<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Einstein/Noah Bagel Corp.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF EINSTEIN BAGEL CORP. APPEARS HERE]
14103 Denver West Parkway, P.O. Box 4086, Golden, Colorado 80401-4086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 24, 1999
You are cordially invited to attend the annual meeting of stockholders of
Einstein/Noah Bagel Corp. which will be held at the Denver Marriott West, 1717
Denver West Boulevard, Golden, Colorado, on Monday, May 24, 1999, at 10:00
a.m., Mountain Time, for the following purposes:
1. To elect directors.
2. To approve certain amendments to the Company's 1996 Stock Option Plan
for Non-Employee Directors.
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 26, 1999 are
entitled to vote at the meeting. A list of such stockholders will be available
for examination by any stockholder for any purpose germane to the meeting,
during normal business hours, at the offices of the Company, Golden, Colorado,
for a period of 10 days prior to the meeting.
It is important that your shares be represented at the meeting regardless of
the size of your holdings. Whether or not you intend to be present at the
meeting in person, we urge you to mark, date and sign the enclosed proxy and
return it in the envelope provided for that purpose, which does not require
postage if mailed in the United States.
Paul A. Strasen
Secretary
Golden, Colorado
April 20, 1999
YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 24, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Einstein/Noah Bagel Corp. of proxies for use at the
annual meeting of stockholders of the Company to be held at the Denver
Marriott West, 1717 Denver West Boulevard, Golden, Colorado, on Monday, May
24, 1999, at 10:00 a.m., Mountain Time, and at any postponements or
adjournments thereof. Proxies properly executed and returned in a timely
manner will be voted at the meeting in accordance with the directions noted
thereon. If no direction is indicated, they will be voted (i) for the election
of the nominees named herein as directors, (ii) for approval of the amendment
to the Company's 1996 Stock Option Plan for Non-Employee Directors (the
"Directors Plan"), and (iii) on other matters presented for a vote, in
accordance with the judgment of the persons acting under the proxies. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted, either in person at the meeting, by written notice to the Secretary of
the Company, or by delivery of a later-dated proxy.
Nominees for director receiving the highest number of votes cast by the
holders of the shares of the Company's Common Stock, par value $0.01 per
share, present in person or represented by proxy and entitled to vote at the
meeting will be elected as directors. Approval of the amendment to the
Directors Plan and, in general, approval of any other matter submitted to the
stockholders for their consideration requires, in each case, the affirmative
vote of the holders of a majority of the shares of the Common Stock present in
person or by proxy and entitled to vote at the meeting. An automated system
administered by the Company's transfer agent, representatives from whom will
serve as inspectors of election, will be used to tabulate the votes.
Abstentions, directions to withhold authority, and broker non-votes are
counted as shares present and entitled to vote in the determination of whether
the shares of Common Stock represented at the meeting constitute a quorum.
Pursuant to the Company's bylaws, abstentions are not counted in tabulations
of the votes cast on proposals presented to stockholders, however, with
respect to the approval of the amendment to the Directors Plan, abstentions
are treated as "no" votes in accordance with applicable law. Broker non-votes
are deemed not entitled to vote on proposals for which brokers do not have
discretionary authority and, therefore, have no effect with respect to such
proposals.
The Company's principal executive offices are located at 14103 Denver West
Parkway, P.O. Box 4086, Golden, Colorado 80401-4086 (telephone 303/215-9300).
It is expected that proxy materials will be mailed to stockholders beginning
on or about April 20, 1999.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on March 26, 1999 are
entitled to vote at the annual meeting of stockholders. The Common Stock is
the only voting stock of the Company outstanding, of which 34,083,681 shares
were outstanding as of the close of business on March 26, 1999. Each share of
Common Stock is entitled to one vote.
ELECTION OF DIRECTORS
Seven directors are to be elected at the meeting. The persons named below
have been designated by the Board of Directors as nominees for election as
directors for a term expiring at the annual meeting of stockholders in 2000.
All of the nominees are serving as directors of the Company as of the date of
this Proxy Statement.
<PAGE>
The seven nominees for director receiving the highest number of votes cast
at the meeting will be elected. Unless otherwise instructed, properly executed
proxies that are returned in a timely manner will be voted for election of the
Board's seven nominees. If, however, any of such nominees should be unable or
should fail to act as a nominee, the proxies will be voted for such other
person as will be determined by the holders of the proxies in their
discretion, or the Board of Directors may make an appropriate reduction in the
number of directors to be elected.
Martin D Hanan, age 42, became a director of the Company in April 1999. Mr.
Hanan is President of Business Valuation Services, Inc. (a subsidiary of
Century Business Services, Inc.), a position he has held since 1987.
Robert M. Hartnett, age 47, became Chief Executive Officer and a director of
the Company in February 1998 and became President and Chairman of the Board of
the Company in May 1998. Mr. Hartnett served as Vice President-Eastern Zone of
the general partner of Einstein/Noah Bagel Partners, L.P., a majority owned
subsidiary of the Company ("Bagel Partners"), from December 1997 until
February 1998. 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 Food Services, Inc., an area developer of Boston
Chicken, Inc.
J. Michael Jenkins, age 52, became a director of the Company in May 1998.
Mr. Jenkins became Chairman, Chief Executive Officer and President of Boston
Chicken in May 1998. From August 1996 until May 1998, Mr. Jenkins was Chief
Executive Officer and President of Vicorp Restaurants, Inc. ("Vicorp") and
from August 1994 until August 1996, served as Co-Chief Executive Officer and
President of Vicorp. Mr. Jenkins also served as a director of Vicorp from
August 1994 until May 1998. From February 1992 until August 1994, Mr. Jenkins
was Chairman of the Board and Chief Executive Officer of El Chico Restaurants,
Inc.
Gail A. Lozoff, age 48, became Chief Marketing Officer of the Company in
March 1998 and served as Chief Concept Officer of the Company from October
1997 until March 1998. Ms. Lozoff has been a director of the Company since
April 1995. From September 1996 until October 1997, Ms. Lozoff served as a
Vice President of the Company and from April 1995 until September 1996, she
served as Vice President-Design and Merchandising of the Company. Prior
thereto, Ms. Lozoff was President and Chief Executive Officer of Bagel &
Bagel, Inc. from May 1992 until its acquisition by the Company in March 1995.
John H. Muehlstein, Jr., age 44, became a director of the Company in March
1995. Since 1986, he has been a partner at the Chicago law firm of Pedersen &
Houpt.
Donald L. Pierce, age 54, became a director of the Company in April 1999.
Since March 1997 he has been President of Woodstone Consulting Company Inc.
From April 1993 until February 1997, Mr. Pierce was President and Chief
Executive Officer of Arby's Inc.
David G. Stanchak, age 40, became a director of the Company in March 1995
and from such date until April 1998 he also served as Chief Development
Officer of the Company. From June 1992 until March 1995, he served as a Senior
Vice President of Boston Chicken.
The Board of Directors recommends a vote FOR the election of each of the
foregoing nominees for director.
2
<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 26, 1999 by: (i) each stockholder known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock; (ii) each director and nominee for director; (iii) each
executive officer named in the Summary Compensation Table below; and (iv) all
directors and executive officers as a group. The beneficial ownership
reflected in the following table is calculated in accordance with Rule 13d-3
of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Unless
otherwise indicated, ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------
Names Number (1) Percent
----- --------------- -----------
<S> <C> <C>
Boston Chicken, Inc.(2)..................... 19,588,146 54.0%
Robert M. Hartnett.......................... 10,000 *
Paul J.B. Murphy III........................ 28,700 *
W. Eric Carlborg............................ 38,054 *
Gail A. Lozoff (3).......................... 522,112 1.5%
Paul A. Strasen (4)......................... 65,685 *
J. Michael Jenkins (5)...................... 0 *
John H. Muehlstein, Jr...................... 34,870 *
David G. Stanchak (6)....................... 98,778 *
Martin D Hanan.............................. 0 *
Donald L. Pierce............................ 0 *
Scott A. Beck (7)........................... 150,000 *
Loomis, Sayles & Company, L.P (8)........... 1,973,865 5.5%
All directors and executive officers as a
group (excluding Mr. Beck) (11 persons)
(3)(4)(5).................................. 798,199 2.3%
</TABLE>
- - --------
* Less than 1%.
(1) Includes shares of Common Stock subject to options granted by the Company
which were exercisable within 60 days of March 26, 1999 as follows: Mr.
Murphy--27,500; Mr. Carlborg--10,195; Ms. Lozoff--15,919; Mr. Strasen--
54,433; Mr. Muehlstein--18,113; Mr. Stanchak--89,215; and all executive
officers and directors as a group (including such individuals, except Mr.
Beck)--215,375. Also includes the following shares of Common Stock subject
to warrants that the following individuals and all executive officers and
directors as a group have received as a result of their current or former
ownership interest in Bagel Store Development Funding, L.L.C.: Mr.
Carlborg--2,869; Mr. Muehlstein--2,391; Mr. Stanchak--9,563; Mr. Beck--
55,432; and all executive officers and directors as a group (including
such individuals, except Mr. Beck)--14,823.
(2) Includes 68,857 shares of Common Stock on which Boston Chicken
subsidiaries have granted options to certain individuals, of which options
to purchase 44,044 shares of Common Stock are exercisable within 60 days
of March 26, 1999. Includes 2,124,579 shares subject to options granted by
the Company at prices ranging from $3.87 to $30.75 which are exercisable
within 60 days of March 26, 1999. The address of Boston Chicken is 14123
Denver West Parkway, Golden, Colorado 80401-4086. See "Relationship with
Boston Chicken."
(3) Includes 489,475 shares of Common Stock held by a corporation, of which
Ms. Lozoff's spouse is the sole stockholder.
(4) Includes 3,653 shares held by a trust, of which Mr. Strasen is a trustee
and beneficiary, and 5,099 shares held by a limited liability company
controlled by Mr. Strasen and his spouse.
(5) Excludes the aggregate number of shares of Common Stock shown above as
owned by Boston Chicken that may be deemed to be beneficially owned by Mr.
Jenkins because he may be deemed to be an affiliate of Boston Chicken. Mr.
Jenkins disclaims any beneficial ownership of such shares.
3
<PAGE>
(6) Mr. Stanchak resigned as Chief Development Officer of the Company in April
1998. See "Certain Transactions--Employment and Termination Agreements."
(7) Mr. Beck resigned as Chairman of the Board of the Company in May 1998.
(8) Loomis, Sayles & Company, L.P. ("Loomis, Sayles") has sole voting power
with respect to 1,705,362 of such shares and shared voting power with
respect to 194,116 of such shares; Loomis, Sayles has shared dispositive
power with respect to all of such shares. Such information is based on
statements on Schedule 13G and 13G/A filed pursuant to Rule 13d-1 under
the Exchange Act by Loomis, Sayles. Such statements indicate that Loomis,
Sayles is an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940. The address for Loomis, Sayles is One
Financial Center, Boston, Massachusetts 02111. The statements also
indicate that the shares of Common Stock shown in the table above are
issuable upon conversion of the Company's 7 1/4% convertible subordinated
debentures due 2004. Such debentures are convertible into the Common Stock
at a conversion price of $21.25 per share.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than 10% of the
Common Stock, to file reports of ownership with the Securities and Exchange
Commission. These persons also are required to furnish the Company with copies
of all Section 16(a) forms they file. Based on a review of such filings, the
Company believes that all executive officers, directors and greater than 10%
stockholders of the Company complied with applicable Section 16(a) filing
requirements.
4
<PAGE>
Ownership of Boston Chicken Stock
The following table sets forth certain information regarding the beneficial
ownership of Boston Chicken common stock and 10% Series A exchangeable
preferred stock as of March 26, 1999 by (i) each director and nominee for
director; (ii) each executive officer named in the Summary Compensation Table
below; and (iii) all directors and executive officers as a group. The
beneficial ownership reflected in the following table is calculated in
accordance with Rule 13d-3 under the Exchange Act. Unless otherwise indicated,
ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
Shares of Shares of
Common Stock Series A Preferred Stock
Beneficially Owned Beneficially Owned
------------------ -----------------------------
Name of Beneficial Owner Number (1) Percent Number Percent
------------------------ ---------- ------- ---------------- ------------
<S> <C> <C> <C> <C>
Robert M. Hartnett....... 0 * 0 *
Paul J.B. Murphy III..... 0 * 0 *
W. Eric Carlborg......... 18,477 * 0 *
Gail A. Lozoff (2)....... 12,719 * 8,701.961 *
Paul A. Strasen (3)...... 2,027 * 602.300 *
J. Michael Jenkins....... 350,000 * 0 *
John H. Muehlstein, Jr.
(4)..................... 9,221 * 3,271.295 *
David G. Stanchak........ 145,401 * 7,528.750 *
Martin D Hanan........... 0 * 0 *
Donald L. Pierce......... 0 * 0 *
Scott A. Beck (5)(6)..... 587,382 * 127,564.070 5.0%
All directors and
executive officers as a
group (excluding Mr.
Beck) (11 persons)
(2)(3)(4)............... 537,845 * 20,104.306 *
</TABLE>
- - --------
*Less than 1%.
(1) Includes shares of common stock of Boston Chicken subject to options
granted by Boston Chicken which were exercisable within 60 days of March
26, 1999 as follows: Mr. Carlborg--18,477; Mr. Strasen--1,250; Mr.
Jenkins--250,000; Mr. Beck--379,092; and all executive officers and
directors as a group (including such individuals, except Mr. Beck)--
269,727.
(2) Represents shares owned by a trust, of which Ms. Lozoff's spouse is a
trustee and beneficiary.
(3) Includes 777 shares held by a trust, of which Mr. Strasen is a trustee and
beneficiary.
(4) Represents shares owned jointly by Mr. Muehlstein and his spouse.
(5) Includes (a) 24,719 shares of common stock issuable upon conversion of
$660,000 aggregate principal amount of Boston Chicken's 7 3/4% convertible
subordinated debentures due 2004, (b) 161,913 shares of common stock held
by a foundation of which Mr. Beck is an officer and director, as to which
he disclaims beneficial ownership, and (c) 21,658 shares of common stock
held by a limited partnership of which Mr. Beck is a general and limited
partner, as to which he disclaims beneficial ownership of shares in excess
of his pecuniary interest.
(6) Includes (a) 110,775.961 shares of preferred stock held by a foundation of
which Mr. Beck is an officer and director, as to which he disclaims
beneficial ownership, and (b) 16,788.109 shares of preferred stock held by
a limited partnership of which Mr. Beck is a general and limited partner,
as to which he disclaims beneficial ownership of shares in excess of his
pecuniary interest.
5
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The four standing committees of the Board of Directors of the Company in
1998 were the Audit Committee, the Compensation Committee, the Reporting
Person Stock Option Committee and the Stock Option Committee, the functions
and membership of which are described below. The Board of Directors does not
have a standing nominating committee. The Board of Directors held an aggregate
of six regular and special meetings in 1998 and also acted twice by unanimous
written consent.
Audit Committee. In 1998, the Audit Committee initially consisted of the
following two non-employee directors: Messrs. Laird Koldyke and Lloyd Ruth.
After Mr. Ruth's resignation as a director, the Board of Directors elected Mr.
Muehlstein to serve as a member of the Audit Committee. After Mr. Koldyke's
resignation as a director, the Board of Directors elected Mr. Stanchak as a
member of the Audit Committee. The Audit Committee met two times during fiscal
1998. The Audit Committee's functions include making recommendations to the
Board of Directors on the selection of the Company's auditors, reviewing the
arrangements for, and scope of, the independent auditors' examination, meeting
with the independent auditors, the Board of Directors and certain officers of
the Company to review the adequacy of internal controls and reporting, and
performing any other duties or functions deemed appropriate by the Board of
Directors.
Compensation Committee. In 1998, the Compensation Committee initially
consisted of the following four directors: Messrs. Beck, Koldyke, Muehlstein
and Ruth. After Mr. Beck's resignation as a director, the Board of Directors
elected Mr. Stanchak to serve as a member of the Compensation Committee. The
positions of Messrs. Koldyke and Ruth were not filled following their
resignations. The Compensation Committee met three times during fiscal 1998
and also acted twice by unanimous written consent. The Compensation Committee
is responsible for establishing policies for, and making recommendations to,
the Board of Directors regarding salaries and certain other compensation to be
paid to officers of the Company.
Reporting Person Stock Option Committee. In 1998, the Reporting Person Stock
Option Committee consisted of two non-employee directors: Messrs. Koldyke and
Ruth. The Reporting Person Stock Option Committee met once during fiscal 1998
and was responsible for the administration of, and the granting of all options
under, the Company's Amended and Restated 1995 Employee Stock Option Plan, the
Amended and Restated 1997 Stock Option Plan and the Restated 1997 ENBP Stock
Option Plan (collectively, the "Employee Plans") to persons subject to Section
16 of the Exchange Act and the rules promulgated thereunder ("Reporting
Persons") until May 1998, when the Employee Plans were amended to provide
that, with respect to Reporting Persons, such plans would be administered by
the entire Board of Directors. At such time, the Reporting Person Stock Option
Committee was disbanded.
Stock Option Committee. In 1998, the Stock Option Committee initially
consisted of four directors: Messrs. Beck, Koldyke, Muehlstein and Ruth. After
Mr. Beck's resignation as a director, the Board of Directors elected Mr.
Stanchak to serve as a member of the Stock Option Committee. The positions of
Messrs. Koldyke and Ruth were not filled following their resignations. The
Stock Option Committee met twice during fiscal 1998 and also acted three times
by unanimous written consent. The Stock Option Committee is responsible for
the administration of the Employee Plans and the granting of all options under
the Employee Plans to persons other than Reporting Persons.
In fiscal 1998, during the time each director served in such capacity, no
director attended less than 75% of the aggregate of all meetings of the Board
and all meetings held by committees of the Board on which such director
served.
Nominations for election of directors are made by the Board of Directors
and, pursuant to the Company's bylaws, may be made by a committee appointed by
the Board or by any stockholder entitled to vote in the election of directors.
See "Submission of Stockholder Proposals for the 2000 Annual Meeting" for
procedures with respect to nominations by stockholders.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation for each of the fiscal years
ended December 27, 1998, December 28, 1997 and December 29, 1996 received by,
or payable to, individuals who served as Chief Executive Officer of the
Company and the Company's four other most highly compensated executive
officers during fiscal year 1998 (the "named executive officers"). The Company
does not have a restricted stock award program or a long-term incentive plan
in which executive officers or directors of the Company may participate.
<TABLE>
<CAPTION>
Other Securities
Annual Underlying All Other
Name and Compen- Options Compen-
Principal Position Year Salary Bonus sation (#)(1)(2) sation
------------------ ---- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett (3)... 1998 $332,692 $194,000 $ 0 645,000 $68,648(4)
Chairman of the Board,
Chief 1997 0 0 0 0 0
Executive Officer and
President 1996 0 0 0 0 0
Paul J.B. Murphy III..... 1998 270,192 145,500 0 200,000 1,847(4)
Executive Vice President
- 1997 0 0 0 0 0
Operations 1996 0 0 0 0 0
W. Eric Carlborg......... 1998 240,866 121,250 0 247,807 0
Chief Financial Officer 1997 188,462 75,000 0 216,182 0
1996 136,154 0 0 41,667 1,000(5)
Gail A. Lozoff........... 1998 215,865 109,125 0 225,946 53,846(4)
Chief Marketing Officer 1997 150,000 0 0 106,760 112,401(6)
1996 125,000 0 0 37,931 0
Paul A. Strasen.......... 1998 215,865 87,300 0 132,517 0
Senior Vice President, 1997 175,962 175,000 0 55,152 0
General Counsel and
Secretary 1996 125,000 0 0 37,931 0
Scott A. Beck (7)........ 1998 0 0 0 0 0
Former Chairman of the
Board 1997 0 0 0 0 0
and Chief Executive
Officer 1996 0 0 0 0 0
</TABLE>
- - --------
(1) Amounts reported for 1998 include options to purchase 210,000 shares of
common stock granted to Mr. Hartnett in March 1998, which were cancelled,
with Mr. Hartnett's consent, in exchange for options to purchase a like
number of shares granted in May 1998. Amounts reported for 1998 also
include options granted to the following persons, in the amounts
indicated, in exchange for the cancellation of a like number of options
granted to such persons in prior years: Mr. Hartnett--225,000; Mr.
Murphy--90,000; Mr. Carlborg--247,807; Ms. Lozoff--162,269; and Mr.
Strasen--84,715. See "--Option Grants in Last Fiscal Year," "--Option
Repricings" and "Report of the Compensation Committee and Board of
Directors--Stock Options."
(2) Amounts reported for 1997 include options to purchase the following number
of shares of common stock granted in January 1997 which were cancelled,
with the consent of the option holders, in exchange for options to
purchase a like number of shares granted in October 1997: Mr. Carlborg--
10,042; Ms. Lozoff--8,368; and Mr. Strasen--8,368. See "--Option Grants in
Last Fiscal Year," "--Option Repricings" and "Report of the Compensation
Committee and Board of Directors--Stock Options."
(3) Mr. Hartnett became Chief Executive Officer of the Company in February
1998 and became President and Chairman of the Board of the Company in May
1998.
(4) Amounts represent relocation payments.
(5) Amount represents payment for a non-compete agreement.
(6) Amount constitutes taxable income in connection with exercise of stock
options.
(7) Mr. Beck assumed the responsibilities of Chief Executive Officer from
December 1997 until February 1998. Mr. Beck resigned as Chairman of the
Board of the Company in May 1998.
7
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth individual grants of stock options made to
the named executive officers during the fiscal year ended December 27, 1998.
See "--Option Repricings" and "Report of the Compensation Committee and Board
of Directors--Stock Options." Mr. Beck received no options to purchase shares
of Common Stock.
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed Annual
Total Rates of Stock Price
Options Appreciation for
Granted Exercise Option Term(2)
Date of Options to Employees or Base Expiration ------------------------
Name Grant Granted(1) in Fiscal Year Price Date 5% 10%
---- ------- ---------- -------------- -------- ---------- -- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett...... 3/26/98 210,000(3) 5.69% $4.5625 2/26/2008 $ 602,559 $ 1,527,005
5/11/98 435,000(4) 11.79 3.6563 5/11/2008 1,000,250 2,534,833
Paul J.B. Murphy III.... 5/5/98 110,000(3) 2.98 3.6250 5/5/2008 250,772 635,505
5/11/98 90,000(4) 2.44 3.6563 5/11/2008 206,948 524,448
W. Eric Carlborg........ 5/11/98 247,807(4) 6.72 3.6563 5/11/2008 569,814 1,444,022
Gail A. Lozoff.......... 5/5/98 63,677(3) 1.73 3.6250 5/5/2008 145,167 367,882
5/11/98 132,530(4) 3.59 3.6563 5/11/2008 304,743 772,279
5/11/98 29,739(5) .81 3.6563 5/11/2008 68,383 173,295
Paul A. Strasen......... 5/5/98 47,802(3) 1.30 3.6250 5/5/2008 108,976 276,167
5/11/98 84,715(4) 2.30 3.6563 5/11/2008 194,796 493,652
</TABLE>
- - --------
(1) Amounts reported for 1998 include options to purchase 210,000 shares of
common stock granted to Mr. Hartnett in March 1998, which were cancelled,
with Mr. Hartnett's consent, in exchange for options to purchase a like
number of shares granted in May 1998. Amounts reported for 1998 also
include options granted to the following persons, in the amounts
indicated, in exchange for the cancellation of a like number of options
granted to such persons in prior years: Mr. Hartnett--225,000; Mr.
Murphy--90,000; Mr. Carlborg--247,807; Ms. Lozoff--162,269; and Mr.
Strasen--84,715. See "--Option Grants in Last Fiscal Year," "--Option
Repricings" and "Report of the Compensation Committee and Board of
Directors--Stock Options."
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Common Stock; therefore, amounts reflected in this
table may not be achieved.
(3) Options become exercisable with respect to one-fourth of the total number
of shares on each of the first four anniversaries of the date of grant.
(4) Options become exercisable with respect to one-third of the total number
of shares eighteen months after the date of grant, an additional one-third
on the second anniversary of the date of grant and the balance on the
third anniversary of the date of grant.
(5) Options become exercisable with respect to one-half of the total number of
shares eighteen months after the date of grant and the balance on the
second anniversary of the date of grant.
8
<PAGE>
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
The following table sets forth for the named executive officers aggregated
information concerning each exercise of stock options during the fiscal year
ended December 27, 1998 and the fiscal year-end value of unexercised options.
Mr. Beck received no options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at Fiscal Year-End (#) at Fiscal Year-End ($)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable/Unexercisable
---- ----------- -------- Exercisable/Unexercisable -------------------------
<S> <C> <C> <C> <C>
Robert M. Hartnett...... 0 0 0/435,000 0/0
Paul J.B. Murphy III.... 0 0 0/200,000 0/0
W. Eric Carlborg........ 0 0 6,117/251,885 0/0
Gail A. Lozoff.......... 0 0 0/225,946 0/0
Paul A. Strasen......... 0 0 25,489/149,511 0/0
</TABLE>
Option Repricings
The following table provides information concerning all repricings of stock
options of executive officers since August 1, 1996 (the date on which the
Company became subject to the reporting requirements of the Exchange Act)
through fiscal year 1998. See "Report of the Compensation Committee and Board
of Directors--Stock Options." Mr. Beck received no options to purchase shares
of Common Stock.
<TABLE>
<CAPTION>
Market
Number of Price of Length of
Shares Common Exercise Original Option
Underlying Stock at Price at New Term Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
---- ------- ---------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett...... 5/11/98 210,000 $3.6563 $ 4.5625 $3.6563 9 years 10 months
Chairman of the Board,
Chief 5/11/98 136,443 3.6563 6.0000 3.6563 7 years 10 months
Executive Officer and
President 5/11/98 88,557 3.6563 6.5900 3.6563 7 years 10 months
Paul J.B. Murphy III.... 5/11/98 78,621 3.6563 6.0000 3.6563 7 years 10 months
Executive Vice
President-- 5/11/98 11,379 3.6563 6.5900 3.6563 7 years 10 months
Operations
W. Eric Carlborg........ 10/2/97 10,402 10.6875 29.8750 10.6875 9 years 3 months
Chief Financial Officer 5/11/98 206,140 3.6563 10.6900 3.6563 9 years 4 months
5/11/98 41,667 3.6563 12.0000 3.6563 8 years 2 months
Gail A. Lozoff.......... 10/2/97 8,368 10.6875 29.8750 10.6875 9 years 3 months
Chief Marketing Officer 5/11/98 29,739 3.6563 5.8800 3.6563 6 years 10 months
5/11/98 34,138 3.6563 6.5900 3.6563 7 years 8 months
5/11/98 98,392 3.6563 10.6900 3.6563 9 years 4 months
Paul A. Strasen......... 10/2/97 8,368 10.6875 29.8750 10.6875 9 years 3 months
Senior Vice President,
General 5/11/98 37,931 3.6563 6.5900 3.6563 7 years 8 months
Counsel and Secretary 5/11/98 46,784 3.6563 10.6900 3.6563 9 years 4 months
Paula E. Manley......... 5/11/98 51,750 3.6563 6.0000 3.6563 8 years 4 months
Vice President-- Opera-
tions
Finance and Controller 5/11/98 4,500 3.6563 6.5900 3.6563 8 years 4 months
</TABLE>
Director Compensation
Each director who is not an officer or employee of, or a consultant to, the
Company or its affiliated companies receives an annual fee of $10,000 and a
fee of $500 for each Board of Directors meeting at which he
9
<PAGE>
is present and for each committee meeting at which he is present not held in
conjunction with a meeting of the Board of Directors. Each such director also
receives an option grant under the Directors Plan each time he is elected as a
director to purchase shares of Common Stock having a fair market value of
$50,000 on the date of grant, except that no grant may include more than 15,000
shares and no director may receive more than one grant in any calendar year.
Outside directors are also reimbursed for their expenses for each Board and
committee meeting attended.
The Company has also entered into employment, consulting and termination
agreements with certain of its current and former executive officers and
directors. See "Certain Transactions--Employment and Termination Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of the
Board of Directors during the year ended December 27, 1998: Scott A. Beck, M.
Laird Koldyke, John H. Muehlstein, Jr., Lloyd D. Ruth and David G. Stanchak.
Currently, no executive officer of the Company serves as a member of the
Compensation Committee or as a director of any other entity, one of whose
executive officers serves on the Compensation Committee or is a director of the
Company.
Messrs. Beck, Muehlstein and Ruth each own a direct equity interest in Bagel
Store Development Funding, L.L.C. ("Bagel Funding"), which owns an
approximately 21% equity interest in Bagel Partners. Mr. Stanchak owned an
interest in Bagel Funding, which he disposed of in December 1998. See "Certain
Transactions--Interests of Certain Persons in Einstein/Noah Bagel Partners,
L.P."
Mr. Stanchak was Chief Development Officer of the Company until he resigned
from such position in April 1998.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Report of the
Compensation Committee and Board of Directors" and "Performance Graph" will not
be deemed to be filed or to be proxy soliciting material or incorporated by
reference in any prior or future filings by the Company under the Securities
Act of 1933 (the "Securities Act") or the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE AND BOARD OF DIRECTORS
During 1998, the Board of Directors had two standing committees responsible
for executive officer compensation. The Compensation Committee had overall
responsibility for cash compensation. Until May 1998, the Reporting Person
Stock Option Committee had overall responsibility for stock option grants to
executive officers, including grant approval and plan administration;
thereafter, stock option grants to executive officers were approved by the
entire Board of Directors. The following report on executive compensation is
furnished by the members of both such committees (together, the "Committees")
and the Board of Directors.
GENERAL POLICIES
The Company's compensation program is intended to attract, motivate, reward
and retain the management talent required to achieve corporate objectives in a
dynamic environment operating in a highly competitive industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives. For
1998, the Company's executive compensation consisted of salary, bonus
compensation and stock option grants.
CASH COMPENSATION
For 1998, cash compensation for executive officers consisted of base salary
and bonus compensation paid under the Company's 1998 Executive Incentive
Compensation Program (the "1998 Bonus Plan"). Base salaries
10
<PAGE>
are determined by an assessment of responsibilities and position within the
Company, individual performance and the Company's overall performance. Base
salaries of certain executive officers for 1998 were increased from 1997 levels
based on an assessment of the factors described above. Bonuses paid for 1998
under the 1998 Bonus Plan were determined by multiplying a target payout amount
for each executive officer by a percentage factor based on the Company's
performance against financial objectives. For 1998 the target payout amount for
each executive officer was equal to 50% of base salary, in the case of the
chief executive officer, executive vice president, chief financial officer and
chief marketing officer, and 40% of base salary, in the case of the other
executive officers. For 1998 the financial objectives were systemwide average
net weekly per store sales ("Store Revenue") and earnings before interest,
taxes, depreciation and amortization ("EBITDA"), and the percentage factor was
97%. Store Revenue and EBITDA were weighted equally in determining the
percentage factor.
In 1999, bonus compensation of executive officers will also be determined by
multiplying a target payout amount for each executive officer by a percentage
factor based on the Company's performance against financial objectives. Target
payout amounts for 1999 will be the same as those for 1998, but the percentage
factor will be determined based 30% on achievement of Store Revenue objectives
and 70% on achievement of EBITDA objectives.
STOCK OPTIONS
The Board of Directors considers incentive compensation in the form of stock
options to be an integral and important part of executive compensation in
particular and employee compensation generally. Until May 1998, the Reporting
Person Stock Option Committee had sole discretion with respect to the granting
of stock options to executive officers; thereafter, the entire Board of
Directors was responsible for approving stock option grants to executive
officers. Options are generally granted to executive officers upon commencement
of employment and annually. Options granted have an exercise price equal to the
fair market value of the Common Stock on the grant date. Factors considered
when granting stock options to executive officers include salary, position and
responsibilities, factors related to recruiting and employment offers,
significant salary changes and promotions and other factors relating to
performance. Option grants relating to recruiting and employment offers and
special circumstances are recommended by management.
In May 1998, the Reporting Person Stock Option Committee determined that, in
order to provide an incentive to the Company's executive officers to remain
with the Company, it was in the best interests of the Company to offer them an
opportunity to surrender and exchange options previously granted to them, at
prices ranging from $4.56 to $12.00, for new options to purchase the same
number of shares at an exercise price equal to the then current market price of
the Company's Common Stock (generally $3.66 per share), but having a vesting
schedule different than that of the options surrendered. Each of the Company's
executive officers accepted the Company's offer with respect to some or all of
the options that had previously been granted to them. See "Executive
Compensation--Option Grants in Last Fiscal Year" and "Executive Compensation--
Option Repricings."
CHIEF EXECUTIVE OFFICER COMPENSATION
During the period from December 1997 through February 1998 Scott A. Beck
assumed the duties of Chief Executive Officer of the Company. Mr. Beck did not
receive any compensation for his services as Chief Executive Officer.
In February 1998, Robert M. Hartnett became Chief Executive Officer of the
Company. Mr. Hartnett's 1998 compensation consisted of a base salary, bonus
compensation and stock option grants. His compensation was the result of arms'
length negotiations with the Company in connection with his employment. Factors
considered by the Board of Directors and the Committees in determining Mr.
Hartnett's compensation included his experience in running restaurant operating
companies, his entrepreneurial abilities and his leadership abilities. Mr.
Hartnett's bonus compensation was determined pursuant to the 1998 Bonus Plan in
the same manner as bonuses to other executive officers. In determining the
amount of stock option grants to Mr. Hartnett, the Board of Directors and
11
<PAGE>
the Reporting Person Stock Option Committee considered the same factors that
were used to determine stock option grants to all executive officers.
The Company and Mr. Hartnett are parties to an employment agreement. See
"Certain Transactions--Employment and Termination Agreements."
Policy Regarding Rule 162(m)
In general, Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the tax deductibility of annual compensation paid to
certain executive officers of a publicly held corporation to $1 million,
subject to an exception for "performance-based" compensation plans as defined
under that Section. Generally, the Board of Directors and the Compensation
Committee, or any other Board committee responsible for executive officer
compensation, reserve the right to grant compensation to executive officers in
amounts deemed appropriate, regardless of whether such compensation is
deductible for federal income tax purposes. When making decisions concerning
executive compensation, the deduction limits under Section 162(m), as well as
other factors, including economic and industry trends, competition for
talented executives and the contribution of the executive officers to the
development of the Company's business, are taken into account. Options to
purchase shares of Common Stock granted to executive officers in fiscal 1998
are potentially subject to limits on permitted federal income tax deductions
upon exercise of such options, including under Section 162(m). The option
grants were made because the grants and their associated incentives were
determined to be more important to the Company and its stockholders than the
potential loss of related compensation deductions. The policy of the Board of
Directors and the Compensation Committee, or any other Board committee
responsible for executive officer compensation, is to maintain, where
feasible, a compensation structure that will permit all executive compensation
to be tax deductible by the Company. However, each member of the Board of
Directors believes that it is vital for the Company's long-term interest to
ensure that talented individuals will continue to serve the Company. As a
result, the Board of Directors and the Compensation Committee, or any other
Board committee responsible for executive officer compensation, may continue
to authorize, in appropriate circumstances, compensation that is not entirely
deductible.
Conclusion
The Company intends to continue providing a portion of executive
compensation in the form of incentive-based compensation, such as stock
options. The Board of Directors and Compensation Committee believe that such a
policy provides the proper incentives to attract, reward and retain high
quality management. The Board of Directors and Compensation Committee intend
to review the executive compensation structure at least annually, review
salary levels, make additional option grants and provide an incentive-based
bonus compensation program, all as appropriate to continue attracting and
retaining management with the necessary experience and expertise to further
the Company's growth.
1998 Reporting Person
1998 Compensation Stock Option Committee 1998
Committee Members Members Board of Directors
Scott A. Beck M. Laird Koldyke Robert M. Hartnett
M. Laird Koldyke Lloyd D. Ruth J. Michael Jenkins
John H. Muehlstein, Jr. Gail A. Lozoff
Lloyd D. Ruth John H. Muehlstein, Jr.
David G. Stanchak David G. Stanchak
12
<PAGE>
PERFORMANCE GRAPH
The Company has determined that a peer group which is representative of its
line of business is appropriate for performance comparison purposes. The
members of the peer group are Au Bon Pain Co., Inc. Class A, BAB Holdings,
Inc., Boston Chicken, Brinker International, Manhattan Bagel Co., Inc.,
McDonalds Corp., New York Bagel Enterprises, Papa Johns International, Inc.,
Quality Dining, Inc., Sbarro, Inc., and Starbucks Corporation (the "Peer Group
Index"). The following graph compares the percentage change in the cumulative
total returns on the Common Stock, the Peer Group Index and the Standard &
Poor's 500 Index (assuming reinvestment of any dividends) for the period
beginning on August 2, 1996, the first day of trading of the Common Stock
under Section 12 of the Exchange Act, and ending on December 24, 1998, the
last day on which shares of Common Stock traded on the Nasdaq SmallCap Market
prior to December 27, 1998, the last day of the Company's 1998 fiscal year.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
8/2/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/24/98
------ ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Einstein/Noah Bagel
Corp................... 100.00 150.00 145.73 122.56 58.23 53.66 27.13 19.82 22.56 6.10 5.95
Peer Group.............. 100.00 102.26 98.94 98.70 100.60 100.78 94.11 122.72 139.02 118.59 152.87
S&P 500................. 100.00 107.86 116.85 119.98 140.93 151.48 155.83 177.57 183.43 165.18 200.36
</TABLE>
- - --------
(1) Assumes $100 invested on August 2, 1996 in Common Stock, the Peer Group
Index, and the S&P 500 Index. Historical results are not necessarily
indicative of future performance.
13
<PAGE>
CERTAIN TRANSACTIONS
Interests of Certain Persons in Einstein/Noah Bagel Partners, L.P.
General.
The Company owns an approximately 78% interest in Einstein/Noah Bagel
Partners, L.P. ("Bagel Partners"), the surviving entity of a merger of the
Company's five former area developers. The Company acquired its interest in
Bagel Partners by exercising its conversion and option rights under its
secured loan agreements with the area developers. Prior to such transactions,
certain executive officers and directors of the Company and Boston Chicken had
(i) direct equity interests in the former area developers of the Company or
Bagel Partners and/or (ii) indirect equity interests in such entities through
investments in Bagel Store Development Funding, L.L.C. ("Bagel Funding"). Upon
consummation of the Company's loan conversions and the area developer merger
(together with certain related transactions, the "Transactions"), the
interests of holders of equity interests in Bagel Partners represented by
promissory notes, including certain of such officers and directors, were
redeemed. See "-- Redemption of Bagel Partners Equity Interests". Certain
executive officers and directors of the Company continue to hold indirect
equity interests in Bagel Partners through their ownership of equity interests
in Bagel Funding. See "--Bagel Store Development Funding, L.L.C."
Bagel Store Development Funding L.L.C.
Bagel Funding has invested a total of approximately $89.6 million,
representing an approximately 21% equity interest, in Bagel Partners. The
Company is the manager of Bagel Funding, but has no equity interest in Bagel
Funding. Bagel Funding has the right in certain circumstances to require Bagel
Partners or the Company to redeem Bagel Funding's equity interest in Bagel
Partners at a pre-determined formula price based on store level cash flow (the
"Put Rights"). The Put Rights become exercisable in the event that at any time
after December 5, 1999 and prior to June 5, 2001, the Company does not consent
to a public offering of Bagel Funding's equity interest in Bagel Partners or
the termination of certain rights and obligations under franchise or license
agreements between the Company and Bagel Partners. The Put Rights are
exercisable prior to December 5, 1999 if there is a Change in Control (as
defined in the Bagel Partners partnership agreement) of the Company. The
method of determining the valuation of Bagel Partners for purposes of
calculating the put price is a multiple of the annualized average cash flow
for the highest of the two fiscal quarters prior to the quarter in which the
Put Rights are exercised. The Company or Bagel Partners may pay the purchase
price for Bagel Funding's equity interest in Bagel Partners with shares of
Common Stock and if so paid, the Bagel Funding unitholders have been granted
resale registration rights with respect to such shares.
Messrs. Beck, Carlborg and Muehlstein and Lawrence Beck, Scott Beck's
father, each own a direct equity interest in Bagel Funding. In the aggregate,
such interests represent approximately 9.8% of the outstanding equity interest
in Bagel Funding.
Redemption of Bagel Partners Equity Interests
Mr. Hartnett and other officers of the Company and Lawrence Beck purchased
their equity interests in certain of the Company's former area developers by
delivery of promissory notes. Such area developer equity interests were
converted into equity interests in Bagel Partners pursuant to the
Transactions, and the Bagel Partners interests were subsequently redeemed in
exchange for cancellation of the promissory notes. The aggregate principal
amounts of such notes for Messrs. Lawrence Beck and Hartnett were $350,000 and
$500,000 respectively, and the aggregate principal amount of such cancelled
notes for other officers of the Company was $1.25 million.
Employment and Termination Agreements
In September 1998, the Company entered into an employment agreement with Mr.
Hartnett, which superseded a prior letter agreement regarding Mr. Hartnett's
employment. Under the terms of the employment
14
<PAGE>
agreement, as amended in January 1999, Mr. Hartnett receives an annual base
salary of $400,000, and an annual bonus having a target payout equal to 50% of
his base salary and which will be based on the Company's performance relative
to targets generally applicable in determining bonus compensation payable to
senior executives of the Company. The agreement also provides that Mr.
Hartnett will receive an option grant at least once each calendar year,
beginning in calendar year 1999, of a number of shares not less than 150% of
the highest number of shares subject to a regular annual option grant made to
any other officer. Mr. Hartnett's employment agreement is for a term ending on
January 14, 2001, extended by one additional year in January of each year,
beginning in January 2000. The employment agreement provides that in the event
Mr. Hartnett's employment is terminated by the Company other than for just
cause, or by Mr. Hartnett for just grounds, (i) he will receive a lump-sum
payment equal to the greater of the sum of his then current annual base salary
and then current target bonus or the amount that would be paid to him during
the balance of the term of his agreement (based on his then current annual
salary and target bonus), (ii) the Company will continue to provide group
medical, dental, life and disability insurance benefits for the balance of the
term of his agreement, and (iii) all of his outstanding stock options will
become fully vested and exercisable.
In April 1998, the Company entered into a letter agreement with Mr. Stanchak
in connection with his resignation as Chief Development Officer of the
Company. Pursuant to the letter agreement, the Company agreed to pay Mr.
Stanchak severance payments aggregating $150,000 and also to continue Mr.
Stanchak's health insurance benefits through August 29, 1999. In addition, the
Reporting Person Stock Option Committee agreed that options previously granted
to Mr. Stanchak to purchase 130,540 shares of Common Stock, with exercise
prices ranging from $5.88 to $10.6875 per share, would continue to vest until
January 21, 2000. Options to purchase 79,198 of such shares will remain
exercisable for a period of five days after January 21, 2000, and options to
purchase the balance of such shares will remain exercisable for a period of 15
days after January 21, 2000. The balance of 119,798 shares of Common Stock
subject to previously granted options were canceled upon Mr. Stanchak's
resignation. Mr. Stanchak is not eligible to receive any future stock option
grants from the Company except for option grants under the Directors Plan.
In May 1998, the Company entered into a termination agreement with Jeffrey
L. Butler in connection with his resignation as President and a director of
the Company. Pursuant to such agreement, the Company paid to Mr. Butler
$50,000 upon execution of the agreement and agreed to pay Mr. Butler an
aggregate of $300,000 in 26 equal bi-weekly installments beginning in May
1998. In addition, the Reporting Person Stock Option Committee agreed that
options previously granted to Mr. Butler to purchase 6,797 shares of Common
Stock, with an exercise price of $5.88 per share, will continue to vest until
July 1999 and remain exercisable for a period of two years from the date of
Mr. Butler's resignation. The Reporting Person Stock Option Committee also
agreed that options previously granted to Mr. Butler to purchase 141,971
shares of Common Stock, with exercise prices ranging from $3.75 to $12.00 per
share, will continue to vest for a period of one year, and remain exercisable
for a period of two years, from the date of Mr. Butler's resignation. Options
to purchase 80,044 of such shares, with an exercise price of $3.75 per share,
were granted contingent upon the cancellation of options to purchase the same
number of shares with an exercise price of $10.6875 per share. The balance of
288,253 shares of Common Stock subject to previously granted options were
canceled upon Mr. Butler's resignation. Mr. Butler is not eligible to receive
any future stock option grants from the Company.
Change in Control Severance Agreements
In May 1998 the Company entered into severance agreements with Messrs.
Murphy, Carlborg and Strasen, and Ms. Lozoff providing for compensation and
benefits in the event of termination of employment under certain circumstances
following a change in control of the Company. Under the severance agreements,
if the officer's employment is terminated following a change in control of the
Company and during the term of the severance agreement, other than by the
Company for cause, by reason of death or disability, or by the officer without
good reason, then the officer will receive (i) a lump sum severance payment
equal to the sum of (a) six months' base salary, in the case of Mr. Murphy and
Ms. Lozoff, and nine months's base salary, in the case of Messrs. Carlborg and
Strasen, (b) the amount of any unpaid bonus for any prior fiscal year or other
measuring period, and (c) a
15
<PAGE>
pro rata portion of the bonus payable for the fiscal year or other measuring
period in which the termination occurs (assuming for this purpose that the
bonus that would have been payable for the entire period would have been
equivalent to 90% of the target bonus), (ii) continued life and health
insurance benefits for a period of six months, in the case of Mr. Murphy and
Ms. Lozoff, and nine months, in the case of Messrs. Carlborg and Strasen,
(iii) full vesting and accelerated exercisability of all outstanding stock
options held by such officer, and (iv) outplacement services.
For purposes of the severance agreements, a change in control occurs if (i)
any person other than Boston Chicken becomes the owner of securities
representing 40% or more of the voting power of the Company's outstanding
securities, (ii) there is a merger or consolidation of the Company or any
subsidiary of the Company other than (a) a merger or consolidation in which
voting securities of the Company outstanding immediately prior to the
transaction continue to represent at least 50% of the combined voting power of
the securities of the Company or the survivor of such merger or consolidation
after the transaction or (b) a merger or consolidation effected to implement a
recapitalization of the Company in which no person other than Boston Chicken
becomes the owner of securities representing 40% or more of the combined
voting power of the Company's outstanding securities, (iii) the stockholders
of the Company approve a plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the sale or disposition of
all or substantially all of the Company's assets, other than such a sale to an
entity at least 50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially the same
proportions as their ownership of the Company prior to the sale, or (iv)
individuals who, as of the date of any change in control of Boston Chicken,
are members of the Board of Directors of the Company cease for any reason to
constitute a majority of the Board. For this purpose, a change in control of
Boston Chicken occurs if (i) any person acquires securities representing more
than 30% of the combined voting power of the outstanding securities of Boston
Chicken, (ii) there is a sale of all or substantially all of the assets of
Boston Chicken to a purchaser if any person owns securities representing more
than 30% of the combined voting power of the outstanding securities of such
purchaser, or (iii) the individuals who, as of the date of the Severance
Agreement, are members of the board of directors of Boston Chicken ("incumbent
directors") cease to constitute at least a majority of such board (but
treating as incumbent directors for this purpose any new directors who were
elected or nominated for election by a vote of at least a majority of the
incumbent directors).
The severance agreements terminate on May 8, 2000, except that on May 8,
2000 and each year thereafter, the term is automatically extended for one
additional year unless, not later than December 31 of the preceding year, the
Company or the officer shall have given notice not to extend the term. In
addition, if a change in control occurs during the term of the severance
agreement, the agreement expires 24 months after the month in which the change
in control occurred.
Loans to Executive Officers
In June 1998, the Company made a $100,000 loan to Paul Murphy in connection
with his relocation to the Golden, Colorado area. The loan bore interest at
the reference rate of The Bank of America National Trust and Savings
Association plus 2%. In April 1999, Mr. Murphy repaid the principal amount of
the loan and the Company forgave accrued interest of $8,985 on the loan.
Other Relationships
Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
stockholders, leases to the Company the land and building on which a store is
located. The Company subleases the land and building to Bagel Partners. The
annual rental payments under the lease and sublease, each of which terminates
in May 2009, aggregate $72,000.
16
<PAGE>
RELATIONSHIP WITH BOSTON CHICKEN
The Company has granted to Boston Chicken an option (the "BCI Option") 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. 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 Common Stock and
as a result owns less than a majority of the then outstanding shares of the
Company's voting stock or (ii) the percentage of outstanding shares of voting
stock of the Company owned by Boston Chicken is reduced below 50% other than
as a result of Boston Chicken's voluntary sale or transfer of shares of Common
Stock and Boston Chicken fails to acquire a sufficient number of shares of
Common Stock so that it owns at least a majority of the then outstanding
shares of voting stock of the Company by July 31 of the calendar year next
following the calendar year in which such reduction occurs. In addition, the
percentage ownership level of 52% is subject to reduction to the extent
voluntary sales or transfers by Boston Chicken reduce its ownership of the
outstanding shares of voting stock of the Company to less than 52% but do not
otherwise result in termination of the BCI Option. In determining the
percentage ownership of the voting stock of the Company owned by Boston
Chicken for purposes of the BCI Option, the following shares are excluded: (i)
shares of the Company's common stock subject to options granted by Boston
Chicken and its subsidiaries prior to the date of the agreement, (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 this calculation, as of
March 26, 1999, Boston Chicken owned approximately 51% of the outstanding
common stock of the Company and had the right to purchase 2,124,579 shares of
common stock of the Company at prices ranging from $3.87 to $30.75 per share.
The Company also granted Boston Chicken five demand and unlimited piggyback
registration rights under the Securities Act, with respect to shares of Common
Stock owned by Boston Chicken.
The Company previously had an unsecured subordinated, non-convertible credit
facility with Boston Chicken providing for borrowings of up to $50.0 million.
There was no balance outstanding under the facility during fiscal 1998.
Interest on loans made under the credit facility was based on the reference
rate of the Bank of America National Trust and Savings Association, plus 1.5%,
and any borrowings outstanding were required to be repaid by June 15, 2003. In
June 1998 the Company and Boston Chicken agreed to terminate such credit
facility.
During fiscal 1998, 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. These agreements were amended in June 1998 to reduce the amount of
fees payable by the Company for such services. Boston Chicken continues to
provide such services to the Company, although the Company has advised Boston
Chicken that during fiscal 1999 it intends to develop a business
infrastructure that will permit it to perform these functions independently of
Boston Chicken. The Company and Boston Chicken have had discussions with
respect to the terms of the related transition plan. In addition, Boston
Chicken subleases to the Company approximately 26,450 square feet of office
space (and certain common areas, including parking areas) for the Company's
support center located in Golden, Colorado. The sublease currently provides
for rental payments of $26,450 per month and has an initial term expiring in
December 2001. During fiscal 1998, the Company paid Boston Chicken an
aggregate of approximately $7.4 million pursuant to the service and lease
agreements.
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AMENDMENT TO DIRECTORS PLAN
General. On January 29, 1999, the Board of Directors of the Company adopted
and approved an amendment to the Directors Plan to increase the total number
of shares available for grants under the Directors Plan from 100,000 to
200,000, subject to stockholder approval. The Directors Plan was originally
adopted and approved by stockholders in June 1996. A copy of the above-
described amendment to the Directors Plan is attached hereto as Exhibit A to
this Proxy Statement. At March 26, 1999 options to purchase 29,224 shares of
common stock had been granted under the Directors Plan.
Summary of the Directors Plan. The following summary describes the principal
provisions of the Directors Plan.
Options under the Directors Plan may only be granted to directors of the
Company who are not officers or employees of the Company. Options may be
granted with respect to a total of not more than 100,000 shares of Common
Stock, subject to antidilution and other adjustments. In the event that the
amendment is approved by stockholders, an additional 100,000 shares of Common
Stock will be available for option grants under the Directors Plan. Each
option granted under the Directors Plan has a term of ten years, subject to
earlier termination if the optionee is no longer a director. If an option
expires or is terminated or cancelled unexercised as to any shares, such
released shares may again be optioned. Options become exercisable one year
after the date of grant.
Options for shares having a fair market value of $50,000 at the date of
grant, as determined in good faith by the board of directors, are granted each
time an eligible director is elected. Effective in January 1999, the maximum
number of shares subject to any grant is 15,000 and no director may receive
more than one grant in any calendar year. The exercise price is payable in
cash, by check, by a promissory note in a form specified by the board of
directors and payable to the Company no later than 15 business days after the
exercise date or, if approved by the board of directors, by shares of Common
Stock, or by a combination of these methods. On April 7, 1999, the last
reported sale price of the common stock on the Nasdaq SmallCap Market was
$1.3125 per share.
If tenure as a director with the Company or any of its subsidiaries is
terminated for any reason other than death, permanent disability or
resignation, the director's option expires and all rights to purchase shares
terminate 15 days after such termination (or until the scheduled termination
of the option, if earlier). In the event of death or permanent disability, an
exercisable option may be exercised in full by the optionee or, if he is not
living, by his or her heirs, legatees, or legal representative, during its
specified term prior to two years after the date of death or permanent
disability; provided, however, that in the event an optionee dies or becomes
permanently disabled prior to the end of one year of service as a director of
the Company, then the option becomes immediately exercisable as of the date of
death or permanent disability and shall be exercisable for a period of two
years after such date. In the event of resignation, an exercisable option may
be exercised by the optionee (or, if he or she dies within three months after
such termination, by his or her heirs, legatees, or legal representative) at
any time during its specified term prior to three months after the date of
resignation.
No option is transferable by the optionee otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order, and each option is exercisable during an optionee's lifetime only by
him.
The board of directors may amend or discontinue the Directors Plan at any
time, provided, however, that the Directors Plan may not be amended more than
once every six months except to comport with relevant changes in the law, and
provided further that no amendment or discontinuation (i) changes or impairs
any option previously granted without the consent of the optionee, or (ii)
without the approval of stockholders, (a) increases the maximum number of
shares which may be purchased by all optionees, (b) changes the purchase price
of any option, or (c) changes the option period or increases the time
limitations on the grant of options.
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Federal Income Tax Consequences of the Directors Plan. The following is a
brief summary of the current federal income tax rules relevant to stock
options issued under the Directors Plan. These rules are subject to change in
the future.
Options granted or to be granted under the Directors Plan are, or will be,
non-qualified stock options ("NQO"). In general, an optionee will not
recognize any taxable income, and the Company will not be entitled to a
deduction, upon the grant of an NQO. Upon the exercise of an NQO where the
exercise price is paid in cash, the optionee will recognize ordinary income
(subject to wage and employment tax withholding) equal to the excess of the
fair market value of the shares acquired over the option exercise price. The
amount of such excess is generally determined by reference to the fair market
value of the Common Stock on the date of exercise. An optionee's basis in the
underlying stock received will equal the stock's fair market value on the date
of exercise. The Company is entitled to a deduction equal to the ordinary
income taxable to the optionee in the year of exercise.
Upon the sale of shares acquired pursuant to the exercise of an NQO, an
optionee will recognize capital gain or loss equal to the difference between
the selling price of the shares and the optionee's basis in the shares. The
capital gain or loss will be long-term gain or loss if the optionee has held
the shares for more than one year. The Company is not entitled to any
deduction with respect to any capital gain recognized by the optionee.
If an optionee surrenders previously acquired shares of Common Stock,
however acquired, in payment of all or part of the option exercise price of an
NQO, the optionee will not recognize gain or loss for federal income tax
purposes on the shares surrendered. The optionee's tax basis in, and holding
period for, the previously acquired stock surrendered will carry over to an
equal number of the shares of Common Stock received on a share-for-share
basis. The fair market value of the shares received in excess of the shares
surrendered will constitute compensation taxable to the optionee as ordinary
income. The fair market value is determined on the date of exercise. The tax
basis for the shares will equal their fair market value as so determined, and
the shares' holding period for federal income tax purposes begins on the date
on which the fair market value of such shares is determined. The Company is
entitled to a tax deduction equal to the compensation income recognized by the
optionee.
APPOINTMENT OF AUDITORS
The Board of Directors has not yet selected independent auditors for its
current fiscal year ending December 26, 1999. Arthur Andersen LLP has served
as the Company's independent auditors since 1995. Representatives of Arthur
Andersen LLP are expected to be present at the annual meeting and they will
have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions from stockholders.
SOLICITATION OF PROXIES
Proxies will be solicited by the Board of Directors through the use of the
mail. Proxies may also be solicited by directors, officers and a small number
of other employees of the Company personally or by mail, telephone, facsimile,
or otherwise, but these individuals will not be compensated for their
services. Brokerage firms, banks, fiduciaries, voting trustees or other
nominees will be requested to forward the soliciting material to the
beneficial owners of stock held of record by them. The entire cost of the
Board of Directors' solicitation will be borne by the Company.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material to be distributed by the Company in connection with the 2000 Annual
Meeting must do so no later than December 22, 1999. Any
19
<PAGE>
such proposal should be submitted in writing to the Secretary of the Company
at its principal executive offices. In addition, the Company's bylaws require
that in order for any business to be properly brought before any meeting of
stockholders, including nominations for the election of directors, a
stockholder must provide written notice delivered to the Secretary of the
Company at the principal executive offices of the Company not less than 30 nor
more than 60 days before the meeting date; provided, however, that in the
event that less than 40 days notice or prior public disclosure of the date of
the meeting is given or made to stockholders, the stockholder notice, in order
to be timely, must be received prior to the date of the meeting and not later
than the close of business on the tenth day following the day on which notice
or disclosure of the meeting date has been given or made. The stockholder
notice must include the stockholder's name and address as it appears on the
Company's records and the class and number of shares of the Company's capital
stock beneficially owned by such stockholder on the record date for the
meeting. In addition, (i) for proposals other than nominations for the
election of directors, such notice must include a description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, and any material interest of the stockholder in such
business, and (ii) for proposals relating to stockholder nominations for the
election of directors, such notice must also include, with respect to each
person nominated, the information required by Regulation 14A under the
Exchange Act.
OTHER MATTERS
Management knows of no other matters to be brought before the annual meeting
other than those described above. If any other business should come before the
meeting, it is intended that the persons named in the enclosed proxy will vote
the shares in accordance with their best judgment on any such matter.
GENERAL
It is important that proxies be returned promptly. If you are unable to
attend the meeting, you are urged, regardless of the number of shares owned,
to date, sign, and return without delay your proxy card in the enclosed
addressed envelope.
By Order of the Board of Directors
/s/ Paul A. Strasen
Paul A. Strasen
Secretary
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EXHIBIT A
EINSTEIN/NOAH BAGEL CORP.
AMENDMENT TO 1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. The second sentence of Section 3 of the 1996 Stock Option Plan for Non-
employee Directors (the "Plan") of Einstein/Noah Bagel Corp. is hereby amended
and restated to read in its entirety as follows:
"The aggregate number of shares which shall be available for such options
under this Plan shall be 200,000 shares."
2. Except as provided by paragraph 1 above, the Plan shall remain unchanged
and in full force and effect.
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PROXY PROXY
EINSTEIN/NOAH BAGEL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- MAY 24, 1999
The undersigned hereby appoints Robert M. Hartnett and J. Michael Jenkins,
or either of them, each with full power of substitution, to act as proxies for
the undersigned, and to vote all shares of Common Stock of Einstein/Noah Bagel
Corp. (the "Company"), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held on Monday, May 24, 1999 at the Denver Marriott West, 1717 Denver West
Boulevard, Golden, Colorado, at 10:00 a.m., Mountain Time, and at any and all
adjournments or postponements thereof, as follows:
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES LISTED AND FOR
THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION PLAN FOR NON-
EMPLOYEE DIRECTORS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING,
THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE ANNUAL MEETING.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
1. Election of Directors: Nominees: For Withhold For All
Robert M. Hartnett, J. Michael Jenkins, All All Except
Martin D. Hanan, Gail A. Lozoff, John [ ] [ ] [ ]
H. Muehlstein, Jr., Donald L. Pierce,
and David G. Stanchak
The Board recommends a vote "FOR" each of the nominees listed above.
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Nominee Exception(s)
2. Approval of Amendment to the Company's For Against Abstain
1996 Stock Option Plan for Non-Employee Approval Aproval
Directors. [ ] [ ] [ ]
The Board recommends a vote "FOR" approval.
Should the undersigned be present and elect to vote at the Annual Meeting or at
any adjournment or postponement thereof, and after notification to the
Secretary of the Company at the Annual Meeting of the stockholder's decision to
terminate this proxy, then the power of such proxies shall be deemed terminated
and of no further force and effect. This proxy may also be revoked by filing a
written notice of revocation with the Secretary of the Company or by duly
executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the execution
of this proxy, of notice of the Annual Meeting, a Proxy Statement and the
Company's Annual Report to Shareholders.
In their discretion, the proxies are authorized to vote on any other business
that may come before the Annual Meeting or any adjournment or postponement
thereof.
Date:________________________________________________________ , 1999
- - --------------------------------------------------------------------------------
Signature of Stockholder
- - --------------------------------------------------------------------------------
Signature if held jointly
Please sign exactly as your name(s) appear(s) on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
