver to the Company any and all
instruments, documents and papers, give evidence and do any and all other acts
that, in the opinion of counsel for the Company, are or may be necessary or
desirable to document such transfer or to enable the Company to file and
prosecute applications for and to acquire, maintain and enforce any and all
patents, trademark registrations or copyrights under United States or foreign
law with respect to any Developments or to obtain any extension, validation,
reissue, continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Goldston for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. COVENANT RESTRICTING SOLICITATION. For a period of two years from the
date hereof Goldston shall not, directly or indirectly, solicit or attempt to
solicit for employment any person who is an employee of the Company on the date
of Goldston's date of termination.
5. DISPARAGEMENT. Goldston and the Company each agree not to disparage,
or otherwise speak negatively of, the other. The Company further agrees to use
reasonable best efforts to cause its directors not to disparage, or otherwise
speak negatively, of Goldston.
6. EQUITABLE RELIEF. Each of the parties acknowledges that the
restrictions contained in the Confidentiality Agreement and Sections 3, 4 and 5
are reasonable and necessary to protect the legitimate interests of the Company
and Goldston, and that any violation of any provisions of those Sections by a
party will result in irreparable injury to the other party. Each party also
acknowledges that the other party shall be entitled in enforcing the provisions
of those Sections to obtain temporary and permanent injunctive relief, without
the necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative of and in addition to any other rights or remedies to
which such party may be entitled.
2
<PAGE>
7. STOCK OPTIONS. (a) Goldston has been granted stock options on shares
of the Company, as set forth on Schedule B attached hereto (collectively, the
"Options"). The Options shall continue to vest for a period of one year from
the date hereof and shall continue to be exercisable for a period of two years
from the date hereof, in each case pursuant to and in accordance with the terms
thereof; provided, however, that such options shall terminate immediately and be
of no further force and effect upon any material breach by Goldston of the
Confidentiality Agreement or Sections 3, 4 or 5 hereof. In the event that the
Company intends to terminate Goldston's options pursuant to this Section 7(a),
in the event of a material breach that is capable of being cured, the Company
shall first provide Goldston written notice thereof, which notice shall set
forth in reasonable detail Goldston's breach of covenants hereunder. Upon
receipt of such notice Goldston shall have ten (10) days in which to cure any
such alleged breach which is capable of being cured.
(b) Goldston shall not be eligible for any additional stock option
grants after the date hereof.
8. GOLDSTON REPRESENTATIONS. Goldston represents and warrants to the
Company that (i) he is free to enter into this Agreement and (ii) this Agreement
does not violate the terms of any other agreement to which Employee is a party
or by which he is bound.
9. WAIVER. Failure by either 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.
10. SEVERABILITY. Each section, paragraph, term and provision of this
Agreement, and any portion thereof, shall be considered severable and if for any
reason any such portion of this Agreement is held to be invalid, contrary to, or
in conflict with any applicable present or future law or regulation in a final,
unappealable ruling issued by any court, agency or tribunal with competent
jurisdiction in a proceeding to which the Company is a party, that ruling shall
not impair the operation of, or have any other effect upon, such other portions
of this Agreement as may remain otherwise intelligible, which shall continue to
be given full force and effect and bind the parties hereto. Goldston agrees
that if any provisions hereof shall be adjudicated to be invalid or
unenforceable in whole or in part, such modifications made to this Agreement as
a result of such adjudication shall be effective only in the particular
jurisdiction in which such adjudication is made. To the extent any provision
hereof is deemed unenforceable by virtue of its scope but may be enforceable by
limitations thereon, the parties hereto agree that the same shall be enforceable
to the fullest extent permissible under the laws and public policies applied in
such jurisdiction in which the enforcement is sought. The
3
<PAGE>
parties hereto hereby authorize any court of competent jurisdiction to modify
the restrictive covenants to the extent necessary to make the same enforceable.
11. RELEASES. (a) In partial consideration for the termination payments
provided for in Section 1 hereof, Goldston acknowledges and agrees that he, for
himself and his successors, assigns and legal representatives, fully and forever
releases and discharges the Company, its subsidiaries and area developers and
their respective officers, directors, employees, agents, representatives and
insurers (collectively, the "Company Released Parties") from and against any and
all claims, liabilities, demands, obligations, damages, actions, or causes of
action of any nature or type whatsoever, whether or not presently known,
including future claims, liabilities, demands, obligations, damages, actions or
causes of action if based in whole or part on acts or omissions occurring before
he delivers this release to the Company, in any way relating to his employment
or engagement with, his separation from, or his investment in the Company,
except, in each case, for his rights described in this Agreement, rights under
the Company's Director and Officer Insurance Policy, under the indemnification
provisions of the Company's Certificate of Incorporation and under the
provisions of Section 145 of the Delaware General Corporation Law ("DGCL"), in
each case as they relate to his duties and service as an officer and director of
the Company, if any. Goldston acknowledges and agrees that the legal rights and
claims that he is giving up include, but are not limited to, his rights, if any,
under all state and federal statutes that protect him from discrimination in
employment on the basis of sex, race, national origin, religion, disability and
age, such as the Age Discrimination in Employment Act of 1987, Title VII of the
Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the
Americans With Disabilities Act, the Family and Medical Leave Act, the Equal Pay
Act, and the Colorado Civil Rights Act, as well as all common law rights and
claims, such as breach of contract, express or implied, tort, whether negligent
or intentional, wrongful discharge and any claim for fraud, omission or
misrepresentation against the Company Released Parties.
(b) The Company acknowledges and agrees that it, for itself and its
successors and assigns fully and forever releases and discharges Goldston, his
heirs and legal representatives from and against any and all claims,
liabilities, demands, obligations, damages, actions, or causes of action of any
nature or type whatsoever, whether or not presently known, including future
claims, liabilities, demands, obligations, damages, actions or causes of action
if based in whole or in part on acts or omissions occurring before it delivers
this release to Goldston, except, in each case, for the Company's rights
described in this Agreement, the Company's rights under the Company's Director
and Officer Insurance policy and the Company's right under Section 145 of the
DGCL to be reimbursed by Goldston, if required by law, for expenses of any
litigation advanced to him in defense of such litigation, including the
Undertaking relating to reimbursement of expenses incurred in connection with
Case No. 94-N-1614 entitled In re Einstein/Noah Bagel Corp. Securities
Litigation.
4
<PAGE>
(c) Goldston acknowledges that he has up to 21 days after he has
received this Agreement to consider whether to sign it. In addition, after he
has signed and delivered this Agreement to the Company, it will not be effective
or enforceable until the end of a seven-day revocation period beginning the day
that he delivers it to the Company. During this seven-day period, Goldston may
revoke this Agreement, without reason and in his sole judgment, but he may do so
only by delivering a written statement of revocation to the Company as provided
in Section 17. If the Company does not receive Employee's written statement of
revocation by the end of the revocation period, then this Agreement will become
legally enforceable and Goldston may not thereafter revoke it. Any termination
of this Agreement in accordance with its terms shall not effect the validity of
the releases contained in this Section 11.
(d) Goldston acknowledges that he has been fully advised of the
contents of Section 1542 of the Civil Code of the State of California and he
hereby expressly waives all rights and benefits under that section and under any
law of any jurisdiction of similar effect with respect to his release of any
claims he may have against the Company. Section 1542 reads as follows:
"Section 1542. (General Release Claims Extinguished). A general
release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement
with the debtor."
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company, its successors and assigns. This Agreement
shall inure to the benefit of and be enforceable by the personal or legal
representatives, executors, administrators, successors, assigns, heirs,
distributees and/or legatees of Goldston, except that duties and
responsibilities of Goldston under this Agreement are personal to him, and are
not subject to assignment or transfer by him.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties concerning the termination of Goldston's employment with the
Company. This Agreement may not be modified or rescinded except by a written
agreement to such effect signed by both parties.
14. ARBITRATION. Any controversy, claim or dispute between the parties
relating to or arising out of this Agreement will be finally settled by
arbitration governed by the then current Commercial Arbitration Rules of the
American Arbitration Association in accordance with the terms of this Agreement,
provided, however, that the Company shall not be prevented from seeking or
obtaining in any court of competent jurisdiction appropriate injunctive relief
in the event of a breach of the Confidentiality Agreement or any of the
provisions of Sections 3, 4 or 5 of this Agreement. Any arbitration will be
conducted in Denver, Colorado by a panel of three neutral arbitrators.
5
<PAGE>
15. CONFIDENTIALITY AND PUBLICITY. (a) The parties agree to maintain the
confidentiality of this Agreement and the terms hereof (the "Confidential
Information"), except that (i) either party may make disclosures of Confidential
Information that has become publicly known other than by an action of the
disclosing party, or a person acting on their behalf, in violation of the terms
of this Agreement, (ii) the Company may make such disclosure of Confidential
Information as it may determine to be required under applicable securities laws
or the rules of any applicable securities exchange or quotation system, or in
connection with the preparation of any disclosure document to be distributed to
investors, lenders or similar persons, (iii) either party may disclose
Confidential Information that it may be legally compelled to disclose (after
using reasonable best efforts to notify the other party hereto in advance of
such disclosure, and reasonably cooperating in efforts of the other party to
resist such disclosure), (iv) either party may disclose such Confidential
Information as may be required to permit it to enforce the provisions of this
Agreement, and (v) either party may disclose Confidential Information to its
attorneys, accountants or other professional advisors.
(b) The Company agrees to provide Goldston to the extent he is
available, the opportunity to review prior to its issuance any press release to
be issued by the Company that mentions his name, provided, however, that this
section shall not be interpreted to limit Company's ability to issue any press
release that mentions Goldston's name that the Company deems necessary, based on
the advice of its counsel, with or without his review.
(c) Goldston agrees to provide the Company an opportunity to review
any press release or other public communication or statement he may make
regarding the Company prior to the issuance of such press release or, to the
extent practicable, making of such communication or statement.
16. FUTURE COOPERATION. Goldston agrees to cooperate in good faith
with the Company in any third-party litigation instituted by or against the
Company with respect to matters which occurred during the period in which
Goldston was employed by or served as a director or officer of the Company. The
Company agrees to reimburse Goldston or reasonable expenses incurred by him in
connection with such cooperation with respect to such matters.
17. NOTICES. All notices, request, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or by electronic transmission. If mailed,
first class, certified mail, postage prepaid, or sent by reliable overnight
delivery service and addressed as follows, or at such other addresses as the
parties hereto may from time to time designate in writing, such notices,
requests, demands, and other communications shall be deemed delivered three
business days after being so duly posted:
6
<PAGE>
to the Company: Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
to Employee: Mark R. Goldston
3347 Clerendon Road
Beverly Hills, CA 90210
Facsimile: (818)-784-4454
18. GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of Colorado applicable to contracts made and to be performed
therein.
19. SURVIVAL. The parties acknowledge and agree that the covenants
contained in this Agreement and the Confidentiality Agreement shall survive the
termination of Goldston's employment or engagement with the Company.
20. REGISTRATION OF CERTAIN SHARES. The Company agrees to include in its
next resale registration statement covering shares of its common stock 344,673
shares of common stock of the Company subject to options granted to Goldston by
Boston Chicken, Inc. and 32,258 restricted shares of common stock owned by
Goldston.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
EMPLOYEE: EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
------------------------------
/s/ Mark R. Goldston Its: Senior Vice President
- ------------------------- -----------------------------
Mark R. Goldston
8
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Einstein/Noah Bagel Partners, L.P., a Delaware limited partnership.
Einstein/Noah Bagel Partners, Inc., a California corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 16, 1998 (except Note 6 as to which the date is
March 27, 1998) on our audit of the consolidated financial statements of
Einstein/Noah Bagel Corp. (the "Company") included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 333-11197 and 333-
44353.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 30, 1998
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation of our report dated April 26, 1996 included
in this Form 10-K, into the previously filed Einstein/Noah Bagel Corp.
Registration Statement File Nos. 333-11197 and 333-44353.
MAYER HOFFMAN McCANN L.C.
Kansas City, Missouri
March 30, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated April 24, 1996, on our audit of the combined financial
statements of Offerdahl's Bagel Gourmet, Inc. and Affiliates included in this
Form 10-K, into the previously filed Einstein/Noah Bagel Corp. Registration
Statement File Nos. 333-11197 and 333-44353.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 30, 1998
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