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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 3, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21097
EINSTEIN/NOAH BAGEL CORP.
(Exact name of registrant as specified in its charter)
Delaware 84-1294908
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14103 Denver West Parkway
Golden, CO 80401
(Address of principal executive offices, including zip code)
(303) 215-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of shares of common stock, $.01 par value per share, outstanding as of
November 12, 1999: 34,083,681 (includes 813,146 shares of common stock held by
a subsidiary of the Company).
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EINSTEIN/NOAH BAGEL CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 27, 1998 and
October 3, 1999................................................. 3
Consolidated Statements of Operations for the quarter and
three quarters ended October 4, 1998 and October 3, 1999........ 4
Consolidated Statements of Cash Flows for the
three quarters ended October 4, 1998 and October 3, 1999........ 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 5. Other Information............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signature Page............................................................ 16
Exhibit Index............................................................. 17
</TABLE>
2
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EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 27, October 3,
1998 1999
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(unaudited)
<S> <C> <C>
ASSETS
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Current Assets:
Cash and cash equivalents........................................ $ 3,766 $ 5,619
Accounts receivable.............................................. 1,716 1,240
Inventories...................................................... 9,672 9,014
Prepaid expenses and other current assets........................ 1,699 1,559
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Total current assets.......................................... 16,853 17,432
Property and Equipment, net........................................ 122,403 122,156
Goodwill, net...................................................... 223,482 214,600
Trademarks, net.................................................... 2,065 2,058
Recipes, net....................................................... 2,670 2,430
Other Assets, net.................................................. 7,669 6,332
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Total assets.................................................. $ 375,142 $ 365,008
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable................................................. $ 17,804 $ 11,502
Accrued expenses................................................. 23,284 28,121
Current portion of senior term loan.............................. 6,000 6,000
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Total current liabilities..................................... 47,088 45,623
Revolving Credit Facility.......................................... 5,625 14,350
Long-Term Portion of Senior Term Loan.............................. 18,000 13,500
Convertible Subordinated Debentures................................ 125,000 125,000
Other Noncurrent Liabilities....................................... 16,140 15,510
Minority Interest.................................................. 33,931 32,905
Stockholders' Equity:
Preferred Stock - $.01 par value; 20,000,000 shares authorized;
no shares issued and outstanding.............................. - -
Common Stock - $.01 par value; 200,000,000 shares authorized;
issued: 34,083,681 shares in December 1998 and October 1999.. 341 341
Additional paid-in capital....................................... 377,616 377,616
Treasury stock, at cost (813,146 shares..........................
in December 1998 and October 1999)............................ (5,261) (5,261)
Accumulated deficit.............................................. (243,338) (254,576)
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Total stockholders' equity.................................... 129,358 118,120
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Total liabilities and stockholders' equity.................. $ 375,142 $ 365,008
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
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EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
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October 4, October 3, October 4, October 3,
1998 1999 1998 1999
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<S> <C> <C> <C> <C>
Revenue:
Store revenue................................... $87,325 $88,363 $285,699 $288,012
Costs and Expenses:
Store:
Cost of products sold........................ 29,559 29,204 98,038 95,212
Salaries and benefits........................ 26,789 27,419 89,458 90,169
Other controllable costs..................... 6,829 7,295 23,086 23,235
Rent, occupancy and related costs............ 8,171 8,431 26,762 27,995
Marketing expenses........................... 3,625 2,051 11,082 7,640
Depreciation and amortization................ 4,553 2,775 15,601 9,044
------- ------- -------- --------
Total store costs and expenses............. 79,526 77,175 264,027 253,295
Non-Store:
Salaries, benefits, general and
administrative............................. 7,149 7,845 30,008 26,623
Depreciation and amortization
(excluding goodwill amortization).......... 823 653 2,644 2,223
Goodwill amortization........................ 2,463 2,735 8,172 8,881
------- ------- -------- --------
Total non-store costs and expenses......... 10,435 11,233 40,824 37,727
------- ------- -------- --------
Total costs and expenses................... 89,961 88,408 304,851 291,022
------- ------- -------- --------
Income (Loss) from Operations..................... (2,636) (45) (19,152) (3,010)
Other Income (Expense):
Interest income................................. 5 - 273 -
Interest expense................................ (2,694) (2,783) (9,162) (9,143)
Other........................................... (1) 9 (3,410) (6)
------- ------- -------- --------
Total other income (expense)................. (2,690) (2,774) (12,299) (9,149)
------- ------- -------- --------
Income (Loss) before Income Taxes and
Minority Interest............................... (5,326) (2,819) (31,451) (12,159)
Income Taxes...................................... - 105 - 105
Minority Interest in Income (Loss) of Subsidiary.. (893) (121) (4,652) (1,026)
------- ------- -------- --------
Net Income (Loss)................................. $(4,433) $(2,803) $(26,799) $(11,238)
======= ======= ======== ========
Basic Earnings (Loss) per Share................... $(.13) $(0.08) $(.81) $(0.34)
======= ======= ======== ========
Diluted Earnings (Loss) per Share................. $(.13) $(0.08) $(.81) $(0.34)
======= ======= ======== ========
Weighted Average Number of Common
Shares Outstanding:
Basic........................................ 33,271 33,271 32,930 33,271
======= ======= ======== ========
Diluted...................................... 33,271 33,271 32,930 33,271
======= ======= ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
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EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
------------------------
October 4, October 3,
1998 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................ $(26,799) $ (11,238)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 26,417 20,148
Minority interest......................................... (4,652) (1,026)
Provision for write-down of assets........................ 3,409 648
Changes in assets and liabilities:
Accounts receivable..................................... 671 476
Accounts payable and accrued expenses................... (5,492) (1,435)
Other assets and liabilities............................ (3,475) 176
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Net cash provided by (used in) operating activities.. (9,920) 7,749
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Cash Flows from Investing Activities:
Purchase of property and equipment........................... (14,545) (9,530)
Purchase of other assets..................................... (132) (591)
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Net cash used in investing activities..................... (14,677) (10,121)
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Cash Flows from (used in) Financing Activities:
Borrowings under credit facility............................. 47,100 122,175
Repayments under credit facility............................. (50,400) (117,950)
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Net cash provided by (used in) financing activities....... (3,300) 4,225
-------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........... (27,897) 1,853
Cash and Cash Equivalents, beginning of period................. 34,148 3,766
-------- ---------
Cash and Cash Equivalents, end of period....................... $ 6,251 $ 5,619
======== =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
5
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EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated interim financial statements have been prepared by
Einstein/Noah Bagel Corp. (the "Company") and are unaudited. The financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not necessarily include all information and footnotes
required by generally accepted accounting principles. In the opinion of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows as of October 3, 1999 and for all periods
presented have been made. The statements are subject to year-end audit
adjustment. A description of the Company's accounting policies and other
financial information are included in the audited consolidated financial
statements filed with the Securities and Exchange Commission in the Company's
Form 10-K for the year ended December 27, 1998. The consolidated results of
operations for the quarter ended October 3, 1999 are not necessarily indicative
of the results expected for the full year.
2. Use of 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Effective December 28, 1998, the Company elected to change the period used
for amortization of goodwill and trademarks from 35 to 20 years. The Company
has reflected this change in estimate on a prospective basis.
3. Commitments and Contingencies
The Company has entered into agreements with certain vendors which provide
for minimum purchases over specified terms. Such agreements call for
retroactive rate adjustments or cash settlement in the event of purchase
shortfalls. Management believes that the ultimate settlement of such
commitments will not have a material impact on the consolidated financial
position or results of operations of the Company.
Bagel Store Development Funding, L.L.C. ("Bagel Funding") has invested a
total of approximately $89.6 million, representing an approximately 22% equity
interest, in Einstein/Noah Bagel Partners, L.P., a majority-owned subsidiary of
the Company ("Bagel Partners"). The Company is the manager of Bagel Funding.
Bagel Funding has the right to require Bagel Partners or the Company to redeem
Bagel Funding's equity interest in Bagel Partners at a pre-determined formula
price based on store level cash flow of Bagel Partners in the event that, at any
time after December 5, 1999 and prior to June 5, 2001, the Company does not
consent to a public offering of such equity interests or the termination of
certain rights and obligations under franchise and license agreements between
the Company and Bagel Partners. The formula price is determined by multiplying
Bagel Funding's percentage interest in Bagel Partners by an enterprise valuation
of Bagel Partners. Such enterprise valuation is equal to Bagel Partner's income
from operations before general and administrative expenses, depreciation and
amortization but after franchise royalties and marketing expenses (determined by
annualizing the highest of the two fiscal quarters prior to the quarter in which
the right is exercised), multiplied by 6.5, less the amount of any outstanding
indebtedness of Bagel Partners plus the amount of any cash balances of Bagel
Partners. The formula price, if determined using annualized results of the
highest of the two fiscal quarters ending October 3, 1999, would be equal to
approximately $55.8 million. Bagel Funding's right becomes exercisable prior to
December 5, 1999 if there is a Change in Control (as defined in the Bagel
Partners partnership agreement) of the Company. The Company or Bagel Partners
may pay the purchase price for such equity interests in cash, shares of the
Company's common stock or a combination thereof.
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. The Company does not believe
that any such matters of which it is aware are material to the Company
individually or in the aggregate, but matters may arise which could adversely
affect the Company or its business operations.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors 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; successful restructuring of the Company's balance sheet;
availability and terms of capital; 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 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; the Company's ability to
implement new information technology systems; Year 2000 compliance of systems
provided to the Company by Boston Chicken or other third party vendors; Year
2000 compliance of systems used by Company suppliers; and other factors
referenced in this Form 10-Q. The Company cannot predict which factors would
cause actual results to differ materially from those indicated by the forward-
looking statements. In addition to considering statements that explicitly
describe such risks and uncertainties, readers are urged to consider statements
that include the terms "believes," "belief," "expects," "plans," "anticipates,"
"intends" or the like to be uncertain and forward-looking.
General
As of November 12, 1999, Boston Chicken held approximately 51% 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.
The Company and Boston Chicken are parties to a fee service agreement,
pursuant to which Boston Chicken provides to the Company certain computer and
communications systems services. The Company has given Boston Chicken notice of
termination of such agreement, effective February 25, 2000. In addition, Boston
Chicken has continued to provide to the Company certain accounting and
administration services on the same terms such services were previously provided
pursuant to a fee service agreement that expired on May 31, 1999. In January
1999, the Company's management informed Boston Chicken that the Company intended
to develop a business infrastructure that will permit it to perform all of such
services independently from Boston Chicken. The Company currently intends to
complete the transition to an independent infrastructure by the end of February
2000. The inability of the Company to effect the transition on a timely basis
or the interruption of services provided by Boston Chicken prior to the
Company's development and implementation of a satisfactory business
infrastructure could have a material adverse effect on the Company. See
"Special Note Regarding Forward-Looking Statements" above.
In connection with the development of its business infrastructure, in
February 1999 the Company entered into license and support service agreements
with a third-party software vendor to obtain a license and support services for
enterprise systems (consisting of financial, human resources and payroll
systems). The Company has also entered into an agreement with a third-party
consulting group that is assisting the Company in the implementation of the new
systems. The Company commenced operating its new financial systems at the end
of the third quarter of
7
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fiscal 1999 and the Company currently anticipates that its human resources and
payroll systems will begin operating at the beginning of fiscal 2000.
The Company has also entered into agreements with several third-party
vendors for licenses of back office and point-of-sale store systems and support
services for those systems, and it anticipates entering into negotiations to
obtain other licenses and support services required in the operation of its
business. The Company has hired additional support center employees to provide
the various accounting, administrative and systems support services that were
previously provided by Boston Chicken, including human resources administration,
benefits administration, risk management, payroll, accounts payable, fixed
assets, treasury, and systems administration and support.
The transition to a business structure and systems that are independent of
Boston Chicken requires the dedication of significant management resources and
may distract attention from the day-to-day business of the Company, which could
adversely affect the Company's business and operating results. In addition,
there can be no assurance that the new systems will be implemented in a timely
fashion or that the cost of such implementation will not exceed the amount
estimated by the Company. See "Liquidity and Capital Resources" on page 10.
The failure to implement such systems in a timely manner or at the budgeted cost
could have a material adverse effect on the Company. There can also be no
assurance that the Company will be able to hire and train sufficient qualified
personnel to perform the required services in a timely manner and on acceptable
terms. See "Special Note Regarding Forward-Looking Statements" on page 7.
Results of Operations
Revenue. Total store net revenue increased 1.2% to $88.4 million for the
quarter ended October 3, 1999 compared to $87.3 million for the prior comparable
quarter. The increase in store net revenue for the quarter was primarily due to
an increase in average net weekly per store sales of 2.2% to $13,672 from
$13,378 for the prior comparable period. Average net weekly per store sales
represents weekly per store average revenue, after customer and employee
discounts, for all stores open at the end of the periods presented. The impact
of higher average net weekly per store sales was offset by a decrease in the
average number of stores in operation to 539 from 543 for the prior comparable
period. The reduction in the average number of stores in operation was the
result of closing underperforming stores in the current and previous quarters.
Total store net revenue increased 0.8% to $288.0 million for the three
quarters ended October 3, 1999 from $285.7 million for the prior comparable
period. The increase in store net revenue for the three quarters was due to an
increase in average net weekly per store sales of 3.6% to $13,342 from $12,880.
The increase in average net weekly per store sales was due to menu changes in
the third quarter and the effect of previously instituted Company initiatives,
including closure of underperforming stores and focus on improved store level
operations offset by declines due to less marketing spending. The average
number of stores in operation decreased to 540 for the three quarters from 553
for the prior comparable period.
Comparable store sales increased 0.4% from the prior comparable quarter.
Comparable store sales represent average net weekly per store sales for stores
open since the beginning of the prior year's comparable period. There were 525
stores in the comparable store base.
Store Costs and Expenses. Cost of products sold as a percent of store
revenue decreased to 33.1% for the quarter ended October 3, 1999 from 33.8% for
the prior comparable quarter and decreased to 33.1% for the three quarters ended
October 3, 1999 from 34.3% for the prior comparable period. The decrease was
attributable to improved management of food costs. In addition, the results for
the three quarters ended October 4, 1998 reflect a charge associated with the
closing of a bagel production plant.
Salaries and benefits as a percent of store revenue increased to 31.0% for
the quarter ended October 3, 1999 compared to 30.7% for the prior comparable
quarter and remained unchanged at 31.3% for the three quarters ended October 3,
1999 and the prior comparable period. The increase for the quarter was
primarily due to increased training costs associated with the menu changes in
the quarter.
8
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Other controllable costs (such as utilities, repair and maintenance, and
supplies) as a percent of store revenue increased to 8.3% for the quarter ended
October 3, 1999 compared to 7.8% for the prior comparable quarter and remained
unchanged at 8.1% for the three quarters ended October 3, 1999 and the prior
comparable period. The increase for the quarter was primarily due to costs
associated with unplanned repair and maintenance.
Rent, occupancy and related costs as a percent of store revenue were
relatively constant at 9.5% for the quarter ended October 3, 1999 compared to
9.4% for the prior comparable quarter and 9.7% for the three quarters ended
October 3, 1999 from 9.4% for the prior comparable period.
Marketing expenses as a percent of store revenue decreased to 2.3% for the
quarter ended October 3, 1999 from 4.2% for the prior comparable quarter and
decreased to 2.7% for the three quarters ended October 3, 1999 from 3.9% for the
prior comparable period. The decrease was the result of a decision to reduce
marketing spending in fiscal 1999.
As a result of the factors described above, store margins before
depreciation and amortization as a percent of store revenue increased to 15.8%
for the quarter ended October 3, 1999 from 14.1% for the prior comparable
quarter and increased to 15.2% for the three quarters ended October 3, 1999 from
13.0% for the prior comparable period.
Depreciation and amortization as a percent of store revenue decreased to
3.1% for the quarter ended October 3, 1999 from 5.2% for the prior comparable
quarter and decreased to 3.1% for the three quarters ended October 3, 1999 from
5.5% for the prior comparable period. The decrease was the result of the charge
taken in the fourth quarter of 1998 for impairment of long-lived assets.
Non-Store Salaries, Benefits, General and Administrative. Non-store
salaries, benefits, general and administrative expenses as a percent of total
revenue increased to 8.9% for the quarter ended October 3, 1999 compared to 8.2%
for the prior comparable quarter and decreased to 9.2% for the three quarters
ended October 3, 1999 from 10.5% for the prior comparable period. The increase
for the quarter was primarily due to a one-time charge of $0.4 million related
to store and commissary closures in the quarter. The decrease for the three
quarters was due to a prior year reduction in force and an associated one-time
charge of $1.5 million for severance offset by a one-time charge of $1.6 million
related to store and commissary closures in 1999 and a one-time charge of $0.6
million related to the settlement of shareholder litigation in the second
quarter of 1999.
Depreciation and Amortization. Non-store depreciation and amortization
(excluding goodwill amortization) as a percent of total revenue remained
relatively constant at 0.7% for the quarter ended October 3, 1999 compared to
0.9% for the prior comparable period and 0.8% for the three quarters ended
October 3, 1999 compared to 0.9% for the prior comparable period. Goodwill
amortization as a percent of total revenue also remained relatively constant at
3.1% for both the quarter and three quarters ended October 3, 1999 compared to
2.8% and 2.9% for the respective prior comparable periods. The net changes
reflect an increase due to shortened useful lives of trademarks and goodwill
offset by the decrease in the remaining balances as a result of the charge for
impairment of long-lived assets taken in the last quarter of 1998.
Other Expense. The Company incurred other expense of $2.8 million for the
quarter ended October 3, 1999 compared to $2.7 million for the prior comparable
quarter and $9.1 million for the three quarters ended October 3, 1999 compared
to $12.3 million for the prior comparable period. The decrease was due to a
$3.4 million prior year charge associated with the write-off of certain notes
receivable in the second quarter of 1998.
Minority Interest. The minority interest in losses of Bagel Partners was
$0.1 million for the quarter ended October 3, 1999 compared to $0.9 million for
the prior comparable period. The minority interest in losses of Bagel Partners
for the three quarters ended October 3, 1999 was $1.0 million compared to $4.7
million for the prior comparable period.
Income Taxes. Because of the uncertainty of utilizing the loss incurred in
1999, no income tax benefit was established.
9
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Liquidity and Capital Resources
The Company's primary sources of capital in 1998 and the first three
quarters of 1999 were from internally generated cash from operations and
borrowings under the Company's revolving credit facility. Cash provided by
operations for the three quarters ended October 3, 1999 was $7.7 million
compared to $9.9 million of cash used in operations for the prior comparable
period. The increase in cash provided was due primarily to a decrease in net
loss to $11.2 million from $26.8 million in the prior comparable period.
The Company is party to a secured credit agreement with Bank of America
National Trust and Savings Association and the lenders named therein (the
"Credit Facility"), that consists of a secured term loan facility, under which
$19.5 million was outstanding as of October 3, 1999, and a $25.0 million secured
revolving credit facility, of which $14.4 million was outstanding as of October
3, 1999. Amounts available under the $25.0 million revolving credit facility
are subject to an incurrence test based on the ratio of senior indebtedness to
cash flow. The Credit Facility contains financial covenants that require the
Company to maintain certain minimum average net weekly per store sales levels
and to comply with ratios of system cash flow to senior indebtedness and pro
forma fixed charges.
For the three quarters ended October 3, 1999, the Company's primary uses of
capital, other than providing working capital for normal operating expenses,
consisted of expenditures for store development and refurbishment, development
and maintenance of its business infrastructure and systems, and investments in
commissaries. During the three quarters ended October 3, 1999, the Company
expended $10.1 million primarily on construction of new stores and refurbishing
of existing stores, business infrastructure and systems, and investments in
commissaries. For the prior comparable period, the Company expended $14.7
million related to development of new stores, a majority of which were opened in
the fourth quarter of 1997, and corporate infrastructure and investments in
commissaries.
Cash provided by financing activities was $4.2 million for the three
quarters ended October 3, 1999, resulting from the net borrowings and repayments
under the Credit Facility.
In addition to normal operating expenses, the Company's primary uses of
capital for the remainder of 1999 and the first quarter of 2000 are expected to
consist of (i) satisfaction of current liabilities, (ii) expenditures related to
the development of business infrastructure and systems, including the
acquisition of hardware, software licenses, maintenance and support for
enterprise and store systems, (iii) expenditures related to refurbishing
existing stores, and (iv) payment of principal on borrowings under the Credit
Facility (consisting of quarterly principal payments of $1.5 million due on
each of December 1, 1999 and March 1, 2000) and (v) payment of certain costs
related to the Company's planned restructuring. The Company estimates that the
aggregate cost associated with acquiring and implementing new enterprise systems
will be approximately $3.9 million (of which approximately $2.1 million had been
incurred as of the end of the third quarter of fiscal 1999) and that the capital
cost associated with upgrading store systems will be approximately $1.6 million
(all of which had been incurred as of the end of the third quarter of fiscal
1999). Most of these monies have been or will be used to purchase hardware to
accommodate software that will be licensed from third parties other than Boston
Chicken and that will be Year 2000 compliant. In addition, the Company expects
capital costs of approximately $2.2 million (of which approximately $0.8 million
had been incurred as of the end of the third quarter of fiscal 1999) to acquire
and implement certain other information management systems, including systems
for store polling, and capital costs of approximately $1.0 million (none of
which had been incurred as of the end of the third quarter of fiscal 1999)
associated with moving its support center offices to new office space that has
been leased by the Company in Golden, Colorado.
The Company also expects to incur additional operating expenses in building
and operating a business infrastructure to perform services that to date have
been provided to the Company by Boston Chicken. Until the effective date of the
termination of the Company's computer and communications systems agreement with
Boston Chicken, the Company will continue to be obligated to pay fees to Boston
Chicken under that agreement in addition to paying the expenses of building and
operating its own infrastructure.
The Company's primary sources of capital for the remainder of 1999 and the
first quarter of 2000 are expected to consist of internally generated cash from
operations and borrowings under the Credit Facility. The Company
10
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currently anticipates the expected sources of capital will be sufficient to fund
the expected uses through the end of the first fiscal quarter of 2000; however,
in light of quarterly amortization requirements and availability limitations
under the Credit Facility, as well as other operational needs, there can be no
assurance that funds provided from operations and made available pursuant to the
Credit Facility will be sufficient to meet the Company's anticipated capital
needs. In the event the Company requires additional capital to satisfy various
capital needs (including those described in the preceeding two paragraphs),
there can be no assurance that the Company will be able to obtain such capital
on satisfactory terms, if at all, and if the Company is unable to obtain such
capital, the Company could be forced to postpone capital expenditures or be
unable to satisfy its obligations when due. See "Special Note Regarding Forward-
Looking Statements" on page 7. In addition, if the Company is unable to comply
with any of the financial covenants under its Credit Facility, the Company would
be unable to draw on the revolving line of credit provided under the Credit
Facility and, upon action of the lenders, all outstanding principal and interest
under the Credit Facility could be accelerated and become immediately due and
payable.
The Company's capital requirements could be significantly affected in the
event Bagel Funding were to exercise its conditional right to require the
redemption of its approximately 22% equity interest in Bagel Partners. See Note
3 of Notes to the Company's Consolidated Financial Statements. In the event one
or both of the conditions to the exercise of such right were satisfied and Bagel
Funding exercised such right, the Company or Bagel Partners could pay the
redemption price for such equity interests by delivery of cash, common stock of
the Company or a combination of both. The Company does not currently have
sufficient capital to satisfy the redemption price with cash. While the Company
could seek to satisfy the redemption price by delivering shares of its common
stock (subject to stockholder approval requirements under Delaware law and the
Company's agreement with the Nasdaq Stock Market), delivery of the number of
shares required to satisfy the redemption right, based on the current trading
price of the Company's common stock, would result in a Change in Control (as
defined in the indenture governing the Company's $125.0 million 7 1/4%
Convertible Subordinated Debentures due June 1, 2004 (the "Debentures")),
pursuant to which the Company would be required, as of 40 business days after
the occurrence of the Change in Control, to purchase for cash all or any part of
its outstanding debentures, at a price equal to the principal amount thereof
plus accrued but unpaid interest, at the option of the debenture holder. The
Company does not currently have sufficient capital resources to purchase for
cash any material amount of the Debentures.
On November 3, 1999, the Company announced that it had retained Donaldson,
Lufkin & Jenrette to assist the Company in analyzing and evaluating possible
transactions for the principal purpose of restructuring its balance sheet, which
the Company's management believes is essential to ensure that the Company has
adequate working capital to operate its business and to enable it to capitalize
on the potential of its brands, Einstein Bros. Bagels and Noah's New York
Bagels. The Company intends to consider transactions that would have the effect
of significantly reducing the total outstanding amount of the Company's long-
term debt. The Company also intends to consider transactions that would have
the effect of converting the approximately 22% minority equity interest in Bagel
Partners into a direct equity interest in the Company. Additionally, the
Company intends to seek either to enter into a new credit facility or to extend
the Credit Facility, which currently provides for an October 2000 maturity date.
Finally, it is highly likely that existing equity holders of the Company will
suffer substantial dilution of their holdings as a result of a restructuring.
There can be no assurance that the Company will be successful in implementing
the contemplated restructuring.
In the event the Company does not succeed in its restructuring efforts, the
Company's management believes that the Company will not be able to access
capital for new store development and other capital expenditures and that the
Company will have difficulty entering into a significant number of third-party
franchise or license agreements for the building of new stores using capital
resources of franchisees or licensees. The Company's management also believes
that, absent the restructuring, the Company will be unable to offer meaningful
equity incentives to attract and retain key management. Finally, in the event
the contemplated restructuring is not consummated, and/or in the event the
Company does not modify the terms of the Credit Facility, the amount of bank
financing available to the Company will continue to be reduced by quarterly
amortization of its term loan, and it is possible that the Company will be
required to seek additional sources of working capital. If the Company is
unable to obtain such working capital, it could be forced to postpone capital
expenditures or be unable to satisfy its obligations as they become due.
11
<PAGE>
Year 2000
The Year 2000 issue is the result of computer programs written to identify
the applicable year with two digits rather than four. As written, these
programs may identify the year "00" as 1900 rather than 2000, which could result
in systems miscalculations or systems failure leading to potentially substantial
business disruptions. The Company has adopted a comprehensive plan to identify
and resolve its Year 2000 issues. The Company's Year 2000 plan consists of (i)
assuring that its information technology systems, currently provided by Boston
Chicken under the terms of a computer and communications services agreement, are
Year 2000 compliant, (ii) assuring that new information technology systems
acquired by the Company as part of its development of an independent business
infrastructure are Year 2000 compliant, and (iii) obtaining assurances from
other third party vendors that their businesses and systems will be Year 2000
compliant on a timely basis.
Boston Chicken has informed the Company that the information technology
systems it provides were, as of the end of the third fiscal quarter of 1999,
Year 2000 compliant. Such systems include back office and point of sale store
systems as well as financial, human resources, payroll and desktop systems
utilized at the Company's support center. In addition to the public disclosure
provided by Boston Chicken with respect to its Year 2000 compliance efforts, the
Company receives periodic reports from Boston Chicken management relating to
Year 2000 issues. In addition to the fees the Company pays to Boston Chicken
under the computer and communications services agreement, the Company has
incurred capital expenditures of approximately $1.6 million, primarily to
purchase hardware for store systems that will accommodate software that will be
licensed from third parties other than Boston Chicken and that will be Year 2000
compliant; the Company completed the installation of such hardware in the third
fiscal quarter of 1999. The Company intends to continue monitoring Boston
Chicken's Year 2000 compliance efforts on a regular basis with respect to
systems provided by Boston Chicken and to seek assurances of Year 2000
compliance from any other vendors who may grant licenses to the Company or
support its information technology systems in the future. See "Special Note
Regarding Forward-Looking Statements" on page 7.
The Company has received assurances from the third party software vendor
that is providing the Company with a software license and support services for
its enterprise systems that the software will be Year 2000 compliant. The
Company has received similar assurances from its principal third party systems
hardware vendor. The Company has also received (and will continue to seek)
assurances of Year 2000 compliance from other vendors of systems software,
hardware and services. See "Special Note Regarding Forward-Looking Statements"
on page 7.
The Company has also implemented a program to obtain third-party vendor
assurances of Year 2000 compliance. The Company has completed an assessment of
the impact on the Company if any of its third-party vendors are not Year 2000
compliant and has met with substantially all of its critical vendors, such as
its bagel and cream cheese suppliers and its distribution vendor, to discuss
their Year 2000 compliance plans. The Company has sent to substantially all
other vendors, including the Company's landlords, equipment vendors, service
providers and banks, letters requesting written assurance of Year 2000
compliance on a timely basis. Management has evaluated all vendor responses,
followed-up with vendors in certain cases and held meetings with each of its
critical vendors. During this process, management of the Company has endeavored
to assess both the likelihood of compliance by the vendor and the impact on the
Company if it is determined that the vendor will not be compliant on a timely
basis. While the Company currently expects that all of its significant vendors
will be Year 2000 compliant in a timely manner, the Company is in the final
stages of developing appropriate contingency plans to assure availability of any
product or service material to maintaining uninterrupted business operations.
See "Special Note Regarding Forward-Looking Statements" on page 7.
The Company's Year 2000 compliance efforts involve a significant amount of
time and effort by management and employees, the total cost of which is
difficult to precisely estimate. The Company does not, however, anticipate that
these costs will be material to the Company. The Company does not expect
significant business disruptions arising from the failure of its third party
vendors to be Year 2000 compliant on a timely basis; however, compliance efforts
of Boston Chicken, other providers of information technology systems and other
third party vendors are not within the Company's control. There can be no
assurance that all of such persons will be Year 2000 compliant, or that the
Company will successfully develop and implement satisfactory contingency plans
on a timely basis. The
12
<PAGE>
occurrence of any such event could have a material adverse effect on the
financial condition or results of operations of the Company. See "Special Note
Regarding Forward-Looking Statements" on page 7.
13
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Over time, the Company is exposed to market risks arising from changes in
interest rates. The Company has not historically used derivative financial
instruments.
As of October 3, 1999, $33.9 million of floating-rate debt was exposed to
changes in interest rates compared to $29.6 million at December 27, 1998. This
exposure was primarily linked to the prime lending rate. A hypothetical 10%
change in the prime lending rate would not have had a material effect on the
Company's annual earnings.
As of October 3, 1999 and December 27, 1998, the Company also had $125.0
million of fixed-rate convertible subordinated debentures due 2004. A
hypothetical 10% change in interest rates on this debt would affect the market
value of these financial instruments.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 5. Other Information
The Company has been notified by the Nasdaq Stock Market ("Nasdaq") that
the Company is not in compliance with the net tangible assets/market
capitalization/net income requirement or the minimum bid price requirement for
continued listing of its common stock on the Nasdaq SmallCap Market, and that
the Nasdaq staff has determined to delist the Company's common stock from the
Nasdaq SmallCap Market. Nasdaq's continued listing requirements require that an
issuer satisfy at least one of the following listing standards: (a) net tangible
assets of at least $2,000,000, (b) a market capitalization of $35,000,000 or (c)
net income of $500,000. Nasdaq's continued listing requirements also require
that issuers maintain a minimum bid price of at least $1.
The Company has attended an oral hearing before a Nasdaq Listing
Qualifications Panel, and the delisting of the Company's common stock has been
stayed pending the decision of the panel. There can be no assurance that the
hearing will result in continued listing of the common stock on the Nasdaq
SmallCap Market. If unsuccessful, the Company currently expects that its common
stock will be quoted on the OTC Bulletin Board.
Delisting of the common stock from Nasdaq could have a material adverse
effect on the market price of, and the efficiency of the trading market for, the
Company's common stock.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: See Exhibit Index appearing elsewhere herein, which is
incorporated herein by reference.
B. Reports on Form 8-K: During the quarter ended October 3, 1999, the
Company filed no current reports on Form 8-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EINSTEIN/NOAH BAGEL CORP.
Date: November 17, 1999 /s/ Robert M. Hartnett
------------------------------------------------
Robert M. Hartnett
Chairman of the Board,
Chief Executive Officer and President
Date: November 17, 1999 /s/ Paula E. Manley
------------------------------------------------
Paula E. Manley
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
10.1 Third Amendment to Executive Employment Agreement dated September 16,
1999 between the Company and Robert M. Hartnett.
10.2 Severance Agreement dated August 26, 1999 between the Company and Paul
Murphy.
10.3 Severance Agreement dated August 26, 1999 between the Company and Paula
E. Manley.
10.4 Severance Agreement dated August 26, 1999 between the Company and Gail
Lozoff.
10.5 Severance Agreement dated August 26, 1999 between the Company and Paul
Strasen.
27 Financial Data Schedule.
17
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
This third amendment to executive employment agreement (the "Amendment") is
made as of the 16 day of September, 1999, by and between Einstein/Noah Bagel
Corp., a Delaware corporation (the "Company"), and Robert M. Hartnett (the
"Executive").
Recitals
--------
WHEREAS, Executive and the Company are parties to an executive employment
agreement dated September 11, 1998, as amended (the "Employment Agreement"); and
WHEREAS, Executive and the Company desire to amend the Employment
Agreement.
Covenants
---------
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
terms and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are specifically
acknowledged, the parties hereto hereby agree as follows:
1. Section 3(a) of the Employment Agreement is hereby modified by
deleting "$400,000" and substituting "$500,000" therefor.
2. As hereby modified, the Employment Agreement shall remain in full
force and effect and is hereby ratified, approved and confirmed in all respects.
EINSTEIN/NOAH BAGEL CORP.
By /s/ Paul A. Strasen
----------------------------
/s/ Robert M. Hartnett
------------------------------
Robert M. Hartnett
<PAGE>
EXHIBIT 10.2
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998 and restated effective as of August
26, 1999, is made by and between Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), and Paul Murphy (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on
-----------------
the date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be ex-
<PAGE>
tended for one additional year unless, not later than December 31 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire twenty-four (24)
months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is three (3) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if
2
<PAGE>
higher, the rate in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2,
in addition to any payments and benefits to which the Executive is entitled
under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates his employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless
3
<PAGE>
the Company establishes to the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the sum of (i) 12
months' base salary, based on the Executive's salary rate as in effect
immediately prior to the Date of Termination or, if higher, in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, (ii) the amount of the Executive's bonus for any
completed fiscal year or other completed measuring period preceding the
Date of Termination which has not yet been paid, assuming the achievement
of all individual performance goals (including any subjective performance
goals), and (iii) the Executive's target bonus for the fiscal year or other
measuring period in which the Date of Termination occurs.
(B) For the 12 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however,
-------- -------
that, unless the Executive consents to a different method, such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 12 month period
following the
4
<PAGE>
Executive's termination of employment (and any such benefits received by or
made available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 9 months
or, if earlier, until the first acceptance by the Executive of an offer
of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (all such payments and
benefits, excluding the Gross-Up Payment, being hereinafter referred to as
the "Total Payments") will be subject to the Excise Tax, the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be
equal to the Total Payments.
5
<PAGE>
(B) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i)
all of the Total Payments shall be treated as "parachute payments" (within
the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986 (the
"Code")) unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the accounting firm which was,
immediately prior to the Change in Control, the Company's independent
auditor (the "Auditor"), such payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of Section 280G(b)(l) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of Section 280G(b)(4)(B) of
the Code) in excess of the Base Amount (as defined in Section 280G(b)(3) of
the Code) allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or
any deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's
residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 6.2), net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
(C) In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculat-
6
<PAGE>
ing the Gross-Up Payment, the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within five
(5) business days following the time that the amount of such excess is
finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
6.3 The payments provided in subsection (A) of Section 6.1 and 6.2
hereof shall be made not later than the fifth day following the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-up Payment is calculated for purposes of Section 6.2 hereof); provided,
--------
however, that if the amounts of such payments cannot be finally determined on or
- -------
before such day, the Company shall pay to the Executive on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the un-
7
<PAGE>
paid remainder (or on all such payments to the extent the Company fails to make
such payments when due) at the reference rate announced from time to time by
Bank of America National Trust and Savings Association) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
the reference rate announced from time to time by Bank of America National Trust
and Savings Association). At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations.
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail
8
<PAGE>
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom
9
<PAGE>
has expired and no appeal has been perfected); provided, however, that the Date
-------- -------
of Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and
10
<PAGE>
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
11
<PAGE>
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or the Compensation Committee of the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or of any lack of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party; provided, however,
-------- -------
that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in the event that
the Executive's employment with the Company is terminated on or following a
Change in Control that has occurred or is deemed to have occurred pursuant to
Section 6.1 hereof, by the Company other than for Cause or by the Executive
other than for Good Reason. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Colorado. All references to sections of the Exchange Act shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12
<PAGE>
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the Executive to appeal to
the Board a decision of the Board within sixty (60) days after notification by
the Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
13
<PAGE>
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's incapacity due
to physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 7.1 hereof) after a written demand for
substantial performance is delivered to the Executive by the Board, which
demand specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties, (ii)
the misappropriation of funds or other property of the Company, (iii) the
commission of any felony or any crime involving moral turpitude, (iv) the
commission of fraud or theft, or (v) the material breach by the Executive
of any obligation of the Executive under any written confidentiality or
non-compete agreement between the Executive and the Company. For purposes
of this definition, (x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the Company
and (y) in the event of a dispute concerning the application of this
provision, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing
evidence that Cause exists.
14
<PAGE>
(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person (other than Boston Chicken, Inc. or
Bagel Store Development Funding, L.L.C.) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(II) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than
Boston Chicken, Inc. or Bagel Store Development Funding, L.L.C.)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates
of a business) representing 20% or more of
15
<PAGE>
the combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of August 25, 1999 are
members of the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided,
however, that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member
of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except
in determining under Section 15(E) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
(G) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination
by the Company of the
16
<PAGE>
Executive's employment, if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from
the full-time performance of the Executive's duties with the Company for a
period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(J) "Excise Tax" shall mean any excise tax imposed under Section
4999 of the Code.
(K) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(L) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change
in Control under the circumstances described in clauses (ii) and (iii) of
the second sentence of Section 6.1 hereof (treating all references in
paragraphs (I) through (VII) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the following acts by
the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
17
<PAGE>
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(III) the relocation of the Executive's principal place
of employment to a location more than 60 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive to
be based anywhere other than such principal place of employment
(or permitted relocation thereof) except for required travel on
the Company's business to an extent substantially consistent with
the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation,
within seven (7) days of the date such compensation is due;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material to
the Executive's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount or timing of payment
of benefits provided and the level of the Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
18
<PAGE>
(VI) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company's life
insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the
Change in Control (except for across the board changes similarly
affecting all executives of the Company and all executives of any
Person in control of the Company), the taking of any other action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to provide
the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists
19
<PAGE>
shall be presumed to be correct unless the Company establishes to the
Board by clear and convincing evidence that Good Reason does not exist.
(M) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(N) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(O) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control
has occurred.
(P) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
20
<PAGE>
(Q) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
----------------------------
Name: Paul A. Strasen
Title: Snr. Vice President
/s/ Paul Murphy
----------------------------
Paul Murphy
Address:
2043 Mammoth Ct.
----------------------------
Evergreen, Colarado
----------------------------
____________________________
(Please print carefully)
21
<PAGE>
EXHIBIT 10.3
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998 and restated effective as of
August 26, 1999, is made by and between Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), and Paula E. Manley (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on
-----------------
the date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be ex-
<PAGE>
tended for one additional year unless, not later than December 31 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire twenty-four (24)
months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is three (3) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if
2
<PAGE>
higher, the rate in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2,
in addition to any payments and benefits to which the Executive is entitled
under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates her employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless
3
<PAGE>
the Company establishes to the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the sum of (i) 12
months' base salary, based on the Executive's salary rate as in effect
immediately prior to the Date of Termination or, if higher, in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, (ii) the amount of the Executive's bonus for any
completed fiscal year or other completed measuring period preceding the
Date of Termination which has not yet been paid, assuming the achievement
of all individual performance goals (including any subjective performance
goals), and (iii) the Executive's target bonus for the fiscal year or other
measuring period in which the Date of Termination occurs.
(B) For the 12 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and her
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and her dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and her dependents immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however,
-------- -------
that, unless the Executive consents to a different method, such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 12 month period
following the
4
<PAGE>
Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to the
Company by the Executive); provided, however, that the Company shall
-------- -------
reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the first occurrence of
an event or circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 9 months
or, if earlier, until the first acceptance by the Executive of an offer
of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (all such payments and
benefits, excluding the Gross-Up Payment, being hereinafter referred to as
the "Total Payments") will be subject to the Excise Tax, the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be
equal to the Total Payments.
5
<PAGE>
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise
Tax, (i) all of the Total Payments shall be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Internal Revenue Code of
1986 (the "Code")) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and selected by the accounting firm
which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or
in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments"
within the meaning of Section 280G(b)(l) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in
Section 280G(b)(3) of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by
the Auditor in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes
at the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 6.2), net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
(C) In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculat-
6
<PAGE>
ing the Gross-Up Payment, the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within five
(5) business days following the time that the amount of such excess is
finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
6.3 The payments provided in subsection (A) of Section 6.1 and 6.2
hereof shall be made not later than the fifth day following the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-up Payment is calculated for purposes of Section 6.2 hereof); provided,
--------
however, that if the amounts of such payments cannot be finally determined on or
- -------
before such day, the Company shall pay to the Executive on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the un-
7
<PAGE>
paid remainder (or on all such payments to the extent the Company fails to make
such payments when due) at the reference rate announced from time to time by
Bank of America National Trust and Savings Association) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
the reference rate announced from time to time by Bank of America National Trust
and Savings Association). At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations.
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail
8
<PAGE>
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom
9
<PAGE>
has expired and no appeal has been perfected); provided, however, that the Date
-------- -------
of Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and
10
<PAGE>
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed, if
to the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
11
<PAGE>
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control that has occurred or is deemed to have
occurred pursuant to Section 6.1 hereof, by the Company other than for Cause or
by the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Exchange Act shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12
<PAGE>
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the Executive to appeal to
the Board a decision of the Board within sixty (60) days after notification by
the Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
13
<PAGE>
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 7.1 hereof) after a written
demand for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, (ii) the misappropriation of funds or other property of the
Company, (iii) the commission of any felony or any crime involving moral
turpitude, (iv) the commission of fraud or theft, or (v) the material
breach by the Executive of any obligation of the Executive under any
written confidentiality or non-compete agreement between the Executive and
the Company. For purposes of this definition, (x) no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the
best interest of the Company and (y) in the event of a dispute concerning
the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by
clear and convincing evidence that Cause exists.
14
<PAGE>
(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person (other than Boston Chicken, Inc. or
Bagel Store Development Funding, L.L.C.) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(II) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than
Boston Chicken, Inc. or Bagel Store Development Funding, L.L.C.)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates
of a business) representing 20% or more of
15
<PAGE>
the combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a plan
of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of August 25, 1999 are
members of the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided,
however, that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member
of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except
in determining under Section 15(E) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
(G) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination
by the Company of the
16
<PAGE>
Executive's employment, if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from
the full-time performance of the Executive's duties with the Company for a
period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(J) "Excise Tax" shall mean any excise tax imposed under
Section 4999 of the Code.
(K) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(L) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change
in Control under the circumstances described in clauses (ii) and (iii) of
the second sentence of Section 6.1 hereof (treating all references in
paragraphs (I) through (VII) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the following acts by
the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
17
<PAGE>
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(III) the relocation of the Executive's principal
place of employment to a location more than 60 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive
to be based any where other than such principal place of
employment (or permitted relocation thereof) except for required
travel on the Company's business to an extent substantially
consistent with the Executive's present business travel
obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation,
within seven (7) days of the date such compensation is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material to
the Executive's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount or timing of payment
of benefits provided and the level of the Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
18
<PAGE>
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's life
insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the
Change in Control (except for across the board changes similarly
affecting all executives of the Company and all executives of any
Person in control of the Company), the taking of any other action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to provide
the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists
19
<PAGE>
shall be presumed to be correct unless the Company establishes to the
Board by clear and convincing evidence that Good Reason does not exist.
(M) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(N) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(O) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(P) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
20
<PAGE>
(Q) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
------------------------------
Name: Paul A. Strasen
Title: Sr. Vice Pres.
/s/ Paula E. Manley
---------------------------------
Paula E. Manley
Address:
2986 SUN CREEK RIDGE
---------------------------------
EVERGREEN, CO 80439
---------------------------------
_________________________________
(Please print carefully)
21
<PAGE>
EXHIBIT 10.4
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998 and restated effective as of
August 26, 1999, is made by and between Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), and Gail Lozoff (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on
-----------------
the date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be ex-
<PAGE>
tended for one additional year unless, not later than December 31 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire twenty-four (24)
months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject
-------------------------
to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the Term, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is three (3) months from the
date of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment for
Good Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if
2
<PAGE>
higher, the rate in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason,
then the Company shall pay the Executive the amounts, and provide the Executive
the benefits, described in this Section 6.1 ("Severance Payments") and Section
6.2, in addition to any payments and benefits to which the Executive is entitled
under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates her employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless
3
<PAGE>
the Company establishes to the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall pay
to the Executive a lump sum severance payment, in cash, equal to the sum
of (i) 12 months' base salary, based on the Executive's salary rate as in
effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (ii) the amount of the Executive's
bonus for any completed fiscal year or other completed measuring period
preceding the Date of Termination which has not yet been paid, assuming the
achievement of all individual performance goals (including any subjective
performance goals), and (iii) the Executive's target bonus for the fiscal
year or other measuring period in which the Date of Termination occurs.
(B) For the 12 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and her
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and her dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and her dependents immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however,
-------- -------
that, unless the Executive consents to a different method, such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 12 month period
following the
4
<PAGE>
Executive's termination of employment (and any such benefits received by or
made available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 9 months
or, if earlier, until the first acceptance by the Executive of an offer
of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (all such payments and
benefits, excluding the Gross-Up Payment, being hereinafter referred to as
the "Total Payments") will be subject to the Excise Tax, the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be
equal to the Total Payments.
5
<PAGE>
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise
Tax, (i) all of the Total Payments shall be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Internal Revenue Code of
1986 (the "Code")) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and selected by the accounting firm
which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments"
within the meaning of Section 280G(b)(l) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in
Section 280G(b)(3) of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by
the Auditor in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes
at the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 6.2), net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
(C) In the event that the Excise Tax is finally determined
to be less than the amount taken into account hereunder in calculat-
6
<PAGE>
ing the Gross-Up Payment, the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within five
(5) business days following the time that the amount of such excess is
finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
6.3 The payments provided in subsection (A) of Section 6.1 and 6.2
hereof shall be made not later than the fifth day following the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-up Payment is calculated for purposes of Section 6.2 hereof); provided,
--------
however, that if the amounts of such payments cannot be finally determined on or
- -------
before such day, the Company shall pay to the Executive on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the
remainder of such payments (together with interest on the un-
7
<PAGE>
paid remainder (or on all such payments to the extent the Company fails to make
such payments when due) at the reference rate announced from time to time by
Bank of America National Trust and Savings Association) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
the reference rate announced from time to time by Bank of America National Trust
and Savings Association). At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations.
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail
8
<PAGE>
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom
9
<PAGE>
has expired and no appeal has been perfected); provided, however, that the Date
-------- -------
of Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination
is extended in accordance with Section 7.3 hereof, the Company shall continue
to pay the Executive the full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the Date of Termination, as determined in
accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement (other than those due
under Section 5.2 hereof) and shall not be offset against or reduce any other
amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and
10
<PAGE>
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed, if
to the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
11
<PAGE>
To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board or the Compensation Committee of the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
of any lack of compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes any other agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof which
have been made by either party; provided, however, that this Agreement shall
-------- -------
supersede any agreement setting forth the terms and conditions of the
Executive's employment with the Company only in the event that the Executive's
employment with the Company is terminated on or following a Change in Control
that has occurred or is deemed to have occurred pursuant to Section 6.1 hereof,
by the Company other than for Cause or by the Executive other than for Good
Reason. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Colorado. All
references to sections of the Exchange Act shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall
be paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by their
nature may require either partial or total performance after the expiration of
the Term (including, without limitation, those under Sections 6 and 7 hereof)
shall survive such expiration.
12
<PAGE>
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of
the decision denying a claim and shall further allow the Executive to appeal to
the Board a decision of the Board within sixty (60) days after notification by
the Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
13
<PAGE>
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 7.1 hereof) after a written
demand for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, (ii) the misappropriation of funds or other property of the
Company, (iii) the commission of any felony or any crime involving moral
turpitude, (iv) the commission of fraud or theft, or (v) the material
breach by the Executive of any obligation of the Executive under any
written confidentiality or non-compete agreement between the Executive and
the Company. For purposes of this definition, (x) no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the
best interest of the Company and (y) in the event of a dispute concerning
the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by
clear and convincing evidence that Cause exists.
14
<PAGE>
(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person (other than Boston Chicken, Inc. or
Bagel Store Development Funding, L.L.C.) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(II) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than
Boston Chicken, Inc. or Bagel Store Development Funding, L.L.C.)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates
of a business) representing 20% or more of
15
<PAGE>
the combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of August 25, 1999 are
members of the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided,
however, that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member
of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except
in determining under Section 15(E) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
(G) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination
by the Company of the
16
<PAGE>
Executive's employment, if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from
the full-time performance of the Executive's duties with the Company for a
period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(J) "Excise Tax" shall mean any excise tax imposed under
Section 4999 of the Code.
(K) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(L) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change
in Control under the circumstances described in clauses (ii) and (iii) of
the second sentence of Section 6.1 hereof (treating all references in
paragraphs (I) through (VII) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the following acts by
the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect
immediately prior to the Change in Control;
17
<PAGE>
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(III) the relocation of the Executive's principal place
of employment to a location more than 60 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive to
be based anywhere other than such principal place of employment
(or permitted relocation thereof) except for required travel on
the Company's business to an extent substantially consistent with
the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation,
within seven (7) days of the date such compensation is due;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material to
the Executive's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by
the Company to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount or timing of payment
of benefits provided and the level of the Executive's
participation relative to other participants, as existed
immediately prior to the Change in Control;
18
<PAGE>
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's life
insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the
Change in Control (except for across the board changes similarly
affecting all executives of the Company and all executives of any
Person in control of the Company), the taking of any other action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to provide
the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists
19
<PAGE>
shall be presumed to be correct unless the Company establishes to the
Board by clear and convincing evidence that Good Reason does not exist.
(M) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(N) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(O) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(P) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
20
<PAGE>
(Q) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination de
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
---------------------------------------
Name: Paul A. Strasen
Title: Sr. Vice Pres.
/s/ Gail Lozoff
------------------------------------------
Gail Lozoff
Address:
530 Circle Drive
------------------------------------------
Denver CO 80206
------------------------------------------
__________________________________________
(Please print carefully)
21
<PAGE>
EXHIBIT 10.5
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated May 8, 1998 and restated effective as of
August 26, 1999, is made by and between Einstein/Noah Bagel Corp., a Delaware
corporation (the "Company"), and Paul Strasen (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on
-----------------
the date hereof and shall continue in effect through May 8, 2000; provided,
--------
however, that commencing on May 8, 2000 and each May 8 thereafter, the Term
- -------
shall automatically be ex-
<PAGE>
tended for one additional year unless, not later than December 31 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
------- -------- -------
shall have occurred during the Term, the Term shall expire twenty-four (24)
months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is three (3) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments. If the Executive's
-------------------------------------------
employment shall be terminated for any reason following a Change in Control and
during the Term, the Company shall pay the Executive's full salary to the
Executive during the period through the Date of Termination at the rate in
effect immediately prior to the Date of Termination or, if
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higher, the rate in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
6. Severance Payments.
------------------
6.1 If the Executive's employment is terminated following a Change in
Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Sever ance Payments") and Section 6.2,
in addition to any payments and benefits to which the Executive is entitled
under Section 5 hereof. For purposes of this Agreement, the Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior to a
Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates his employment for Good Reason prior
to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person, or (iii) the Executive's employment is terminated by
the Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Executive shall be presumed to be correct unless
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the Company establishes to the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall pay
to the Executive a lump sum severance payment, in cash, equal to the sum
of (i) 12 months' base salary, based on the Executive's salary rate as in
effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (ii) the amount of the Executive's
bonus for any completed fiscal year or other completed measuring period
preceding the Date of Termination which has not yet been paid, assuming the
achievement of all individual performance goals (including any subjective
performance goals), and (iii) the Executive's target bonus for the fiscal
year or other measuring period in which the Date of Termination occurs.
(B) For the 12 month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however,
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that, unless the Executive consents to a different method, such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this Section 6.1
(B) shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the 12 month period
following the
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Executive's termination of employment (and any such benefits received by or
made available to the Executive shall be reported to the Company by the
Executive); provided, however, that the Company shall reimburse the
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Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each option to purchase shares of common stock of the
Company outstanding at the Date of Termination shall become fully vested
and exercisable on the Date of Termination and shall remain exercisable
during the term of such option.
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of 9 months
or, if earlier, until the first acceptance by the Executive of an offer
of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (all such payments and
benefits, excluding the Gross-Up Payment, being hereinafter referred to as
the "Total Payments") will be subject to the Excise Tax, the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the Gross-Up Payment, shall be
equal to the Total Payments.
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(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise
Tax, (i) all of the Total Payments shall be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Internal Revenue Code of
1986 (the "Code")) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Executive and selected by the accounting firm
which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments"
within the meaning of Section 280G(b)(l) of the Code shall be treated as
subject to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in
Section 280G(b)(3) of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by
the Auditor in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes
at the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 6.2), net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
(C) In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculat-
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<PAGE>
ing the Gross-Up Payment, the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of the Gross-Up
Payment at tributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executive's taxable
income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within five
(5) business days following the time that the amount of such excess is
finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
6.3 The payments provided in subsection (A) of Section 6.1 and 6.2
hereof shall be made not later than the fifth day following the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-up Payment is calculated for purposes of Section 6.2 hereof); provided,
--------
however, that if the amounts of such payments cannot be finally determined on
- -------
or before such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company, of the minimum amount of
such payments to which the Executive is clearly entitled and shall pay the
remainder of such payments (together with interest on the un-
7
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paid remainder (or on all such payments to the extent the Company fails to make
such payments when due) at the reference rate announced from time to time by
Bank of America National Trust and Savings Association) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
the reference rate announced from time to time by Bank of America National Trust
and Savings Association). At the time that payments are made under this
Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis
for such calculations.
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue here
under relating to the termination of the Executive's employment, or in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1 Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail
8
<PAGE>
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution duly adopted
by the affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause herein,
and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom
9
<PAGE>
has expired and no appeal has been perfected); provided, however, that the Date
-------- -------
of Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termintion is
extended in accordance with Section 7.3 here of, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and
10
<PAGE>
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
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To the Company:
Einstein/Noah Bagel Corp.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board or the Compensation Committee of the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or of any lack of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement supersedes any other agreements or
representations, oral or other wise, express or implied, with respect to the
subject matter hereof which have been made by either party; provided, however,
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that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in the event
that the Executive's employment with the Company is terminated on or following a
Change in Control that has occurred or is deemed to have occurred pursuant to
Section 6.1 hereof, by the Company other than for Cause or by the Executive
other than for Good Reason. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Colorado. All references to sections of the Exchange Act shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
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12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reason able opportunity to the Executive for a review of
the decision denying a claim and shall further allow the Executive to appeal to
the Board a decision of the Board within sixty (60) days after notification by
the Board that the Executive's claim has been denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
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set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the mean ings indicated below:
13
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(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 7.1 hereof) after a written
demand for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, (ii) the misappropriation of funds or other property of the
Company, (iii) the commission of any felony or any crime involving moral
turpitude, (iv) the commission of fraud or theft, or (v) the material
breach by the Executive of any obligation of the Executive under any
written confidentiality or non-compete agreement between the Executive and
the Company. For purposes of this definition, (x) no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the
best interest of the Company and (y) in the event of a dispute concerning
the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by
clear and convincing evidence that Cause exists.
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(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have
occurred:
(I) any Person (other than Boston Chicken, Inc. or
Bagel Store Development Funding, L.L.C.) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(II) there is consummated a merger or consolidation
of the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining out
standing or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than
Boston Chicken, Inc. or Bagel Store Develop ment Funding, L.L.C.)
is or becomes the Beneficial Owner, directly or in directly, of
securities of the Company (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates
of a business) representing 20% or more of
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<PAGE>
the combined voting power of the Company's then outstanding
securities; or
(III) the stockholders of the Company approve a plan
of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale; or
(IV) the individuals who, as of August 25, 1999 are
members of the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided,
however, that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member
of the Incumbent Board.
(F) "Company" shall mean Einstein/Noah Bagel Corp. and, except
in determining under Section 15(E) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
(G) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(H) "Disability" shall be deemed the reason for the termination
by the Company of the
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Executive's employment, if, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from
the full-time performance of the Executive's duties with the Company for a
period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(I) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(J) "Excise Tax" shall mean any excise tax imposed under Section
4999 of the Code.
(K) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(L) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change
in Control under the circumstances described in clauses (ii) and (iii) of
the second sentence of Section 6.1 hereof (treating all references in
paragraphs (I) through (VII) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the following acts by
the Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) a substantial adverse alteration in the nature
or status of the Executive's responsibilities from those in
effect immediately prior to the Change in Control;
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(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same
may be increased from time to time;
(III) the relocation of the Executive's principal
place of employment to a location more than 60 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive to
be based any where other than such principal place of employment
(or permitted relocation thereof) except for required travel on
the Company's business to an extent substantially consistent with
the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation,
within seven (7) days of the date such compensation is due;
(V) the failure by the Company to continue in
effect any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material to the
Executive's total compensation, unless an equitable arrangement (em
bodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue
the Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount or timing of payment of benefits provided and the
level of the Executive's par ticipation relative to other
participants, as existed immediately prior to the Change in Control;
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(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's life
insurance, medical, health and accident, or disability plans in
which the Executive was participating immediately prior to the
Change in Control (except for across the board changes similarly
affecting all executives of the Company and all executives of any
Person in control of the Company), the taking of any other action
by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the Company to provide
the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists
19
<PAGE>
shall be presumed to be correct unless the Company establishes to the Board
by clear and convincing evidence that Good Reason does not exist.
(M) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(N) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(O) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control; or
(III) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(P) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
20
<PAGE>
(Q) "Term" shall mean the period of time described in Section 2
hereof (including any extension, continuation or termination described
therein).
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
-----------------------
Name: Robert M. Hartnett
Title: Chief Executive Officer
/s/ Paul A. Strasen
-------------------
Paul A. Strasen
Address:
6. White Alder
--------------
Littleton Co 80127
------------------
___________________________
(Please print carefully)
21
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> OCT-03-1999
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 365,008
<SALES> 288,012
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<NET-INCOME> (11,238)
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