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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21097
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EINSTEIN/NOAH BAGEL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 84-1294908
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1687 Cole Boulevard
Golden, CO 80401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 568-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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Common Stock, $.01 par value
7 1/4% Convertible Subordinated Debentures due 2004
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days: Yes: X No:
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
the Form 10-K/A. [ ].
The aggregate market value of the voting stock of the registrant held by
stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$4,277,395 at March 17, 2000 (based on the closing sale price on the Over-the-
Counter Bulletin Board on March 17, 2000). At March 17, 2000, the registrant
had issued and outstanding an aggregate of 34,083,681 shares of common stock
(including 813,146 shares of common stock held by a subsidiary of the Company).
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K/A under "Item 1. Business", "Item 3.
Legal Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this Form 10-K/A,
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: successful
restructuring of the Company's balance sheet; competition; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; brand awareness; availability and terms of capital; adverse publicity;
acceptance of new product offerings; the Company's relationship with 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; and other factors referenced in this Form 10-K/A. The Company cannot
predict which factors would cause actual results to differ materially from those
indicated by the forward-looking statements. In addition to considering
statements that explicitly describe such risks and uncertainties, readers are
urged to consider statements that include the terms "believes," "belief,"
"expects," "plans," "anticipates," "intends" or the like to be uncertain and
forward-looking.
ITEM 1. BUSINESS
General
References in this Form 10-K/A to the "Company" mean the Company, its
predecessors and its and their subsidiaries, including Bagel Partners, unless
the context otherwise requires. Einstein Bros.(R) and Noah's New York Bagels(R)
are trademarks owned by the Company.
The Company owns and operates specialty retail stores that feature fresh-
baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative soups, salads and sandwiches, primarily under the Einstein Bros. Bagels
brand name and also under the Noah's New York Bagels brand name. The Company's
primary brand, Einstein Bros. Bagels, was developed by the Company after it was
formed in March 1995. The Noah's New York Bagels brand was acquired by the
Company in February 1996. As of December 26, 1999, there were 539 Company
stores in operation systemwide in 45 designated market areas ("DMAs"), including
428 Einstein Bros. Bagels stores in 38 of such DMAs throughout the United States
and 111 Noah's New York Bagels stores in 7 of such DMAs located in northern
California, portions of Los Angeles, Portland and Seattle/Tacoma. The Company
also licenses one Einstein Bros. Bagels store located in a hotel in Phoenix,
Arizona and one Noah's New York Bagels store located in the San Francisco
International Airport. During fiscal 1999 the Company closed 14 stores and
opened 7 new stores. Subsequent to the end of fiscal 1999, the Company opened
one new store.
During fiscal 1998 and 1999 the Company focused primarily on improving
store operations to increase same store sales and margins. The Company
instituted programs to more effectively hire, train and incentivize store
general managers, established consistent measurements of weekly store level
performance, expanded menus to include new lunch, sweets and catering offerings,
increased menu prices, closed underperforming stores and began more aggressive
in-store merchandising.
A key component of the Company's product strategy is its offering of fresh-
baked bagels, produced utilizing proprietary processes that allow for maximum
inclusion of high quality ingredients, such as whole
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blueberries, raisins and nuts. Bagels are offered in a wide variety of both
traditional and creative flavors and are baked fresh throughout the day in each
store using steamed-baking processes.
The Company's stores also offer consumers a line of traditional and
creative flavors of cream cheese and an extensive line of beverages featuring
branded coffees and teas, fruit teas, bottled and fountain sodas, juices and
waters. The menu also includes creative soups, salads and sandwiches offering
customers a variety of lunch alternatives, as well as branded retail products
that support the major menu categories, including ground and whole bean coffees,
teas, bagel chips, coffee mugs and other items. Stores are typically in leased
locations of approximately 2,000 square feet, substantial indoor seating and
when practical, additional outdoor seating.
The Company was incorporated in Delaware in February 1995 under the name
Progressive Bagel Concepts, Inc. The Company's name was subsequently changed to
Einstein/Noah Bagel Corp. in June 1996. The Company's principal executive
offices are located at 1687 Cole Boulevard, Golden, Colorado 80401 and its
telephone number is (303) 568-8000.
Loan Conversions and Area Developer Merger
From November 1995 until December 1997, stores were developed and operated
primarily by area developers funded in part through convertible loans made by
the Company. The Company believes that its area developers substantially
assisted the Company in accomplishing its goal of rapidly developing stores and
brand awareness in targeted local markets to achieve market leadership.
However, as a result of the Company's decision in 1997 to slow new store
development, the Company believed its business would be strengthened by focusing
on a number of business objectives better accomplished through a Company-
controlled system.
In December 1997 the Company coverted its loans to its area developers into
a majority equity interest in the area developers and four of the Company's five
area developers merged into the surviving area developer now known as
Einstein/Noah Bagel Partners, L.P. ("Bagel Partners"). As a result of the loan
conversions and the area developer merger (together with certain related
transactions, the "Transactions"), the Company owns approximately 78% of Bagel
Partners, with the remaining minority interest owned by Bagel Store Development
Funding, L.L.C. ("Bagel Funding") and management of the former area developers.
Einstein/Noah Bagel Partners, Inc., a wholly-owned subsidiary of the Company, is
the general partner of Bagel Partners (the "General Partner"). By reason of its
holdings, the Company is able to control the affairs and policies of Bagel
Partners, elect the board of directors of the General Partner and approve or
disapprove any matter submitted to a vote of the partners of Bagel Partners,
including a change in control of Bagel Partners.
The Company believes that a Company-controlled system has allowed it to
develop and refine its brands by unifying store operations and customer
experience and has enhanced the Company's focus on store operations. In
addition, a Company-controlled system has enabled the Company to reduce
systemwide overhead, facilitate debt financing, improve tax efficiency and
attract and retain qualified employees through unified performance incentives.
Continued achievement of the foregoing benefits is dependent on a number of
factors, many of which are beyond the control of the Company. See "Special Note
Regarding Forward-Looking Statements" on page 2.
Capital Restructuring
In November 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 is currently engaged in discussions with an ad hoc
committee of holders of its $125.0 million 7 1/4% convertible subordinated
debentures and representatives of Bagel Funding regarding possible transactions
that, if implemented, would have the effect of converting the debentures and the
interests of Bagel Funding into common stock of the Company. The Company
anticipates that any such restructuring transaction would result in substantial
dilution of the interest of existing equity holders, so that they would hold
little, if any, meaningful stake in the reorganized enterprise. The Company is
also engaged in discussions to obtain new bank financing to replace its existing
secured credit facility, which matures in October 2000. There can be no
assurance that the Company will be successful in implementing the contemplated
balance sheet restructuring or in obtaining new bank financing. See "Special
Note Regarding Forward-Looking Statements" on page 2.
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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 and that the Company will
be exposed to a significant risk of loss of key employees. In the event the
contemplated restructuring is not consummated, the Company believes that it will
be unable to obtain new bank financing and that it will not have sufficient
liquidity to satisfy its obligation to pay interest on its outstanding
debentures in June 2000. In addition, in the event the Company is unable to
modify the terms of its existing credit facility or obtain other sources of
capital, it is possible that the Company could be unable to satisfy other
obligations as they become due. See "Special Note Regarding Forward-Looking
Statements" on page 2. See also "Item 7. - Management's Discussion and Analysis
of Financial Condition and Results of Operations - General and - Liquidity and
Capital Resources."
Marketing and Competition
The Company believes that a key component in developing both the Einstein
Bros. Bagels and Noah's New York Bagels brands is a strong local and community-
based effort that encourages a close relationship between each store and its
community. The Company utilizes traditional marketing and advertising methods,
including radio, newspapers and other print media (including use of free-
standing inserts and promotional coupons), signage, direct mail and in-store
point-of-purchase displays to promote its brands.
The food service industry is intensely competitive with respect to food
quality, concept, convenience, location, customer service and value. In
addition, there are many well-established food service competitors with
substantially greater financial and other resources and substantially longer
operating histories than the Company. Many of such competitors are less
dependent than the Company on a single, primary product. The Company believes
that it competes with other bagel retailers and bakeries, including Brueggers
and Manhattan Bagel, specialty coffee retailers, including Starbucks, and other
"fast casual" food service retailers, including Panerra Bread, Corner Bakery
and Chipotle Mexican Grill. The Company also competes with fast-food
restaurants, delicatessens, take-out food service companies, supermarkets and
convenience stores. In addition, the Company believes that the start-up costs
associated with retail bagel and similar food service establishments are not a
significant impediment to entry into the retail bagel business. The Company
believes that its Einstein Bros. Bagels and Noah's New York Bagels brands
compete favorably in the important factors of food quality, convenience,
customer service and value.
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability of
product, and the type, number and location of competing restaurants. Multi-unit
food service businesses such as the Company can also be substantially adversely
affected by publicity resulting from food quality, illness, injury or other
health concerns (including food-borne illness claims) or operating issues
stemming from one store or a limited number of stores, whether or not the
Company is liable. Claims relating to foreign objects, food-borne illness or
operating issues are common in the food service industry and a number of such
claims may exist at any given time. Dependence on frequent deliveries of
produce and supplies also subjects food service businesses such as the Company
to the risk that shortages or interruptions in supply caused by adverse weather
or other conditions could adversely affect the availability, quality and cost of
ingredients. In addition, material changes in, or the Company's failure to
comply with, applicable federal, state and local government regulations, and
factors such as inflation, increased food, labor and employee benefit costs,
regional weather conditions and unavailability of an adequate number of
experienced managers and hourly employees may also adversely affect the food
service industry in general and the Company's results of operations and
financial condition in particular.
Vendors
The Company is party to an agreement with Harlan Bagel Supply Company,
L.L.C. ("Harlan") and the equity owners of Harlan. Under the agreement, Harlan
has agreed to sell frozen bagel dough to the Company at a price equal to the
cost of ingredients and packaging, a predetermined allowance for product losses
and a fixed toll charge (which is subject to adjustment for inflation, changes
in formulations, specifications or procedures required
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by the Company or failure of the Company to purchase certain minimum numbers of
bagels). The Company leases to Harlan certain equipment owned by the Company.
Harlan has granted to the Company an option to acquire all of the assets of
Harlan at a formula price equal to a multiple of Harlan's profits from sales of
products under the supply agreement. The option is exercisable through the
term of the supply agreement or the equipment lease agreement (currently April
2005) in the event of a default under the equipment lease agreement or a
default under Harlan's third-party loan agreements or other debt obligations.
The Company has a long-term distribution agreement with Marriott
Distribution Services, Inc. ("Marriott"), which provides for distribution of
food, beverages and supplies to stores at a negotiated fixed mark-up above cost.
The Company purchases the majority of its products and supplies from Marriott.
The Company may be subject to shortages or interruptions in supply caused
by transportation strikes, adverse weather or other conditions which could
adversely affect the quality, availability and cost of ingredients.
Trademarks and Other Proprietary Rights
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including
Einstein Bros.(R) and Noah's New York Bagels(R). In addition, the Company has
federal trademark applications pending for a number of trademarks and service
marks, as well as the Einstein Bros. logo and certain other logos used by the
Company. The Company has applied to register Noah's New York Bagels in more
than 30 foreign countries and Einstein Bros. in approximately 70 foreign
countries. Most of the applications pending in the United States and foreign
countries were filed in 1995 and 1996. The Company has not yet obtained federal
registrations for certain of the trademarks and service marks used in its
business, and there can be no assurance that such registrations will be
obtained.
The Company considers its intellectual property rights to be important to
its business and actively defends and enforces such rights.
Government Regulation
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. The Company is subject to laws
governing its relationship with employees, including minimum wage requirements,
overtime, working and safety conditions and citizenship requirements. The
failure to obtain or retain food licenses, or increases in employee benefit
costs or other costs associated with employees, could adversely affect the
Company.
Relationship with Boston Chicken
On October 5, 1998, Boston Chicken, the owner of approximately 51% of the
outstanding shares of common stock of the Company, filed a voluntary petition
for protection under Chapter 11 of the Federal Bankruptcy Code. On February 17,
2000, Boston Chicken filed its second amended plan in the United States
Bankruptcy Court for the District of Arizona. The plan provides for the sale of
substantially all of the assets of Boston Chicken and certain affiliated debtors
to a wholly-owned subsidiary of McDonald's Corporation. The stock of the
Company owned by Boston Chicken would not be included in the sale, but rather,
upon the effectiveness of the plan, would be held by a trust to be established
under the plan for the benefit of Boston Chicken's creditors. A preliminary
hearing on the confirmation of the plan is scheduled for April 4, 2000.
Boston Chicken has an option (the "BCI Option") to maintain ownership of
shares of common stock of the Company having up to 52% of the voting power of
all of the outstanding shares of capital stock of the Company having the power
generally to vote in the election of directors. The BCI Option is exercisable
at a per share exercise price equal to (i) the weighted average price per share
at which the Company's common stock is issued or sold in a transaction pursuant
to which the BCI Option becomes exercisable, in the case of a transaction in
which such price per share is readily ascertainable, or (ii) in all other cases,
the average of the closing sale prices for the common stock on the Nasdaq
National Market (or such other principal exchange or market on which the common
stock may then be trading) for the five trading days ending on the fifth trading
day prior to the date of the transaction pursuant to which the BCI Option
becomes exercisable. The BCI Option terminates if (i) Boston Chicken sells or
transfers shares of the Company's common stock and as a result owns less than a
majority of the then outstanding shares of
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the Company's voting stock or (ii) the percentage of outstanding shares of
voting stock of the Company owned by Boston Chicken is reduced below 50% other
than as a result of Boston Chicken's voluntary sale or transfer of shares of
the Company's common stock and Boston Chicken fails to acquire a sufficient
number of shares of common stock so that it owns at least a majority of the
then outstanding shares of voting stock of the Company by July 31 of the
calendar year next following the calendar year in which such reduction occurs.
In addition, the percentage ownership level of 52% is subject to reduction to
the extent voluntary sales or transfers by Boston Chicken reduce its ownership
of the outstanding shares of voting stock of the Company to less than 52% but
do not otherwise result in termination of the BCI Option. In determining the
percentage ownership of the voting stock of the Company owned by Boston
Chicken for purposes of the BCI Option, the following shares are excluded:
(i) shares of the Company's common stock subject to options granted by Boston
Chicken and its subsidiaries prior to the date of the agreement, (ii) any
shares of common stock held by officers, directors or employees of Boston
Chicken, and (iii) any shares of common stock held by any person or entity
that would not be counted under generally accepted accounting principles in
determining whether Boston Chicken owns a majority of the voting
stock for consolidated financial statement purposes. Pursuant to such
calculation, as of December 26, 1999, Boston Chicken had the right to purchase
2,124,579 shares of common stock of the Company at prices ranging from $3.87 to
$30.75 per share. Boston Chicken also has five demand and unlimited piggyback
registration rights under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to shares of the Company's common stock owned by
Boston Chicken.
From its inception in 1995 through March 2000, the Company received
accounting, administration, computer and communications services from Boston
Chicken pursuant to various fee for service agreements. In November 1998, the
Company began a program to develop a comprehensive business infrastructure to
permit the Company to perform such services independently of Boston Chicken.
The Company substantially completed the development of a separate business
infrastructure in March 2000, at which time it ceased to purchase services from
Boston Chicken. During fiscal 1999, the Company paid Boston Chicken an
aggregate of approximately $5.3 million pursuant to such service agreements.
During fiscal 1999 Boston Chicken subleased to the Company approximately
26,450 square feet of office space (and certain common areas, including parking
areas) for the Company's support center in Golden, Colorado. The Company moved
to a new support center in Golden, Colorado in February 2000. During fiscal
1999, the Company paid Boston Chicken an aggregate of approximately $560,000
pursuant to such sublease.
Employees; Labor Matters
In connection with the Transactions, the Company offered employment to all
of the employees of Bagel Partners. Pursuant to the services agreement dated
December 15, 1997 between the Company and Bagel Partners, the Company provides
to Bagel Partners the services of such employees and certain other employees
hired by the Company and Bagel Partners reimburses the Company for the cost of
such employees. As of March 17, 2000, the Company had approximately 12,800
employees, of which approximately 12,600 were store-level employees.
Certain operations of the Company conducted in northern California under
the Noah's New York Bagels brand have from time to time been the subject of
union organizing activities. Employees of two stores in the San Francisco Bay
area are currently represented by unions. Union affiliation may have a negative
impact upon employee relations and labor costs.
Executive Officers
Set forth below are the names and ages of the executive officers of the
Company, the positions they hold with the Company, and summaries of their
business experience. Executive officers are elected by, and serve at the
discretion of the Board of Directors. The executive officers of the Company are
as follows:
Robert M. Hartnett, age 48, became Chief Executive Officer and a director
of the Company in February 1998, and he became President and Chairman of the
Board of the Company in May 1998. Mr. Hartnett has also served as Vice
President-Eastern Zone of the General Partner of Bagel Partners since December
1997. From March 1996 to February 1998, Mr. Hartnett served as President and
Chief Executive Officer of one of the Company's former area developers. From
August 1992 until March 1996, Mr. Hartnett was Chief Executive Officer of R&A
Foods, L.L.C., an area developer of Boston Chicken.
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Paul J. B. Murphy III, age 45, became Executive Vice President - Operations
of the Company in March 1998. From December 1997 to March 1998, Mr. Murphy
served as Senior Vice President - Operations of the Company and from July 1996
until December 1997, he was Chief Operating Officer of one of the Company's
former area developers. Prior to that time, he was Director of Operations of
R&A Foods, L.L.C., an area developer of Boston Chicken, from August 1992 until
July 1996. Before that, Mr. Murphy spent 11 years with S&A Restaurants, owner
and operator of Steak & Ale and Bennigans restaurants. In his most recent
position, he was an Area Manager responsible for Bennigans restaurants in Texas
and New Mexico.
Gail A. Lozoff, age 49, became Chief Marketing Officer of the Company in
March 1998 and has been a director of the Company since April 1995. From
October 1997 until March 1998, Ms. Lozoff served as Chief Concept Officer of the
Company. From September 1996 until October 1997, Ms. Lozoff served as a Vice
President of the Company and from April 1995 until September 1996, she served as
Vice President-Design and Merchandising of the Company. Prior to that time, Ms.
Lozoff was President and Chief Executive Officer of Bagel & Bagel, Inc. from May
1992 until 1995.
Paul A. Strasen, age 43, has been a Senior Vice President of the Company
since February 1997 and has been General Counsel of the Company since April
1995. Mr. Strasen has also served as a Vice President of the General Partner of
Bagel Partners since December 1997 and was a Senior Vice President of Boston
Chicken from May 1997 until December 1997. From April 1995 to February 1997, he
was a Vice President of the Company. Prior to that time, he was a partner at
the Chicago law firm of Bell, Boyd & Lloyd from 1988 to April 1995.
Paula E. Manley, age 46, became Chief Financial Officer of the Company in
April 1999. From February 1998 to April 1999, she was Vice President -
Operations Finance, of the Company. From October 1996 to January 1998, Ms.
Manley was Chief Financial Officer of one of the Company's former area
developers. Prior to that time, Ms. Manley served as Real Estate Manager for
the Franchise Division of Burger King Corp. from October 1994 to October 1996
and as Controller of that division from January 1990 to October 1994.
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Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. Set forth below are the names and ages of the directors of the
Company, any officer positions they hold with the Company and summaries of their
business experience. All directors are elected annually by stockholders. The
directors of the Company are as follows:
Martin D Hanan, age 43, became a director of the Company in April 1999.
Mr. Hanan is President of Business Valuation Services, Inc. (a subsidiary of
Century Business Services, Inc.), a position he has held since 1987.
Robert M. Hartnett, age 48, became Chief Executive Officer and a director
of the Company in February 1998 and became President and Chairman of the Board
of the Company in May 1998. Mr. Hartnett served as Vice President-Eastern Zone
of the general partner of Einstein/Noah Bagel Partners, L.P., a majority owned
subsidiary of the Company ("Bagel Partners"), from December 1997 until February
1998. From March 1996 to February 1998, Mr. Hartnett served as President and
Chief Executive Officer of one of the Company's former area developers. From
August 1992 until March 1996, Mr. Hartnett was Chief Executive Officer of R&A
Food Services, Inc., an area developer of Boston Chicken, Inc.
Gail A. Lozoff, age 49, became Chief Marketing Officer of the Company in
March 1998 and served as Chief Concept Officer of the Company from October 1997
until March 1998. Ms. Lozoff has been a director of the Company since April
1995. From September 1996 until October 1997, Ms. Lozoff served as a Vice
President of the Company and from April 1995 until September 1996, she served as
Vice President-Design and Merchandising of the Company. Prior thereto, Ms.
Lozoff was President and Chief Executive Officer of Bagel & Bagel, Inc. from May
1992 until its acquisition by the Company in March 1995.
Donald L. Pierce, age 55, became a director of the Company in April 1999.
Since March 1997 he has been President of Woodstone Consulting Company Inc.
From April 1993 until February 1997, Mr. Pierce was President and Chief
Executive Officer of Arby's Inc.
Executive Officers. Information with respect to executive officers of the
Company is set forth under the caption "Executive Officers" in Item 1 of this
report.
Compliance with Section 16(a) of the Exchange Act. Robert Hartnett, Gail
Lozoff, Paula Manley, Paul Murphy, and Paul Strasen, together with John
Muehlstein and David Stanchak, who are former directors of the Company, each
filed one delinquent Form 5, in each case reporting a single stock option grant.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation for each of the fiscal years
ended December 26, 1999, December 27, 1998, December 28, 1997 received by, or
payable to, individuals who served as Chief Executive Officer of the Company and
the Company's four other most highly compensated executive officers during
fiscal year 1999 (the "named executive officers"). The Company does not have
a restricted stock award program or a long-term incentive plan in which
executive officers or directors of the Company may participate.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- -------------------
Other Securities
Annual Underlying All Other
Name and Compen- Options Compen-
Principal Position Year Salary Bonus sation (#)(1)(2) sation
------------------ ---- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett................... 1999 $428,846 $250,000 $0 800,000 $ 0
Chairman of the Board, Chief 1998 332,692 194,000 0 645,000 68,648(3)
Executive Officer and President 1997 0 0 0 0 0
Paul J.B. Murphy III................. 1999 300,000 150,000 0 200,000 0
Executive Vice President - 1998 270,192 145,500 0 200,000 1,847 (3)
Operations 1997 0 0 0 0 0
Gail A. Lozoff....................... 1999 225,000 112,500 0 150,000 0
Chief Marketing Officer 1998 215,865 109,125 0 225,946 53,846 (3)
1997 150,000 0 0 106,760 112,401 (4)
Paul A. Strasen...................... 1999 225,000 112,500 0 100,000 0
Senior Vice President, 1998 215,865 87,300 0 132,517 0
General Counsel and Secretary 1997 175,962 175,000 0 55,152 0
Paula E. Manley...................... 1999 191,827 100,000 0 100,000 0
Chief Financial Officer 1998 159,782 67,900 0 112,500 43,338 (3)
1997 0 0 0 0 0
</TABLE>
(1) Amounts reported for 1998 include options to purchase 210,000 shares of
common stock granted to Mr. Hartnett in March 1998, which were cancelled,
with Mr. Hartnett's consent, in exchange for options to purchase a like
number of shares granted in May 1998. Amounts reported for 1998 also include
options granted to the following persons, in the amounts indicated, in
exchange for the cancellation of a like number of options granted to such
persons in prior years: Mr. Hartnett - 225,000; Mr. Murphy - 90,000; Ms.
Lozoff - 162,269; Mr. Strasen - 84,715; and Ms. Manley - 56,250. See "-
Option Grants in Last Fiscal Year," "- Option Repricings" and "Report of the
Compensation Committee and Board of Directors - Stock Options."
(2) Amounts reported for 1997 include options to purchase the following number
of shares of common stock granted in January 1997 which were cancelled, with
the consent of the option holders, in exchange for options to purchase a
like number of shares granted in October 1997: Ms. Lozoff - 8,368; and Mr.
Strasen - 8,368. See "- Option Grants in Last Fiscal Year," "- Option
Repricings" and "Report of the Compensation Committee and Board of
Directors-Stock Options."
(3) Amounts represent relocation payments.
(4) Amount constitutes taxable income in connection with exercise of stock
options.
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Option Grants In Last Fiscal Year
The following table sets forth individual grants of stock options made to
the named executive officers during the fiscal year ended December 26, 1999.
See "Report of the Compensation Committee and Board of Directors - Stock
Options." Mr. Beck received no options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
Percent of Potential Realizable
Total Value at Assumed Annual
Options Rates of Stock Price
Granted Exercise Appreciation for
Date of Options to Employees or Base Expiration Option Term(2)
Name Grant Granted(1) in Fiscal Year Price Date 5% 10%
---- ----- ---------- -------------- -------- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett 1/29/99 800,000 28.83% $1.78125 1/29/09 $896,175 $2,271,083
Paul J.B. Murphy 1/14/99 200,000 7.21% 1.6875 1/14/09 212,252 537,888
III
Gail A. Lozoff 1/29/99 150,000 5.41% 1.78125 1/29/09 168,033 425,828
Paul A. Strasen 1/29/99 100,000 3.60% 1.78125 1/29/09 112,022 283,885
Paula E. Manley 1/29/99 100,000 3.60% 1.78125 1/29/09 112,022 283,885
</TABLE>
(1) Options become exercisable with respect to one-fourth of the total number of
shares on each of the first four anniversaries of the date of grant.
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock; therefore, amounts reflected in this table may not be
achieved.
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values
The following table sets forth for the named executive officers aggregated
information concerning each exercise of stock options during the fiscal year
ended December 26, 1999 and the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Value of
Shares Number of Unexercised
Acquired Value Unexercised Options In-the-Money Options
on Exercise Realized at Fiscal Year-End (#) at Fiscal Year-End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert M. Hartnett 0 0 345,000/890,000 0/0
Paul J.B. Murphy III 0 0 107,500/292,500 0/0
Gail A. Lozoff 0 0 112,464/263,482 0/0
Paul A. Strasen 0 0 107,671/167,329 0/0
Paula E. Manley 0 0 43,750/112,500 0/0
</TABLE>
10
<PAGE>
Option Repricings
The following table provides information concerning all repricings of stock
options of executive officers since August 1, 1996 (the date on which the
Company became subject to the reporting requirements of the Exchange Act)
through fiscal year 1999. See "Report of the Compensation Committee and Board
of Directors - Stock Options."
<TABLE>
<CAPTION>
Market Price
Number of of Length of
Shares Common Exercise Original Option
Underlying Stock at Price at New Term Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
---- ---- ---------- ------------ --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Hartnett 5/11/98 210,000 $ 3.6563 $ 4.5625 $ 3.6563 9 years 10 months
Chairman of the Board, Chief 5/11/98 136,443 3.6563 6.0000 3.6563 7 years 10 months
Executive Officer and President 5/11/98 88,557 3.6563 6.5900 3.6563 7 years 10 months
Paul J.B. Murphy III 5/11/98 78,621 3.6563 6.0000 3.6563 7 years 10 months
Executive Vice President - 5/11/98 11,379 3.6563 6.5900 3.6563 7 years 10 months
Operations
Gail A. Lozoff 10/2/97 8,368 10.6875 29.8750 110.6875 9 years 3 months
Chief Marketing Officer 5/11/98 29,739 3.6563 5.8800 3.6563 6 years 10 months
5/11/98 34,138 3.6563 6.5900 3.6563 7 years 8 months
5/11/98 98,392 3.6563 10.6900 3.6563 9 years 4 months
Paul A. Strasen 10/2/97 8,368 10.6875 29.8750 10.6875 9 years 3 months
Senior Vice President, General 5/11/98 37,931 3.6563 6.5900 3.6563 7 years 8 months
Counsel and Secretary 5/11/98 46,784 3.6563 10.6900 3.6563 9 years 4 months
Paula E. Manley 5/11/98 51,750 3.6563 6.0000 3.6563 8 years 4 months
Chief Financial Officer 5/11/98 4,500 3.6563 6.5900 3.6563 8 years 4 months
</TABLE>
Director Compensation
Each director who is not an officer or employee of, or a consultant to, the
Company or its affiliated companies receives an annual fee of $10,000 and a fee
of $500 for each Board of Directors meeting at which he is present and for each
committee meeting at which he is present not held in conjunction with a meeting
of the Board of Directors. Each such director also receives an annual fee of
$5,000 for each of the audit committee or compensation committee on which he
serves. Each such director also receives an option grant under the Directors
Plan each time he is elected as a director to purchase shares of Common Stock
having a fair market value of $50,000 on the date of grant, except that no grant
may include more than 15,000 shares and no director may receive more than one
grant in any calendar year. Outside directors are also reimbursed for their
expenses for each Board and committee meeting attended.
Employment Agreement with Chief Executive Officer
In February 2000, the Company entered into an amended and restated
employment agreement with Robert M. Hartnett, the Chief Executive Officer of the
Company, which superseded a prior employment agreement regarding Mr. Hartnett's
employment. Under the terms of the employment agreement, Mr. Hartnett receives
an annual base salary of $500,000, and an annual bonus having a target payout
equal to 50% of his base salary and which will be based on the Company's
performance relative to targets generally applicable in determining bonus
compensation payable to senior executives of the Company. The agreement also
provides that Mr. Hartnett will receive an option grant at least once each
calendar year of a number of shares not less than 150% of the highest number of
shares subject to a regular annual option grant made to any other officer. Mr.
Hartnett's employment agreement is for a term ending on February 11, 2002, which
term is extended by one additional year in January of each year, beginning in
February 2001. The employment agreement provides that in the event Mr.
Hartnett's employment is terminated by the Company other than for just cause, or
by Mr. Hartnett for just grounds, (i) he will receive a lump-sum payment equal
to the greater of the sum of his then current annual base salary and then
current
11
<PAGE>
target bonus or the amount that would be paid to him during the balance of the
term of his agreement (based on his then current annual salary and target
bonus), (ii) the Company will continue to provide group medical, dental, life
and disability insurance benefits for a period of eighteen months from the date
of termination, and (iii) all of his outstanding stock options will become fully
vested and exercisable.
Change in Control Severance Agreements with Executive Officers
The Company is a party to severance agreements with each of its executive
officers other than Mr. Hartnett providing for compensation and benefits in the
event of termination of employment under certain circumstances following a
change in control of the Company. Under the severance agreements, if the
officer's employment is terminated following a change in control of the Company
and during the term of the severance agreement, other than by the Company for
cause, by reason of death or disability, or by the officer without good reason,
then the officer will receive (i) a lump sum severance payment equal to the sum
of (a) one year's base salary, (b) the amount of any unpaid bonus for any prior
fiscal year or other measuring period, and (c) the target bonus for the fiscal
year or other measuring period in which the termination occurs, (ii) continued
life and health insurance benefits for a period of one year, (iii) full vesting
and accelerated exercisability of all outstanding stock options held by such
officer, and (iv) outplacement services.
For purposes of the severance agreements, a change in control occurs if (i)
any person other than Boston Chicken or Bagel Store Development Funding, L.L.C.
("Bagel Funding") becomes the owner of securities representing 20% or more of
the voting power of the Company's outstanding securities, (ii) there is a merger
or consolidation of the Company or any subsidiary of the Company other than (a)
a merger or consolidation in which voting securities of the Company outstanding
immediately prior to the transaction continue to represent at least 50% of the
combined voting power of the securities of the Company or the survivor of such
merger or consolidation after the transaction or (b) a merger or consolidation
effected to implement a recapitalization of the Company in which no person other
than Boston Chicken or Bagel Funding becomes the owner of securities
representing 20% or more of the combined voting power of the Company's
outstanding securities, (iii) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition of all or substantially all of the
Company's assets, other than such a sale to an entity at least 50% of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company prior to the sale, or (iv) individuals who, as of
August 25, 1999 are members of the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute a majority of the Board
(treating as members of the Incumbent Board for such purpose new directors whose
election or nomination was approved by a vote of at least a majority of the
Incumbent Board).
The severance agreements terminate on May 8, 2000, except that on May 8,
2000 and each year thereafter, the term is automatically extended for one
additional year unless, not later than December 31 of the preceding year, the
Company or the officer shall have given notice not to extend the term. In
addition, if a change in control occurs during the term of the severance
agreement, the agreement expires 24 months after the month in which the change
in control occurred.
Compensation Committee Interlocks and Insider Participation
The following persons served as members of the Compensation Committee of
the Board of Directors during the year ended December 26, 1999: Martin D Hanan,
John H. Muehlstein, Jr., Donald L. Pierce and David G. Stanchak.
Currently, no executive officer of the Company serves as a member of the
Compensation Committee or as a director of any other entity, one of whose
executive officers serves on the Compensation Committee or is a director of the
Company.
Mr. Muehlstein owns a direct equity interest in Bagel Store Development
Funding, L.L.C. ("Bagel Funding"), which owns an approximately 21% equity
interest in Bagel Partners. Mr. Stanchak owned an interest in Bagel Funding,
which he disposed of in December 1998. See "Certain Transactions - Interests of
Certain Persons in Einstein/Noah Bagel Partners, L.P."
Mr. Stanchak was Chief Development Officer of the Company until he resigned
from such position in April 1998.
12
<PAGE>
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions ``Report of the
Compensation Committee and Board of Directors'' and ``Performance Graph'' will
not be deemed to be filed or to be proxy soliciting material or incorporated by
reference in any prior or future filings by the Company under the Securities Act
of 1933 (the "Securities Act") or the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE AND BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors has overall
responsibility for cash compensation of executive officers. Stock option grants
to executive officers are the responsibility of the entire Board of Directors.
The following report on executive compensation is furnished by persons who
were members of the Compensation Committee and the Board of Directors in 1999.
Messrs. Muehlstein and Stanchak were the members of the Compensation Committee
through May 1999; thereafter, Messrs. Hanan and Pierce were the members of the
Compensation Committee. In addition, Mr. Jenkins resigned as a member of the
Board of Directors of the Company in July 1999.
General Policies
The Company's compensation program is intended to attract, motivate, reward
and retain the management talent required to achieve corporate objectives in a
dynamic environment operating in a highly competitive industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives. For
1999, the Company's executive compensation consisted of salary, bonus
compensation and stock option grants.
Cash Compensation
For 1999, cash compensation for executive officers consisted of base salary
and bonus compensation paid under the Company's 1999 Staff Officer Bonus Plan
(the "1999 Bonus Plan"). Base salaries are determined by an assessment of
responsibilities and position within the Company, individual performance and the
Company's overall performance. Base salaries of certain executive officers for
1999 were increased from 1998 levels based on an assessment of the factors
described above. Bonuses paid for 1999 under the 1999 Bonus Plan were
determined by multiplying a target payout amount for each executive officer by a
percentage factor based on the Company's performance against financial
objectives. For 1999 the target payout amount for each executive officer was
equal to 50% of base salary. For 1999 the financial objectives were systemwide
average net weekly per store sales ("Store Revenue") and earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and the percentage
factor was 100%. The percentage factor was determined based 30% on achievement
of Store Revenue objectives and 70% on achievement of EBITDA objectives.
In 2000, bonus compensation of executive officers will also be determined
by multiplying a target payout amount for each executive officer by a percentage
factor based on the Company's performance against financial objectives. Target
payout amounts for 2000 will be the same as those for 1999, but the percentage
factor will be determined based entirely on achievement of EBITDA objectives.
In 2000, executive officers will also be entitled to receive bonuses under
the Company's Employee Retention Program (the "Retention Program"), which was
adopted in October 1999 and amended in February 2000. The Retention Program
provides for payment of cash bonuses to executive officers and certain other
employees, in amounts ranging from 50% to 100% of one year's base salary, in the
case of executive officers. Such amounts are payable in three installments, in
March, September and December 2000, and are conditioned upon the recipient's
continued employment with the Company (unless such employment is terminated by
the Company without cause or by the employee for good reason (in each case as
defined in the Retention Program)).
Stock Options
The Board of Directors considers incentive compensation in the form of
stock options to be an integral and important part of executive compensation in
particular and employee compensation generally. The entire Board of Directors
is responsible for approving stock option grants to executive officers. Options
are generally granted to executive officers upon commencement of employment and
annually. Options granted have an exercise price equal
13
<PAGE>
to the fair market value of the Common Stock on the grant date. Factors
considered when granting stock options to executive officers include salary,
position and responsibilities, factors related to recruiting and employment
offers, significant salary changes and promotions and other factors relating to
performance. Option grants relating to recruiting and employment offers and
special circumstances are recommended by management.
Chief Executive Officer Compensation
The 1999 compensation for Robert M. Hartnett, the Company's Chief Executive
Officer, consisted of a base salary, bonus compensation and stock option grants.
His compensation was the result of arms' length negotiations with the Company in
connection with his employment. Factors considered by the Board of Directors
and the Compensation Committee in determining Mr. Hartnett's compensation
included his experience in running restaurant operating companies, his
entrepreneurial abilities and his leadership abilities. Mr. Hartnett's bonus
compensation was determined pursuant to the 1999 Bonus Plan in the same manner
as bonuses to other executive officers. In determining the amount of stock
option grants to Mr. Hartnett, the Board of Directors considered the same
factors that were used to determine stock option grants to all executive
officers.
The Company and Mr. Hartnett are parties to an employment agreement. See
"Certain Transactions - Employment and Termination Agreements."
Policy Regarding Rule 162(m)
In general, Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the tax deductibility of annual compensation paid to
certain executive officers of a publicly held corporation to $1 million, subject
to an exception for "performance-based" compensation plans as defined under that
Section. Generally, the Board of Directors and the Compensation Committee, or
any other Board committee responsible for executive officer compensation,
reserve the right to grant compensation to executive officers in amounts deemed
appropriate, regardless of whether such compensation is deductible for federal
income tax purposes. When making decisions concerning executive compensation,
the deduction limits under Section 162(m), as well as other factors, including
economic and industry trends, competition for talented executives and the
contribution of the executive officers to the development of the Company's
business, are taken into account. Options to purchase shares of Common Stock
granted to executive officers in fiscal 1998 and 1999 are potentially subject to
limits on permitted federal income tax deductions upon exercise of such options,
including under Section 162(m). The option grants were made because the grants
and their associated incentives were determined to be more important to the
Company and its stockholders than the potential loss of related compensation
deductions. The policy of the Board of Directors and the Compensation
Committee, or any other Board committee responsible for executive officer
compensation, is to maintain, where feasible, a compensation structure that will
permit all executive compensation to be tax deductible by the Company. However,
the Board of Directors believes that it is vital for the Company's long-term
interest to ensure that talented individuals will continue to serve the Company.
As a result, the Board of Directors and the Compensation Committee, or any other
Board committee responsible for executive officer compensation, may continue to
authorize, in appropriate circumstances, compensation that is not entirely
deductible.
14
<PAGE>
Conclusion
The Company intends to continue providing a portion of executive
compensation in the form of incentive-based compensation, such as stock options.
The Board of Directors and Compensation Committee believe that such a policy
provides the proper incentives to attract, reward and retain high quality
management. The Board of Directors and Compensation Committee intend to review
the executive compensation structure at least annually, review salary levels,
make additional option grants and provide an incentive-based bonus compensation
program, all as appropriate to continue attracting and retaining management with
the necessary experience and expertise to further the Company's growth.
1999 Compensation Committee Members 1999 Board of Directors
Martin D Hanan Martin D Hanan
John H. Muehlstein, Jr. Robert M. Hartnett
Donald L. Pierce J. Michael Jenkins
David G. Stanchak Gail A. Lozoff
John H. Muehlstein, Jr.
Donald L. Pierce
David G. Stanchak
15
<PAGE>
PERFORMANCE GRAPH
The Company has determined that a peer group which is representative of its
line of business is appropriate for performance comparison purposes. The
members of the peer group are BAB Holdings, Inc., Brinker International, CKE
Restaurants, Inc., New World Coffee-Manhattan Bagel, Panera Bread Co. Class A,
Papa Johns International, Inc., The Quizno's Corp., Schlotzsky's, Inc. and
Starbucks Corporation (the ``Peer Group Index"). The following graph compares
the percentage change in the cumulative total returns on the Common Stock, the
Peer Group Index and the Standard & Poor's 500 Index (assuming reinvestment of
any dividends) for the period beginning on August 2, 1996, the first day of
trading of the Common Stock under Section 12 of the Exchange Act, and ending on
December 23, 1999, the last day on which shares of Common Stock traded on the
Nasdaq SmallCap Market prior to December 26, 1999, the last day of the Company's
1999 fiscal year.
[PERFORMANCE GRAPH HERE]
ASSUMES $100 INVESTED ON AUGUST 2, 1996
ASSUMES DIVIDEND REINVESTED
<TABLE>
<S> <C> <C> <C> <C> <C>
8/02/96 12/27/96 12/26/97 12/27/98 12/26/99
EINSTEIN/NOAH BAGEL CORP. 100.00 145.73 27.13 5.95 2.13
PEER GROUP INDEX 100.00 114.93 139.56 16.22 141.00
S&P 500 INDEX 100.00 116.85 155.83 200.36 242.53
</TABLE>
______________
(1) Assumes $100 invested on August 2, 1996 in Common Stock, the Peer Group
Index, and the S&P 500 Index. Historical results are not necessarily
indicative of future performance.
16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Stock of the Company
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 21, 2000 by: (i) each stockholder known by
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii) each director; (iii) each executive officer named in the Summary
Compensation Table in Item 11 of this report; and (iv) all directors and
executive officers as a group. The beneficial ownership reflected in the
following table is calculated in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Unless otherwise indicated,
ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
Shares Beneficially Owned
------------------------------------
Names Number (1) Percent
-------- ---------------- ------------------
<S> <C> <C>
Boston Chicken, Inc.(2)............................................ 19,588,146 54.1%
Robert M. Hartnett................................................. 500,000 1.4%
Paul J.B. Murphy III............................................... 166,200 *
Gail A. Lozoff (3)................................................. 693,623 2.0%
Paul A. Strasen (4)................................................ 159,112 *
Paula E. Manley.................................................... 62,500 *
Martin D Hanan..................................................... 15,000 *
Donald L. Pierce................................................... 15,000 *
Loomis, Sayles & Company, L.P (5).................................. 1,877,764 5.2%
All directors and executive officers as a group
(7 persons) (3)(4)................................................. 1,611,435 4.6%
</TABLE>
__________________
*Less than 1%.
(1) Includes shares of Common Stock subject to options granted by the Company
which were exercisable within 60 days of April 21, 2000 as follows: Mr.
Hartnett - 490,000; Mr. Murphy - 165,000; Ms. Lozoff - 187,430; Mr. Strasen
- 147,860; Ms. Manley - 62,500; Mr. Hanan - 15,000; Mr. Pierce - 15,000; and
all executive officers and directors as a group (including such individuals)
- 1,082,790.
(2) Includes 2,124,579 shares subject to options granted by the Company at
prices ranging from $3.87 to $30.75 which are exercisable within 60 days of
April 21, 2000. The address of Boston Chicken is 14123 Denver West Parkway,
Golden, Colorado 80401-4086. See "Relationship with Boston Chicken."
(3) Includes 489,475 shares of Common Stock held by a corporation, of which Ms.
Lozoff's spouse is the sole stockholder.
(4) Includes 3,653 shares held by a trust, of which Mr. Strasen is a trustee and
beneficiary, and 5,099 shares held by a limited liability company controlled
by Mr. Strasen and his spouse.
(5) Loomis, Sayles & Company, L.P. ("Loomis, Sayles") has sole voting power with
respect to 1,619,896 of such shares and shared voting power with respect to
193,851 of such shares; Loomis, Sayles has shared dispositive power with
respect to all of such shares. Such information is based on statements on
Schedule 13G and 13G/A filed pursuant to Rule 13d-1 under the Exchange Act
by Loomis, Sayles. Such statements indicate that Loomis, Sayles is an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940. The address for Loomis, Sayles is One Financial Center,
Boston, Massachusetts 02111. The statements also indicate that the shares
of Common Stock shown in the table above are issuable upon conversion of the
Company's 7 1/4% convertible subordinated debentures due 2004. Such
debentures are convertible into the Common Stock at a conversion price of
$21.25 per share.
17
<PAGE>
Ownership of Boston Chicken Stock
The following table sets forth certain information regarding the beneficial
ownership of Boston Chicken common stock and 10% Series A exchangeable preferred
stock as of April 21, 2000 by (i) each director; (ii) each executive officer
named in the Summary Compensation Table in Item 11 of this report; and (iii) all
directors and executive officers as a group. The beneficial ownership reflected
in the following table is calculated in accordance with Rule 13d-3 under the
Exchange Act. Unless otherwise indicated, ownership includes sole voting and
investment power.
<TABLE>
<CAPTION>
Shares of Shares of
Common Stock Series A Preferred Stock
Beneficially Owned Beneficially Owned
------------------- ------------------
Name of Beneficial Owner Number (1) Percent Number Percent
------------------------ --------- ------- ------ -------
<S> <C> <C> <C> <C>
Robert M. Hartnett............................ 0 * 0 *
Paul J.B. Murphy III.......................... 0 * 0 *
Gail A. Lozoff (2)............................ 12,719 * 8,701.961 *
Paul A. Strasen (3)........................... 3,277 * 602.300 *
Paula E. Manley............................... 0 * 0 *
Martin D Hanan................................ 0 * 0 *
Donald L. Pierce.............................. 0 * 0 *
All directors and executive officers
as a group (7 persons) (2)(3)(4)........... 15,996 * 9,304.261 *
</TABLE>
_________________
*Less than 1%.
(1) Includes shares of common stock of Boston Chicken subject to options granted
by Boston Chicken which were exercisable within 60 days of April 21, 2000 as
follows: Mr. Strasen - 2,500; and all executive officers and directors as a
group (including Mr. Strasen) - 2,500.
(2) Represents shares owned by a trust, of which Ms. Lozoff's spouse is a
trustee and beneficiary.
(3) Includes 777 shares held by a trust, of which Mr. Strasen is a trustee and
beneficiary.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interests of Certain Persons in Einstein/Noah Bagel Partners, L.P.
The Company owns an approximately 78% interest in Einstein/Noah Bagel
Partners, L.P. ("Bagel Partners"), the surviving entity of a merger of the
Company's five former area developers. The Company acquired its interest in
Bagel Partners by exercising its conversion and option rights under its secured
loan agreements with the area developers. Prior to such transactions, certain
executive officers and directors of the Company and Boston Chicken had (i)
direct equity interests in the former area developers of the Company or Bagel
Partners and/or (ii) indirect equity interests in such entities through
investments in Bagel Store Development Funding, L.L.C. ("Bagel Funding"). Upon
consummation of the Company's loan conversions and the area developer merger,
the interests of holders of certain equity interests in Bagel Partners that had
been originally acquired for promissory notes, including equity interests
acquired directly and indirectly by Mr. Hartnett for $500,000 in promissory
notes, were redeemed in exchange for cancellation of such notes.
Loans to Executive Officers
In June 1998, the Company made a $100,000 loan to Paul Murphy in connection
with his relocation to the Golden, Colorado area. The loan bore interest at the
reference rate of The Bank of America National Trust and Savings Association
plus 2%. In April 1999, Mr. Murphy repaid the principal amount of the loan and
the Company forgave accrued interest of $8,985 on the loan.
18
<PAGE>
Other Relationships
Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
stockholders, leases to the Company the land and building on which a store is
located. The Company subleases the land and building to Bagel Partners. The
annual rental payments under the lease and sublease, each of which terminates in
May 2009, aggregate $72,000.
Relationship With Boston Chicken
Information with respect to the Company's relationship with Boston Chicken
is set forth under the caption "Relationship with Boston Chicken" in Item 1 of
this report.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 19, 2000
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Robert M. Hartnett
-------------------------------------
Robert M. Hartnett
Chairman of the Board,
Chief Executive Officer and President
20
