NEW YORK BAGEL ENTERPRISES INC, S-1, 1996-06-12

NEW YORK BAGEL ENTERPRISES INC
S-1, 1996-06-12

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

NEW YORK BAGEL ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
KANSAS 5812 73-1369185
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>

300 I.M.A. PLAZA
250 NORTH WATER STREET
WICHITA, KANSAS 67202-1213
316-267-7373
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------

ROBERT J. GERESI
CHIEF EXECUTIVE OFFICER
NEW YORK BAGEL ENTERPRISES, INC.
300 I.M.A. PLAZA
250 NORTH WATER STREET
WICHITA, KANSAS 67202-1213
316-267-7373
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES OF COMMUNICATION TO:

<TABLE>
<S> <C>
GREGORY B. KLENDA, ESQ. RICHARD F. DAHLSON, ESQ.
KLENDA, MITCHELL, AUSTERMAN & ZUERCHER, L.L.C. JACKSON & WALKER, L.L.P.
1600 EPIC CENTER 901 MAIN STREET, SUITE 6000
301 NORTH MAIN STREET DALLAS, TEXAS 75202-3797
WICHITA, KANSAS 67202-4888 214-953-6000
316-267-0331
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF BE REGISTERED OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED (1) PER SHARE (2) (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share...... 2,300,000 shares $12.00 $27,600,000 $9,518
<FN>
(1) Includes 300,000 shares which the Underwriters have an option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for the purpose of determining the amount of the
registration fee.
</TABLE>

--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM NUMBER OF FORM S-1 AND TITLE OF ITEM PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Additional Information;
Outside Back Cover Page

3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors

4. Use of Proceeds...................................... Prospectus Summary; Risk Factors; S Corporation
Distributions; Use of Proceeds; Management's
Discussion and Analysis of Financial Condition and
Results of Operation

5. Determination of Offering Price...................... Outside Front Cover Page; Risk Factors; Underwriting

6. Dilution............................................. Risk Factors; Dilution

7. Selling Security Holders............................. Outside Front Cover Page; Prospectus Summary; Risk
Factors; Principal and Selling Stockholders;
Underwriting

8. Plan of Distribution................................. Outside Front Cover Page; Underwriting

9. Description of Securities to Be Registered........... Description of Capital Stock

10. Interests of Named Experts and Counsel............... Legal Matters; Experts

11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; S Corporation
Distributions; Dividend Policy; Use of Proceeds;
Dilution; Capitalization; Selected Combined
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Principal and Selling
Stockholders; Certain Transactions; Description of
Capital Stock; Shares Eligible for Future Sale;
Combined Financial Statements

12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
</TABLE>

- ------------------------
* Item is inapplicable or the answer thereto is in the negative and is omitted
from the Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1996

2,000,000 SHARES

[LOGO]
NEW YORK BAGEL ENTERPRISES, INC.
COMMON STOCK

Of the 2,000,000 shares of Common Stock offered hereby, 1,800,000 shares are
being sold by New York Bagel Enterprises, Inc. (the "Company") and 200,000
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of Common Stock by the Selling Stockholders.

Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $10.00 and $12.00 per share. For information relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting." Application has been made to have the Common Stock approved for
listing on the Nasdaq National Market under the symbol "NYBE."

SEE "RISK FACTORS" APPEARING ON PAGES 7 TO 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total (2).................... $ $ $ $
</TABLE>

(1) Before deducting estimated expenses of this offering of $800,000, payable by
the Company.

(2) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 300,000 shares of Common
Stock, solely to cover over-allotments, if any. See "Principal and Selling
Stockholders" and "Underwriting." If the Underwriters exercise this option
in full, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively.

------------------------

The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares will be ready for delivery at the offices of Rauscher
Pierce Refsnes, Inc., Dallas, Texas, on or about , 1996.

RAUSCHER PIERCE REFSNES, INC. J.C. BRADFORD & CO.

------------------

THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[Cover page interior with New York Bagel Logo, store interior photos, products
photos, United States map with designation of restaurant locations]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND COMBINED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS (I) REFLECTS A 1.4-FOR-1 STOCK SPLIT
EFFECTED ON JUNE 4, 1996, (II) REFLECTS THE REORGANIZATION AND ACQUISITIONS AS
DESCRIBED HEREIN, (III) REFLECTS THE CONVERSION ON A ONE-FOR-ONE BASIS OF THE
CLASS B COMMON STOCK INTO CLASS A COMMON STOCK AND THE RECLASSIFICATION OF THE
CLASS A COMMON STOCK INTO COMMON STOCK, AND (IV) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.

THE COMPANY

The Company owns and franchises 46 quick-service New York Bagel restaurants
in 15 states that serve generous portions of fresh, high quality food with fast,
friendly service at an attractive price-value relationship. New York Bagel
restaurants provide a selection of up to 20 varieties of bagels that are made
from scratch, boiled and baked throughout the day in the traditional "New York
style." Breakfast menu items include a variety of bagels and custom-blended
cream cheeses, breakfast bagel sandwiches, gourmet coffees, muffins and
croissants. Lunch and dinner items include an assortment of bagel delicatessen
sandwiches, prepared salads, cookies and soft drinks. The restaurants are
generally open Monday through Saturday from 6:30 a.m. to 8:00 p.m. and on Sunday
from 8:00 a.m. to 5:00 p.m. Management believes that Company-owned restaurants
typically generate approximately 40% of their sales before 11:00 a.m., with an
average ticket of approximately $3.00 during such period and $4.00 thereafter.
Time studies performed on a periodic basis by the Company show that, on average,
breakfast customers are served within three minutes of placing their order and
lunch and dinner customers are served within five minutes.

The Company has grown by expanding its base of Company-owned restaurants and
selectively adding franchisees. Since the opening of its first restaurant in
1986, the Company has developed 17 of its 19 Company-owned restaurants located
in Oklahoma, Kansas, Tennessee and Texas. In addition to developing new
restaurants, the Company acquired two bagel restaurants in December 1995, one of
which was a franchised New York Bagel restaurant. The Company commenced
franchising the New York Bagel concept in 1993 and currently has 18 franchisees
operating 27 restaurants in 14 states. The Company intends to continue expanding
its concept and contemplates having 28 to 30 Company-owned and 45 to 50
franchised restaurants in operation by the end of 1996 and 45 to 50 Company-
owned and 70 to 80 franchised restaurants by the end of 1997.

The Company believes that consumption of bagels has increased in recent
years as consumers have discovered that bagels are a healthier, lower fat
alternative to other quick-service foods and are a suitable substitute for
sandwich breads. Management believes that the market for retail bagel
restaurants is fragmented and underserved, and that the Company can capitalize
on the demand for fresh bagels by expanding the New York Bagel concept in
targeted markets.

The Company presently targets mid-sized and smaller metropolitan markets, as
management believes these markets typically contain fewer competing bagel
restaurants and more favorable lease and labor environments than larger
metropolitan markets. In each of its targeted markets, the Company seeks to
establish a strong market presence by employing a multiple store strategy
involving a bakery restaurant which produces bagels for itself and for one or
more nearby satellite restaurants. In addition to opening new restaurants, the
Company intends to pursue selective acquisitions of local and regional bagel
operations with an established market presence. By entering underserved markets
and opening multiple restaurants, the Company hopes to maximize market share and
establish brand awareness. The Company and its franchisees have implemented this
bakery/satellite restaurant combination 14 times.

3
<PAGE>
By employing a multiple store strategy, the Company focuses not only on
generating attractive unit level economics, but also on the economic returns of
each target market. The Company's approach to opening new restaurants has been
to minimize its required investment by leasing substantially all of its
locations. The Company believes that bakery restaurants can be opened for an
initial investment, including leasehold improvements, furniture, fixtures,
equipment, initial working capital and pre-opening expenses, of approximately
$250,000, with satellite restaurants requiring approximately $150,000. By
averaging these initial investment amounts within markets, the Company believes
it achieves attractive returns on investment. During 1995 and the period ended
March 31, 1996, average sales per Company-owned restaurant opened throughout the
period was $559,000 and $147,000, respectively. During 1995 and the period ended
March 31, 1996, the Company's restaurant level cash flow margin was 17.1% and
20.2%, respectively.

The Company believes that the location, layout and design of its restaurants
contribute to the success of its operations. The Company's restaurants are
typically located in strip shopping centers, free-standing buildings and
downtown business districts that provide visibility, curb appeal and
accessibility. A variety of factors are considered in selecting sites for the
Company's restaurants, including population density, traffic patterns, area
demographics and competition. The Company's restaurants are configured to
facilitate a smooth flow of dine-in and carry-out traffic while retaining a
casual cafe atmosphere. The Company's prototypical unit is decorated in rich
colors and dark woods and contains a mixture of booth, table and barstool
seating and, where available, outdoor seating. Exposed ceilings with drop
lighting and a combination of tile and carpeted flooring are used to enhance its
comfortable ambiance. Walls are covered with black and white photographs
depicting classic New York scenes. The flexibility of its restaurant design and
layout allow its restaurants to be configured to fit a wide variety of
locations, thereby increasing the number of suitable sites.

Management believes that comprehensive training is essential to the
efficiency and consistency of its operations. Accordingly, the Company conducts
an extensive 90-day training program for its restaurant managers and franchisees
that is comprised of approximately ten days of classroom instruction on
administration, record keeping and inventory control and approximately 80 days
of on-site instruction on baking and food preparation at the Company's training
facility in Oklahoma City, Oklahoma. In addition, the Company provides a team
for on-site assistance during the initial ten days of operation at each
Company-owned restaurant and at a franchisee's initial franchised restaurant.

The Company's executive offices are located at 300 I.M.A. Plaza, 250 North
Water Street, Wichita, Kansas 67202-1213, and its telephone number is (316)
267-7373.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,800,000 shares
Common Stock offered by the Selling
Stockholders.................................... 200,000 shares
Common Stock to be outstanding after this
offering (1).................................... 4,600,000 shares
Use of Proceeds.................................. To repay bank indebtedness, finance the
development of Company-owned restaurants,
for possible acquisitions of bagel
restaurants, and for working capital and
general corporate purposes.
Proposed Nasdaq National Market Symbol........... NYBE
</TABLE>

- ------------------------
(1) Excludes (i) 400,000 shares of Common Stock reserved for issuance under the
Company's 1996 Incentive Plan, of which options to acquire 271,000 shares
are outstanding as of the date of this Prospectus and (ii) 19,320 shares of
Common Stock issuable upon conversion of the Convertible Debenture, as
defined herein. See "Management -- 1996 Incentive Plan" and "Description of
Capital Stock -- Convertible Debenture."

4
<PAGE>
SUMMARY FINANCIAL AND RESTAURANT DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE THIRTEEN
YEAR ENDED DECEMBER 31, MONTHS WEEKS ENDED
------------------------------- ENDED MARCH MARCH 31,
1993 1994 1995 (1) 31, 1995 1996 (2)
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 3,561 $ 5,822 $ 7,359 $ 1,708 $ 2,389
Operating income.......................................... 99 647 666 177 338
Earnings before income taxes.............................. 85 594 626 170 260
Net earnings.............................................. 76 597 619 170 260
Pro forma to reflect income taxes (3):
Net earnings............................................ $ 380 $ 156
Net earnings per share.................................. $ 0.13 $ 0.05
Pro forma weighted average shares outstanding (in
thousands) (4)........................................... 2,978 2,978
RESTAURANT DATA:
System-wide sales (5)..................................... $ 3,580 $ 7,373 $ 13,250 $ 2,541 $ 4,973
Company-owned restaurants (6):
Average period sales per restaurant..................... 470 524 559 137 147
Average period sales per restaurant (excluding limited
hour restaurants) (7).................................. 513 604 634 155 162
Same restaurant sales increase.......................... 21.3% 19.0% 9.8% 21.3% 6.1%
Number of restaurants open at end of period:
Company-owned........................................... 9 12 15 12 17
Franchised.............................................. 2 9 25 12 27
--------- --------- --------- ----------- -----------
Total................................................. 11 21 40 24 44
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------

MARCH 31, 1996
-------------------------------
AS
PRO FORMA ADJUSTED
ACTUAL (8) (9)
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................................. $ (514) $ (609) $ 13,516
Total assets........................................................... 3,051 3,051 17,118
Total debt............................................................. 3,604 3,604 86
Stockholders' equity (deficit)......................................... (1,318) (1,476) 16,138
</TABLE>

- ------------------------
(1) The Company acquired two restaurants in December 1995. If such transactions
had occurred on January 1, 1995, "Total revenues," "Net earnings" and "Net
earnings per share" would have been approximately $8,761,000, $224,000 and
$0.08, respectively, for the year ended December 31, 1995, on a pro forma
basis. The pro forma results do not necessarily reflect what would have
occurred if the acquisitions had been made at the beginning of the
respective periods or the results that may occur in the future. See "Pro
Forma Condensed Combined Statement of Operations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."

(2) Effective January 1, 1996, the Company elected to change its fiscal year end
from a calendar year end to a 52/53 week fiscal year, ending on the last
Sunday of the year, which consists of four 13-week periods.

(3) Reflects a pro forma adjustment assuming the Company had been treated as a C
corporation rather than as an S corporation for income tax purposes for the
periods presented. See "S Corporation Distributions" and Note 2(i) of Notes
to Combined Financial Statements.

5
<PAGE>
(4) See Note 2(i) of Notes to Combined Financial Statements.

(5) Reflects total sales of Company-owned restaurants and sales of franchised
restaurants as reported by franchisees or derived by the Company from other
data reported by franchisees.

(6) Reflects restaurants open throughout the entire period indicated. Same
restaurant sales reflects restaurants that were open during the entire
period indicated and the entire corresponding prior period.

(7) Limited hour restaurants are typically open Monday through Friday during
business hours. As of March 31, 1996, there were four Company-owned limited
hour restaurants and three franchised limited hour restaurants.

(8) Gives effect to (i) an accrual for the distribution of $58,000 to
stockholders as if the Company had terminated its S corporation status at
March 31, 1996 and made a distribution to the stockholders in connection
with their estimated federal and state income tax obligations, and (ii) the
establishment of a deferred tax liability in the estimated amount of
$100,000 arising from the termination of the Company's S corporation status.

(9) As adjusted to reflect the sale of 1,800,000 shares of Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

6
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.

EXPANSION. As of May 1, 1996, there were 46 New York Bagel restaurants in
operation, consisting of 19 Company-owned and 27 franchised restaurants. In
addition, there were five Company-owned restaurants and seven franchised
restaurants in various stages of development. By the end of 1996, the Company
contemplates having approximately 28 to 30 Company-owned and 45 to 50 franchised
restaurants in operation. The Company expects to have approximately 45 to 50
Company-owned and 70 to 80 franchised restaurants in operation by the end of
1997. The Company intends to use a significant portion of the net proceeds of
this offering to develop additional Company-owned restaurants. There can be no
assurance that the Company will be able to open all of its planned restaurants
or that, if opened, such restaurants can operate profitably. The opening and
success of New York Bagel restaurants will depend on various factors, not all of
which are within the control of the Company, including customer acceptance of
the Company's concept in new markets, the availability of suitable sites, the
negotiation of acceptable lease or purchase terms for new locations, permit and
regulatory compliance, the ability to meet construction schedules, the financial
and other capabilities of the Company and its franchisees, the ability of the
Company to successfully manage this anticipated expansion and to hire and train
personnel, and general economic and business conditions. Furthermore, because of
the Company's relatively small restaurant base, an unsuccessful restaurant could
have a more significant adverse effect on the Company's results of operations
than would be the case for a company with a larger restaurant base.

The Company's expansion will also require the implementation and integration
of enhanced operational and financial systems and additional management,
operational and financial resources. Failure to implement and integrate these
systems and add these resources could have a material adverse effect on the
Company's results of operations and financial condition. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth. The
Company experienced growth in revenues and net income in 1995 and in the period
ended March 31, 1996. There can be no assurance that the Company will continue
to experience growth in, or maintain its present level of, revenues or net
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Expansion Strategy."

DEPENDENCE ON FRANCHISEES. The Company realizes a portion of its revenues
from initial franchise fees and continuing royalty payments from its
franchisees. If the Company's franchisees encounter business or operational
difficulties, the Company's revenues from royalties will be adversely affected.
Such difficulties may also negatively impact the Company's ability to sell new
franchises. Consequently, the Company's financial prospects are significantly
related to the success of its franchised restaurants, over which the Company has
limited direct operational control. There can be no assurance that the Company
will be able to successfully attract new franchisees or that the Company's
franchisees will be able to successfully operate existing or develop and operate
additional New York Bagel restaurants. See "Business -- Expansion Strategy" and
"Business -- Franchise Program."

COMPETITION. The quick-service restaurant industry is intensely competitive
and characterized by relatively low barriers to entry. New York Bagel
restaurants compete against many well established, quick-service restaurants,
local food establishments, supermarkets and convenience stores, many of which
have greater product and name recognition and larger financial and other
resources than the Company. An increase in the number of competitors,
particularly bagel restaurants or delicatessens, in the Company's territories
could have an adverse impact on the Company's results of operations and
expansion plans. See "Business -- Competition."

7
<PAGE>
LIMITED COMBINED OPERATING HISTORY. Although the business of the Company
began in 1986, the Company commenced operations as a combined entity in December
1995 and, as a result, has a limited combined operating history upon which
investors may base their evaluation of the Company's performance. As a result of
the Company's limited combined operating history, period-to-period comparisons
of operating results may not be meaningful and results of operations from prior
periods may not be indicative of future results. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

RESTAURANT INDUSTRY. The Company and the restaurant industry are
significantly affected by factors such as changes in local, regional or national
economic conditions, changes in consumer tastes and concerns about the
nutritional quality of quick-service foods. Multi-unit food service chains such
as the Company can also be substantially adversely affected by publicity
resulting from food quality, illness, injury or other health concerns or
operating issues stemming from one restaurant or a limited number of
restaurants. In addition, factors such as increases in food, labor and energy
costs, the availability and cost of suitable restaurant sites, fluctuating
insurance rates, state and local regulations and the availability of an adequate
number of hourly-paid employees can also adversely affect the restaurant
industry.

DEPENDENCE ON KEY PERSONNEL. The Company's future success will be highly
dependent on the continued efforts of senior management. The Company does not
have employment agreements with any of its senior management or employees. The
loss of the services of one or more of such key personnel could have a material
adverse effect upon the Company's results of operations. The Company's success
is also dependent upon its ability to attract and retain skilled restaurant
managers and employees and the ability of its key personnel to manage the
Company's growth and integrate its operations. There can be no assurance that
the Company will be successful in attracting and retaining such personnel. See
"Management."

INCREASES IN OPERATING COSTS; INTERRUPTIONS IN SUPPLIES. An increase in
operating costs could adversely affect the profitability of the Company. Factors
such as inflation, increased food and labor costs, including the proposed
increase in the minimum hourly wage requirement, and employee benefit costs and
the availability of qualified management and other personnel may adversely
affect the profitability of the Company. The cost and availability of many
restaurant commodities are subject to fluctuations due to seasonality, weather,
demand and other factors. The Company's restaurants are dependent on frequent
deliveries of food supplies and any shortages or interruptions could have a
material adverse effect on the Company. See "Business -- Purchasing and
Distribution."

GEOGRAPHIC CONCENTRATION. All but one of the Company-owned restaurants are
located in Oklahoma, Kansas and Tennessee. As a result, the Company's results of
operations may be materially affected by adverse business, economic or weather
conditions in these states. Although the Company plans to open additional
restaurants in new geographic areas, there can be no assurance that the current
geographic concentration of the Company's business will not have an adverse
effect on its results of operations or financial condition in the future.

POSSIBLE ACQUISITIONS. The Company's growth strategy includes possible
acquisitions of bagel restaurants. However, no assurance can be given that the
Company will be able to find attractive acquisition candidates, consummate
additional acquisitions or that it will successfully integrate, convert or
operate any acquired business. In the event that the Company makes acquisitions,
there can be no assurance that any such acquisition and resulting conversion
expenses, including loss of restaurant sales during the remodel period, will not
have a material adverse effect upon the Company's operating results,
particularly during the period in which such operations are being integrated
into the Company. Furthermore, the Company's ability to make acquisitions may
depend upon its ability to obtain financing. There can be no assurance that the
Company will be able to obtain financing on acceptable terms. See "Business --
Expansion Strategy."

FLUCTUATIONS IN QUARTERLY RESULTS. The timing of restaurant openings or
acquisitions, recognition of franchise fee income and seasonal factors may
result in fluctuations in quarterly operating results

8
<PAGE>
of the Company. In accordance with generally accepted accounting principles,
franchise and development fees and the corresponding deferred charges with
respect to each franchise or development agreement are not recognized as income
until a restaurant commences operations. There can be no assurance that
quarterly fluctuations will not continue and, accordingly, the Company's
financial results for a particular quarter may not be indicative of results for
an entire year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Quarterly Financial Data."

CONTROL OF COMPANY. Following completion of this offering, the directors
and executive officers of the Company will beneficially own approximately 45.4%
of the outstanding Common Stock of the Company (approximately 42.3% if the
Underwriters' over-allotment option is exercised in full). In addition, the
existing stockholders and the Company are parties to a certain stockholders'
agreement (the "Stockholders' Agreement"), which, among other things, sets forth
certain agreements regarding the designation and election of directors of the
Company. These stockholders will own approximately 56.5% of the outstanding
Common Stock following completion of this offering (approximately 52.8% if the
Underwriters' over-allotment option is exercised in full). Due to their
ownership position and the Stockholders' Agreement, such stockholders will
retain the power to direct the Company's business and affairs through their
ability to control the outcome of elections of the Company's Board of Directors
and to take other actions that require the vote or approval of the stockholders
of the Company. See "Management -- Stockholders' Agreement" and "Principal and
Selling Stockholders."

BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS. The Company's existing
stockholders are hereby offering an aggregate of 200,000 shares of Common Stock
(230,000 shares if the Underwriters' over-allotment option is exercised in
full). The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. In addition, the Company intends to use approximately $3.9
million of the proceeds of this offering to retire bank indebtedness of the
Company which certain stockholders have guaranteed either jointly and severally
or severally on either a limited or unlimited basis. A portion of such
indebtedness was used to fund prior distributions to stockholders. The Company
also intends to use a portion of the net proceeds of this offering to fund a
distribution to existing stockholders in connection with their estimated federal
and state income tax obligations attributable to the Company's 1996 earnings. If
the Company had terminated its S corporation status as of March 31, 1996, the
Company's S corporation taxable income for 1996 would have been approximately
$128,000 and the resulting distribution would have been approximately $58,000.
There can be no assurance as to the actual amount of the Company's S corporation
taxable income for 1996 up to the date the Company terminates its S corporation
status or the amount of the related distribution. See "S Corporation
Distributions," "Use of Proceeds," "Certain Transactions -- Stockholder
Guarantees" and "Principal and Selling Stockholders."

GOVERNMENT REGULATION. The Company is subject to numerous federal, state
and local government regulations, including those relating to the preparation
and sale of food, the sale of alcoholic beverages, public health and building
and zoning requirements. Also, the Company and its franchisees are subject to
laws governing their relationship with employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements. The
Company is also subject to federal regulation and certain state laws which
govern the offer and sale of franchises. Many state franchise laws impose
substantive requirements on franchise agreements, including limitations on
non-competition provisions and termination or non-renewal of a franchise. Some
states require that certain franchise offering materials be registered before
franchises can be offered or sold in that state. The failure to obtain or retain
food licenses, alcoholic beverage licenses or approvals to sell franchises could
adversely affect the Company's and its franchisees' results of operations. The
future enactment, adoption or amendment of laws or regulations, such as
establishing basic franchisee rights, increasing the minimum wage or other costs
associated with employees, could adversely affect the Company's results of
operations. See "Business -- Franchise Program" and "Business -- Government
Regulation."

9
<PAGE>
TRADEMARKS AND SERVICE MARKS. The Company is aware of the use by other
persons and entities in certain geographic areas of names and marks that are the
same as or similar to the Company's marks. Some of these persons or entities may
have prior rights to those names or marks in their respective localities.
Negative publicity surrounding such businesses may adversely affect the
Company's operations in those markets. In addition, the Company's marks contain
common descriptive words and thus may be subject to challenge by users of these
words, alone or in combination with other words, which describe other services
or products. Accordingly, there is no assurance that the Company's marks will be
available in all locations or that a challenge to the Company's use of such
marks will not result in adverse consequences, including a judgment that would
entail damages and/or the discontinuation of the Company's use of its marks. It
is the Company's policy to utilize other compatible marks in areas where there
are preexisting competing marks. See "Business -- Trademarks and Service Marks."

ANTI-TAKEOVER PROVISIONS. Concurrent with the completion of this offering,
the Company's Restated and Amended Articles of Incorporation and Restated and
Amended Bylaws will (i) provide for a classified Board of Directors, (ii)
authorize shares of preferred stock with respect to which the Board of Directors
of the Company will have the power to fix the rights, preferences, privileges
and restrictions without any further vote or action by the stockholders, and
(iii) require a two-thirds vote of stockholders in order to remove directors for
cause, amend the Bylaws and approve certain business combinations with respect
to a "related person." Such provisions could delay, deter or prevent a merger,
consolidation, tender offer, or other business combination or change of control
involving the Company that some or a majority of the Company's stockholders
might consider to be in their best interests, including offers or attempted
takeovers that might otherwise result in such stockholders receiving a premium
over the market price for the Common Stock. See "Description of Capital Stock --
Preferred Stock" and "Description of Capital Stock -- Certain Anti-Takeover
Matters."

DILUTION; ABSENCE OF PRIOR PUBLIC MARKET AND VOLATILITY OF STOCK
PRICE. This offering will result in immediate substantial dilution of net
tangible book value of $7.60 per share to new investors, which amount represents
the difference between the pro forma net tangible book value per share after the
offering and an assumed initial public offering price of $11.00 per share. Prior
to this offering, there has been no public market for the Common Stock. Although
the Company has made application for listing of the Common Stock on the Nasdaq
National Market, there can be no assurance that an active market will develop or
be sustained following this offering; therefore, a purchaser of the Common Stock
may not be able to readily liquidate its investment in the Common Stock. The
initial public offering price for the shares of Common Stock sold in this
offering will be determined through negotiations between the Company and the
representatives of the underwriters and will not necessarily reflect the market
prices for the Common Stock following this offering.

Market prices for the Common Stock following this offering will be
influenced by a number of factors, including the Company's operating results and
other factors affecting the Company specifically and the restaurant industry and
the financial markets generally, as well as the liquidity of the market for the
Common Stock. The Company believes that the market price of its Common Stock
will reflect expectations that the Company will be able to continue to operate
its restaurants profitably and to develop new restaurants at a significant rate
and operate them profitably. If the Company is unable to operate its restaurants
as profitably and develop restaurants at a pace that reflects the expectations
of the market, investors could sell shares of the Common Stock at or after the
time that it becomes apparent that such expectations may not be realized,
resulting in a decrease in the market price of the Common Stock. In recent years
the stock market has experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance.
See "Dilution" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have outstanding 4,600,000 shares of Common Stock (4,870,000 shares
of Common Stock if the Underwriters' over-allotment option is exercised in
full). Of these shares, the shares sold in this offering will be tradeable
without restriction unless they are purchased by affiliates of the Company.
Shares of

10
<PAGE>
Common Stock outstanding prior to completion of this offering will be
"restricted securities" as that term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
These "restricted securities," and any shares purchased by affiliates of the
Company in this offering may be publicly sold only if registered under the
Securities Act or if sold in accordance with an available exemption from
registration, such as those provided by Rule 144. The holders of 2,513,445
shares of such "restricted securities" have agreed that they will not, directly
or indirectly, sell or otherwise dispose of any of such shares for a period of
180 days after the date of this Prospectus, without the prior written consent of
Rauscher Pierce Refsnes, Inc., on behalf of the representatives of the
underwriters. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sales, will have on
the market price of the Common Stock. The sale of substantial amounts of Common
Stock, or the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock. See "Shares Eligible For Future
Sale."

11
<PAGE>
S CORPORATION DISTRIBUTIONS

Since January 1, 1994, the Company and certain of the Prior Entities (as
defined herein) have been treated for federal and state income tax purposes as S
corporations under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). Since such date, the Company's earnings have been and will be
taxed for federal and most state income tax purposes directly to the Company's
stockholders, rather than to the Company, through the date immediately prior to
the date of termination of the Company's S corporation status (the "Termination
Date"). The Termination Date will occur on the day immediately prior to the
completion of this offering. The Company will be responsible for the payment of
all federal and state income taxes on earnings beginning on the Termination Date
and continuing thereafter. See Notes 2 and 9 of Notes to Combined Financial
Statements and Pro Forma Balance Sheet as of March 31, 1996.

Certain Prior Entities paid cash distributions to their stockholders in the
aggregate amounts of approximately $394,000 and $2.5 million during 1994 and
1995, respectively. The distributions made in 1995 were in excess of the
earnings of such Prior Entities and were partially funded by borrowings of such
Prior Entities which were assumed by the Company in connection with the
Reorganization, as defined herein. The Company intends to repay all of its bank
borrowings with a portion of the net proceeds of this offering. The Company also
intends to use a portion of the net proceeds of this offering to fund a
distribution to the existing stockholders in connection with their estimated
federal and state income tax obligations attributable to the Company's 1996
earnings prior to the Termination Date. If the Company had terminated its S
corporation status as of March 31, 1996, the Companys' S corporation taxable
income for 1996 would have been approximately $128,000 and the resulting
distribution would have been approximately $58,000. There can be no assurance as
to the actual amount of the Company's S corporation taxable income for 1996 up
to the date the Company terminates its S corporation status or the amount of the
related distribution. Under federal tax laws, if the Company fails to distribute
its undistributed S corporation earnings within a limited period of time
following the Termination Date, a later distribution could be taxed as a
dividend to the stockholders. No S corporation distributions will be made to the
stockholders in connection with the Company's earnings for any period beginning
on or after the Termination Date.

Had the Company's S corporation election terminated effective March 31,
1996, the Company would have recognized a deferred tax liability of
approximately $100,000 at the current corporation tax rate pursuant to Statement
of Financial Accounting Standards No. 109, which represents the cumulative
amount of temporary differences that have been recognized by the Company as
expenses for financial accounting purposes, but have not yet been deducted for
income tax purposes. See "Selected Combined Financial Data" and Notes 2, 9 and
15 of Notes to Combined Financial Statements.

DIVIDEND POLICY

The Company currently intends to retain all earnings to provide funds for
its operations and expansion, and therefore does not anticipate paying cash
dividends or making any other distributions on its shares of Common Stock in the
foreseeable future. The Company's future dividend policy will be determined by
its Board of Directors based on various factors, including the Company's results
of operations, financial condition, business opportunities, capital
requirements, credit restrictions and such other factors as the Board of
Directors may deem relevant.

The Company and certain Prior Entities have been treated for federal and
state income tax purposes as S corporations under the Code since January 1,
1994. As a result, earnings of the Company were subject to taxation at the
stockholder rather than the corporate level for federal and certain state income
tax purposes. Certain of the Prior Entities have previously made distributions
to their stockholders in connection with the Reorganization and the Company
intends to make distributions to its stockholders in connection with its status
as an S corporation. However, no S corporation distributions will be made to the
existing stockholders in connection with the Company's earnings for any period
beginning on or after the Termination Date. See "S Corporation Distributions."

12
<PAGE>
USE OF PROCEEDS

The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $17.6 million (approximately $20.4
million if the Underwriter's over-allotment option is exercised in full),
assuming an initial public offering price of $11.00 per share and after
deducting the underwriting discount and other estimated offering expenses. The
Company will not receive any proceeds from the sale of the shares of Common
Stock by the Selling Stockholders.

The Company intends to use approximately $3.9 million of the net proceeds
for repayment of indebtedness, as discussed below, and an amount sufficient to
fund a distribution to the existing stockholders in connection with their
estimated federal and state income tax obligations attributable to the Company's
1996 earnings prior to the Termination Date. If the Company had terminated its S
corporation status as of March 31, 1996, the Company's S corporation taxable
income for 1996 would have been approximately $128,000 and the resulting
distribution would have been approximately $58,000. See "S Corporation
Distributions." The balance of the net proceeds, together with cash flows from
operations, will be used to finance future development of Company-owned
restaurants, possible acquisitions, working capital requirements and for general
corporate purposes. The Company is not currently conducting any negotiations
with respect to any such acquisition; however, the Company will continue to
evaluate suitable acquisitions of bagel restaurant businesses as they are
identified.

The Company intends to use approximately $3.9 million of the net proceeds to
repay all indebtedness outstanding under its bank financing, which consists of
the following:

- A loan agreement (the "Loan Agreement"), the proceeds of which were used
to fund stockholder distributions and for working capital purposes. The
Loan Agreement bears interest at the prime rate plus 1.0% (9.25% at May 1,
1996), has a maturity date of December 28, 2000 and had an outstanding
balance of approximately $2.6 million as of May 1, 1996.

- Six term notes (the "Term Notes"), the proceeds of which are being used to
fund the current development of Company-owned restaurants. The Term Notes
bear interest at the prime rate plus 0.5% (8.75% at May 1, 1996), have a
maturity date of June 15, 2003 and had an aggregate outstanding balance of
approximately $634,000 as of May 1, 1996.

- A term loan (the "Nashville Note") incurred in connection with the
acquisition of Nashville Bagel Co., Inc. The Nashville Note bears interest
at the prime rate plus 0.5% (8.75% at May 1, 1996), has a maturity date of
March 26, 2003 and had an outstanding balance of approximately $496,000 as
of May 1, 1996.

See Note 7 of the Notes to Combined Financial Statements and "Certain
Transactions."

Pending use of the proceeds as set forth above, the Company intends to
invest the net proceeds in interest-bearing, short-term, investment-grade
securities.

13
<PAGE>
DILUTION

At March 31, 1996, the Company had a pro forma net tangible book value
(deficit) of approximately $(2.0 million), or $(0.70) per share of Common Stock.
Net tangible book value per share of Common Stock is defined as total tangible
assets of the Company less total liabilities, divided by the total number of
shares of Common Stock outstanding, without giving effect to the possible
exercise of outstanding stock options or other convertible securities. After
giving effect to the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $11.00 per share and the application of
the estimated net proceeds therefrom, the pro forma net tangible book value of
the Company at March 31, 1996 would have been approximately $15.7 million, or
$3.40 per share. This represents an immediate increase in pro forma net tangible
book value of approximately $4.10 per share to existing stockholders, and an
immediate dilution of $7.60 per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates the per share
dilution to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $ 11.00
Pro forma net tangible book value (deficit) per share.... $ (0.70)
Increase in net tangible book value per share
attributable to payments by investors of Common Stock in
this offering........................................... 4.10
---------
Pro forma net tangible book value per share after this offering....... 3.40
---------
Dilution per share to new investors................................... $ 7.60
---------
---------
</TABLE>

The following table summarizes, at March 31, 1996, the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by existing stockholders and new
investors purchasing shares in this offering at an assumed initial public
offering price of $11.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2)
TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 2,800,000 60.9% $ 185,650 0.9% $ 0.07
New investors............................... 1,800,000 39.1 19,800,000 99.1 11.00
----------- ----- -------------- -----
Total..................................... 4,600,000 100.0% $ 19,985,650 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>

- ------------------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 2,600,000, or 56.5% of the total
number of shares of Common Stock to be outstanding after this offering, and
will increase the number of shares held by new investors to 2,000,000
shares, or 43.5% of the total shares of Common Stock to be outstanding after
this offering. See "Principal and Selling Stockholders" and "Underwriting."

(2) Excludes (i) 400,000 shares of Common Stock reserved for issuance under the
Company's 1996 Incentive Plan, of which options to acquire 271,000 shares
are outstanding as of the date of this Prospectus and (ii) 19,320 shares of
Common Stock issuable upon conversion of the Convertible Debenture, as
defined herein. See "Management -- 1996 Incentive Plan" and "Description of
Capital Stock -- Convertible Debenture."

14
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company at March 31, 1996 (i) on an actual basis, (ii) on a pro forma basis as
if the Company had terminated its S corporation status as of March 31, 1996 and
made a distribution to the stockholders in connection with their estimated
federal and state income tax obligations, and (iii) as adjusted to give effect
to the sale of 1,800,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $11.00 per share and the application
of the estimated net proceeds therefrom. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Combined Financial Statements and
the Notes thereto included elsewhere in this Prospectus. See "Use of Proceeds."

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt.............................................................. $ 616 $ 616 $ 29
--------- ----------- -----------
--------- ----------- -----------
Distributions payable........................................................ 49 107 49
--------- ----------- -----------
--------- ----------- -----------
Long-term debt, less current portion......................................... $ 2,988 $ 2,988 $ 86
Stockholders' equity (deficit):
Preferred stock, 5,000,000 shares authorized, no par value, none issued or
outstanding (1)........................................................... -- -- --
Common stock, $0.01 par value, 30,000,000 shares authorized; 2,800,000
shares issued and outstanding, actual; 4,600,000 shares issued and
outstanding, as adjusted (2).............................................. 28 28 46
Additional paid-in capital................................................. 158 158 17,754
Accumulated deficit........................................................ (1,504) (1,662) (1,662)
--------- ----------- -----------
Total stockholders' equity (deficit)......................................... (1,318) (1,476) 16,138
--------- ----------- -----------
Total capitalization......................................................... $ 1,670 $ 1,512 $ 16,224
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

- ------------------------
(1) Concurrent with the completion of this offering, the Company's Restated and
Amended Articles of Incorporation will authorize the issuance of preferred
stock. See "Description of Capital Stock."

15
<PAGE>
SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth selected combined financial data for the
Company at the dates and for the periods indicated. The selected combined
financial data at December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been derived from the Combined
Financial Statements of the Company which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, and which are included elsewhere
in this Prospectus. The selected combined financial data at December 31, 1991,
1992 and 1993 and March 31, 1996, and for each of the years in the two-year
period ended December 31, 1992, and for the three months ended March 31, 1995
and the thirteen weeks ended March 31, 1996, have been prepared on the same
basis as the audited financial statements, have been derived from the unaudited
Combined Financial Statements of the Company for such periods and include, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of the financial position and
combined results of operations at and for such periods. The Company's combined
results of operations for the thirteen weeks ended March 31, 1996 may not be
indicative of its combined results of operations for the full year. Selected
combined financial data should be read in conjunction with, and is qualified in
its entirety by, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements of the Company
and the Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995(1)
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales from Company-owned restaurants........................... $ 1,596 $ 2,438 $ 3,539 $ 5,653 $ 6,875
Franchise revenues............................................. -- -- 22 169 484
--------- --------- --------- --------- ---------
Total revenues............................................... 1,596 2,438 3,561 5,822 7,359
Costs and expenses:
Cost of sales.................................................. 789 1,192 1,527 2,280 2,612
Restaurant operating expenses.................................. 594 985 1,386 2,326 3,084
General and administrative expenses............................ 152 203 469 452 838
Depreciation and amortization.................................. 43 57 80 117 159
--------- --------- --------- --------- ---------
Total costs and expenses..................................... 1,578 2,437 3,462 5,175 6,693
Operating income............................................. 18 1 99 647 666
Interest expense, net............................................ 20 18 14 53 40
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes............................ (2) (17) 85 594 626
Income tax expense (benefit)..................................... 2 (1) 9 (3) 7
--------- --------- --------- --------- ---------
Net earnings (loss).......................................... $ (4) $ (16) $ 76 $ 597 $ 619
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma to reflect income taxes (3):
Net earnings................................................... $ 380
Net earnings per share......................................... $ 0.13
Pro forma weighted average shares outstanding (4)................ 2,978

DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit.......................................... $ (4) $ (67) $ (171) $ (120) $ (368)
Total assets..................................................... 294 347 819 872 2,295
Total debt....................................................... 234 230 560 359 3,365
Stockholders' equity (deficit)................................... 16 51 126 159 (1,578)

<CAPTION>
THREE THIRTEEN
MONTHS WEEKS ENDED
ENDED MARCH MARCH 31,
31, 1995 1996(2)
----------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales from Company-owned restaurants........................... $ 1,649 $ 2,219
Franchise revenues............................................. 59 170
----------- -----------
Total revenues............................................... 1,708 2,389
Costs and expenses:
Cost of sales.................................................. 636 813
Restaurant operating expenses.................................. 705 960
General and administrative expenses............................ 159 207
Depreciation and amortization.................................. 31 71
----------- -----------
Total costs and expenses..................................... 1,531 2,051
Operating income............................................. 177 338
Interest expense, net............................................ 7 78
----------- -----------
Earnings (loss) before income taxes............................ 170 260
Income tax expense (benefit)..................................... -- --
----------- -----------
Net earnings (loss).......................................... $ 170 $ 260
----------- -----------
----------- -----------
Pro forma to reflect income taxes (3):
Net earnings................................................... $ 156
Net earnings per share......................................... $ 0.05
Pro forma weighted average shares outstanding (4)................ 2,978

MARCH 31, 1996
------------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital deficit.......................................... $ (514)
Total assets..................................................... 3,051
Total debt....................................................... 3,604
Stockholders' equity (deficit)................................... (1,318)
</TABLE>

- ------------------------------
(1) The Company acquired two restaurants in December 1995. If such transactions
had occurred on January 1, 1995, "Total revenues," "Net earnings" and "Net
earnings per share" would have been approximately $8,761,000, $224,000 and
$0.08, respectively, for the year ended December 31, 1995, on a pro forma
basis. The pro forma results do not necessarily reflect what would have
occurred if the acquisitions had been made at the beginning of the
respective periods or the results that may occur in the future. See "Pro
Forma Condensed Combined Statement of Operations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
(2) Effective January 1, 1996, the Company elected to change its fiscal year end
from a calendar year end to a 52/53-week fiscal year, ending on the last
Sunday of the year, which consists of four 13-week periods.
(3) Reflects a pro forma adjustment assuming the Company had been treated as a C
corporation rather than as an S corporation for income tax purposes for the
periods presented. See "S Corporation Distributions" and Note 2(i) of Notes
to Combined Financial Statements.
(4) See Note 2(i) of Notes to Combined Financial Statements.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Since the opening of its first restaurant in 1986, the Company has developed
17 of its 19 Company-owned restaurants located in Oklahoma, Kansas, Tennessee
and Texas. In addition to developing new restaurants, the Company acquired two
bagel restaurants in December 1995, one of which was a franchised New York Bagel
restaurant. The Company commenced franchising the New York Bagel concept in 1993
and currently has 18 franchisees operating 27 restaurants.

The Company's business was previously operated through six separate
entities, each of which was owned by one or more existing stockholders
(collectively, the "Prior Entities"). The Company was incorporated in December
1995 under the laws of Kansas, and on December 31, 1995, the Prior Entities were
merged into the Company (the "Reorganization"). The financial statements herein
include the results of operations of the Prior Entities on a combined basis for
all periods. See "Certain Transactions -- Reorganization" and Note 1 of the
Notes to Combined Financial Statements.

The Company completed the acquisition of two bagel restaurants in December
1995 (the "Acquisitions"). The Company acquired the outstanding stock of
Nashville Bagel Co., Inc. ("Nashville Bagel"), which operated a bagel restaurant
in Nashville, Tennessee, and acquired a franchised New York Bagel restaurant
located in Wichita, Kansas. Each Acquisition was accounted for under the
purchase method, and accordingly, the operations of Nashville Bagel and the
acquired franchised restaurant have been included in the Company's combined
results of operations after December 14, 1995 and December 31, 1995,
respectively. Pro Forma Condensed Combined Statement of Operations included
herein presents the results of operations of the Company as if the Acquisitions
had occurred at January 1, 1995. See "Certain Transactions -- Franchise
Acquisitions" and Note 12 of the Notes to Combined Financial Statements.

The Company's revenues are derived from sales from Company-owned restaurants
and franchise revenues, which consist of royalties from franchised restaurant
sales as well as franchise and development fees. Franchise and development fees
are initially recorded as deferred revenue until each franchised restaurant
opens, at which time these fees are recorded as revenue.

Cost of sales includes food, paper and beverage costs associated with
Company-owned restaurants. Restaurant operating expenses consist primarily of
labor costs, rent, advertising, utilities, maintenance and insurance associated
with Company-owned restaurants. General and administrative expenses include
corporate and administrative salaries, accounting, legal and direct costs
associated with franchise operations.

17
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain
operating statement data to total revenues, except as otherwise indicated:

<TABLE>
<CAPTION>
THREE MONTHS THIRTEEN
YEAR ENDED DECEMBER 31, ENDED MARCH WEEKS ENDED
------------------------------- 31, MARCH 31,
1993 1994 1995 1995 1996
--------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants..................... 99.4% 97.1% 93.4% 96.6% 92.9%
Franchise revenues....................................... 0.6 2.9 6.6 3.4 7.1
--------- --------- --------- ----- -----
Total revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales (1)........................................ 43.2% 40.3% 38.0% 38.6% 36.6%
Restaurant operating expenses (1)........................ 39.2 41.1 44.9 42.8 43.2
General and administrative expenses...................... 13.2 7.8 11.4 9.3 8.7
Depreciation and amortization............................ 2.3 2.0 2.2 1.8 3.0
Operating income........................................... 2.8 11.1 9.0 10.3 14.1
Interest expense, net...................................... 0.4 0.9 0.5 0.4 3.2
Net earnings............................................. 2.1 10.3 8.4 9.9 10.9
</TABLE>

- ------------------------
(1) As a percentage of sales from Company-owned restaurants.

THIRTEEN WEEKS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995

Total revenues increased by $681,000, or 39.9%, to $2.4 million for the
period ended March 31, 1996 compared to $1.7 million for the period ended March
31, 1995, primarily due to an increase in the number of Company-owned and
franchised restaurants open.

Sales from Company-owned restaurants increased $570,000, or 34.6%, to $2.2
million for the period ended March 31, 1996 compared to $1.6 million for the
period ended March 31, 1995. This increase is largely the result of the
acquisitions of Nashville Bagel and a franchised restaurant in December 1995 and
the opening of a Company-owned restaurant in October 1995. In addition, the
Company experienced a 6.1% increase in same restaurant sales during the period.
At March 31, 1996, the Company had 17 Company-owned restaurants, including two
that opened in late March 1996, compared to 12 restaurants at March 31, 1995.

Franchise revenues increased by $110,000, or 188.5%, to $169,000 for the
period ended March 31, 1996 compared to $59,000 for the period ended March 31,
1995. This increase is primarily due to an increase in royalty revenue of
$72,000, or 211.8%, to $106,000 for the period ended March 31, 1996 from $34,000
during the period ended March 31, 1995. This is attributable to the significant
growth in the number of franchised restaurants opened during the last half of
1995 and continuing into the first quarter of 1996. At March 31, 1996, there
were 27 franchised restaurants compared to 12 restaurants at March 31, 1995.

Cost of sales increased by $177,000, or 27.9%, to $813,000 for the period
ended March 31, 1996 compared to $636,000 for the period ended March 31, 1995,
primarily due to the increase in Company-owned restaurant sales discussed above.
As a percentage of Company-owned restaurant sales, cost of sales decreased to
36.6% for the period ended March 31, 1996 from 38.6% for the period ended March
31, 1995, as a result of purchasing and operating efficiencies experienced in
1996. Prices of the Company's commodities (meat and cheese, flour and other
bakery ingredients) have generally remained stable during the comparable
periods.

Restaurant operating expenses increased by $255,000, or 36.0%, to $960,000
for the period ended March 31, 1996 compared to $705,000 for the period ended
March 31, 1995 primarily due to the

18
<PAGE>
increase in restaurant sales discussed above. As a percentage of Company-owned
restaurant sales, restaurant operating expenses increased to 43.2% for the
period ended March 31, 1996 from 42.8% for the period ended March 31, 1995. This
increase is primarily due to increased labor costs associated with the Company's
acquisition of Nashville Bagel in December 1995.

General and administrative expenses increased by $48,000, or 30.0%, to
$207,000 for the period ended March 31, 1996 compared to $159,000 for the period
ended March 31, 1995. This increase is primarily attributable to the increase in
franchise activity. As a percentage of total revenues, general and
administrative expenses decreased to 8.7% for the period ended March 31, 1996
from 9.3% for the period ended March 31, 1995.

Depreciation and amortization increased by $40,000, or 132.6%, to $71,000
for the period ended March 31, 1996 compared to $31,000 for the period ended
March 31, 1995. As a percentage of total revenues, depreciation and amortization
increased to 3.0% for the period ended March 31, 1996 from 1.8% for the period
ended March 31, 1995. This increase is primarily the result of higher
depreciation and amortization associated with the Acquisitions.

Interest expense increased by $70,000 to $77,000 for the period ended March
31, 1996 compared to the period ended March 31, 1995. This increase in interest
expense is primarily the result of increased borrowings during the period ended
March 31, 1996.

FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

Total revenues increased by $1.5 million, or 26.4%, to $7.4 million for 1995
compared to $5.8 million for 1994, primarily due to an increase in the number of
Company-owned and franchised restaurants open.

Sales from Company-owned restaurants increased $1.2 million, or 21.6%, to
$6.9 million for 1995 compared to $5.7 million for 1994. This is primarily the
result of the opening of one additional Company-owned restaurant in October 1995
and two additional Company-owned restaurants in late 1994. In addition, the
Company experienced an 9.8% increase in same restaurant sales during 1995. At
December 31, 1995, the Company had 15 Company-owned restaurants compared to 12
restaurants at December 31, 1994.

Franchise revenues increased by $315,000, or 187.1%, to $484,000 for 1995
compared to $169,000 for 1994. This increase is primarily due to the opening of
franchised restaurants in 1995. There were 25 franchised restaurants at the end
of 1995 and nine franchised restaurants at the end of 1994, which impacted both
franchise fees and royalty revenue. Franchise and development fees increased
$143,000, or 132.4%, to $251,000 for 1995 compared to $108,000 for 1994.
Franchise royalty revenue increased by $173,000, or 283.6%, to $234,000 for 1995
compared to $61,000 for 1994.

Cost of sales increased by $333,000, or 14.6%, to $2.6 million for 1995
compared to $2.3 million for 1994. This increase is primarily attributable to
the increase in sales from Company-owned restaurants. As a percentage of sales
from Company-owned restaurants, cost of sales decreased to 38.0% in 1995 from
40.3% in 1994 as a result of purchasing and operating efficiencies and
portioning refinements achieved in 1995. Prices of the Company's commodities
(meat and cheese, flour and other bakery ingredients) have generally remained
stable during the comparable periods.

Restaurant operating expenses increased by $758,000, or 32.6%, to $3.1
million for 1995 compared to $2.3 million for 1994. This increase is primarily
due to the increase in sales from Company-owned restaurants discussed above and
to approximately two weeks of operating expenses attributable to Nashville Bagel
subsequent to its acquisition by the Company on December 14, 1995. As a
percentage of sales from Company-owned restaurants, restaurant operating
expenses increased to 44.9% for 1995 from 41.1% for 1994. This increase is
primarily the result of higher operating expenses attributable to a restaurant
which opened in October 1995, the acquisition of Nashville Bagel and two
restaurants which were closed for remodeling during a portion of the fourth
quarter of 1995.

19
<PAGE>
General and administrative expenses increased by $386,000, or 85.5%, to
$838,000 for 1995 compared to $452,000 for 1994. This increase is primarily
attributable to the increase in franchise activity and to merger-related
expenses related to the Reorganization in 1995. As a percentage of total
revenues, general and administrative expenses increased to 11.4% in 1995 from
7.8% in 1994, primarily as a result of the further development of the franchise
program.

Depreciation and amortization increased by $42,000, or 35.9%, to $159,000
for 1995 compared to $117,000 for 1994. As a percentage of total revenues,
depreciation and amortization increased to 2.2% for 1995 from 2.0% in 1994. This
increase is primarily attributable to the opening of the additional restaurants
discussed above.

Interest expense decreased by $12,000 to $40,000 for 1995 compared to 52,000
for 1994. This decrease in interest expense is primarily the result of lower
bank borrowings during 1995.

FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993

Total revenues increased by $2.2 million, or 63.5%, to $5.8 million for 1994
compared to $3.6 million for 1993, primarily due to an increase in the number of
Company-owned and franchised restaurants open.

Sales from Company-owned restaurants increased $2.1 million, or 59.8%, to
$5.7 million for 1994 compared to $3.5 million for 1993. This is primarily the
result of the opening of three additional Company-owned restaurants in 1994. In
addition, the Company experienced a 19.0% increase in same restaurant sales
during 1994. At December 31, 1994, the Company had 12 Company-owned restaurants
compared to nine restaurants at December 31, 1993.

Franchise revenues increased by $146,000 to $169,000 for 1994 compared to
$23,000 for 1993. This increase is primarily due to the opening of franchised
restaurants in 1994. There were nine franchised restaurants open at the end of
1994 versus two franchised restaurants at the end of 1993.

Cost of sales increased by $753,000, or 49.3%, to $2.3 million for 1994
compared to $1.5 million for 1993. This increase is primarily attributable to
the opening of three additional Company-owned restaurants in 1994. As a
percentage of Company-owned restaurant sales, cost of sales decreased to 40.3%
in 1994 from 43.2% in 1993 primarily as a result of purchasing and operating
efficiencies. Prices of the Company's commodities (meat and cheese, flour and
other bakery ingredients) have generally remained stable during the comparable
periods.

Restaurant operating expenses increased by $940,000, or 67.8%, to $2.3
million for 1994 compared to $1.4 million for 1993. This increase is primarily
due to the additional restaurant openings discussed above. As a percentage of
Company-owned restaurant sales, restaurant operating expenses increased to 41.1%
for 1994 from 39.2% for 1993.

General and administrative expenses decreased by $17,000, or 3.6%, to
$452,000 for 1994 compared to $469,000 for 1993. This decrease is primarily the
result of a reduction in management compensation in 1994. This decrease was
offset slightly by an increase in general and administrative expenses related to
the increase in franchise activity. As a percentage of total revenue, general
and administrative expenses decreased to 7.8% in 1994 from 13.2% in 1993.

Depreciation and amortization increased by $37,000, or 45.9%, to $117,000
for 1994 compared to $80,000 for 1993. This increase is primarily attributable
to the opening of the additional restaurants discussed above. As a percentage of
total revenues, depreciation and amortization decreased to 2.0% in 1994 from
2.3% in 1993.

Interest expense increased by $39,000 to $52,000 for 1994 compared to 1993.
This increase in interest expense is primarily the result of increased bank
borrowings in order to expand the Company's restaurant base.

20
<PAGE>
QUARTERLY FINANCIAL DATA

The following sets forth selected quarterly results from operations. This
information is derived from unaudited financial statements of the Company and
includes in the opinion of management, all normal and recurring adjustments that
management considers necessary for a fair statement of the results for such
periods. The operating results for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED ENDED
3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants........................ $ 1,649 $ 1,696 $ 1,652 $ 1,878 $ 2,219
Franchise revenues.......................................... 59 135 145 145 170
--------- --------- --------- --------- ---------
Total revenues............................................ 1,708 1,831 1,797 2,023 2,389
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales............................................... 636 637 649 690 813
Restaurant operating expenses............................... 705 727 759 893 960
General and administrative expenses......................... 159 216 192 271 207
Depreciation and amortization............................... 31 34 41 53 71
--------- --------- --------- --------- ---------
Total costs and expenses.................................. 1,531 1,614 1,641 1,907 2,051
--------- --------- --------- --------- ---------
Operating income.......................................... 177 217 156 116 338
Interest expense, net......................................... 7 13 8 12 78
--------- --------- --------- --------- ---------
Earnings before income taxes.............................. 170 204 148 104 260
Income tax expense............................................ -- -- 2 5 --
--------- --------- --------- --------- ---------
Net earnings................................................ $ 170 $ 204 $ 146 $ 99 $ 260
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma to reflect income taxes:
Income tax expense.......................................... $ 67 $ 80 $ 58 $ 41 $ 104
Net earnings................................................ $ 103 $ 124 $ 90 $ 63 $ 156
Net earnings per share...................................... $ 0.03 $ 0.04 $ 0.03 $ 0.02 $ 0.05
</TABLE>

Although the Company's historical and anticipated growth makes predicting
future trends difficult, the Company-owned restaurants have generally
experienced slightly lower restaurant sales in the fourth quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital primarily for the development of new
restaurants, possible acquisitions and the remodeling of existing Company-owned
restaurants. Capital expenditures totaled $584,000, $285,000 and $475,000 for
1993, 1994 and 1995, respectively, and $466,000 for the period ended March 31,
1996. The Company has historically funded its capital expenditures with cash
provided by operations and bank borrowings. Net cash provided by operating
activities was $192,000, $696,000 and $777,000 for 1993, 1994 and 1995,
respectively, and $409,000 for the period ended March 31, 1996.

At May 1, 1996, the Company had outstanding bank borrowings of $3.7 million
consisting of (i) $2.6 million under the Loan Agreement which bears interest at
the prime rate plus 1.0% and matures on December 28, 2000, (ii) aggregate
outstanding borrowings under the Term Notes of $634,000, each of which bear
interest at the prime rate plus 0.5% and have a maturity date of June 15, 2003
and (iii) $496,000 under the Nashville Note which bears interest at the prime
rate plus 0.5% and matures on March 26, 2003. The outstanding indebtedness under
these bank financings, which is secured by substantially all of the assets of
the Company, will be repaid from the proceeds of this offering. See "Use of
Proceeds."

21
<PAGE>
Certain Prior Entities paid cash distributions to their stockholders in the
aggregate amounts of approximately $394,000 and $2.5 million during 1994 and
1995, respectively. The distributions made in 1995 were in excess of the
earnings of such Prior Entities and were partially funded by borrowings under
the Loan Agreement. The Company also intends to use a portion of the net
proceeds of this offering to fund a distribution to the existing stockholders in
connection with their estimated federal and state income tax obligations
attributable to the Company's 1996 earnings prior to the Termination Date. See
"S Corporation Distributions."

Based on its contemplated expansion plans, the Company estimates that its
total capital expenditures will be approximately $3.0 million in 1996 and $3.2
million in 1997. These estimates include the estimated costs of developing new
restaurants and renovating Company-owned restaurants. The Company expects that
the net proceeds of this offering and cash provided by operating activities will
provide sufficient funds to finance its capital expenditures through 1997.

INFLATION

The Company believes that the relatively moderate rates of inflation over
the past few years have not had a significant impact on its results of
operations.

22
<PAGE>
BUSINESS

GENERAL

The Company owns and franchises 46 quick-service New York Bagel restaurants
in 15 states that serve generous portions of fresh, high quality food with fast,
friendly service at an attractive price-value relationship. The Company has
grown by developing Company-owned restaurants and by selectively adding
franchisees. As of May 1, 1996, there were 19 Company-owned restaurants located
in Oklahoma, Kansas, Tennessee and Texas and 27 franchised restaurants located
in 14 states operated by 18 franchisees.

The Company believes that consumption of bagels has increased in recent
years, as consumers have discovered that bagels are a healthier, lower fat
alternative to other quick-service foods and are a suitable substitute for
sandwich breads. Management believes that the market for retail bagel
restaurants is fragmented and underserved, and that the Company can capitalize
on the demand for fresh bagels by expanding the New York Bagel concept in
targeted markets.

THE NEW YORK BAGEL CONCEPT

PREPARE FRESH, HIGH QUALITY PRODUCTS. New York Bagel restaurants serve up
to 20 varieties of bagels that are made from scratch, boiled and baked
throughout the day in the traditional "New York style." The Company believes its
five-ounce bagel is larger than those served by many of its competitors. Menu
items are prepared in accordance with the Company's specifications using high
quality ingredients such as Philadelphia-Registered Trademark- Brand cream
cheese, Kraft-Registered Trademark- cheeses and premium deli meats. Generous
portions of cream cheese are applied on its breakfast bagel and four ounces of
meat are served on each of its deli sandwiches. The Company believes that the
quality and portion size of its menu items generally equals or exceeds those of
its competitors. Because its menu pricing is competitive, the Company believes
that it offers customers an attractive price-value relationship.

MAXIMIZE TRAFFIC THROUGHOUT THE DAY. Management has recognized the
versatility of the bagel and has developed a menu to attract customers
throughout the day. The breakfast menu at New York Bagel restaurants includes a
variety of bagels and custom-blended cream cheeses, breakfast sandwiches on
bagels, gourmet coffees, muffins and croissants. Lunch and dinner items include
a wide range of delicatessen sandwiches made on bagels or other breads, salads,
cookies and soft drinks. Management believes that Company-owned restaurants
typically generate approximately 40% of their sales before 11:00 a.m., with an
average ticket of approximately $3.00 during such period and $4.00 thereafter.

COMMITMENT TO TIMELY SERVICE. The Company believes that timely service is
essential in the quick-service restaurant business. Service time is minimized
through the division of employee functions, efficient store layout and design
and queuing mechanisms. The Company conducts time studies of its restaurants on
a periodic basis and believes that on average, breakfast customers are served
within three minutes of placing their order and lunch and dinner customers are
served within five minutes. As a result, the Company also has been able to
successfully operate drive-through windows at certain New York Bagel
restaurants.

FOCUS ON TRAINING. The Company believes that comprehensive training is
essential to the efficiency and consistency of its operations. Accordingly, the
Company conducts an extensive 90-day training program for its restaurant
managers and franchisees that is composed of approximately ten days of classroom
instruction and approximately 80 days of on-site instruction. In addition, the
Company's training team provides on-site assistance during the initial ten days
of operation at each Company-owned restaurant and at a franchisee's initial
franchised restaurant.

23
<PAGE>
EXPANSION STRATEGY

EMPHASIZE MID-SIZED AND SMALLER METROPOLITAN MARKETS. The Company presently
targets its expansion efforts in mid-sized and smaller metropolitan markets.
Management believes that these markets are attractive because they typically
have fewer competing bagel restaurants and more favorable lease and labor
environments than larger metropolitan markets.

ESTABLISH STRONG MARKET PRESENCE. Since the bagel industry is highly
fragmented and increasingly competitive, the Company seeks to establish a strong
market presence in its targeted markets. To develop a strong market presence
rapidly and efficiently, the Company employs a multiple store strategy involving
a bakery restaurant which produces bagels for itself and one or more nearby
satellite restaurants. By entering underserved markets and opening multiple
restaurants, the Company seeks to maximize market share and establish brand
awareness. The Company and its franchisees have implemented this
bakery/satellite restaurant combination 14 times.

FOCUS ON UNIT AND MARKET ECONOMICS. Consistent with its market share
objective, the Company focuses not only on generating attractive unit level
economics, but also on the economic returns of a particular target market. The
Company believes that bakery restaurants can be opened for an initial
investment, including leasehold improvements, furniture, fixtures, equipment,
initial working capital and pre-opening expenses, of approximately $250,000,
with satellite restaurants requiring approximately $150,000. By averaging these
initial investment amounts within markets, the Company believes it achieves
attractive returns on investment.

MAINTAIN BALANCED RESTAURANT DEVELOPMENT. The Company intends to expand
through a balanced development of Company-owned and franchised New York Bagel
restaurants. While Company-owned restaurants provide the Company with greater
revenues and profits than franchised restaurants, franchising allows the Company
to accelerate its expansion and name recognition with less investment of the
Company's capital or human resources.

MAKE SELECTIVE ACQUISITIONS. The Company has acquired two bagel restaurants
to date, including an unaffiliated restaurant in Nashville, Tennessee, a new
market, and a franchised restaurant in an existing market. Since acquiring the
Nashville restaurant, a bakery restaurant, the Company has added two satellite
restaurants in that market. The Company intends to pursue other acquisitions of
local and regional bagel operations with an established market presence.

RESTAURANT DESIGN AND SITE SELECTION

The Company's prototypical restaurant is decorated in rich colors and dark
woods and contains a mixture of booth, table and barstool seating and, where
available, outdoor seating. Exposed ceilings with drop lighting and a
combination of tile and carpeted flooring are used to enhance its comfortable
ambiance. Walls are covered with black and white photographs depicting classic
New York scenes. The Company's restaurants are configured to facilitate a smooth
flow of dine-in and carry-out traffic while retaining a casual, cafe atmosphere.
Bagels and other baked products are displayed prominently behind a glass counter
while other items such as salads, packaged cream cheese for take-out and
specialty sodas and drinks are located in an open, self-serve refrigerated area
next to the cash register. Restaurant staff prepare sandwich and other menu
items behind the counter for dine-in and take-out customers. Dine-in customers'
food is delivered directly to the table. The restaurants serve cappuccino and
espresso, and a fountain drink and gourmet coffee station are placed in the
dining area for customer convenience. Retail merchandise, including New York
Bagel logo clothing, coffee mugs and gift items, are displayed throughout the
restaurant.

The Company believes that the layout and design of each restaurant
contributes to the success of its operations. The Company continually reviews
the restaurant design package for its restaurants and remodels as required.
Pursuant to the franchise agreement, franchised restaurants' decor must

24
<PAGE>
be updated every five years or upon renewal of each particular franchise
agreement. Remodeling typically requires closing the restaurant for one to four
weeks. Although restaurants may vary in size, layout and design are generally
consistent.

The Company considers the location of a restaurant to be important, and,
therefore, devotes significant resources to the investigation and evaluation of
potential sites. The site selection process focuses on area demographics,
including population density, traffic patterns, income levels and competitive
factors. The Company generally targets locations that possess a population
density of at least 50,000 residents within a three mile radius and are situated
on the morning side of commuter traffic. The Company's restaurants are typically
located in strip shopping centers or free-standing buildings that provide
visibility, curb appeal and accessibility. Certain limited hour satellite
restaurants are located in office buildings and are open during business hours
Monday through Friday. The Company's restaurant design may be configured to fit
a wide variety of building shapes and sizes, thereby increasing the number of
suitable sites for new locations.

UNIT ECONOMICS

In targeted markets, the Company employs a multiple store strategy involving
a bakery restaurant which produces bagels for itself and one or more nearby
satellite restaurants. The Company's approach to opening new restaurants has
been to minimize its required investment by leasing substantially all of its
locations. The Company believes that bakery restaurants can be opened for an
initial investment, including leasehold improvements, furniture, fixtures,
equipment, initial working capital and pre-opening expenses, of approximately
$250,000, with satellite restaurants requiring approximately $150,000. By
averaging these initial investment amounts within a particular market, the
Company believes it achieves attractive returns on investment within markets.

During 1995 and the period ended March 31, 1996, average sales per
Company-owned restaurant opened throughout the period were $559,000 and
$147,000, respectively. During 1995 and the period ended March 31, 1996, the
Company's restaurant level cash flow margin (defined as sales from Company-owned
restaurants less cost of sales and restaurant operating expenses as a percentage
of sales from Company-owned restaurants) was 17.1% and 20.2%, respectively.

RESTAURANT LOCATIONS

The average bakery restaurant contains approximately 2,750 square feet, and
the average satellite restaurant contains approximately 2,000 square feet.
Approximately 1,200 square feet of a bakery restaurant is used for dough
production, baking and food preparation while approximately 500 square feet of a
satellite restaurant is used for food preparation. Restaurants have an average
seating capacity of approximately 60 persons. The Company leases approximately
1,200 to 4,000 square feet of space for each of its 19 Company-owned restaurant
sites. As of May 1, 1996, the Company has entered into an agreement to purchase
land and a building under development as a restaurant and leases for four
restaurants under development. Although the terms of its leases for
Company-owned restaurants vary, the Company typically seeks to obtain an initial
five-year term lease with two or three five-year option terms. The following
table sets forth certain information as of June 1, 1996 with respect to
Company-owned and franchised New York Bagel restaurants currently in operation
or under development. Restaurants under development include locations for which
leases have been signed, a real estate purchase agreement has been executed, or
construction has commenced, but are not currently in operation.

25
<PAGE>
COMPANY-OWNED RESTAURANTS

<TABLE>
<CAPTION>
DATE TYPE OF
LOCATION OPENED RESTAURANT
- ------------------------------------------------------------ ------------------------ -----------
<S> <C> <C> <C>
Stillwater, OK Elm Street January 1986 Bakery
Stillwater, OK Downtown August 1986 Satellite
Oklahoma City, OK Casady Square August 1988 Bakery
Oklahoma City, OK Leadership Square October 1989 Satellite
Tulsa, OK Yale and 71st Street January 1990 Bakery
Edmond, OK Broadway Extension September 1991 Satellite
Wichita, KS East Central Avenue July 1992 Bakery
Wichita, KS Downtown April 1993 Satellite
Oklahoma City, OK Brixton Square July 1993 Satellite
Tulsa, OK Cherry Street January 1994 Satellite
Norman, OK Lindsey Avenue August 1994 Bakery
Norman, OK Campus September 1994 Satellite
Wichita, KS Rock Road July 1995 Satellite
Tulsa, OK Peoria Avenue September 1995 Bakery
Nashville, TN West End Avenue December 1995 Bakery
Nashville, TN Hillsboro Village March 1996 Satellite
Tulsa, OK Downtown March 1996 Satellite
Waco, TX West Waco Drive April 1996 Bakery
Nashville, TN White Bridge Road April 1996 Satellite
Nashville, TN L&C Tower Under Development Satellite
Springfield, MO Campbell Avenue Under Development Bakery
Tulsa, OK 51st Street Under Development Satellite
Stillwater, OK Perkins Road Under Development Satellite
Lubbock, TX Quaker Avenue Under Development Bakery
</TABLE>

26
<PAGE>
<TABLE>
<S> <C> <C> <C>
FRANCHISED RESTAURANTS
<CAPTION>

DATE TYPE OF
LOCATION OPENED RESTAURANT
- ------------------------------------------------------------ ------------------------ -----------
<S> <C> <C> <C>
Omaha, NE South 106th December 1993 Bakery
Knoxville, TN Kingston Pike March 1994 Bakery
Olathe, KS Mur-len Avenue July 1994 Bakery
Dallas, TX Lemmon Avenue July 1994 Bakery
Kansas City, MO Downtown September 1994 Satellite
Austin, TX Research Boulevard October 1994 Bakery
Little Rock, AR Markham Avenue November 1994 Bakery
Tucson, AZ East Broadway February 1995 Bakery
Omaha, NE Farnam Street February 1995 Satellite
Santa Fe, NM St. Michaels Boulevard March 1995 Bakery
Littleton, CO West Bowles Avenue April 1995 Bakery
Plano, TX Legacy Drive April 1995 Bakery
Dallas, TX Preston Royal Centre May 1995 Satellite
Amarillo, TX Soncy Road June 1995 Bakery
Knoxville, TN Gay Street July 1995 Satellite
Longview, WA Ocean Beach Highway July 1995 Bakery
Columbia, SC Harden Street September 1995 Bakery
Tampa, FL North Dale Mabry Highway September 1995 Bakery
Hurst, TX Grapevine Highway September 1995 Bakery
Bismarck, ND East Bismark Expressway October 1995 Bakery
San Antonio, TX Embassy Oaks November 1995 Bakery
Austin, TX Research Boulevard November 1995 Satellite
Amarillo, TX West Georgia Street December 1995 Satellite
Omaha, NE Pacific Street January 1996 Satellite
Irving, TX North MacArthur Boulevard March 1996 Satellite
New Orleans, LA Veteran's Boulevard March 1996 Bakery
Tucson, AZ North Oracle Avenue March 1996 Satellite
San Antonio, TX Broadway Avenue Under Development Satellite
Little Rock, AR Center Street Under Development Satellite
Englewood, CO Holly Street Under Development Bakery
Littleton, CO Wadsworth Avenue Under Development Satellite
Aurora, CO East Mississippi Street Under Development Satellite
Columbia, SC Palmetto Plaza Under Development Satellite
Birmingham, AL 20th Street South Under Development Bakery
</TABLE>

PLANNED EXPANSION

The Company intends to expand through the balanced development of
Company-owned and franchised restaurants. Since January 1, 1996, the Company has
opened four Company-owned restaurants and currently plans to open 9 to 11
additional Company-owned restaurants during the remainder of 1996 and
approximately 17 to 20 in 1997. Since January 1, 1996, franchisees have opened
four franchised restaurants and the Company currently has 18 franchisees
operating 27 restaurants in 14 states. The Company considers franchisees to be
an integral component of its continued growth. The Company expects franchisees
to open an additional 18 to 23 restaurants during the remainder of 1996 and
approximately 25 to 30 franchised restaurants during 1997, although there can be
no assurance that all of these restaurants will be opened.

27
<PAGE>
OPERATIONS

RESTAURANT PERSONNEL. A typical New York Bagel restaurant employs a
restaurant manager, an assistant manager and approximately 25 to 30 hourly
employees for a bakery restaurant and 15 to 20 hourly employees for a satellite
restaurant, most of whom work part-time. The restaurant manager is responsible
for the day-to-day operation of the restaurant and for compliance with
Company-established operating standards. The Company also employs five area
managers, each of whom has responsibility for overseeing three to six
Company-owned restaurants. The Company seeks to hire experienced restaurant
managers and staff, and to motivate and retain them by providing opportunities
for advancement and performance-based, financial incentives. Training and
compensation programs are intended to instill restaurant managers and area
managers with a sense of ownership in their restaurants. The Company believes
the issuance of stock awards under its 1996 Incentive Plan and the restaurant
management bonus program will enhance its ability to attract and retain
restaurant and area managers. To date, the Company has experienced a low
managerial turnover rate which it believes results in decreased training costs
and higher productivity. See "Management -- 1996 Incentive Plan."

REPORTING. The Company's restaurant managers prepare daily and weekly
reports of sales, cash deposits and operating costs. Physical inventories of all
food and beverage items are taken monthly. The Company conducts monthly meetings
with area managers to discuss restaurant sales, profitability and operations,
personnel needs and product quality.

HOURS OF OPERATIONS. The restaurants are generally open Monday through
Saturday from 6:30 a.m. to 8:00 p.m. and on Sunday from 8:00 a.m. to 5:00 p.m.
Management believes that Company-owned restaurants typically generate
approximately 40% of their sales before 11:00 a.m. Although the majority of New
York Bagel restaurants are open seven days a week, certain satellite restaurants
are located in downtown business districts and are open during business hours
Monday through Friday.

TRAINING

The Company believes that comprehensive training is essential to the
efficiency and consistency of its restaurants. Accordingly, the Company conducts
an extensive 90-day training program for its restaurant managers and franchisees
that is composed of approximately ten days of classroom instruction on
administration, record keeping and inventory control and approximately 80 days
of on-site instruction on baking and food preparation at the Company's training
facility in Oklahoma City, Oklahoma. The Company has a team of five employees
dedicated to training and new restaurant openings, including a full-time
coordinator. In addition, the team provides on-site assistance during the
initial ten days of operation at each Company-owned restaurant and at a
franchisee's initial franchised restaurant. Management believes that its
emphasis on training currently exceeds that of many of its competitors.

PURCHASING AND DISTRIBUTION

The Company establishes quality standards and specifications for food
products and equipment used in New York Bagel restaurants and designates primary
and secondary suppliers for all food items and restaurant supplies. In order to
ensure product quality and consistency, franchisees purchase certain products
from the Company's approved distributors. To obtain competitive prices, the
Company contracts centrally for certain food products and supplies and
negotiates volume discounts for the benefit of Company-owned and franchised
restaurants. Most Company-owned and franchised restaurants purchase the majority
of their food and non-food items from one nationally recognized distributor. The
Company believes that the loss of this distributor would not materially affect
the Company's results of operations.

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<PAGE>
MARKETING AND ADVERTISING

The Company and its franchisees advertise through newspapers, direct mail
and radio. All advertising materials must be produced or pre-approved by the
Company. The Company provides restaurants with pre-opening, grand opening and
ongoing advertising and in-store promotional materials. In April 1996, the
Company and its franchisees commenced payments of 0.5% of gross sales to the
Company's advertising fund. The advertising fund is governed by a six-member
board comprised of three Company representatives and three franchisee
representatives who oversee the development of advertising materials. Prior to
April 1996, the Company funded the development of advertising materials and
furnished such materials to all restaurants for their use. Franchisees maintain
sole discretion over the placement of advertisements in their market.

FRANCHISE PROGRAM

The Company commenced franchising its restaurant concept in 1993 and
currently has 18 franchisees operating 27 New York Bagel restaurants in 14
states. The Company expects that 45 to 50 franchised restaurants will be open by
the end of 1996 and 70 to 80 by the end of 1997. However, there can be no
assurance that all of these restaurants will be open or that the development
schedule set forth in each development agreement will be achieved. During April
1996, a franchisee in the Houston, Texas market closed two restaurants. The
Company anticipates refranchising the Houston, Texas market in the future.

The Company primarily seeks franchisees that have restaurant experience and
that will enter into development agreements for multiple restaurants.
Franchisees are approved on the basis of operational experience and financial
resources. If the franchisee is not an owner-operator, the Company encourages
the franchisee to provide the full-time operator an equity interest in the
franchise operation.

DEVELOPMENT AGREEMENT. The Company enters into a development agreement with
each franchisee (a "Development Agreement") for the exclusive development of a
predetermined number of New York Bagel restaurants within a designated market
area (the "Area of Exclusivity"). The Area of Exclusivity is negotiated prior to
the signing of a Development Agreement and varies by agreement as to size,
number of New York Bagel restaurants required and the schedule for restaurant
development and opening. A Development Agreement generally requires a franchisee
to develop the first restaurant within 12 months of signing the Development
Agreement and the second restaurant within 18 months. Subsequent restaurants are
generally required to be opened in six-month intervals thereafter. Development
schedules vary based upon the size of the territory and the number of
restaurants to be developed. Development Agreements contain cross-default
provisions, and failure to develop the restaurants on schedule may result in a
loss of exclusivity within the Area of Exclusivity. Under the Company's
Development Agreement, the franchisee is required to pay, at the time of
signing, a non-refundable fee equal to one-third of the initial franchise fee
per restaurant covered by the Development Agreement. The amount is credited
against the Company's standard franchisee fee, the remainder of which is payable
to the Company upon signing the franchise agreement for a specific location.

FRANCHISE AGREEMENT. After signing a Development Agreement, the Company
enters into a franchise agreement (a "Franchise Agreement") generally when a
franchisee secures a location. The Franchisee Agreement provides for a term of
ten years with one ten-year renewal option and contains cross-default
provisions. The Company has the right to terminate any Franchise Agreement under
certain specified circumstances, including a franchisee's failure to make
payments when due or failure to adhere to the Company's standards or procedures.
Many state franchise laws limit the ability of a franchisor to terminate or
refuse to renew a franchise. The current Franchise Agreement contains a right of
first refusal for the Company to purchase an interest in the franchise and the
franchisee. The current Franchise Agreement provides for an initial franchise
fee of $21,000 for each bakery restaurant and $12,000 for each satellite
restaurant. During 1995, the initial franchisee fees for a bakery restaurant and
a satellite restaurant were $18,000 and $9,000, respectively. Under the current

29
<PAGE>
Franchise Agreement, the franchisee pays the Company a monthly royalty fee of 4%
of gross sales. Upon renewal of the Franchisee Agreement, the monthly royalty
fee cannot be increased to an amount greater than the monthly royalty fee then
in effect for new franchisees. See "Business -- Government Regulation."

SERVICES. The Company assists each franchisee in the site selection and
development of restaurants and provides the physical specifications and plans
for each franchised location. Each franchisee is responsible for recommending
the location for its restaurants, but must obtain Company approval of each
restaurant design and each location based on Company requirements. Company
personnel also visit each site in connection with the site approval process. The
Company provides standard design plans and equipment layout and specifications
for most franchisees. In addition, Company personnel provide telephone support
with respect to operations issues, as well as ongoing assistance with
advertising and promotion.

QUALITY CONTROL. All franchisees are required to operate their New York
Bagel restaurants in compliance with the Company's policies, standards and
specifications, including matters such as menu items, ingredients, materials,
supplies, fixtures, furnishings, decor and signage. Each franchisee has full
discretion, however, to determine the prices to charge its customers. The
Company collects sales and other operating information from its franchisees on a
monthly, quarterly and annual basis. The Company monitors each franchisee's
operations and product quality through review of monthly paperwork, review of
quarterly financial statements and quarterly field visits. These overview
mechanisms allow the Company to quickly identify potential problems and provide
operational, marketing or accounting assistance.

FRANCHISE TRAINING AND SUPPORT. Each franchisee is required to have a
restaurant manager, approved by the Company, who satisfactorily completes the
Company's training program and who devotes his or her full business time and
efforts to the operation of the franchisee's restaurant. In addition to this
program, the Company also provides an on-site training crew for ten days during
the opening of the franchisee's initial restaurant and ongoing supervision
thereafter. Multi-unit franchisees are encouraged to hire a full-time training
coordinator to train new employees for their restaurants. The Company regularly
communicates with its franchisees, and encourages active communication among its
franchisees, through franchise newsletters, special bulletins and periodic
meetings.

GOVERNMENT REGULATION

The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, which include health,
safety, sanitation, building and fire agencies in the state or municipality in
which the restaurant is located. Difficulties in obtaining or failures to obtain
required licenses or approvals could delay or prevent the opening of a new
restaurant in a particular area.

The Company is subject to Federal Trade Commission ("FTC") regulation and
various state laws which regulate the offer and sale of franchises. Several
state laws also regulate substantive aspects of the franchisor-franchisee
relationship. The FTC requires the Company to furnish to prospective franchisees
a franchise offering circular containing prescribed information. The Company is
currently required to register as a franchisor in two states. A number of states
in which the Company may consider franchising also regulate the sale of
franchises and require registration of the franchise offering circular with
state authorities. Substantive state laws that regulate the
franchisor-franchisee relationship presently exist in many states, and bills
have been introduced in Congress from time-to-time which would provide for
Federal registration of the franchisor-franchisee relationship in certain
respects. The state laws often limit, among other things, the duration and scope
of non-competition provisions and the ability of a franchisor to terminate or
refuse to renew a franchise.

The Company's operations are also subject to federal and state laws
governing such matters as wages, working conditions, citizenship requirements
and overtime. The Company is also subject to the

30
<PAGE>
Americans with Disabilities Act of 1990, which, among other things, could
require certain renovations to its restaurants to meet federal mandates. If such
renovations are required, the Company believes the cost thereof will not
materially affect the Company's results of operations. The Company believes it
is in substantial compliance with all material laws.

COMPETITION

The quick-service restaurant industry is intensely competitive and generally
characterized by low barriers to entry. There are a growing number of
significant national, regional and local bagel restaurant chains, operating both
owned and franchised bagel restaurants including Quality Dining, Inc. (Brueggers
Bagel Bakery), Einstein Bros. Bagels, Inc., Manhattan Bagel Company, Inc.,
Chesapeake Bagel Bakery and BAB Holdings, Inc., many of which have greater
financial resources than the Company. New York Bagel restaurants also compete
with other well established quick-service restaurants that have greater product
and name recognition, larger financial and other resources than the Company and
longer operating histories, as well as numerous local food establishments,
supermarkets and convenience stores that offer similar products. The Company
believes that New York Bagel restaurants compete favorably in terms of taste,
food quality, portions, service, convenience and value, which the Company
believes are important factors to its targeted customers.

The Company competes for qualified franchisees with a wide variety of
investment opportunities both in the restaurant business and in other
industries. The Company's continued success is dependent to a substantial extent
on its reputation for providing high quality and value with respect to its
service, products and franchises, and this reputation may be affected not only
by the performance of Company-owned restaurants, but also by the performance of
its franchised restaurants over which the Company has limited operational
control.

TRADEMARKS AND SERVICE MARKS

The Company operates and franchises bagel restaurants under the names "New
York Bagel Shop & Delicatessen," "New York Bagel Shop & Deli," "NY Bagel Cafe,"
"New York Bagel Cafe & Deli," "NYB New York Bagel," "the New York Bagel Shop"
and "Nashville Bagel Co." The Company's trademark "New York Bagel Shop &
Delicatessen" and service mark "Like Bread With An Attitude" are registered
under applicable federal trademark law. Under federal trademark law, the Company
is required to renew these marks every 20 years. The Company claims common-law
rights to the marks "New York Bagel Shop & Delicatessen," "NYB," "The City's
Best Bagel," and "Where Yeast Meets West," but there have been no judicial
determinations of the existence, validity, or extent of the Company's rights.
Certain of the marks are licensed by the Company to franchisees pursuant to
franchise agreements.

The Company is aware of the use by other persons and entities in certain
geographic areas of names and marks which are the same or similar to the
Company's marks. Some of these persons or entities may have prior rights to
those names or marks in their respective localities. Therefore, there is no
assurance that the "New York Bagel Shop & Delicatessen" mark or any other marks
are available in all locations.

PROPERTIES

The Company's principal executive offices are located at 300 I.M.A. Plaza,
250 North Water Street, Wichita, Kansas 67202-1213, where the Company subleases
approximately 1,200 square feet of office space pursuant to a sublease agreement
with Murfin Drilling Company, Inc., a wholly owned subsidiary of Murfin, Inc.,
that expires during March 1997. The Company has the option to terminate such
sublease upon 30 days' notice. Mr. David L. Murfin, a Director of the Company,
is a 7.1% stockholder of Murfin, Inc. The Company believes that alternative
office space is available at comparable rates from third parties. The Company's
operational offices are located at 110 West Third Street, Stillwater, Oklahoma
74074, where the Company leases approximately 900 square feet of office space
pursuant to a lease agreement that expires during December 1997. The Company
conducts its

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<PAGE>
management and franchisee training at its Casady Square, Oklahoma City, Oklahoma
facility in an approximately 3,400 square foot space contiguous to the
restaurant. Such facility is subject to a lease that expires during July 2003.
The Company believes that its current executive offices and training facilities
are adequate for the near future and does not anticipate the need for
significant expansion of these facilities in the foreseeable future. See
"Certain Transactions -- Leases."

EMPLOYEES

As of May 1, 1996, the Company employed 385 persons, 261 of which are
employed part-time. None of the Company's employees is subject to any collective
bargaining agreements, and management considers its relations with its employees
to be good.

LEGAL PROCEEDINGS

The Company is involved from time-to-time in various legal proceedings and
claims incident to the normal conduct of its business. The Company believes that
such legal proceedings and claims, individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition or results
of operations.

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<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The names of the directors, executive officers and key employees of the
Company and their respective ages and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Robert J. Geresi (1)......................... 33 Chairman of the Board, Chief Executive Officer and
President
Paul T. Sorrentino (2)....................... 33 Vice President -- New Store Development and
Director
Paul R. Hoover (1)........................... 35 Vice President -- Franchising, Investor Relations
and Director
J. Chris Dennis.............................. 32 Chief Financial Officer, Secretary and Treasurer
Vincent J. Vrana............................. 33 Vice President -- Training
Markus K. Scholler........................... 41 Director of Franchise Operations
William S. Atherton (3)(4)................... 63 Director
David L. Murfin (2)(4)....................... 44 Director
</TABLE>

- ------------------------
(1) Class III Director.
(2) Class II Director.
(3) Class I Director.
(4) Member of the Audit Committee and the Compensation Committee.

ROBERT J. GERESI has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1995. Mr. Geresi served as
an executive officer of each Prior Entity since their respective inceptions
beginning in 1986. From 1984 through 1986, Mr. Geresi served as a Senior
Financial Analyst of Grumman Aerospace Corp., Bethpage, New York. Since 1995,
Mr. Geresi has served as a director of Cowboy Land Development, Inc., a real
estate subsidiary of Karsten Creek Golf Course, Oklahoma State University
Foundation. Mr. Geresi received a Bachelor of Arts degree in economics from
Binghamton University, Binghamton, New York in 1984.

PAUL T. SORRENTINO has served as Vice President -- New Store Development and
as a Director of the Company since December 1995. Mr. Sorrentino served as an
executive officer of each Prior Entity since their respective inceptions
beginning in 1986. From 1985 to 1986, Mr. Sorrentino was a telecommunications
consultant for Cameron Communications, Oklahoma City, Oklahoma. Mr. Sorrentino
received a Bachelor of Arts degree in advertising from Oklahoma State
University, Stillwater, Oklahoma in 1985.

PAUL R. HOOVER has served as Vice President -- Franchising, Investor
Relations and as a Director of the Company since December 1995. From June 1994
until December 1995, Mr. Hoover served as Vice President and as a Director of
New York Bagel Enterprises, Inc., the franchisor entity of the Prior Entities.
Since 1984, Mr. Hoover has been a Director and stockholder of West-Kan Foods,
Inc., a Wendy's restaurant franchisee. From 1986 to 1990, Mr. Hoover was
President of Midco Foods, Inc., a multi-concept restaurant franchisee. Mr.
Hoover is the owner of and has served as the President of Paul R. Hoover Real
Estate Company since 1990. Mr. Hoover received a Bachelor of Arts degree in
geology from Wichita State University, Wichita, Kansas in 1983.

J. CHRIS DENNIS has served as Chief Financial Officer, Secretary and
Treasurer of the Company since April 1996. From 1991 to 1996, Mr. Dennis was
Vice President and Controller of Railroad Savings Bank fsb in Wichita, Kansas
and its parent company, Railroad Financial Corporation, a

33
<PAGE>
publicly-held financial institution. From 1986 to 1991, Mr. Dennis was an audit
supervisor with Grant Thornton LLP, certified public accountants. Mr. Dennis is
a member of the American Institute of Certified Public Accountants and Kansas
Society of Certified Public Accountants, and currently serves on the Planning
Committee of the Annual Wichita State University Accounting and Auditing
Conference. Mr. Dennis received a Bachelor of Business Administration degree in
accounting from Wichita State University, Wichita, Kansas in 1985. Mr. Dennis is
a Certified Public Accountant.

VINCENT J. VRANA has served as Vice President -- Training of the Company
since December 1995. Mr. Vrana served as an executive officer of each Prior
Entity since their respective inceptions beginning in 1986. Mr. Vrana received a
Bachelor of Arts degree from Oklahoma State University, Stillwater, Oklahoma in
1986.

MARKUS K. SCHOLLER has served as Director of Franchise Operations of the
Company since October 1994. From 1990 to 1994, Mr. Scholler was Training General
Manager for J.S. Ventures, Inc., a multi-unit Applebee's Neighborhood Grill &
Bar franchisee. From 1986 to 1990, Mr. Scholler was General Manager of Midco
Foods, Inc., a multi-concept restaurant franchisee. Mr. Scholler is a Director
of the Kansas Restaurant and Hospitality Association.

WILLIAM S. ATHERTON has served as a Director of the Company since January
1996. Mr. Atherton is a partner of Atherton & Murphy Investment Company, an
investment partnership, and serves as Chairman of the Board of Atherton
Restaurant Services, Inc. Mr. Atherton also serves as Chairman of the Board of
Directors of Wall Street Deli, Inc., a publicly-traded restaurant company,
Chimis, Inc., a full-service casual dining concept, Oklahoma State University
Foundation Board of Governors and the National Cowboy Hall of Fame. From 1964
until 1986, Mr. Atherton served as Chairman of the Board and Chief Executive
Officer of A & M Food Service, Inc., a Pizza Hut franchisee. He received a
Bachelors of Science degree in petroleum engineering from Oklahoma State
University, Stillwater, Oklahoma in 1956.

DAVID L. MURFIN has served as a Director of the Company since July 1994.
Since 1978, Mr. Murfin has served in various capacities with, and since 1992 as
President of, Murfin Drilling Company, an oil and gas production, exploration
and drilling company. From 1975 to 1978, Mr. Murfin was a Production and
Reservoir Engineer with Amoco Production Company. Mr. Murfin also serves as
National Chairman of the Liaison Committee of Cooperating Oil and Gas
Associations, President of the Kansas Independent Oil and Gas Association, a
director of the International Association of Drilling Contractors, director of
the Quivira Council of the Boy Scouts of America, a member of the Economic
Analysis Panel of the Wichita Chamber of Commerce, and a director of
Heartspring. Mr. Murfin received Bachelors of Science degrees in business
administration and in mechanical engineering from the University of Kansas in
1975.

TERM OF OFFICE

Upon completion of this offering, the Company's Board of Directors will be
divided into three classes (Class I, Class II and Class III) of as equal size as
possible, with the terms of each class expiring in consecutive years so that
only one class is elected in any given year. Directors for each class will be
elected at the annual meeting of stockholders held in the year in which the term
for such class expires and will serve thereafter for a term of three years until
their successors are elected and qualified or their earlier resignation or
removal, except for the initial Class I and Class II directors whose terms
expire in 1997 and 1998, respectively. Vacancies in unexpired terms and any
additional positions created are filled by action of the Board of Directors. The
Board of Directors intends to appoint one additional independent Class I
Director to the Company's Board of Directors during 1996 in order to fill a
current vacancy on the Board of Directors. The executive officers of the Company
are elected annually by the Board of Directors and serve at the discretion of
the Board of Directors until their successors are elected and qualified or their
earlier resignation or removal.

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<PAGE>
STOCKHOLDERS' AGREEMENTS

In June 1994, Mr. Geresi, the Company's Chairman of the Board and Chief
Executive Officer, Mr. Sorrentino, a Director and Vice President -- New Store
Development, Mr. Vrana, Vice President -- Training, Mr. Hoover, a Director and
Vice President -- Franchising, and Mr. Murfin, a Director of the Company,
entered into a Contract for Sale of Stock which contained agreements among such
stockholders pertaining to the approval of certain actions, management of
NYBE-OK, as defined herein, election of directors, restrictions on the transfer
of stock and preemptive rights. The current directors of the Company were
designated and elected pursuant to this agreement. During January 1996, this
agreement was terminated and the Stockholders' Agreement became effective.

The existing stockholders and the Company are parties to the Stockholders'
Agreement which sets forth certain agreements regarding the management of the
Company. The Stockholders' Agreement provides that Messrs. Geresi, Vrana and
Sorrentino shall designate three persons to stand for election as directors of
the Company and that Ms. Nancy Murfin, Ms. Barbara Murfin Moxley and Messrs.
Hoover, Murfin, Mark A. Moxley, V. Richard Hoover and Philip Faubert shall
designate three persons to stand for election as directors of the Company. All
stockholders who are parties to the Stockholders' Agreement have agreed to vote
their shares in favor of the election of such designees. The Stockholders'
Agreement will automatically terminate three years after the completion of this
offering. Following this offering, the existing stockholders will have voting
control over more than 56.5% of the outstanding Common Stock (approximately
52.8% if the Underwriters' over-allotment option is exercised in full).
Accordingly, the existing stockholders will be able to elect the entire Board of
Directors and otherwise direct the affairs of the Company.

COMMITTEES

The Company's Board of Directors has established an Audit Committee and a
Compensation Committee, both of which are solely comprised of Independent
Directors, as defined herein. The functions of the Audit Committee are to make
recommendations to the Board of Directors regarding the engagement of the
Company's independent accountants and to review with management and the
independent accountants the Company's financial statements, basic accounting and
financial policies and practices, audit scope and competency of accounting
personnel. The functions of the Compensation Committee are to review and
recommend to the Board of Directors the compensation, stock options and
employment benefits of all officers of the Company, to administer the Incentive
Plan, as defined herein, to fix the terms of other employee benefit arrangements
and to make awards under such arrangements. Members of the committees are
appointed annually by the Board of Directors and serve at the discretion of the
Board of Directors until their successors are appointed or their earlier
resignation or removal.

35
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth the salary and other annual compensation paid
by the Prior Entities during 1995 to the Company's Chief Executive Officer and
each of the other most highly compensated executive officers of the Company
whose annual salary and other annual compensation during such period exceeded
$100,000 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY(1) COMPENSATION(2)
- --------------------------------------------------------------------------- --------- ----------------
<S> <C> <C>
Robert J. Geresi........................................................... $ 86,750 $ 83,281
Chairman of the Board, Chief Executive Officer and President
Paul T. Sorrentino......................................................... $ 86,750 $ 83,199
Vice President -- New Store Development and Director
Vincent J. Vrana........................................................... $ 47,500 $ 77,846
Vice President -- Training
</TABLE>

- ------------------------
(1) Effective April 1, 1996, these employees' annual salaries are $65,000,
$62,500 and $48,000, respectively.

(2) Consists of (i) amounts reimbursed during 1995 for the payment of taxes of
$74,643, $74,643 and $74,655 for Messrs. Geresi, Sorrentino and Vrana,
respectively, and (ii) health and life insurance premium payments on behalf
of such individuals.

COMPENSATION OF DIRECTORS

Directors who are not also employees of the Company ("Independent
Directors") receive $250 per board meeting attended and $125 per board committee
meeting attended and are reimbursed for out-of-pocket expenses incurred for
attendance at meetings. The Company granted on June 4, 1996, nonqualified stock
options under the Company's 1996 Incentive Plan to purchase 17,500 shares of
Common Stock to each of Messrs. Murfin and Atherton, who are Independent
Directors, at an exercise price equal to 110% and 100%, respectively, of the
price to public set forth on the cover page of this Prospectus. The nonqualified
stock options vest over a period of four years with the initial 20% becoming
exercisable on the six-month anniversary of the grant date and an additional 20%
becoming exercisable on each of the first four anniversaries of the grant date.
While the Company does not have a formal policy concerning the granting of
nonqualified stock options to Independent Directors, the Company may grant such
options to Independent Directors in the future.

1996 INCENTIVE PLAN

SCOPE. The Board of Directors and stockholders of the Company have approved
the New York Bagel Enterprises, Inc. 1996 Incentive Plan (the "Incentive Plan").
The Incentive Plan authorizes the Company to award incentive stock options and
nonqualified stock options to purchase Common Stock and restricted stock to
officers, employees and directors of, and consultants and advisors to, the
Company. The purpose of the Incentive Plan is to attract, retain and motivate
such persons.

The Incentive Plan authorizes the award of 400,000 shares of Common Stock to
be used for incentive stock options, nonqualified stock options or restricted
stock grants, of which options to purchase 271,000 shares of Common Stock have
been granted as of the date of this Prospectus. If an award made under the
Incentive Plan expires, is canceled or is otherwise terminated, those shares
will be available for future awards under the Incentive Plan. The Incentive Plan
will terminate during January 2006.

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<PAGE>
ADMINISTRATION. The Incentive Plan will be administered by a committee (the
"Committee") which is comprised of directors who are disinterested within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Subject to the provisions of the
Incentive Plan, the Committee will have authority to select those officers,
employees, advisors and consultants of the Company to receive awards, to
determine the time or times of receipt, to determine the types of awards and the
number of shares covered by the awards, and to establish the terms, conditions
and provisions of such awards. In making such award determinations, the
Committee may take into account the nature of services rendered by the
recipient, his or her present and potential contribution to the Company's growth
and success, and such other factors as the Committee deems relevant. The
Committee is authorized to interpret the Incentive Plan, to establish, amend and
revoke any rules and regulations relating to the Incentive Plan, to determine
the terms and provisions of any agreements made pursuant to the Incentive Plan
and to make all other determinations that may be necessary or advisable for the
administration of the Incentive Plan.

STOCK OPTIONS. Both incentive stock options and nonqualified stock options
(collectively referred to as "Stock Options") may be granted pursuant to the
Incentive Plan. All Stock Options granted under the Incentive Plan will have an
exercise price per share to be determined by the Committee; provided that the
exercise price per share under each Stock Option shall not be less than the fair
market value of a share of Common Stock at the time the Stock Option is granted
(110% of such fair market value in the case of incentive stock options granted
to a stockholder who owns 10% or more of the Company's outstanding Common
Stock). The maximum term for all Stock Options granted under the Incentive Plan
is ten years (five years in the case of an incentive stock option granted to a
stockholder who owns 10% or more of the Company's outstanding Common Stock).
Moreover, no Stock Options may be granted under the Incentive Plan more than ten
years after the date of its adoption. All Stock Options are nontransferable
other than by will or the laws of descent and distribution or a qualified
domestic relations order, and during an optionee's lifetime may be exercised
only by the optionee or the optionee's guardian or legal representative. Stock
Options are exercisable at such time and in such installments as the Committee
may provide at the time the Stock Option is granted. The Committee may
accelerate the exercisability of any Stock Option at any time. The purchase
price for shares acquired pursuant to the exercise of a Stock Option must be
paid in the manner determined by the Committee. The terms and conditions of
Stock Options relating to their treatment upon termination of the optionee's
employment or association with the Company will be determined at the time the
Stock Options are granted. An optionee is not deemed to be the owner of any
shares of Common Stock subject to any Stock Option until the Stock Option has
been exercised, the Company has issued and delivered the shares to the optionee
and the optionee's name has been entered as a stockholder of record on the books
of the Company. The stock options vest over a period of four years with the
initial 20% becoming exercisable on the six-month anniversary of the grant date
and an additional 20% becoming exercisable on each of the first four
anniversaries of the grant date. In the event of a change in control of the
Company, as defined, awards under the Incentive Plan become exercisable within
60 days of the change in control.

RESTRICTED STOCK. Restricted stock awards are grants of Common Stock made
to officers and employees, subject to conditions established by the Committee.
The terms of a restricted stock award, including the restrictions placed on such
shares and the time or times at which such restrictions will lapse, shall be
determined by the Committee at the time the award is made. Unless the Committee
determines otherwise, holders of restricted stock shall have the right to vote
the shares of restricted stock and to receive all dividends thereon. The
Committee may determine at the time of an award of restricted stock that
dividends paid on such shares may be paid to the grantee or deferred. Deferred
dividends (together with any interest accrued thereon) will be paid upon the
lapsing of the restrictions on the shares of restricted stock or forfeited upon
the forfeiture of the shares of restricted stock. The agreements evidencing
awards of restricted stock shall set forth the terms and conditions of such
awards and the effect of a grantee's termination of employment.

37
<PAGE>
ADJUSTMENTS. In the event of any change in the outstanding shares of Common
Stock by reason of any reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend or similar change in the corporate structure, the
aggregate number of shares of Common Stock with respect to which awards may be
made under the Incentive Plan, and the terms and the number of shares of
restricted stock, or the number of shares of Common Stock underlying any
outstanding Stock Options may be equitably adjusted by the Committee in its sole
discretion.

TERMINATION AND AMENDMENT. The Incentive Plan may be terminated or amended
by the Board of Directors, provided that, in the absence of stockholder
approval, no amendment of the Incentive Plan may materially increase the total
number of shares of Common Stock with respect to which awards may be made under
the Incentive Plan (except as discussed in "-- Adjustments" above), change the
exercise price of a Stock Option, materially modify the requirements as to
eligibility for participation in the Incentive Plan or materially increase the
benefits accruing to participants under the Incentive Plan. No amendment of the
Incentive Plan may adversely alter or impair any Stock Option or share of
restricted stock awarded under the Incentive Plan prior to such amendment
without the consent of the holder thereof.

INDEMNIFICATION ARRANGEMENTS

The Company's Restated and Amended Articles of Incorporation and Restated
and Amended Bylaws will provide that the Company shall indemnify all directors
and officers of the Company to the fullest extent permitted by the Kansas
general corporation code. Under such provisions, any director or officer, who in
his capacity as such, is made or threatened to be made, a party to any suit or
proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1995, all compensation decisions concerning executive officers were
made by the Company's Board of Directors and the respective boards of directors
of the Prior Entities, which included Messrs. Geresi, Sorrentino, Hoover,
Murfin, Vrana, Trizza, Robert D. Young, Brent E. Durham, John R. Geresi and Chad
E. Watkins. The Compensation Committee currently makes recommendations to the
Board of Directors regarding compensation to the executive officers. See
"Certain Transactions."

38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table presents certain information as of June 4, 1996, and
after giving effect to this offering, regarding the beneficial ownership of
Common Stock of (i) each director of the Company, (ii) each Named Executive
Officer, (iii) all persons known by the Company to be beneficial owners of five
percent or more of the Common Stock, and (iv) all directors and executive
officers of the Company as a group. Additionally, the table reflects each
Selling Stockholder and the number of shares of Common Stock to be sold by each
in this offering. The persons listed below have sole voting and investment power
and record and beneficial ownership with respect to such shares.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING(4)
-------------------------- SHARES --------------------------
NAME NUMBER PERCENTAGE OFFERED(3) SHARES PERCENTAGE
- -------------------------------------------------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Robert J. Geresi (1).............................. 599,343 21.4% 48,000 551,343 12.0%
Paul T. Sorrentino (1)............................ 599,343 21.4 48,000 551,343 12.0
Paul R. Hoover (2)................................ 70,848 2.5 5,000 65,848 1.4
Vincent J. Vrana (1).............................. 556,564 18.9 44,000 512,564 11.1
David L. Murfin (2)............................... 438,246 15.7 33,000 405,246 8.8
Directors and executive officers as a group (seven
persons)......................................... 2,264,344 80.9% 178,000 2,086,344 45.4%

5% STOCKHOLDER
Rodney Joe Trizza (1)............................. 161,951 5.8% 10,750 151,201 3.3%

OTHER SELLING STOCKHOLDERS
Brent E. Durham................................... 24,217 * 1,750 22,467 *
John R. Geresi.................................... 21,389 * 500 20,889 *
V. Richard Hoover................................. 70,850 2.5% 2,500 68,350 1.5%
Nancy Murfin Moxley and Mark A. Moxley............ 70,850 2.5 2,500 68,350 1.5
Barbara Murfin Murphy............................. 70,850 2.5 2,500 68,350 1.5
Chad E. Watkins................................... 30,391 * 1,500 28,891 *
</TABLE>

- ------------------------
* Represents beneficial ownership of less than 1%

(1) The address for Messrs. Geresi, Sorrentino, Vrana and Trizza is 110 West
Third Street, Stillwater, Oklahoma 74074-3504.

(2) The address for Messrs. Hoover and Murfin is 300 I.M.A. Plaza, 250 North
Water Street, Wichita, Kansas 67202-1213.

(3) In the event that the Underwriters' over-allotment option is exercised in
full, Messrs. Geresi, Sorrentino, Hoover, Vrana, Murfin and Trizza will sell
an aggregate of 54,500, 54,500, 6,500, 38,500, 50,500 and 13,250 shares,
respectively, in this offering.

(4) In the event that the Underwriters' over-allotment option is exercised in
full, Messrs. Geresi, Sorrentino, Hoover, Vrana, Murfin and directors and
executive officers as a group will beneficially own 544,843 (11.2%), 544,843
(11.2%), 64,348 (1.3%), 506,064 (10.4%), 399,746 (8.2%) and 2,059,844 shares
(42.3%), respectively, following this offering.

39
<PAGE>
CERTAIN TRANSACTIONS

REORGANIZATION

On December 31, 1995, the Company effected the Reorganization whereby,
through a series of transactions, the Company succeeded to the businesses of the
Prior Entities. First, New York Bagel Shop & Delicatessen, Inc., a Kansas
corporation, and VPR, Inc., New York Bagel Shop, Inc., Bagel Boss, Inc. and
Bagels of Norman, Inc., all Oklahoma corporations, were merged into New York
Bagel Enterprises, Inc., an Oklahoma corporation ("NYBE-OK"). Second, Nashville
Bagel, a wholly owned subsidiary of NYBE-OK, was merged into NYBE-OK. Finally,
NYBE-OK was merged into the Company for the purpose of changing the corporate
domicile from Oklahoma to Kansas. As a result of the Reorganization, Messrs.
Geresi, Sorrentino, Hoover, Vrana, Murfin and Trizza received 627,343, 627,343,
141,698, 584,564, 354,246 and 161,951 shares of Common Stock, respectively. In
addition, Mr. Geresi's father, John R. Geresi, received 21,389 shares; Mr.
Hoover's father, V. Richard Hoover, received 70,850 shares; Mr. Murfin's sister,
Barbara Murfin Murphy, received 70,850 shares; and Mr. Murfin's sister and
brother-in-law, Nancy Murfin Moxley and Mark A. Moxley, received 70,850 shares.

FRANCHISE ACQUISITION

On December 31, 1995, the Company acquired the assets of Central & Ridge
Yogurt, Inc. ("C&R"), a franchisee of the Company, in consideration of the
assumption by the Company of $225,000 of liabilities of C&R. The assets, which
had been acquired by C&R over time at a cost of approximately $195,000, were
valued by the Company without benefit of an independent appraisal at $225,000.
At the time of the acquisition, Mr. Hoover was the President of C&R and owned
10% of the stock of C&R. The terms of the transaction were negotiated by Mr.
Hoover on behalf of C&R and Mr. Geresi on behalf of the Company and approved by
the Board of Directors of the Company, with the purchase price being determined
by arm's-length negotiation between C&R and the Company.

LEASES

The Company currently leases space for a Company-owned New York Bagel
restaurant located in Norman, Oklahoma from Bagel Land, Inc. ("Bagel Land"), an
Oklahoma corporation, owned one-third each by Messrs. Geresi, Sorrentino and
Vrana. The Company made aggregate rent payments under such lease of $14,100,
$28,200 and $7,050 during 1994, 1995 and the period ended March 31, 1996,
respectively. The lease is for a term of five years commencing June 1994 at a
rent of $2,350 per month for 30 months and $2,500 per month for the remaining 30
months with an option to renew for five years at $2,650 for the first 30 months
and $2,800 per month for the last 30 months. The Company also leases space for a
Company-owned New York Bagel restaurant located in Tulsa, Oklahoma from Cherry
Street Land, Inc., an Oklahoma corporation, owned one-fourth each by Messrs.
Geresi, Sorrentino, Vrana and Trizza. The Company made aggregate rent payments
under such lease of $27,600 and $6,900 during 1995 and the period ended March
31, 1996, respectively. The lease is for a term of five years beginning January
1995 with an option to renew for five years and rent for the first 24 months of
$2,300 per month, $2,500 per month for the next 36 months, $2,700 per month for
the next 30 months and $2,900 per month for the last 30 months. Bagel Land is
anticipated to lease space to the Company for a New York Bagel restaurant to be
opened in Lubbock, Texas. Bagel Land is anticipated to be paid rent of $3,500
per month commencing during the later part of 1996.

The Company subleases space for its corporate offices located in Wichita,
Kansas from Murfin Drilling Company, Inc., a wholly owned subsidiary of Murfin,
Inc. which is owned 7.1% by Mr. Murfin. The Company made aggregate rent payments
under such sublease of $7,449 and $2,355 during 1995 and the three months ended
March 31, 1996, respectively. The current sublease is for a term of 12 months
commencing April 1, 1996, and is terminable on 30 days' notice by the Company.

40
<PAGE>
STOCKHOLDER GUARANTEES

The Loan Agreement is guaranteed in an amount up to $1.0 million by each of
Messrs. Geresi, Sorrentino and Vrana. The Nashville Note is guaranteed by
Messrs. Geresi, Sorrentino and Vrana each up to $83,250 and Messrs. Murfin, up
to $175,000, and Hoover, up to $75,000. The Term Notes are guaranteed in an
unlimited amount by Messrs. Geresi, Sorrentino and Vrana and in various limited
amounts by Messrs. Murfin, Hoover and Trizza. The Company intends to use
approximately $3.9 million of the net proceeds of this offering to repay all
outstanding indebtedness under the Loan Agreement, the Nashville Note and the
Term Notes. See "Risk Factors -- Benefits of Offering to Certain Stockholders"
and "Use of Proceeds."

DISTRIBUTIONS

During 1994, the Prior Entities declared distributions in the aggregate of
$614,260 to their stockholders, of which Messrs. Geresi, Sorrentino, Vrana,
Murfin and Hoover received $184,254, $184,254, $184,254, $7,800 and $1,800,
respectively. Mr. Trizza, a 5.8% stockholder of the Company, received $49,498,
and $2,400 was received by members of Mr. Murfin's family. During 1995, the
Prior Entities declared distributions in the aggregate of $2,363,030 to their
stockholders of which Messrs. Geresi, Sorrentino, Vrana, Murfin and Hoover
received $571,740, $571,738, $544,838, $225,000 and $90,000, respectively. Mr.
Trizza received $177,252, John R. Geresi, the father of Mr. Geresi, received
$13,447, V. Richard Hoover, the father of Mr. Hoover, received $45,000, $90,000
was received by members of Mr. Murfin's family, and the balance was paid to
other stockholders of the Prior Entities. The Company intends to make a
distribution to the stockholders in connection with their estimated federal and
state income tax obligations attributable to the Company's 1996 earnings. If the
Company had terminated its S corporation status as of March 31, 1996, the
Company's distribution would have been approximately $58,000. See "S Corporation
Distributions."

FRANCHISEE

During August 1995, the Company entered into a Development Agreement with
Mr. Vrana's brother and his partner concerning the development of three New York
Bagel restaurants in Columbia, South Carolina on terms and conditions comparable
to all other franchisees of the Company as discussed herein. Pursuant thereto,
Mr. Vrana's brother and his partner have developed one restaurant and entered
into a franchise agreement with the Company in connection therewith.

FUTURE TRANSACTIONS

Although each of the foregoing transactions were among affiliated parties
and necessarily involved conflicts of interest, the Company believes that they
were on terms that were no less favorable than reasonably available from
unaffiliated third parties. It is the Company's policy that all transactions
between the Company and its affiliated entities, executive officers or directors
will be on terms which will be no less favorable to the Company than the Company
could obtain from non-affiliated parties.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 25,000,000
shares of Class A Common Stock, par value $0.01 per share, and (ii) 5,000,000
shares of Class B Common Stock, par value $0.01 per share. As of May 1, 1996,
there were 1,416,988 shares of Class A Common Stock outstanding held by nine
record holders and 1,383,012 shares of Class B Common Stock outstanding held by
eight record holders.

Concurrently with the completion of this offering, (i) the number of
authorized shares of Class A Common Stock will be increased to 30,000,000, (ii)
each share of outstanding Class B Common Stock will be converted into one share
of Class A Common Stock resulting in the 14 stockholders prior to this

41
<PAGE>
offering holding 2,800,000 shares of Common Stock, (iii) the Class B Common
Stock will cease to exist and the Class A Common Stock will be reclassified as
Common Stock, and (iv) the Company will be authorized to issue 5,000,000 shares
of Preferred Stock, no par value per share.

COMMON STOCK

Holders of Common Stock will be entitled to one vote for each share held in
the election of directors and on all other matters submitted to a vote of
stockholders. Cumulative voting of shares of Common Stock will be prohibited in
the Company's Restated and Amended Articles of Incorporation. Subject to the
preferential rights of the holders of Preferred Stock, holders of Common Stock
will be entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock will be entitled to receive ratably the net assets of the Company
available after payment of all debts and other liabilities and payment in full
to holders of shares of Preferred Stock then outstanding, if any, of any amount
required to be paid under the terms of such Preferred Stock. Holders of Common
Stock will have no preemptive, subscription, redemption or conversion rights.
The rights, preferences and privileges of holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any series of
Preferred Stock that the Company may issue in the future. See "Dividend Policy."

PREFERRED STOCK

Upon completion of this offering, the Board of Directors will be authorized
to issue, from time-to-time without further action by the Company's
stockholders, shares of Preferred Stock, in one or more series, and fix the
dividend rights, dividend rates, any conversion rights or right of exchange, any
voting right, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, the liquidation preferences and any
other rights, preferences, privileges and restrictions of any series of
Preferred Stock and the number of shares constituting such series and the
designation thereof. Depending upon the rights of such Preferred Stock, the
issuance of Preferred Stock could have an adverse effect on holders of Common
Stock by delaying or preventing a change in control of the Company, diluting the
voting rights of holders of Common Stock, making removal of the present
management of the Company more difficult or resulting in the reduction of or
restrictions upon the payment of dividends and other distributions to the
holders of Common Stock, including, without limitation, any liquidation
preferences which may relate to such Preferred Stock.

CLASS B COMMON STOCK

Holders of Class B Common Stock have no voting rights, but otherwise have
the same rights as holders of Common Stock. Concurrently with the completion of
this offering, the outstanding shares of Class B Common Stock will be converted
into shares of Class A Common Stock, which will be reclassified as Common Stock,
and the Class B Common Stock will cease to exist.

CONVERTIBLE DEBENTURE

In connection with the acquisition of Nashville Bagel, the Company issued a
4.0% contingently convertible subordinated debenture in the amount of $115,000
payable in annual installments of $28,750 plus interest beginning December 14,
1996 (the "Convertible Debenture"). The Convertible Debenture is convertible
into a maximum of 19,320 shares of Common Stock, at the option of the holder
thereof, during the period commencing ten days after the completion of this
offering and ending 270 days later. The number of shares of Common Stock
issuable upon conversion are subject to adjustment from time to time in the
event the Company (i) pays a dividend or makes a distribution on the outstanding
Common Stock payable in Common Stock, (ii) subdivides the outstanding Common
Stock into a greater number of shares, (iii) combines the outstanding Common
Stock into a lesser number of shares, or (iv) issues by reclassification of the
Common Stock any Common Stock of the Company. The Convertible Debenture is
subordinate to the liabilities of the Company.

42
<PAGE>
CERTAIN ANTI-TAKEOVER MATTERS

The provisions of the Company's Restated and Amended Articles of
Incorporation and Amended and Restated Bylaws summarized below may be deemed to
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in the best interest of
the Company or its stockholders, including those attempts that might result in a
premium over the market price for the Common Stock.

Upon completion of this offering, the Company's Restated and Amended
Articles of Incorporation will provide for the Board of Directors to be divided
into three classes as of equal size as possible, with the term of each class
expiring in consecutive years. As a result, approximately one-third of the Board
of Directors will be elected each year. The Company's Restated and Amended
Articles of Incorporation will also provide that directors may be removed from
office only for cause. Directors may be removed for cause by the affirmative
vote of the holders of more than two-thirds of the outstanding shares of stock
of the Company, or by a majority if such removal is recommended by the Board of
Directors by the affirmative vote of at least two-thirds of the directors. The
Company's Bylaws may be adopted, amended or repealed (i) by the holders of at
least a majority of the outstanding shares of stock of the Company or (ii) by at
least a two-thirds vote of the full Board of Directors. The calling of a special
meeting of the stockholders requires the written request of holders of more than
two-thirds of all the outstanding shares of the stock of the Company, unless
called by the Board of Directors or the Chairman of the Board of Directors.

The Company's Articles of Incorporation require the affirmative vote of the
holders of at least two-thirds of either the outstanding voting stock (excluding
voting stock held by the "related person") or the directors in order to approve
any "business combination" with a "related person." A "business combination"
includes (i) any merger of the Company with a "related person," (ii) any
transfer of a substantial part of the assets of the Company to a "related
person," (iii) any transfer of a substantial part of the assets of a "related
person" to the Company, (iv) the issuance of any securities of the Company to a
"related person" and (v) certain reclassifications and recapitalizations which
have the effect of increasing the power of a "related person." A "related
person" includes any person that is the beneficial owner of five percent or more
of the outstanding shares of the Company's voting stock.

LIMITATION ON LIABILITY

As authorized by the Kansas general corporation code, the Company's Articles
of Incorporation provide that to the fullest extent permitted by Kansas law, as
the same exists or may hereafter be amended, directors and former directors of
the Company will not be liable to the Company or its stockholders for monetary
damages for an act or omission occurring in their capacity as a director. Kansas
law does not currently authorize the elimination or limitation of the liability
of a director to the extent the director is found liable (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith that constitute a breach of duty of the director
of the Company or that involve intentional misconduct or a knowing violation of
law, (iii) for transactions from which the director received an improper
benefit, whether or not the benefit resulted from action taken within the scope
of the director's office, or (iv) for acts or omissions for which the liability
of a director is expressly provided by law.

TRANSFER AGENT AND REGISTRAR

Upon completion of this offering, the transfer agent and registrar for the
Common Stock will be American Stock Transfer & Trust Company located in New
York, New York.

43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 4,600,000 shares of
Common Stock outstanding (4,870,000 shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, the shares sold in this offering
will be freely tradeable in the public market without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" (as defined in the rules and regulations under the Securities Act)
of the Company. The remaining shares (the "Restricted Shares") are deemed to be
"restricted securities" within the meaning of Rule 144 and may be publicly sold
only if registered under the Securities Act or sold in accordance with an
available exemption from registration, such as those provided by Rule 144. The
beneficial owners of 2,513,445 of the Restricted Shares have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock beneficially owned or controlled by them (including subsequently acquired
shares) for a period of 180 days after the date of this Prospectus without the
prior written consent of Rauscher Pierce Refsnes, Inc., on behalf of the
representatives of the Underwriters. See "Underwriting."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell Restricted Shares if at least
two years have passed since the later of the time such shares were acquired from
the Company or an affiliate of the Company. Rule 144 provides, however, that
within any three-month period such person may only sell up to the greater of (i)
1% of the then outstanding shares of Common Stock (46,000 shares upon completion
of this offering) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the
"Commission"). Under Rule 144(k), any person who has not been an affiliate of
the Company for a period of 90 days preceding a sale of Restricted Shares is
entitled to sell such shares without regard to such volume limitations if at
least three years have passed since the later of the time such shares were
acquired from the Company or an affiliate of the Company. Shares held by persons
who are deemed to be affiliates of the Company are subject to such volume
limitations regardless of how long they have been owned or how they were
acquired. The Company is unable to estimate the number of Restricted Shares that
may be sold from time to time under Rule 144, since such number will depend on
the market price and trading volume for the Common Stock, the personal
circumstances of the sellers and other factors.

An aggregate of 400,000 shares of Common Stock have been reserved for
issuance to employees, officers, consultants and advisors of the Company
pursuant to the Incentive Plan. As of the date of this Prospectus, options to
purchase 271,000 shares of Common Stock have been granted under the Incentive
Plan. The Company anticipates filing registration statements on Form S-8 under
the Securities Act to register all of the shares of Common Stock currently
issuable or reserved for future issuance under the Incentive Plan. Shares
purchased upon exercise of the options granted pursuant to the Incentive Plan
generally are available for resale in the public market to the extent the stock
transfer restriction agreements with the Underwriters have expired, except that
any such shares issued to affiliates are subject to the volume limitations and
certain other restrictions of Rule 144, unless appropriately registered under
the Securities Act. See "Management -- 1996 Incentive Plan."

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of Common Stock,
as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities. Prior to this offering, there has been
no established public trading market for the Common Stock. The Company
anticipates that the trading market in the Common Stock, if any, will be limited
based upon the number of shares currently outstanding and anticipated to be sold
in this offering.

44
<PAGE>
UNDERWRITING

The Underwriters named below, represented by Rauscher Pierce Refsnes, Inc.
and J.C. Bradford & Co. (the "Representatives"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement to purchase from the
Company the number of shares of Common Stock set forth opposite their respective
names below. The nature of the obligations of the Underwriters is such that if
any of such shares are purchased, all must be purchased.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Rauscher Pierce Refsnes, Inc...............................................................
J.C. Bradford & Co.........................................................................

-----------
Total.................................................................................... 2,000,000
-----------
-----------
</TABLE>

The Underwriters propose initially to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $ per share, and the Underwriters may allow, and such
dealers may reallow, to members of the NASD a concession not in excess of
$ per share. After the public offering, the price to public, the concession
and the reallowance may be changed by the Representatives.

The Company and Selling Stockholders have granted an option to the
Underwriters, exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 270,000 and 30,000 additional shares of Common
Stock, respectively, at the initial price to public, less the underwriting
discount, set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only for the purpose of covering over-allotments. To the
extent that the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase from the Company and
Selling Stockholders on a pro rata basis that number of additional shares of
Common Stock which is proportionate to such Underwriter's initial commitment.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

The Company, its executive officers and directors, and the Selling
Stockholders have agreed that for a period of 180 days after the date of this
Prospectus, they will not offer, sell or otherwise dispose of any shares of
Common Stock beneficially owned or controlled by them (including subsequently
acquired shares) without the prior written consent of Rauscher Pierce Refsnes,
Inc. on behalf of the Representatives.

Prior to this offering, there has been no market for the Common Stock and
there can be no assurance that a regular trading market will develop upon the
completion of this offering. The initial public offering price will be
determined by negotiations between the Company and the Representatives. The
primary factors considered in determining such offering price will include the
history of and

45
<PAGE>
prospects for the industry in which the Company competes, market valuation of
comparable companies, market conditions for public offerings, the history of and
prospects for the Company's business, the Company's past and present operations
and earnings and the trend of such earnings, the prospects for future earnings
of the Company, the Company's current financial position, an assessment of the
Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.

The Representatives have advised the Company that they do not expect any
sales by the Underwriters to accounts over which they exercise discretionary
authority.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Klenda, Mitchell, Austerman & Zuercher,
L.L.C., Wichita, Kansas. Certain legal matters in connection with the issuance
of the shares of Common Stock offered hereby will be passed upon for the
Underwriters by Jackson & Walker, L.L.P., Dallas, Texas.

EXPERTS

The combined balance sheets of the Company as of December 31, 1994 and 1995,
and the combined statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1995, have been included herein in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

The statements of operations, stockholder's equity, and cash flows of
Nashville Bagel Co., Inc. for each of the years in the three-year period ended
June 30, 1995 and for the period from July 1, 1995 through December 14, 1995,
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the June 30, 1994 financial statements of
Nashville Bagel Co., Inc. refers to a change in the method of accounting for
income taxes.

The statements of operations, stockholders' deficit, and cash flows of
Central & Ridge Yogurt, Inc. for the year ended December 31, 1995, have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (as amended and together with all exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus constitutes a part of the Registration Statement
and does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted from this Prospectus as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete and, where such agreement or
other document is an exhibit to the Registration Statement, each such statement
is qualified in all respects by the provisions of such exhibit, to which
reference is hereby made for a full statement of the provisions thereof. For
further information with respect to the Company and the Common Stock, reference
is hereby made to the Registration Statement and to the exhibits thereto.

The Registration Statement may be inspected, without charge, and copies may
be obtained, at prescribed rates, at the public reference facilities of the
Commission maintained at Judiciary Plaza,

46
<PAGE>
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of the
Registration Statement may also be inspected, without charge, at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, copies of the Registration Statement may be obtained by mail at
prescribed rates, from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.

As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and regional offices referred to above. The Company intends
to furnish its stockholders with annual reports containing financial statements
certified by its independent auditors and with quarterly reports for each of the
first three quarters of each fiscal year containing unaudited financial
information.

47
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
New York Bagel Enterprises, Inc.:
Independent Auditors' Report............................................................................. F-2
Combined Balance Sheets at December 31, 1994 and 1995 and March 31, 1996 (unaudited)..................... F-3
Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and the Three
Months Ended March 31, 1995 (unaudited) and the Thirteen Weeks Ended March 31, 1996 (unaudited)......... F-4
Combined Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994 and
1995 and the Thirteen Weeks Ended March 31, 1996 (unaudited)............................................ F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the Three
Months Ended March 31, 1995 (unaudited) and the Thirteen Weeks Ended March 31, 1996 (unaudited)......... F-6
Notes to Combined Financial Statements................................................................... F-7
New York Bagel Enterprises, Inc. (Unaudited):
Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1995................ F-18
Notes to Pro Forma Condensed Combined Statement of Operations............................................ F-19
Nashville Bagel Co., Inc.:
Independent Auditors' Report............................................................................. F-20
Statements of Operations for the Years Ended June 30, 1993, 1994 and 1995 and for the Period from July 1,
1995 through December 14, 1995.......................................................................... F-21
Statements of Stockholder's Equity for the Years Ended June 30, 1993, 1994 and 1995 and for the Period
from July 1, 1995 through December 14, 1995............................................................. F-22
Statements of Cash Flows for the Years Ended June 30, 1993, 1994 and 1995 and for the Period from July 1,
1995 through December 14, 1995.......................................................................... F-23
Notes to Financial Statements............................................................................ F-24
Central & Ridge Yogurt, Inc.:
Independent Auditors' Report............................................................................. F-26
Statement of Operations for the Year Ended December 31, 1995............................................. F-27
Statement of Stockholders' Deficit for the Year Ended December 31, 1995.................................. F-28
Statement of Cash Flows for the Year Ended December 31, 1995............................................. F-29
Notes to Financial Statements............................................................................ F-30
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
New York Bagel Enterprises, Inc.:

We have audited the accompanying combined balance sheets of New York Bagel
Enterprises, Inc. as of December 31, 1994 and 1995, and the related combined
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1995. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of New York
Bagel Enterprises, Inc. as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Wichita, Kansas
February 21, 1996, except
note 14 which is as of
June 4, 1996

F-2
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ------------ MARCH 31, PRO FORMA
1996 MARCH 31,
------------ 1996 (NOTE
15)
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 7)
Current assets:
Cash................................................................... $ 46,200 $ 133,425 $ 220,739 $ 220,739
Accounts receivable (note 3)........................................... 114,492 137,853 192,932 192,932
Inventory.............................................................. 81,913 143,964 105,309 105,309
Deferred costs, net of accumulated amortization of $4,236 at March 31,
1996 (note 4)......................................................... 6,428 77,100 170,621 170,621
Other current assets (note 9).......................................... 8,598 24,018 87,203 87,203
---------- ------------ ------------ ------------
Total current assets................................................. 257,631 516,360 776,804 776,804
Property, plant and equipment, net (note 5).............................. 554,340 1,256,154 1,664,025 1,664,025
Other assets, net of accumulated amortization of $4,063, $12,433 and
$15,287 at December 31, 1994 and 1995 and March 31, 1996,
respectively............................................................ 60,027 55,658 54,986 54,986
Deferred offering costs.................................................. -- 8,474 103,169 103,169
Goodwill, net of accumulated amortization of $999 and $6,738 at December
31, 1995 and March 31, 1996 (note 12)................................... -- 458,052 452,313 452,313
---------- ------------ ------------ ------------
$ 871,998 $ 2,294,698 $ 3,051,297 $ 3,051,297
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt (note 7)........................ $ 58,700 $ 519,936 $ 615,789 $ 615,789
Accounts payable....................................................... 58,640 163,172 265,059 265,059
Accrued liabilities.................................................... 99,062 83,761 301,453 301,453
Current portion of deferred franchise fees............................. 119,500 69,000 60,000 60,000
Deferred income taxes.................................................. -- -- -- 37,000
Distributions payable (note 10)........................................ 42,000 48,693 48,693 106,693
---------- ------------ ------------ ------------
Total current liabilities............................................ 377,902 884,562 1,290,994 1,385,994
Due to stockholders (note 8)............................................. 67,341 -- -- --
Long-term debt, less current portion (note 7)............................ 232,942 2,845,064 2,988,091 2,988,091
Deferred franchise fees.................................................. -- 98,000 44,000 44,000
Deferred credits......................................................... 30,059 45,537 46,279 46,279
Deferred income taxes (note 9)........................................... 4,786 -- -- 63,000
---------- ------------ ------------ ------------
Total liabilities.................................................... 713,030 3,873,163 4,369,364 4,527,364
---------- ------------ ------------ ------------
Stockholders' equity (deficit) (notes 10 and 14):
Class A common stock, $.01 par value. Authorized 25,000,000 shares;
issued and outstanding 1,416,988 shares............................... 14,170 14,170 14,170 14,170
Class B common stock, $.01 par value. Authorized 5,000,000 shares;
issued and outstanding 1,368,704, 1,368,704 and 1,383,012 shares at
December 31, 1994 and 1995 and March 31, 1996, respectively........... 13,687 13,687 13,830 13,830
Additional paid-in capital............................................. 151,293 157,793 157,650 157,650
Accumulated deficit.................................................... (20,182) (1,764,115) (1,503,717) (1,661,717)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)................................. 158,968 (1,578,465) (1,318,067) (1,476,067)
Commitments and contingencies (notes 6 and 13)
---------- ------------ ------------ ------------
$ 871,998 $ 2,294,698 $ 3,051,297 $ 3,051,297
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>

See accompanying notes to combined financial statements.

F-3
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1995 AND
THE THIRTEEN WEEKS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
THIRTEEN
YEARS ENDED DECEMBER 31, THREE MONTHS WEEKS ENDED
------------------------------------------- ENDED MARCH MARCH 31,
1993 1994 1995 31, 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales from Company-owned
restaurants........................ $ 3,538,612 $ 5,653,177 $ 6,875,146 $ 1,649,232 $ 2,219,415
Franchise revenues (note 3)......... 22,677 168,704 484,300 58,692 169,310
------------- ------------- ------------- ------------- -------------
Total revenues.................... 3,561,289 5,821,881 7,359,446 1,707,924 2,388,725
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales....................... 1,527,246 2,280,012 2,612,772 635,867 813,230
Restaurant operating expenses (note
6)................................. 1,386,676 2,326,178 3,083,902 705,469 959,684
General and administrative
expenses........................... 468,691 451,900 838,190 159,429 207,325
Depreciation and amortization....... 80,145 116,960 158,996 30,510 70,963
------------- ------------- ------------- ------------- -------------
Total costs and expenses.......... 3,462,758 5,175,050 6,693,860 1,531,275 2,051,202
------------- ------------- ------------- ------------- -------------
Operating income.................. 98,531 646,831 665,586 176,649 337,523
Interest expense...................... 13,745 52,383 39,800 6,957 77,125
------------- ------------- ------------- ------------- -------------
Earnings before income taxes...... 84,786 594,448 625,786 169,692 260,398
Income tax expense (benefit) (note
9)................................... 9,280 (2,498) 6,689 -- --
------------- ------------- ------------- ------------- -------------
Net earnings...................... $ 75,506 $ 596,946 $ 619,097 $ 169,692 $ 260,398
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Pro forma to reflect income taxes
(note 2(i)):
Income tax expense.................. $ 245,628 $ 104,159
Net earnings........................ $ 380,158 $ 156,239
Net earnings per share.............. $ .13 $ .05
</TABLE>

See accompanying notes to combined financial statements.

F-4
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THIRTEEN WEEKS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
CLASS A CLASS B CAPITAL DEFICIT TOTAL
--------- --------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992................... $ 14,170 $ 13,687 $ 101,043 $ (78,374) $ 50,526
Net earnings................................. -- -- -- 75,506 75,506
--------- --------- ----------- -------------- --------------
Balance, December 31, 1993................... 14,170 13,687 101,043 (2,868) 126,032
Contributed capital (note 10)................ -- -- 50,250 -- 50,250
Net earnings................................. -- -- -- 596,946 596,946
Distributions to stockholders (note 10)...... -- -- -- (614,260) (614,260)
--------- --------- ----------- -------------- --------------
Balance, December 31, 1994................... 14,170 13,687 151,293 (20,182) 158,968
Net earnings................................. -- -- -- 619,097 619,097
Stock compensation........................... -- -- 6,500 -- 6,500
Distributions to stockholders (note 10)...... -- -- -- (2,363,030) (2,363,030)
--------- --------- ----------- -------------- --------------
Balance, December 31, 1995................... 14,170 13,687 157,793 (1,764,115) (1,578,465)
Issuance of 14,308 shares of common stock
(unaudited)................................. -- 143 (143) -- --
Net earnings (unaudited)..................... -- -- -- 260,398 260,398
--------- --------- ----------- -------------- --------------
Balance, March 31, 1996 (unaudited).......... $ 14,170 $ 13,830 $ 157,650 $ (1,503,717) $ (1,318,067)
--------- --------- ----------- -------------- --------------
--------- --------- ----------- -------------- --------------
</TABLE>

See accompanying notes to combined financial statements.

F-5
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1995 AND
THE THIRTEEN WEEKS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
THREE THIRTEEN
YEARS ENDED DECEMBER 31, MONTHS WEEKS ENDED
--------------------------------------- ENDED MARCH MARCH 31,
1993 1994 1995 31, 1995 1996
----------- ----------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 75,506 $ 596,946 $ 619,097 $ 169,692 $ 260,398
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 80,145 116,960 158,996 30,510 70,963
Noncash stock compensation expense................... -- -- 6,500 -- --
Increase (decrease) in cash resulting from changes in
listed items, net of effects from acquisitions:
Deferred income taxes.............................. 5,614 (2,498) 1,302 -- --
Inventory.......................................... (16,413) (28,451) (178,209) (10,268) 38,655
Income taxes receivable............................ (1,300) -- 1,300 -- --
Other current assets............................... 1,296 (4,348) (1,588) 9,157 (63,185)
Accounts receivable................................ (8,854) (105,638) (23,361) 35,879 (55,079)
Deferred costs..................................... -- (6,428) (70,672) 5,194 (97,757)
Other assets....................................... (3,535) (52,318) (2,403) (2,823) (2,016)
Accounts payable................................... 10,330 30,882 140,253 56,069 101,887
Accrued liabilities and deferred credits........... 47,416 34,138 78,509 56,533 218,434
Income taxes payable............................... 1,364 (2,295) -- -- --
Deferred franchise fees............................ -- 119,500 47,500 (3,000) (63,000)
----------- ----------- ------------- ----------- -----------
Net cash provided by operating activities........ 191,569 696,450 777,224 346,943 409,300
----------- ----------- ------------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment............. (583,708) (285,080) (474,674) (28,794) (466,171)
Acquisitions, net of cash acquired..................... -- -- (656,174) -- --
----------- ----------- ------------- ----------- -----------
Net cash used in investing activities............ (583,708) (285,080) (1,130,848) (28,794) (466,171)
----------- ----------- ------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............... 379,325 252,865 3,049,210 -- 349,000
Principal payments on long-term debt................... (48,248) (128,309) (90,852) (17,807) (110,120)
Decrease in due to stockholders........................ (1,411) (40,274) (26,330) (18,659) --
Decrease in distributions payable...................... -- -- (8,807) (5,307) --
Proceeds from contributed capital...................... -- 50,250 -- -- --
Debt issuance costs.................................... -- -- (13,916) -- --
Deferred offering costs................................ -- -- (8,474) -- (94,695)
Distributions to stockholders.......................... -- (394,080) (2,459,982) (153,922) --
(Decrease) increase in excess of checks written over
funds on deposit...................................... 62,473 (105,622) -- -- --
----------- ----------- ------------- ----------- -----------
Net cash provided by (used in) financing
activities...................................... 392,139 (365,170) 440,849 (195,695) 144,185
----------- ----------- ------------- ----------- -----------
Net increase in cash............................. -- 46,200 87,225 122,454 87,314
Cash at beginning of period.............................. -- -- 46,200 46,200 133,425
----------- ----------- ------------- ----------- -----------
Cash at end of period.................................... $ -- $ 46,200 $ 133,425 $ 168,654 $ 220,739
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
</TABLE>

See accompanying notes to combined financial statements.

F-6
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995

(1) REORGANIZATION AND OPERATIONS

REORGANIZATION

The Company was formed as a result of a merger (the Merger) between New York
Bagel Enterprises, Inc., which became the surviving corporation, and New York
Bagel Shop, Inc.; New York Bagel Shop & Delicatessen, Inc.; Bagels of Norman,
Inc.; Bagel Boss, Inc.; and VPR Incorporated (the five restaurant entities). The
Merger was effective on December 31, 1995 whereby each of the five restaurant
entities were merged into New York Bagel Enterprises, Inc. (collectively the
five restaurant entities and New York Bagel Enterprises, Inc. are referred to as
the Prior Entities). The term Company as used herein refers to New York Bagel
Enterprises, Inc. including the five restaurant entities unless the context
otherwise requires.

To effect the Merger, New York Bagel Enterprises, Inc. issued 1,368,704
shares of its Class B common stock in exchange for all the outstanding stock of
each of the five restaurant entities.

Since the primary stockholders of each of the five restaurant entities prior
to the Merger are also the primary stockholders of the Company subsequent to the
Merger, the Merger essentially represents a transfer to New York Bagel
Enterprises, Inc. of nonmonetary assets in exchange for stock prior to a
proposed public offering of the Company's common stock (the Offering). The
Merger has been accounted for at historical cost.

The accompanying financial statements are presented on a combined basis for
all periods presented since this is the most meaningful presentation of the
business which will be effecting the Offering and due to substantial commonality
of ownership and management of the Prior Entities throughout the period of the
financial statements.

The Company converted shares of Class A common stock outstanding in
connection with the Merger (effectively a 3373.78:1 stock split). The
outstanding shares of common stock, as reflected in the accompanying financial
statements, include the effect of such stock conversion and the shares issued to
effect the Merger for all periods presented.

OPERATIONS

The Company operates Company-owned restaurants and sells franchise rights to
operate restaurants. In both instances, the restaurants operate under the New
York Bagel and Delicatessen concept which is a quick-service bakery featuring
freshly made bagels and deli-style sandwiches. As of December 31, 1995, the
Company had 15 Company-owned restaurants primarily located in Oklahoma and
Kansas and 25 franchised restaurants located throughout the United States.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) FRANCHISE REVENUES

Franchise agreements are executed for each franchised restaurant and provide
the terms of the franchise arrangement between the Company and the franchisee.
The franchise agreement requires the franchisee to pay an initial,
non-refundable franchise fee plus continuing royalties based upon a percentage
of restaurant sales. Additionally, the Company executes development agreements
with franchisees which stipulates the area, the number of restaurants, and the
timeframe for development in exchange for an initial, non-refundable development
fee based on a standard price per type of restaurant.

Initial franchise fees are recognized as revenue when the Company performs
substantially all initial services required by the franchise agreement, which
generally occurs shortly after restaurant

F-7
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
opening. Continuing royalties are recognized as earned with an appropriate
provision for estimated uncollectible amounts. Initial franchise fees received
applicable to restaurants for which substantially all initial services required
by the franchise agreement have not been performed are recorded as deferred
franchise fees in the accompanying balance sheets. Development fees are received
upon signing the agreement and are initially recorded as deferred franchise
fees. Such fees are applied to reduce the initial franchise fees paid for each
store opened and are accounted for as a component of the initial franchise fees.

Deferred initial franchise and development fees that are expected to be
recognized within 12 months of the balance sheet date are classified as current
portion of deferred franchise fees in the accompanying balance sheets.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

Direct, incremental costs incurred to secure franchise agreements are
charged to expense in the same period the related initial franchise fees are
recognized as revenue. Costs applicable to initial franchise fees not yet
recognized as revenue are recorded as deferred franchise costs.

(d) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the lesser of
the remaining lease term, including renewal periods when the Company intends to
exercise renewal options, or the estimated useful life of the asset.

(e) GOODWILL

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 20 years. The
Company periodically assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected future operating cash flows discounted at a rate commensurate with
the risks involved. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.

(f) INCOME TAXES

Effective January 1, 1994, New York Bagel Enterprises, Inc. and certain of
the restaurant entities elected and received approval to become S corporations.
During the periods the entities operated as S corporations, income tax expense
or benefit was not recorded in the accompanying financial statements as the
entities' results of operations were reported to the entities' stockholders for
inclusion in their individual income tax returns.

Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
(Statement 109). Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or

F-8
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date. There was no cumulative effect of adoption of Statement 109 as
of January 1, 1993.

(g) STATEMENTS OF CASH FLOWS

Noncash investing and financing activities during 1994 and 1995 included:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Noncash distributions to stockholders:
Distributions payable (see note 10)............................. $ 42,000 $ 15,500
------------ ------------
Net asset (liability) distributions (see note 10):
Assets distributed............................................ 507,695 137,134
Liabilities distributed....................................... (329,515) (249,586)
------------ ------------
Net assets (liabilities) distributed........................ 178,180 (112,452)
------------ ------------
Total noncash distributions................................. $ 220,180 $ (96,952)
------------ ------------
------------ ------------
Property, plant and equipment acquired in exchange for increase in
due to stockholders (see note 8)................................. $ 44,250 $ --
------------ ------------
------------ ------------
Long-term debt issued to seller in connection with acquisition
(see note 7)..................................................... $ -- $ 115,000
------------ ------------
------------ ------------
</TABLE>

Cash paid during the years for interest and taxes is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest................................................... $ 13,745 $ 52,383 $ 36,676
Taxes...................................................... 1,300 3,660 --
</TABLE>

(h) PRE-OPENING COSTS

Direct, incremental restaurant pre-opening costs, comprised primarily of the
cost of hiring and training restaurant employees and rent, are amortized over
the initial 12 months of a restaurant's operations.

(i) PRO FORMA INCOME TAX EXPENSE AND PRO FORMA NET EARNINGS PER SHARE

PRO FORMA INCOME TAX EXPENSE

Subsequent to the proposed Offering, the Company will no longer operate as
an S corporation. Pro forma income tax expense, as set forth in the accompanying
statements of operations, reflects what the income tax expense of the Company
would have been for the year ended December 31, 1995, and the thirteen weeks
ended March 31, 1996 if none of the entities included in the combined financial
statements had operated as S corporations during such periods.

PRO FORMA NET EARNINGS PER SHARE

Pro forma net earnings per share information, as set forth in the
accompanying statements of operations, is computed based on pro forma net
earnings of $380,158 and $156,239 which is based on reported earnings before
income taxes less pro forma income tax expense of $245,628 and $104,159 for the
year ended December 31, 1995 and the thirteen weeks ended March 31, 1996,
respectively.

F-9
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma weighted average common shares outstanding have been determined as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------ THIRTEEN
WEEKS ENDED
MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C>
Weighted average shares outstanding............................. 2,785,692 2,800,000
Shares issued during 12-month period prior to initial filing of
the registration statement at price per share below the initial
public offering price.......................................... 14,308 --
Pro forma number of shares whose proceeds would be sufficient
(based upon the estimated net initial public offering price) to
replace the excess of distributions to stockholders over net
earnings for the year ended December 31, 1995.................. 178,134 178,134
------------ -------------
Pro forma weighted average common shares outstanding............ 2,978,134 2,978,134
------------ -------------
------------ -------------
</TABLE>

The 19,320 shares contingently issuable under the convertible subordinated
debenture (see note 7) have not been considered in the computation of pro forma
net earnings per share due to immateriality.

(j) USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.

(k) INTERIM FINANCIAL DATA (UNAUDITED)

The accompanying balance sheet as of March 31, 1996 and the accompanying
statements of operations, stockholders' equity (deficit) and cash flows for the
three months ended March 31, 1995 and the thirteen weeks ended March 31, 1996
have been prepared by the Company without an audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation for such periods have been made.
Results for interim periods should not be considered as indicative of results
for a full year.

Footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted herein with respect to the interim financial data. The interim
information herein should be read in conjunction with the annual financial
information presented herein.

(l) NEW ACCOUNTING STANDARD

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF as of January 1, 1996. There was no effect
at the date of adoption.

(m) FISCAL PERIODS

Prior to 1996, the Company's financial reporting was done on a calendar
basis. Effective January 1, 1996, the Company changed to a 52/53-week fiscal
year comprised of four thirteen-week periods.

F-10
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(3) FRANCHISE REVENUES

Franchise revenues for the years ended December 31, 1993, 1994 and 1995
consist of the following:

<TABLE>
<CAPTION>
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Initial franchise and development fees............................ $ 21,000 $ 108,000 $ 250,500
Royalty revenue................................................... 1,677 60,704 233,800
--------- ----------- -----------
Total........................................................... $ 22,677 $ 168,704 $ 484,300
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

The associated franchise receivables included within accounts receivable in
the accompanying balance sheets at December 31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Initial franchise and development fee receivables............................. $ 104,000 $ 106,416
Royalty receivables........................................................... 10,492 46,437
Less allowance for doubtful accounts.......................................... -- (15,000)
----------- -----------
$ 114,492 $ 137,853
----------- -----------
----------- -----------
</TABLE>

(4) DEFERRED COSTS

Deferred costs as of December 31, 1994 and 1995 include the following:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Pre-opening costs................................................................. $ -- $ 60,445
Deferred franchise costs.......................................................... 6,428 16,655
--------- ---------
Total deferred costs............................................................ $ 6,428 $ 77,100
--------- ---------
--------- ---------
</TABLE>

(5) PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment and accumulated depreciation as
of December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Buildings.................................................................. $ 30,292 $ 30,292
Equipment.................................................................. 781,741 1,354,649
Leasehold improvements..................................................... 173,824 453,863
------------ -------------
985,857 1,838,804
Less accumulated depreciation.............................................. (431,517) (582,650)
------------ -------------
Net property, plant and equipment........................................ $ 554,340 $ 1,256,154
------------ -------------
------------ -------------
</TABLE>

(6) LEASES

The Company leases several restaurant facilities under noncancelable
operating leases. These leases generally contain renewal options for periods
ranging from 3 to 15 years and require the Company to pay executory costs such
as maintenance and insurance. Rent expense for operating leases aggregated
$126,614, $193,418 and $296,950 for the years ended December 31, 1993, 1994 and
1995, respectively.

F-11
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(6) LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of December 31, 1995
are:

<TABLE>
<S> <C>
Year ending December 31:
1996................................................................. $ 305,200
1997................................................................. 255,875
1998................................................................. 222,447
1999................................................................. 201,662
2000................................................................. 100,592
Thereafter........................................................... 119,697
----------
Total minimum lease payments....................................... $1,205,473
----------
----------
</TABLE>

The Company is party to certain operating leases with companies that are
owned by certain stockholders of the Company. Rent expense paid to these related
companies pursuant to lease agreements aggregated $14,100 and $63,249 for the
years ended December 31, 1994 and 1995, respectively.

Deferred credits in the accompanying balance sheets represent accruals for
escalating rental payments on operating leases.

F-12
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(7) LONG-TERM DEBT

Long-term debt at December 31, 1994 and 1995 consists of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -------------
<S> <C> <C>
Prime rate plus 1.0% note payable to bank (9.5% at December 31, 1995) due in
monthly installments of $57,800 including interest with the remaining
balance due in December 2000. Secured by substantially all tangible and
intangible assets of the Company and guaranteed by certain Company
stockholders............................................................... $ -- $ 2,750,000
Prime rate plus 0.5% note payable to bank (9.0% at December 31, 1995) due in
monthly installments of $8,110 including interest beginning in April 1996
with the remaining balance due in March 2003. Secured by substantially all
tangible and intangible assets of the Company and guaranteed by certain
Company stockholders....................................................... -- 500,000
4.0% contingently convertible subordinated debenture payable in annual
installments of $28,750 plus interest beginning in December 1996. The
debenture may be converted at the option of the debenture holder into
shares of common stock equal to a maximum 0.69% of the Company's
outstanding common stock but the conversion privilege is only operative in
the event the Company has completed an initial public offering of its
common stock which meets certain specified criteria. The debenture is
subordinate to all other liabilities of the Company (note 12).............. -- 115,000
Various notes payable with a bank due in monthly installments through
October 2001 with interest rates ranging from 8.0% to 10.875%; secured by
equipment. Notes were refinanced as part of the $2,750,000 note payable to
bank discussed above....................................................... 264,527 --
8.0% note payable to a bank due in monthly installments through 2001;
secured by equipment. The note was fully paid-off in 1995.................. 27,115 --
----------- -------------
Total long-term debt...................................................... 291,642 3,365,000
Less current installments of long-term debt................................. (58,700) (519,936)
----------- -------------
Long-term debt, less current installments................................... $ 232,942 $ 2,845,064
----------- -------------
----------- -------------
</TABLE>

The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1995 are as follows: 1996 - $519,936; 1997 -
$582,364; 1998 - $637,154; 1999 - $697,365; 2000 - $731,357; and thereafter
$196,824.

(8) DUE TO STOCKHOLDERS

Amounts due to stockholders represent funds advanced to the Company from
stockholders of the five restaurant entities which were used primarily for
equipment additions. Such amounts were non-interest-bearing and were either
repaid in 1995 or included in the transfer to stockholders described in note 10.

F-13
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(9) INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1993, 1994 and
1995 consists of the following:

<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................ $ 3,666 $ -- $ 9,805
Deferred............................................................... 5,614 (2,498) (3,116)
--------- --------- ---------
Total................................................................ $ 9,280 $ (2,498) $ 6,689
--------- --------- ---------
--------- --------- ---------
</TABLE>

As described in note 2, certain entities included in the combined financial
statements elected S corporation status as of January 1, 1994, and as a result
no longer pay corporate income taxes. Additionally, as a result of the Merger
discussed in note 1, the Company is an S corporation effective December 31, 1995
and, accordingly, no deferred tax assets or liabilities are recorded in the
accompanying balance sheet as of December 31, 1995. Consequently, income tax
expense (benefit) for the years ended December 31, 1994 and 1995 include the
reversal of existing deferred tax assets and liabilities for those entities
which first became S corporations in each year.

Actual income tax expense (benefit) differs from the "expected" tax expense
(benefit) computed by applying the United States Federal corporate tax rate of
34% to earnings before income taxes for the years ended December 31, 1993, 1994
and 1995 as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Computed expected tax expense.................................. $ 28,827 $ 202,112 $ 212,767
S corporation earnings allocated to stockholders............... -- (193,589) (195,515)
Surtax exemption............................................... (16,199) (6,488) (7,613)
Change in valuation allowance.................................. (6,596) (5,303) (9,736)
Other.......................................................... 3,248 770 6,786
---------- ------------ ------------
$ 9,280 $ (2,498) $ 6,689
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

Income taxes receivable of $1,300 and $16,747 at December 31, 1994 and 1995,
respectively, are included in the accompanying balance sheets as a component of
other current assets. A net deferred tax asset of $1,670 was included in other
current assets at December 31, 1994.

The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1994 are presented below:

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward................................. $ 8,867
Accrued liabilities, due to accrual for financial reporting
purposes....................................................... 2,539
---------
Total gross deferred tax assets............................... 11,406
Less valuation allowance...................................... 9,736
---------
Net deferred tax asset........................................ 1,670
Deferred tax liabilities:
Property, plant and equipment, due to accelerated depreciation
for tax reporting purposes..................................... 4,786
---------
Net deferred tax liability.................................... $ (3,116)
---------
---------
</TABLE>

F-14
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(9) INCOME TAXES (CONTINUED)
Differences between the tax bases and the amounts reported for financial
statement purposes for the Company's assets and liabilities at December 31, 1995
are as follows:

<TABLE>
<CAPTION>
AMOUNTS
REPORTED FOR
FINANCIAL
TAX BASES STATEMENTS
------------- -------------
<S> <C> <C>
Assets.......................................................... $ 2,069,284 $ 2,294,698
Liabilities..................................................... $ 3,765,972 $ 3,873,163
</TABLE>

(10)STOCKHOLDERS' EQUITY

CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS TO STOCKHOLDERS

In July 1994, pursuant to a contract for sale of stock (the contract) of New
York Bagel Enterprises, Inc., an Oklahoma corporation (NYBE-OK), the then
existing stockholders (sellers) of NYBE-OK sold a 50% ownership interest in
NYBE-OK to certain individuals (buyers) in exchange for a cash payment from the
buyers directly to the sellers and a $50,000 contribution by the buyers to
NYBE-OK of which $49,250 has been recorded as contributed capital and $750 has
been applied as payment of amounts owed to NYBE-OK by the sellers. The remaining
$1,000 of capital contribution in 1994 was a cash contribution to one of the
five restaurant entities. Pursuant to the contract, NYBE-OK is obligated to pay
to the sellers (as distributions) collections of franchise fees NYBE-OK receives
subsequent to closing of the contract for certain specified locations. To the
extent such fees have been recognized as income but have not yet been
distributed to the sellers, such amounts are recorded as distributions payable
in the accompanying balance sheets.

Distributions to stockholders for the years ended December 31, 1994 and 1995
are comprised of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -------------
<S> <C> <C>
Distributions of NYBE-OK.......................................... $ 132,000 $ 963,923
Distributions of the five restaurant entities..................... 482,260 1,399,107
----------- -------------
Total distributions............................................... $ 614,260 $ 2,363,030
----------- -------------
----------- -------------
</TABLE>

As disclosed in note 2(g), distributions of the five restaurant entities
include two transfers to certain stockholders in 1994 of real estate net of
related indebtedness and the transfer in 1995, prior to the Merger, of certain
assets and liabilities (primarily restaurant related current assets and
liabilities) to the stockholders of the five restaurant entities.

CLASS B COMMON STOCK

The Class B common stock has no voting power. Class A common stock has full
voting power. The Class B common stock will be converted into Class A common
stock on a one-for-one basis upon completion of the Offering of the Class A
common stock.

(11)FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION

The carrying values of the Company's long-term debt approximates their fair
values based on current interest rates of similar instruments. The carrying
values of the Company's other financial instruments at December 31, 1995,
including cash, accounts receivable, other current assets, accounts payable, and
accrued expenses approximate their fair values because of their short maturity.

F-15
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(12)ACQUISITIONS

Effective December 14, 1995, the Company purchased all the outstanding
common stock of Nashville Bagel Co., Inc. for $565,000. Acquisition expenses
amounted to $23,338. The acquisition has been accounted for by the purchase
method of accounting and, accordingly, the operations of Nashville Bagel Co.,
Inc. have been included in the accompanying statements of operations subsequent
to December 14, 1995. The purchase price has been allocated to the assets and
liabilities acquired based on their estimated fair values at date of
acquisition. Goodwill arising from the acquisition amounted to $434,451.

Effective December 31, 1995, the Company purchased certain assets of Central
& Ridge Yogurt, Inc. by assuming liabilities amounting to $225,000. The
acquisition has been accounted for by the purchase method of accounting. The
purchase price has been allocated to the net assets acquired based on their
estimated fair values at date of acquisition. Goodwill arising from the
acquisition amounted to $24,600. A Company officer was also an officer and
stockholder of Central & Ridge Yogurt, Inc.

The following table summarizes the pro forma results of operations for the
years ended December 31, 1994 and 1995 as if the acquisitions had been
consummated at the beginning of the respective periods. In presenting the pro
forma information, depreciation, amortization and interest expense have been
adjusted to reflect the purchase accounting recorded in the acquisitions and
income taxes have been recognized as if none of the entities included in the pro
forma results had operated as a S corporation. The pro forma results do not
necessarily reflect what would have occurred if the acquisitions had been made
at the beginning of the respective periods or the results that may occur in the
future.

<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Revenues........................................................ $ 7,339,463 $ 8,761,108
Net earnings.................................................... 311,051 223,898
Net earnings per share.......................................... .08
</TABLE>

(13)COMMITMENTS AND CONTINGENCIES

Pursuant to the terms of one operating lease, the Company has guaranteed the
performance under a lease agreement of an unrelated lessee. As of December 31,
1995, future lease payments guaranteed aggregated $54,000; however, the lessee
is current on lease payments and the Company does not currently expect to incur
any loss applicable to this guaranty.

As of December 31, 1995, the Company has issued a guaranty totaling $35,000
on a borrowing by a franchisee. The Company monitors the financial performance
of such franchisee and the Company does not believe an accrual is necessary for
the Company's obligation under this guaranty.

(14)SUBSEQUENT EVENTS

STOCK SPLIT

On June 4, 1996, the Company effected a 1.4 for 1 stock split. The stock
split has been reflected retroactively for all periods presented in the
accompanying financial statements and, accordingly, all applicable dollar, share
and per share amounts have been restated to reflect the stock split.

STOCK AWARDS

On January 16, 1996, the Company adopted the 1996 Incentive Plan (the Plan)
which authorizes the award of 400,000 shares of common stock pursuant to
incentive stock options, nonqualified stock options or restricted stock. As of
June 4, 1996, options to purchase 271,000 shares of common stock

F-16
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(14)SUBSEQUENT EVENTS (CONTINUED)
have been granted pursuant to the Plan. The exercise price per share is equal to
100% of the price per share of common stock to be issued pursuant to the
Offering for options pertaining to 193,500 shares and is equal to 110% of such
price per share for options pertaining to 77,500 shares. One-fifth of the
options will become exercisable six months after date of grant and one-fifth on
each of the first four anniversaries of the date of grant.

(15)PRO FORMA BALANCE SHEET (UNAUDITED)

The unaudited pro forma balance sheet at March 31, 1996 gives effect to the
following transactions as if such transaction occurred on that date:

(1) An accrual for the distribution of $58,000 to stockholders as if the
Company had terminated its S Corporation status at March 31, 1996 and made a
distribution to the stockholders in connection with their estimated federal
and state income tax obligations.

(2) An estimated $100,000 of deferred tax liability which would be
recorded as a debit to accumulated deficit had the Company terminated its S
corporation status at March 31, 1996.

F-17
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995

The following pro forma condensed combined statement of operations presents
the results of operations of the Company for the year ended December 31, 1995 as
if the acquisitions of Nashville Bagel Co., Inc. and Central & Ridge Yogurt,
Inc. had each occurred as of January 1, 1995. The acquisitions have been
accounted for by the purchase method of accounting. The pro forma financial
information should be read in conjunction with the related historical financial
information of the Company, Nashville Bagel Co., Inc. and Central & Ridge
Yogurt, Inc. included elsewhere herein. The unaudited pro forma condensed
combined statement of operations does not purport to represent what the
Company's results of operations would actually have been had the transactions in
fact occurred on the aforementioned date, or to project the Company's results of
operations for any future periods. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable. These adjustments are directly attributable to the transactions and
are expected to have a continuing impact on the results of operations of the
Company.

<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------
NEW YORK CENTRAL &
BAGEL NASHVILLE RIDGE
ENTERPRISES, BAGEL CO., YOGURT,
INC. INC. INC. PRO FORMA
------------- ------------- ----------- PRO FORMA -------------
ADJUSTMENTS
------------
(NOTE A)
<S> <C> <C> <C> <C> <C>
Total revenues........................ $ 7,359,446 $ 1,074,719 $ 326,943 $ -- $ 8,761,108
------------- ------------- ----------- ------------ -------------
Costs and expenses:
Cost of sales....................... 2,612,772 363,972 162,836 -- 3,139,580
Restaurant operating expenses....... 3,083,902 677,200 186,696 -- 3,947,798
General and administrative
expenses........................... 838,190 79,378 27,861 -- 945,429
Depreciation and amortization....... 158,996 16,421 31,108(1) 4,852 234,329
(2) 22,952
------------- ------------- ----------- ------------ -------------
Total costs and expenses.......... 6,693,860 1,136,971 408,501 27,804 8,267,136
------------- ------------- ----------- ------------ -------------
Operating income (loss)........... 665,586 (62,252) (81,558) (27,804) 493,972
Interest expense (note B)............. 39,800 -- 16,893(3) 52,042 108,735
Gain on sale of business.............. -- -- (92,342 (4) 92,342 --
------------- ------------- ----------- ------------ -------------
Earnings (loss) before income
taxes............................ 625,786 (62,252) (6,109) (172,188) 385,237
Income tax expense (benefit).......... 6,689 (13,176) -- (5) 167,826 161,339
------------- ------------- ----------- ------------ -------------
Net earnings (loss)............... $ 619,097 $ (49,076) $ (6,109) $ (340,014) $ 223,898
------------- ------------- ----------- ------------ -------------
------------- ------------- ----------- ------------ -------------
Pro forma net earnings per share...... $ .13 $ .08
------------- -------------
------------- -------------
Pro forma weighted average common
shares outstanding................... 2,978,134 2,978,134
------------- -------------
------------- -------------
</TABLE>

F-18
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1995

NOTE A:

The acquisition of Nashville Bagel Co., Inc. was effective as of December
14, 1995 and the acquisition of Central & Ridge Yogurt, Inc. was effective as of
December 31, 1995. The results of operations of such acquired businesses have
been included in the Company's historical statement of operations subsequent to
the respective dates of acquisition.

Prior to the acquisition, Nashville Bagel Co., Inc. had a fiscal year ended
June 30. For purposes of the accompanying unaudited pro forma condensed combined
statement of operations, the Nashville Bagel Co., Inc. historical statement of
operations has been updated to a December 31 year end basis by deducting
operations for the six-month period ended December 31, 1994 from the statement
of operations for the year ended June 30, 1995 and adding the operations for the
period from July 1, 1995 through December 14, 1995.

Pro forma adjustments are as follows:

(1) To reflect depreciation expense based upon the cost assigned to
acquired assets based upon applying the purchase method of accounting.

(2) To reflect the amortization of goodwill over 20 years using the
straight-line method.

(3) To reflect interest expense applicable to borrowings incurred to
effect the acquisitions.

(4) To eliminate nonrecurring gain on sale of business.

(5) To reflect the adjustment for income taxes. Such adjustment has been
derived by applying statutory rates to pro forma earnings before income
taxes adjusted for permanent differences.

NOTE B:

A pro forma adjustment has not been included to reflect interest expense
applicable to borrowings incurred by the Company in December 1995 to finance
distributions to stockholders because the Company intends to use the proceeds of
the Offering to repay such borrowings and the number of shares whose proceeds
would be sufficient (based upon the estimated net offering price) to replace the
excess of distributions to stockholders over net earnings have been considered
as outstanding for purposes of computing pro forma net earnings per share.

F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Boards of Directors
Nashville Bagel Co., Inc. and
New York Bagel Enterprises, Inc.:

We have audited the accompanying statements of operations, stockholder's
equity and cash flows of Nashville Bagel Co., Inc. for each of the years in the
three-year period ended June 30, 1995 and for the period from July 1, 1995
through December 14, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the cash flows of
Nashville Bagel Co., Inc. for each of the years in the three-year period ended
June 30, 1995 and for the period from July 1, 1995 through December 14, 1995, in
conformity with generally accepted accounting principles.

As discussed in note 2 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, in 1994.

KPMG Peat Marwick LLP

Wichita, Kansas
February 12, 1996

F-20
<PAGE>
NASHVILLE BAGEL CO., INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
THE PERIOD FROM JULY 1, 1995 THROUGH DECEMBER 14, 1995

<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1995
JUNE 30, THROUGH
------------------------------------------- DECEMBER 14,
1993 1994 1995 1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 1,137,246 $ 1,189,756 $ 1,243,796 $ 472,057
------------- ------------- ------------- ------------
Costs and expenses:
Cost of sales....................................... 382,512 390,289 403,966 167,414
Restaurant operating expenses....................... 613,563 637,770 721,689 318,305
General and administrative expenses................. 18,883 16,974 20,118 9,503
Officers' salaries.................................. 85,000 52,000 52,000 24,000
Depreciation........................................ 19,724 24,036 18,816 8,624
------------- ------------- ------------- ------------
Total costs and expenses.......................... 1,119,682 1,121,069 1,216,589 527,846
------------- ------------- ------------- ------------
Earnings (loss) before income taxes................... 17,564 68,687 27,207 (55,789)
Income tax expense (benefit).......................... 4,878 16,616 6,582 (11,808)
------------- ------------- ------------- ------------
Net earnings (loss)................................... $ 12,686 $ 52,071 $ 20,625 $ (43,981)
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>

See accompanying notes to financial statements.

F-21
<PAGE>
NASHVILLE BAGEL CO., INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
THE PERIOD FROM JULY 1, 1995 THROUGH DECEMBER 14, 1995

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, June 30, 1992........................................... $ 5,000 $ 30,000 $ 36,253 $ 71,253
Net earnings..................................................... -- -- 12,686 12,686
----------- ----------- ----------- -----------
Balance, June 30, 1993........................................... 5,000 30,000 48,939 83,939
Net earnings..................................................... -- -- 52,071 52,071
----------- ----------- ----------- -----------
Balance, June 30, 1994........................................... 5,000 30,000 101,010 136,010
Contribution of capital.......................................... -- 25,000 -- 25,000
Net earnings..................................................... -- -- 20,625 20,625
----------- ----------- ----------- -----------
Balance, June 30, 1995........................................... 5,000 55,000 121,635 181,635
Net loss......................................................... -- -- (43,981) (43,981)
----------- ----------- ----------- -----------
Balance, December 14, 1995....................................... $ 5,000 $ 55,000 $ 77,654 $ 137,654
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE>
NASHVILLE BAGEL CO., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
THE PERIOD FROM JULY 1, 1995 THROUGH DECEMBER 14, 1995

<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1995
JUNE 30, THROUGH
---------------------------------- DECEMBER 14,
1993 1994 1995 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................ $ 12,686 $ 52,071 $ 20,625 $ (43,981)
Adjustments to reconcile net earnings (net loss) to net
cash provided by (used in) operating activities:
Depreciation............................................. 19,724 24,036 18,816 8,624
Deferred income taxes.................................... (1,549) 104 1,710 (1,124)
Increase in inventory.................................... (164) (283) (292) --
(Increase) decrease in income taxes receivable........... (897) 897 (6,063) (10,684)
(Increase) decrease in other assets...................... 232 (12) 54 140
Increase (decrease) in accounts payable.................. 11,700 (2,090) (684) 450
Increase (decrease) in income taxes payable.............. (799) 10,084 (13,368) --
Increase (decrease) in accrued liabilities............... 946 3,914 2,867 (3,714)
---------- ---------- ---------- ------------
Net cash provided by (used in) operating activities.... 41,879 88,721 23,665 (50,289)
---------- ---------- ---------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment................. (41,670) (9,723) (24,209) (4,771)
---------- ---------- ---------- ------------
Cash flows from financing activities:
Repayment of note payable to bank.......................... (34,496) (10,400) -- --
Repayment of debenture payable to stockholder.............. -- -- (25,000) --
---------- ---------- ---------- ------------
Net cash used in financing activities.................. (34,496) (10,400) (25,000) --
---------- ---------- ---------- ------------
Net increase (decrease) in cash........................ (34,287) 68,598 (25,544) (55,060)
Cash at beginning of period.................................. 64,720 30,433 99,031 73,487
---------- ---------- ---------- ------------
Cash at end of period........................................ $ 30,433 $ 99,031 $ 73,487 $ 18,427
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Cash paid for taxes.......................................... $ 4,040 $ 5,531 $ 25,298 $ --
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Significant noncash financing activities:
During the year ended June 30, 1995, $25,000 of a $50,000 debenture payable to the stockholder was
contributed to additional paid-in capital.
</TABLE>

See accompanying notes to financial statements.

F-23
<PAGE>
NASHVILLE BAGEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
THE PERIOD FROM JULY 1, 1995 THROUGH DECEMBER 14, 1995

(1) OPERATIONS
Nashville Bagel Co., Inc. (the Company) operates a retail bagel restaurant
located in Nashville, Tennessee. The Company also wholesales bagels to grocery
stores and other food service entities.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

(b) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated
using the double declining balance method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the remaining lease term,
including renewal periods.

Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (Statement
109). Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. There
was no cumulative effect of adoption of Statement 109 as of July 1, 1993.

(d) USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.

(3) INCOME TAXES
Income tax expense (benefit) for years ended June 30, 1993, 1994 and 1995
and the period from July 1, 1995 through December 14, 1995 consists of the
following:

<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1995
JUNE 30, THROUGH
------------------------------- DECEMBER 14,
1993 1994 1995 1995
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Current:
Federal..................................... $ 3,143 $ 10,586 $ 2,721 $ (11,706)
State....................................... 3,284 5,926 2,151 1,022
Deferred...................................... (1,549) 104 1,710 (1,124)
--------- --------- --------- ------------
Total..................................... $ 4,878 $ 16,616 $ 6,582 $ (11,808)
--------- --------- --------- ------------
--------- --------- --------- ------------
</TABLE>

F-24
<PAGE>
NASHVILLE BAGEL CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
THE PERIOD FROM JULY 1, 1995 THROUGH DECEMBER 14, 1995 (CONTINUED)

(3) INCOME TAXES (CONTINUED)
Actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit) computed by applying the United States Federal corporate tax
rate of 34% to earnings (loss) before income taxes for the years ended June 30,
1993, 1994 and 1995 and for the period from July 1, 1995 through December 14,
1995 and the as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1995
JUNE 30, THROUGH
-------------------------------- DECEMBER 14,
1993 1994 1995 1995
--------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Tax at statutory rate....................... $ 5,972 $ 23,353 $ 9,250 $ (18,968)
State income taxes, net of federal
benefit.................................... 2,167 3,911 2,076 674
Effect of graduated rates................... (3,261) (10,648) (4,744) 6,486
--------- ---------- --------- ------------
$ 4,878 $ 16,616 $ 6,582 $ (11,808)
--------- ---------- --------- ------------
--------- ---------- --------- ------------
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities are due to liabilities accrued for financial reporting
purposes and property, plant and equipment which have different tax and
financial reporting bases. Net deferred tax assets amounted to $13,523; $13,419;
$11,709 and $12,833 at June 30, 1993, June 30, 1994, June 30, 1995 and December
14, 1995, respectively.

(4) LEASES
The Company leases its restaurant facility under a noncancelable operating
lease that expires in May 1996 and contains three remaining renewal options for
five years each. The lease requires the Company to pay executory costs such as
maintenance and insurance. Rent expense amounted to $77,651; $80,246; $83,456
and $43,110 for years ended June 30, 1993, 1994 and 1995 and the period from
July 1, 1995 through December 14, 1995, respectively.

(5) SALE OF BUSINESS
Effective December 14, 1995, the stockholder of the Company sold all of the
Company's outstanding common stock to New York Bagel Enterprises, Inc.

F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Boards of Directors
Central & Ridge Yogurt, Inc. and
New York Bagel Enterprises, Inc.:

We have audited the accompanying statements of operations, stockholders'
deficit, and cash flows of Central & Ridge Yogurt, Inc. for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the cash flows of
Central & Ridge Yogurt, Inc. for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.

KPMG Peat Marwick LLP

Wichita, Kansas
March 26, 1996

F-26
<PAGE>
CENTRAL & RIDGE YOGURT, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Revenues......................................................................... $ 326,943
---------
Costs and expenses:
Cost of sales.................................................................. 162,836
Restaurant operating expenses.................................................. 186,696
General and administrative expenses............................................ 27,861
Depreciation and amortization.................................................. 31,108
---------
Total costs and expenses..................................................... 408,501
---------
Operating loss............................................................... (81,558)
Other expense (income):
Interest expense............................................................... 16,893
Gain on sale of business (note 5).............................................. (92,342)
---------
Net loss..................................................................... $ (6,109)
---------
---------
</TABLE>

See accompanying notes to financial statements.

F-27
<PAGE>
CENTRAL & RIDGE YOGURT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994............................. 1,000 $ 1,000 $ 109,000 $ (143,310) $ (33,310)
Net loss............................................... -- -- -- (6,109) (6,109)
Distributions to stockholders.......................... -- -- -- (7,164) (7,164)
--------- --------- ----------- ------------ ----------
Balance, December 31, 1995............................. 1,000 $ 1,000 $ 109,000 $ (156,583) $ (46,583)
--------- --------- ----------- ------------ ----------
--------- --------- ----------- ------------ ----------
</TABLE>

See accompanying notes to financial statements.

F-28
<PAGE>
CENTRAL & RIDGE YOGURT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (6,109)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of business.................................................... (92,342)
Depreciation and amortization............................................... 31,108
Gain on sale of assets...................................................... (9,425)
Increase (decrease) in cash resulting from changes in listed items:
Inventory................................................................. (1,119)
Pre-opening costs......................................................... (6,653)
Accounts receivable....................................................... 5,028
Other assets.............................................................. (879)
Accounts payable.......................................................... 2,489
Accrued liabilities....................................................... 3,168
---------
Net cash used in operating activities................................... (74,734)
---------
Cash flows from investing activities:
Additions to property, plant and equipment.................................... (100,499)
Proceeds on sale of assets.................................................... 27,000
---------
Net cash used in investing activities................................... (73,499)
---------
Cash flows from financing activities:
Proceeds from notes payable................................................... 159,493
Principal payments on notes payable........................................... (12,493)
Increase in due to stockholders............................................... 8,020
Distributions to stockholders................................................. (7,164)
Excess of checks written over funds on deposit................................ 377
---------
Net cash provided by financing activities............................... 148,233
---------
Net increase in cash.................................................... --
Cash at beginning of year....................................................... 400
---------
Cash at end of year............................................................. $ 400
---------
---------
</TABLE>

See accompanying notes to financial statements.

F-29
<PAGE>
CENTRAL & RIDGE YOGURT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

(1) OPERATIONS
Central & Ridge Yogurt, Inc. (the Company) operates a restaurant as a
franchisee of New York Bagel Enterprises, Inc. (Franchisor) under the New York
Bagel concept which is a quick-service bakery featuring freshly made bagels and
deli-style sandwiches. The Company's restaurant is located in Wichita, Kansas.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) FRANCHISE FEES

A franchise agreement has been executed between the Company and the
Franchisor that provides the terms of the franchise arrangement. The initial
franchise fee is being amortized on a straight-line basis over the term of the
agreement.

(b) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

Direct, incremental restaurant pre-opening costs, comprised primarily of the
cost of hiring and training restaurant employees and rent, are amortized over
the initial twelve months of the restaurant's operations.

(d) PROPERTY, PLANT AND EQUIPMENT

(e) INCOME TAXES

The Company operates as an S corporation for income tax purposes. Income
taxes have not been provided because the Company's results of operations are
reported to its stockholders for inclusion in their individual tax returns.

(f) STATEMENT OF CASH FLOWS

Cash paid during the year for interest was $15,744.

(g) USE OF ESTIMATES

(3) PROPERTY, PLANT AND EQUIPMENT
Depreciation expense amounted to $26,882 for the year ended December 31,
1995.

(4) LEASES
The Company leases its present restaurant facility under a noncancelable
operating lease. The lease term expires in February 1998 and contains a renewal
option for an additional three-year period. Total rent expense for the year
ended December 31, 1995 was $23,629.

F-30
<PAGE>
CENTRAL & RIDGE YOGURT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

(4) LEASES (CONTINUED)
Future minimum lease payments under the noncancelable operating lease as of
December 31, 1995 are:

<TABLE>
<S> <C>
Year ending December 31:
1996............................................................ $ 18,600
1997............................................................ 18,600
1998............................................................ 19,050
1999............................................................ 19,200
2000............................................................ 19,200
Thereafter...................................................... 4,800
---------
Total minimum lease payments.................................... $ 99,450
---------
---------
</TABLE>

(5) SALE OF BUSINESS
Effective after the close of business on December 31, 1995, the Company sold
substantially all of its assets to the Franchisor. One of the Company's owners
is also an officer and stockholder of the Franchisor. The gain amounting to
$92,342 arising from such sale has been reflected in the accompanying statement
of operations.

F-31
<PAGE>
[REAR COVER PAGE INTERIOR WITH NEW YORK BAGEL LOGO, STORE PHOTOS AND PRODUCT
PHOTOS]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
S Corporation Distributions.................... 12
Dividend Policy................................ 12
Use of Proceeds................................ 13
Dilution....................................... 14
Capitalization................................. 15
Selected Combined Financial Data............... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business....................................... 23
Management..................................... 33
Principal and Selling Stockholders............. 39
Certain Transactions........................... 40
Description of Capital Stock................... 41
Shares Eligible for Future Sale................ 44
Underwriting................................... 45
Legal Matters.................................. 46
Experts........................................ 46
Additional Information......................... 46
Index to Financial Statements.................. F-1
</TABLE>

------------------------

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

2,000,000 SHARES

[LOGO]

NEW YORK BAGEL
ENTERPRISES, INC.

COMMON STOCK
---------------------

PROSPECTUS

---------------------
RAUSCHER PIERCE REFSNES, INC.

J.C. BRADFORD & CO.
, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is an itemized statement of the estimated expenses to be
incurred in connection with the registration, issuance and distribution of the
Common Stock covered by this Registration Statement, all of which will be paid
by New York Bagel Enterprises, Inc. (the "Registrant"), none of which will be
paid by the Selling Stockholders:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 9,518
National Association of Securities Dealers, Inc. Filing Fee.............. 3,260
Nasdaq National Market Application Fee................................... 28,000
Accounting Fees and Expenses............................................. *
Legal Fees and Expenses.................................................. *
Blue Sky Fees and Expenses............................................... *
Transfer Agent/Registrar Fees and Expenses............................... *
Printing Expenses........................................................ *
Miscellaneous Expenses................................................... *
---------
Total.................................................................. $ 800,000
---------
---------
</TABLE>

- ------------------------
*To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant is incorporated in Kansas. Under Section 17-6305 of the
Kansas general corporation code, a Kansas corporation has the power, under
specified circumstances, to indemnify its directors, officers, employees and
agents in connection with actions, suits or proceedings brought against them by
a third party, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred in any action, suit or
proceeding, including attorney fees, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation; and with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The same test applies to actions brought by or in the right of the
corporation with the additional requirement that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Article X of the
Articles of Incorporation, Article VII of the Restated and Amended Articles of
Incorporation to be effective upon the completion of this offering, Sec. 33 of
the Bylaws and Section 60 of the Restated and Amended Bylaws of the Registrant
to be effective upon the completion of this offering, provide for
indemnification of directors and officers to the fullest extent permitted by the
Kansas general corporation code. Reference is made to the Articles of
Incorporation, Restated and Amended Articles of Incorporation, Bylaws and
Restated and Amended Bylaws of the Registrant, filed as Exhibits 3.1, 3.3, 3.2
and 3.4, respectively, hereto.

The Registrant currently does not have directors' and officers' liability
insurance covering certain liabilities incurred by the Registrant's directors
and officers in connection with the performance of their duties.

The Underwriting Agreement contains provisions by which each Underwriter
severally agrees to indemnify the Registrant, any person controlling the
Registrant within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "Act") or Section 20 of the Securities Exchange Act of

II-1
<PAGE>
1934, each director of the Registrant, and each officer of the Registrant who
signs this Registration Statement with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter expressly
for use in the Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The securities sold by the Registrant within the past three years have not
been registered under the Act. Exemption from registration is claimed under
Section 4(2) of the Act in reference to all of such sales of securities. All
securities sold within the past three years were shares of common stock, with
the exception of the Convertible Debenture described below. There were no
underwriting discounts or commissions on the sale of these securities. The
holders of the securities referred to below agreed to take their securities for
investment and not with a view to the distribution thereof. The certificates
representing the securities contained legends identifying certain restrictions
on the transferability thereof.

The following sets forth information pertaining to sales of Common Stock by
the Registrant within the past three years which gives effect to the 1.4-for-1
stock split effected as a stock dividend on June 4, 1996 and the conversion on a
share-for-share basis of Class B Common Stock into Class A Common Stock and the
reclassification of the Class A Common Stock into Common Stock:

<TABLE>
<CAPTION>
PURCHASER DATE (1) SHARES CONSIDERATION
- ---------------------------- ---------------------------- ----------- --------------
<S> <C> <C> <C>
Robert J. Geresi December 31, 1995 627,343 $ 38,885
Paul R. Hoover December 31, 1995 141,698 70,000(2)
Vincent J. Vrana December 31, 1995 584,564 12,880
Paul T. Sorrentino December 31, 1995 627,343 38,885
David L. Murfin December 31, 1995 354,246 175,000(2)
Nancy Murfin Moxley and Mark
A. Moxley December 31, 1995 70,850 35,000(2)
Barbara Murfin Murphy December 31, 1995 70,850 35,000(2)
V. Richard Hoover December 31, 1995 70,850 35,000(2)
Rodney Joe Trizza December 31, 1995 161,951 1,000
Brent E. Durham December 31, 1995 24,217 250
John R. Geresi December 31, 1995 21,389 13,000
Chad E. Watkins December 31, 1995 30,391 25,000
Markus K. Scholler January 1, 1996 14,308 6,500
-----------
2,800,000
-----------
-----------
</TABLE>

- ------------------------
(1) Shares issued on December 31, 1995 were issued in connection with the merger
of New York Bagel Enterprises, Inc., an Oklahoma corporation, into the
Registrant. Shares issued on January 1, 1996 were issued as employee
compensation to the named individual.

(2) An aggregate of $350,000 in consideration was paid for shares in the Prior
Entities, of which $300,000 was paid to Messrs. Geresi, Vrana and Sorrentino
and $50,000 was contributed to the capital of one of the Prior Entities.

On December 14, 1995, the Company issued a 4.0% contingently convertible
subordinated debenture in the amount of $115,000 to The Estate of Stephen Z.
Plotkin, a Tennessee probate estate, in connection with the acquisition of
Nashville Bagel Co., Inc. (the "Convertible Debenture"). The Convertible
Debenture may be converted at the option of the debenture holder into 19,320
shares of Common Stock, in the event the entire debenture is converted.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.*
2.1 Plan and Agreement of Merger dated December 27, 1995, by and between New York Bagel
Enterprises, Inc., a Kansas corporation, and New York Bagel Enterprises, Inc., an
Oklahoma corporation.
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------
<C> <S>
2.2 Plan and Agreement of Merger dated December 27, 1995, by and among New York Bagel
Enterprises, Inc., VPR Incorporated, New York Bagel Shop, Inc., Bagel Boss, Inc., Bagels
of Norman, Inc., New York Bagel Shop & Delicatessen, Inc.
2.3 Certificate of Ownership and Merger (Articles of Merger) Merging Nashville Bagel Co. (a
Tennessee corporation) into New York Bagel Enterprises, Inc. (an Oklahoma corporation).
2.4 Asset Sale and Purchase Agreement dated December 27, 1995, by and among New York Bagel
Enterprises, Inc., Central & Ridge Yogurt, Inc. and Paul R. Hoover.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Form of Restated and Amended Articles of Incorporation of the Registrant.
3.4 Form of Restated and Amended Bylaws of the Registrant.
4.1 Specimen of Common Stock Certificate.*
4.2 Form of New York Bagel Enterprises, Inc. Grant of Incentive Stock Option.
4.3 Form of New York Bagel Enterprises, Inc. Grant of Nonqualified Stock Option.
4.4 New York Bagel Enterprises, Inc. 4% Convertible and Subordinated Debenture due December
14, 1999.
5 Opinion of Klenda, Mitchell, Austerman & Zuercher, L.L.C., counsel for the Registrant.*
9.1 Contract for Sale of Stock dated June 21, 1994, by and between Robert Geresi, Paul
Sorrentino and Vince Vrana and David L. Murfin and Paul R. Hoover.*
9.2 Stockholders' Agreement dated January 1, 1996, by and among Robert J. Geresi, Vincent J.
Vrana, Paul T. Sorrentino, Paul R. Hoover, David L. Murfin, Nancy Murfin Moxley, Mark A.
Moxley, Barbara Murfin Murphy, V. Richard Hoover, Philip Faubert, Rodney Joe Trizza,
Brent Durham, John R. Geresi, Chad E. Watkins, Markus K. Scholler and the Company.
10.1 New York Bagel Enterprises, Inc. 1996 Incentive Plan.
10.2 Loan Agreement dated December 26, 1995, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $500,000.*
10.3 Loan Agreement dated December 29, 1995, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $2,750,000.*
10.4 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $136,800.*
10.5 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $136,800.*
10.6 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $136,800.*
10.7 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $180,800.*
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------
<C> <S>
10.8 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $101,600.*
10.9 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc. and
Stillwater National Bank and Trust Company in the amount of $107,200.*
10.10 Representative Uniform Franchise Offering Circular, including form of Franchise
Agreement and form of Development Agreement.*
10.11 Lease Agreement dated June 1, 1994, by and between Bagel Land, Inc. and Bagels of
Norman, Inc.*
10.12 Lease Agreement dated December 1, 1993, by and between Cherry Street Land and Bagel
Boss, Inc.*
10.13 Sublease dated April 1, 1996, by and between Murfin Drilling Company and New York Bagel
Enterprises, Inc.*
11 Statement relative to computation of per share earnings.*
23.1 Consent of Klenda, Mitchell, Austerman & Zuercher, L.L.C.
23.2 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney included at page II-5.
</TABLE>

- ------------------------
*To be filed by amendment.

(b) Financial Statement Schedules

Financial statement schedules are not applicable or required.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Wichita,
State of Kansas, on this 12th day of June, 1996.

NEW YORK BAGEL ENTERPRISES, INC.

By /s/ ROBERT J. GERESI

-----------------------------------
Robert J. Geresi,
PRESIDENT

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints each of
Robert J. Geresi, Paul R. Hoover and J. Chris Dennis as his true and lawful
attorney-in-fact and agent, with full power to act alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ ROBERT J. GERESI Chairman of the Board, June 12, 1996
- ----------------------------------- Chief Executive Officer
Robert J. Geresi and President (Principal
Executive Officer)

/s/ J. CHRIS DENNIS Chief Financial Officer, June 12, 1996
- ----------------------------------- Secretary and Treasurer
J. Chris Dennis (Principal Financial and
Accounting Officer)

/s/ PAUL T. SORRENTINO Vice President -- New June 12, 1996
- ----------------------------------- Store Development and
Paul T. Sorrentino Director

/s/ PAUL R. HOOVER Vice President -- June 12, 1996
- ----------------------------------- Franchising, Investor
Paul R. Hoover Relations and Director

/s/ WILLIAM S. ATHERTON Director June 12, 1996
- -----------------------------------
William S. Atherton

/s/ DAVID L. MURFIN Director June 12, 1996
- -----------------------------------
David L. Murfin

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<C> <S> <C>
1 Form of Underwriting Agreement.*
2.1 Plan and Agreement of Merger dated December 27, 1995, by and between New York Bagel
Enterprises, Inc., a Kansas corporation, and New York Bagel Enterprises, Inc., an
Oklahoma corporation.
2.2 Plan and Agreement of Merger dated December 27, 1995, by and among New York Bagel
Enterprises, Inc., VPR Incorporated, New York Bagel Shop, Inc., Bagel Boss, Inc.,
Bagels of Norman, Inc., New York Bagel Shop & Delicatessen, Inc.
2.3 Certificate of Ownership and Merger (Articles of Merger) Merging Nashville Bagel Co.
(a Tennessee corporation) into New York Bagel Enterprises, Inc. (an Oklahoma
corporation).
2.4 Asset Sale and Purchase Agreement dated December 27, 1995, by and among New York
Bagel Enterprises, Inc., Central & Ridge Yogurt, Inc. and Paul R. Hoover.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Form of Restated and Amended Articles of Incorporation of the Registrant.
3.4 Form of Restated and Amended Bylaws of the Registrant.
4.1 Specimen of Common Stock Certificate.*
4.2 Form of New York Bagel Enterprises, Inc. Grant of Incentive Stock Option.
4.3 Form of New York Bagel Enterprises, Inc. Grant of Nonqualified Stock Option.
4.4 New York Bagel Enterprises, Inc. 4% Convertible and Subordinated Debenture due
December 14, 1999.
5 Opinion of Klenda, Mitchell, Austerman & Zuercher, L.L.C., counsel for the
Registrant.*
9.1 Contract for Sale of Stock dated June 21, 1994, by and between Robert Geresi, Paul
Sorrentino and Vince Vrana and David L. Murfin and Paul R. Hoover.*
9.2 Stockholders' Agreement dated January 1, 1996, by and among Robert J. Geresi,
Vincent J. Vrana, Paul T. Sorrentino, Paul R. Hoover, David L. Murfin, Nancy Murfin
Moxley, Mark A. Moxley, Barbara Murfin Murphy, V. Richard Hoover, Philip Faubert,
Rodney Joe Trizza, Brent Durham, John R. Geresi, Chad E. Watkins, Markus K. Scholler
and the Company.
10.1 New York Bagel Enterprises, Inc. 1996 Incentive Plan.
10.2 Loan Agreement dated December 26, 1995, by and between New York Bagel Enterprises,
Inc. and Stillwater National Bank and Trust Company in the amount of $500,000.*
10.3 Loan Agreement dated December 29, 1995, by and between New York Bagel Enterprises,
Inc. and Stillwater National Bank and Trust Company in the amount of $2,750,000.*
10.4 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $136,800.*
10.5 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $136,800.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
10.6 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $136,800.*
<C> <S> <C>
10.7 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $180,800.*
10.8 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $101,600.*
10.9 Loan Agreement dated March 15, 1996, by and between New York Bagel Enterprises, Inc.
and Stillwater National Bank and Trust Company in the amount of $107,200.*
10.10 Representative Uniform Franchise Offering Circular, including form of Franchise
Agreement and form of Development Agreement.*
10.11 Lease Agreement dated June 1, 1994, by and between Bagel Land, Inc. and Bagels of
Norman, Inc.*
10.12 Lease Agreement dated December 1, 1993, by and between Cherry Street Land and Bagel
Boss, Inc.*
10.13 Sublease dated April 1, 1996, by and between Murfin Drilling Company and New York
Bagel Enterprises, Inc.*
11 Statement relative to computation of per share earnings.*
23.1 Consent of Klenda, Mitchell, Austerman & Zuercher, L.L.C.
23.2 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney included at page II-5.
</TABLE>

- ------------------------
*To be supplied by amendment.

<PAGE>
PLAN AND AGREEMENT OF MERGER

THIS PLAN AND AGREEMENT OF MERGER (this "Agreement of Merger") is made and
entered into as of this 27th day of December, 1995,

BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as

"SURVIVING CORPORATION"

AND NEW YORK BAGEL ENTERPRISES, INC.,
an Oklahoma corporation,
hereinafter referred to as

"MERGED CORPORATION"

WHEREAS, Surviving Corporation and Merged Corporation (sometimes
collectively referred to hereinafter as the "constituent corporations") are duly
organized and existing by virtue of the laws of their respective states of
incorporation, with each such corporation having been incorporated on the date
set opposite its respective name:

Date of
Name Incorporation
---- -------------
New York Bagel Enterprises, Inc. (Oklahoma) May 24, 1990
New York Bagel Enterprises, Inc. (Kansas) December 27, 1995

WHEREAS, the Board of Directors of each of the constituent corporations
hereto deem it advisable and generally to the welfare, best interests and
advantage of each and all of the several and respective holders of their shares
that the constituent corporations hereto merge and have duly adopted a
resolution approving this Agreement of Merger; and this Agreement of Merger has
been duly authorized and approved by each of said Board of Directors in the
manner and by the vote required by the charter documents and bylaws of Merged
Corporation and Surviving Corporation and by Kansas Statutes Annotated Section
17-6702 and Oklahoma Statutes Annotated 18 Section 1082, subject to the
submission of the same to a vote of the shareholders of the Merged Corporation
in accordance with law, which submission has been duly authorized by its Board
of Directors.

NOW, THEREFORE, the parties hereto agree to effect the merger as set forth,
subject to the provisions of this Agreement of Merger so that, at the effective
date of the merger, Merged Corporation shall be and hereby is merged into
Surviving Corporation and Surviving Corporation shall and hereby does merge into
itself Merged Corporation, on the terms and conditions hereinafter set forth.

<PAGE>

MERGER

1. Surviving Corporation, formed under the laws of the State of Kansas,
into which Merged Corporation is hereby merged on the effective date of the
merger, shall be the corporation to survive the merger and the name under which
the corporation shall continue is New York Bagel Enterprises, Inc. Said
corporation shall be governed by the laws of the State of Kansas and its
principal office in such state shall be located at 300 IMA Plaza, 250 North
Water, Wichita, Kansas 67202. Surviving Corporation shall be domesticated in
the State of Kansas and its registered office shall be located at 301 North Main
Street, Suite 1600, Wichita, Kansas 67202, and its resident agent at such
address shall be Gregory B. Klenda.

2. The effective date of the merger shall be as of 11:59 p.m., December
31, 1995, after the Agreement of Merger has been duly approved by the
shareholders of Merged Corporation and has been executed, acknowledged and
filed in accordance with the laws of the States of Kansas and Oklahoma. Such
effective date is referred to in this Agreement of Merger as the "Merger Date."

3. On the Merger Date, all property, real, personal and mixed, and all
debts due to Merged Corporation on whatever account, as well as for stock
subscriptions and all other choses or things in action, and all and every other
interest of or belonging to Merged Corporation shall be taken by and deemed to
be transferred to and vested in Surviving Corporation without further act or
deed; and all property and every other interest shall be thereafter as
effectually the property of Surviving Corporation as it was of Merged
Corporation and the title to any real estate or any interest therein, whether
vested by deed or otherwise, in Merged Corporation shall not revert or be in any
way impaired by reason of the merger; provided, however, that all rights of
creditors and all liens upon the property of Merged Corporation shall be
preserved unimpaired, and all debts, assumed liabilities, obligations and duties
of Merged Corporation hereto shall thenceforth attach to Surviving Corporation,
and may be enforced against it to the same extent as if said debts, assumed
liabilities, obligations and duties had been incurred or contracted by it. Any
action or proceeding pending by or against Merged Corporation may be prosecuted
as if the merger had not taken place, or Surviving Corporation may be
substituted in place of Merged Corporation. Merged Corporation agrees that from
time to time, as and when requested by Surviving Corporation or by its
successors or assigns, it will execute and deliver or cause to be executed and
delivered all such deeds and instruments, and will take or cause to be taken all
such further or other action, as Surviving Corporation may deem necessary or
desirable in order to vest in and confirm to Surviving Corporation or its
successors or assigns title to and possession of all the aforesaid property and
rights and otherwise carry out the intent and purposes of this Agreement of
Merger.

<PAGE>

ARTICLES OF INCORPORATION

1. From and after the Merger Date, the Articles of Incorporation of
Surviving Corporation, as recorded in the Office of the Secretary of State at
the Merger Date, shall be and become the Articles of Incorporation of Surviving
Corporation. In addition to the powers conferred upon it by law, Surviving
Corporation shall have the powers set forth in such Articles of Incorporation
and be governed by the provisions thereof. From and after the Merger Date, and
until further amended as provided by law, such Articles of Incorporation shall
be certified as the Articles of Incorporation of Surviving Corporation.

2. Surviving Corporation hereby reserves the right to amend, alter,
change or repeal its Articles of Incorporation in the manner now or hereafter
prescribed by statute or otherwise provided by law, and all rights and powers
conferred in the Articles of Incorporation on shareholders, directors or
officers of Surviving Corporation, or any other person whomsoever, are subject
to this reserved power.

III

BYLAWS OF SURVIVING CORPORATION

From and after the Merger Date, the present bylaws of Surviving Corporation
shall be and become the bylaws of Surviving Corporation until the same shall be
altered, amended or repealed, or until new bylaws shall be adopted, in
accordance with the provisions of law, the bylaws and the Articles of
Incorporation of Surviving Corporation.

OFFICERS AND DIRECTORS

1. The first officers of Surviving Corporation, who shall hold office
until their successors shall have been elected or appointed and shall have been
qualified, or as otherwise provided in its bylaws, are the officers of Surviving
Corporation immediately prior to the Merger Date. The officers of Surviving
Corporation and their number may be changed from time to time as provided by law
and the bylaws of Surviving Corporation.

2. The first directors of Surviving Corporation, who shall hold office
until their successors shall have been elected or appointed and shall have been
qualified, shall be the directors of Surviving Corporation immediately prior to
the Merger Date. The directors of Surviving Corporation and their number may be
changed from time to time as provided by law and the bylaws of Surviving
Corporation.

<PAGE>

3. The first annual meeting of the shareholders of Surviving Corporation
after the Merger Date shall be the next annual meeting provided by the bylaws of
Surviving Corporation.

4. If, on or before the Merger Date, a vacancy shall for any reason exist
in the Board of Directors of Surviving Corporation, or in any of the offices,
such vacancy shall thereafter be filled in the manner provided in the Articles
of Incorporation of Surviving Corporation or in its bylaws.

CAPITAL STOCK OF SURVIVING CORPORATION

The authorized capital of Surviving Corporation shall be as set forth in
the Articles of Incorporation of Surviving Corporation.

EXCHANGE OF SECURITIES ON MERGER

1. Each share of Merged Corporation's Class A Common Stock which shall be
issued and outstanding immediately before the Merger Date shall, by virtue of
the merger of the constituent corporations and upon surrender of such Merged
Corporation's Class A Common Stock by the shareholder to Surviving Corporation,
be exchanged for one share of a fully paid and nonassessable share of Surviving
Corporation's Class A Common Stock, such that the one million twelve thousand
one hundred thirty-four (1,012,134) issued and outstanding shares of Class A
Common Stock of Merged Corporation shall be exchanged for one million twelve
thousand one hundred thirty-four (1,012,134) issued and outstanding shares of
Class A Common Stock of Surviving Corporation.

2. Each share of Merged Corporation's Class B Common Stock which shall be
issued and outstanding immediately before the Merger Date shall, by virtue of
the merger of the constituent corporations and upon surrender of such Merged
Corporation's Class B Common Stock by the shareholder to Surviving Corporation,
be exchanged for one share of a fully paid and nonassessable share of Surviving
Corporation's Class B Common Stock, such that the nine hundred seventy-seven
thousand six hundred forty-six (977,646) issued and outstanding shares of Class
B Common Stock of Merged Corporation shall be exchanged for nine hundred
seventy-seven thousand six hundred forty-six (977,646) issued and outstanding
shares of Class B Common Stock of Surviving Corporation.

<PAGE>

VII

TERMINATION OR MODIFICATION OF AGREEMENT AND MERGER

At any time prior to the filing of this Agreement of Merger with the
Secretary of State of either Oklahoma or Kansas, this Agreement of Merger may be
terminated by the Board of Directors of Merged Corporation or Surviving
Corporation notwithstanding approval of this Agreement of Merger by the
shareholders of Merged Corporation. The Boards of Directors of the parties to
this Agreement of Merger may amend this Agreement of Merger at any time prior to
the filing of this Agreement of Merger with the respective Secretaries of State,
provided that any amendment made subsequent to the adoption of this Agreement of
Merger by the shareholders of Merged Corporation or Surviving Corporation shall
not:

a) alter or change the amount or kind of shares, securities,
cash, property and/or rights to be received in exchange for
or on conversion of all or any of the shares of any class or
series thereof of such Merged Corporation or Surviving
Corporation;

b) alter or change any term of the Articles of Incorporation of
Surviving Corporation to be effected by the merger; or

c) alter or change any of the terms and conditions of this
Agreement of Merger if such alteration or change would
adversely affect the holders of any class or series thereof
of such Merged Corporation or Surviving Corporation.

VIII

SHAREHOLDER APPROVAL

This Agreement of Merger is adopted by the Board of Directors of Surviving
Corporation without any vote of its shareholders pursuant to the provisions of
Kansas Statutes Annotated Sections 17-6701(f) and 17-6702(e) since no shares of
stock of Surviving Corporation were issued prior to the adoption by the Board of
Directors of Surviving Corporation of the resolutions approving this Agreement
of Merger. This Agreement of Merger shall be submitted to the shareholders of
Merged Corporation at a meeting of the shareholders of such corporation to be
held as promptly as practicable, and, if adopted by the vote of the shareholders
of Merged Corporation as required by law, shall be effective as of the Merger
Date in the manner provided in Article I hereof. After such adoption and
approval and subject to the conditions contained in this Agreement of Merger,
this Agreement of Merger shall be signed by the President or Vice President and
the Secretary of each of the constituent corporations, and acknowledged by the
President or Vice President and the Secretary of each such corporation to be the
act, deed and agreement of each such constituent corporation, and this Agreement
of Merger so certified and acknowledged shall

<PAGE>

be filed in the Office of the Secretaries of State of Kansas and Oklahoma. A
copy of this Agreement of Merger shall also be recorded in the Office of the
Register of Deeds of Sedgwick County, Kansas, where Surviving Corporation has
its registered office and where its original Articles of Incorporation were
recorded, all pursuant to the requirements of K.S.A. Section 17-6003.

SERVICE OF PROCESS

Surviving Corporation acknowledges and agrees that it may be sued and
served with process in the State of Oklahoma in any proceeding for enforcement
of any obligation of Surviving Corporation. Surviving Corporation hereby
irrevocably appoints the Secretary of the State of Oklahoma as its agent to
accept service of process in any such suit or proceeding. The Secretary of
State of Oklahoma may mail a copy of any such service of process to 110 West
Third Street, Stillwater, Oklahoma 74074.

MISCELLANEOUS

This Agreement of Merger may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument representing this Agreement of Merger.

This Agreement of Merger shall be approved, adopted, certified, executed
and acknowledged by each constituent corporation in accordance with Kansas
Statutes Annotated Section 17-6701 and Oklahoma Statutes Annotated 18 Section
1082. The executed Agreement of Merger shall be on file at the principal place
of business of Surviving Corporation located at 300 IMA Plaza, 250 North Water,
Wichita, Kansas 67202. A copy of the Agreement of Merger shall be furnished by
Surviving Corporation, on request and without cost, to any shareholder of the
constituent corporations.

IN WITNESS WHEREOF, the foregoing Agreement of Merger, having been duly
entered into and signed by New York Bagel Enterprises, Inc., an Oklahoma
corporation, and having been duly entered into and signed by New York Bagel
Enterprises, Inc., a Kansas corporation, and having been duly adopted by the
shareholders of the Merged Corporation, all in accordance with the provisions of
the laws of the States of Kansas and Oklahoma, the President of New York Bagel
Enterprises, Inc. (Oklahoma), and the President of New York Bagel Enterprises,
Inc. (Kansas), do now hereby execute this Agreement of Merger by authority of
the directors and shareholders of each constituent corporation, as the
respective act, deed and agreement of each of said corporations, on this 27th
day of December, 1995.

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation

ATTEST: By__________________________________________
Robert J. Geresi, President

By______________________________
Robert D. Young, Secretary

NEW YORK BAGEL ENTERPRISES, INC.,
an Oklahoma corporation

ATTEST: By__________________________________________
Robert J. Geresi, President

By______________________________
Robert D. Young, Secretary

<PAGE>

ACKNOWLEDGEMENTS

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi and Robert D. Young, President and
Secretary, respectively, of New York Bagel Enterprises, Inc., a Kansas
corporation, on behalf of the corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

____________________________________________
Notary Public

My appointment expires:

____________________

<PAGE>

SECRETARIES' CERTIFICATES

The undersigned, Robert D. Young, Secretary of New York Bagel Enterprises,
Inc., a Kansas corporation, Surviving Corporation mentioned in the within
Agreement of Merger, on behalf of said corporation, certifies as follows:

The within Agreement of Merger was adopted in accordance with the
provisions of Kansas Statutes Annotated Section 17-6702 and Oklahoma Statutes
Annotated 18 Section 1082, by action of the Board of Directors of said
corporation, and without any vote of its shareholders, pursuant to Kansas
Statutes Annotated Sections 17-6701(f) and 17-6702(e), since no shares of such
corporation were issued and outstanding prior to the adoption by the Board of
Directors of the resolutions approving said Agreement of Merger.

____________________________________________
Robert D. Young, Secretary
New York Bagel Shop Enterprises, Inc.

The undersigned, Robert D. Young, Secretary of New York Bagel Enterprises,
Inc., an Oklahoma corporation, the Merged Corporation mentioned in the within
Agreement of Merger, on behalf of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 1,012,134 shares of its capital stock, being a
majority of the shares of said capital stock issued and outstanding, were for
the adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert D. Young, Secretary
New York Bagel Enterprises, Inc.

<PAGE>
PLAN AND AGREEMENT OF MERGER

THIS PLAN AND AGREEMENT OF MERGER (this "Agreement of Merger") is made and
entered into as of this 27th day of December, 1995,

BY AND AMONG NEW YORK BAGEL ENTERPRISES, INC.,
an Oklahoma corporation,
hereinafter referred to as

"SURVIVING CORPORATION"

AND VPR INCORPORATED,
an Oklahoma corporation,
hereinafter referred to as

"VPR"

AND NEW YORK BAGEL SHOP, INC.,
an Oklahoma corporation,
hereinafter referred to as

"NYBS"

AND BAGEL BOSS, INC.,
an Oklahoma corporation,
hereinafter referred to as

"BOSS"

AND BAGELS OF NORMAN, INC.,
an Oklahoma corporation,
hereinafter referred to as

"NORMAN"

AND NEW YORK BAGEL SHOP & DELICATESSEN, INC.,
a Kansas corporation,
hereinafter referred to as

"DELI"

VPR, NYBS, Boss, Norman and Deli hereinafter
being sometimes collectively referred to as
the

"MERGED CORPORATIONS"

<PAGE>

WHEREAS, Surviving Corporation, VPR, NYBS, Boss, Norman and Deli (sometimes
collectively referred to hereinafter as the "constituent corporations") are duly
organized and existing by virtue of the laws of their respective states of
incorporation, with each such corporation having been incorporated on the date
set opposite its respective name:

Date of
Name Incorporation
---- -------------
New York Bagel Enterprises, Inc. May 24, 1990
VPR Incorporated May 11, 1988
New York Bagel Shop, Inc. December 6, 1985
Bagel Boss, Inc. November 20, 1990
Bagels of Norman, Inc. April 27, 1994
New York Bagel Shop & Delicatessen, Inc. May 29, 1992

WHEREAS, the Board of Directors of each of the parties hereto deem it
advisable and generally to the welfare, best interests and advantage of each and
all of the several and respective holders of their shares that the parties
hereto merge and have duly adopted a resolution approving this Agreement of
Merger; and this Agreement of Merger has been duly authorized and approved by
each of said Board of Directors in the manner and by the vote required by the
charter documents and bylaws of each of the Merged Corporations and Surviving
Corporation and by Kansas Statutes Annotated Section 17-6702 and Oklahoma
Statutes Annotated 18 Section 1082, subject to the submission of the same to a
vote of the respective shareholders of each of the parties hereto in accordance
with law, which submission has been duly authorized by said respective Boards of
Directors.

NOW, THEREFORE, the parties hereto agree to effect the merger as set forth,
subject to the provisions of this Agreement of Merger so that, at the effective
date of the merger, the Merged Corporations shall be and hereby are merged into
Surviving Corporation and Surviving Corporation shall and hereby does merge into
itself the Merged Corporations, on the terms and conditions hereinafter set
forth.

MERGER

1. Surviving Corporation, formed under the laws of the State of Oklahoma,
into which the Merged Corporations are, and is hereby, merged on the effective
date of the merger, shall be the corporation to survive the merger and the name
under which the corporation shall continue is New York Bagel Enterprises, Inc.
Said corporation shall be governed by the laws of the State of Oklahoma and its
principal office in such state shall be located at 110 West Third Street,
Stillwater, Oklahoma 74074. Surviving Corporation shall be domesticated in the
State of

<PAGE>

Oklahoma and its registered office shall be located at 110 West Third Street,
Stillwater, Oklahoma 74074 and its registered agent at such address shall be
Robert J. Geresi.

2. The effective date of the merger shall be as of 11:50 p.m., December
31, 1995, after the Agreement of Merger has been duly approved by the respective
shareholders of each of the parties hereto and has been executed, acknowledged
and filed in accordance with the laws of the States of Kansas and Oklahoma.
Such effective date is referred to in this Agreement of Merger as the "Merger
Date."

3. On the Merger Date, all property, real, personal and mixed, and all
debts due to any of the parties hereto on whatever account, as well as for stock
subscriptions and all other choses or things in action, and all and every other
interest of or belonging to any of said parties shall be taken by and deemed to
be transferred to and vested in Surviving Corporation without further act or
deed; and all property and every other interest shall be thereafter as
effectually the property of Surviving Corporation as it was of the respective
party hereto and the title to any real estate or any interest therein, whether
vested by deed or otherwise, in any of the parties hereto shall not revert or be
in any way impaired by reason of the merger; provided, however, that all rights
of creditors and all liens upon the property of any of the parties hereto shall
be preserved unimpaired, and all debts, assumed liabilities, obligations and
duties of the respective parties hereto shall thenceforth attach to Surviving
Corporation, and may be enforced against it to the same extent as if said debts,
assumed liabilities, obligations and duties had been incurred or contracted by
it. Any action or proceeding pending by or against any of the Merged
Corporations may be prosecuted as if the merger had not taken place, or
Surviving Corporation may be substituted in place of the Merged Corporations.
The parties hereto hereby respectively agree that from time to time, as and when
requested by Surviving Corporation or by its successors or assigns, they will
execute and deliver or cause to be executed and delivered all such deeds and
instruments, and will take or cause to be taken all such further or other
action, as Surviving Corporation may deem necessary or desirable in order to
vest in and confirm to Surviving Corporation or its successors or assigns title
to and possession of all the aforesaid property and rights and otherwise carry
out the intent and purposes of this Agreement of Merger.

ARTICLES OF INCORPORATION

1. From and after the Merger Date, the Articles of Incorporation of
Surviving Corporation, as recorded in the Office of the Secretary of State of
Oklahoma at the Merger Date, shall be and become the Articles of Incorporation
of Surviving Corporation, except that Article IV thereof shall be amended to
read as follows:

"The Corporation shall have authority to issue thirty
million (30,000,000) shares of capital stock comprised of (i)
twenty-five million (25,000,000) shares of Class A Common Stock,
with a par value of One

<PAGE>

Cent ($0.01) for each of such shares, and (ii) five million
(5,000,000) shares of Class B Common Stock, with a par value of One
Cent ($0.01) for each of such shares, aggregating Three Hundred
Thousand Dollars ($300,000.00). The Class B Common Stock shall have
no voting power for any purposes whatsoever and the holders of Class A
Common Stock shall, to the exclusion of the holders of Class B Common
Stock, have full voting power for all purposes. The Class B Common
Stock shall be automatically converted into Class A Common Stock upon
the Corporation's successful completion of a public offering, if any,
of its Class A Common Stock pursuant to the registration requirements
of the Securities Act of 1933, as amended, such that each share of
Class B Common Stock then issued and outstanding shall be converted
into one (1) share of Class A Common Stock."

In addition to the powers conferred upon it by law, Surviving Corporation
shall have the powers set forth in such Articles of Incorporation and be
governed by the provisions thereof. From and after the Merger Date, and until
further amended as provided by law, such Articles of Incorporation shall be
certified as the Articles of Incorporation of Surviving Corporation.

III

BYLAWS OF SURVIVING CORPORATION

OFFICERS AND DIRECTORS

<PAGE>

Date. The officers of Surviving Corporation and their number may be changed
from time to time as provided by law and the bylaws of Surviving Corporation.

3. The first annual meeting of the shareholders of Surviving Corporation
after the Merger Date shall be the next annual meeting provided by the bylaws of
Surviving Corporation.

CAPITAL STOCK OF MERGED CORPORATIONS

The total authorized and issued capital stock of the Merged Corporations
immediately prior to the Merger Date entitled to vote on the merger contemplated
herein consists of the following shares of common stock:

Merged Par Value Shares Shares
Corporation Per Share Authorized Issued
----------- --------- ---------- ------
VPR No Par 300 300
NYBS $1.00 7,856 (Voting) 7,856
2,144 (Nonvoting) 2,144
Boss $1.00 4,000 4,000
Norman $1.00 10,000 10,000
Deli Without Par 100,000 10,000

EXCHANGE OF SECURITIES ON MERGER

The mode of carrying into effect this Agreement of Merger, and the manner
and basis of converting the shares of the Merged Corporations into shares of
Surviving Corporation are as follows:

<PAGE>

A. NEW YORK BAGEL ENTERPRISES, INC.'S CLASS A COMMON STOCK. The
shares of Class A Common Stock, par value $0.01 per share, of
Surviving Corporation issued at the Merger Date shall be
converted as a result of the merger as follows:

Number of Number of Class A
Class A Voting Common Stock
Shareholder Shares Before Merger Shares After Merger
----------- -------------------- -------------------
Robert J. Geresi 50 168,689
Paul R. Hoover 30 101,213
Vincent J. Vrana 50 168,689
Paul T. Sorrentino 50 168,689
David L. Murfin 75 253,033
Nancy Murfin Moxley
and Mark A. Moxley 15 50,607
Barbara Murfin Murphy 15 50,607
V. Richard Hoover 15 50,607
--- ---------
300 1,012,134
--- ---------
--- ---------

B. NEW YORK BAGEL ENTERPRISES, INC.'S CLASS B COMMON STOCK.
Surviving Corporation, upon surrender of all of the outstanding
shares of the Merged Corporations, shall transfer to the
shareholders of the Merged Corporations 977,646 shares of Class B
Common Stock ("B Shares") distributed as follows:

VPR INCORPORATED

Number of Shares Number of B Shares
of VPR to be to be transferred
Shareholder surrendered to shareholder
----------- ---------------- ------------------
Robert J. Geresi 100 108,644
Vincent J. Vrana 100 108,644
Paul T. Sorrentino 100 108,644
--- -------
300 325,932
--- -------
--- -------

<PAGE>

NEW YORK BAGEL SHOP, INC.

Number of Shares Number of B Shares
of NYBS to be to be transferred
Shareholder surrendered to shareholder
----------- ---------------- -------------------
Robert J. Geresi 3,928 (Voting) 30,556
Paul T. Sorrentino 3,928 (Voting) 30,556
John R. Geresi 2,144 (Nonvoting) 15,278
------ ------
10,000 76,390
------ ------
------ ------

BAGEL BOSS, INC.

Number of Shares Number of B Shares
of Boss to be to be transferred
Shareholder surrendered to shareholder
----------- ---------------- -------------------
Robert J. Geresi 1,000 115,679
Vincent J. Vrana 1,000 115,679
Paul T. Sorrentino 1,000 115,679
Rodney Joe Trizza 1,000 115,679
----- -------
4,000 462,716
----- -------
----- -------

BAGELS OF NORMAN, INC.

Number of Shares Number of B Shares
of Norman to be to be transferred
Shareholder surrendered to shareholder
----------- ---------------- -------------------
Robert J. Geresi 2,500 17,298
Vincent J. Vrana 2,500 17,298
Paul T. Sorrentino 2,500 17,298
Brent Durham 2,500 17,298
------ ------
10,000 69,192
------ ------
------ ------

<PAGE>

New York Bagel Shop & Delicatessen, Inc.

Number of Shares Number of B Shares
of Deli to be to be transferred
Shareholder surrendered to shareholder
----------- ---------------- -------------------
Robert J. Geresi 1,667 7,236
Vincent J. Vrana 1,666 7,236
Paul T. Sorrentino 1,667 7,236
Chad E. Watkins 5,000 21,708
------ ------
10,000 43,416
------ ------
------ ------

C. NEW YORK BAGEL ENTERPRISES, INC.'S SHAREHOLDER SUMMARY. As a
result of the merger, the Class A Common Stock and Class B Common
Stock of Surviving Corporation shall be held by the shareholders
as follows:

Class A Class B
Shareholder Common Stock Common Stock
----------- ------------ ------------
Robert J. Geresi 168,689 279,413
Paul R. Hoover 101,213 -0-
Vincent J. Vrana 168,689 248,857
Paul T. Sorrentino 168,689 279,413
David L. Murfin 253,033 -0-
Nancy Murfin Moxley
and Mark A. Moxley 50,607 -0-
Barbara Murfin Murphy 50,607 -0-
V. Richard Hoover 50,607 -0-
Rodney Joe Trizza -0- 115,679
Brent Durham -0- 17,298
John R. Geresi -0- 15,278
Chad E. Watkins -0- 21,708
--------- -------
1,012,134 977,646
--------- -------
--------- -------

VII

DEBT ASSUMPTION

The parties agree that Surviving Corporation shall assume all of the debt
of the Merged Corporations. To the extent that the debt of any of the Merged
Corporations shall exceed the amount set forth below, the shareholders of such
Merged Corporation shall pay to Surviving Corporation upon demand an amount
equal to such excess:

<PAGE>

Maximum
Merged Corporation Liabilities Assumed
------------------ -------------------
VPR Incorporated $346,572
New York Bagel Shop, Inc. $ 89,039
Bagel Boss, Inc. $693,715
Bagels of Norman, Inc. $227,774
New York Bagel Shop & Delicatessen, Inc. $ 66,429

VIII

TERMINATION OR MODIFICATION OF AGREEMENT AND MERGER

1. At any time prior to the filing of this Agreement of Merger with the
Secretary of State of either Oklahoma or Kansas, this Agreement of Merger may be
terminated by the Board of Directors of any of the Merged Corporations or
Surviving Corporation notwithstanding approval of this Agreement of Merger by
the shareholders of all or any of the Merged Corporations or Surviving
Corporation. The Boards of Directors of the parties to this Agreement of Merger
may amend this Agreement of Merger at any time prior to the filing of this
Agreement of Merger with the respective Secretaries of State, provided that any
amendment made subsequent to the adoption of this Agreement of Merger by the
shareholders of any of the Merged Corporations or Surviving Corporation shall
not:

b) alter or change any term of the Articles of Incorporation of
Surviving Corporation to be effected by the merger; or

2. In the event that this Agreement of Merger is terminated and does not
become effective, each of the Merged Corporations and Surviving Corporation
shall bear any and all expenses incurred as a result or pertaining to this
contemplated transaction based upon the following percentages:

<PAGE>

Surviving Corporation 51.12%
VPR 16.30%
NYBS 3.82%
Boss 23.13%
Norman 3.46%
Deli 2.17%
-------
100.00%
-------
-------

SHAREHOLDER APPROVAL

This Agreement of Merger shall be submitted to the shareholders of each of
the constituent corporations hereto at a meeting of the shareholders of each
such corporation to be held as promptly as practicable, and, if adopted by the
vote of the shareholders of each of the constituent corporations as required by
law, shall be effective as of the Merger Date in the manner provided in Article
I hereof. After such adoption and approval and subject to the conditions
contained in this Agreement of Merger, this Agreement of Merger shall be signed
by the President or Vice President and the Secretary of each of the constituent
corporations and acknowledged by the President or Vice President and the
Secretary of each such corporation to be the act, deed and agreement of each
such constituent corporation, and this Agreement of Merger so certified and
acknowledged shall be filed in the Office of the Secretaries of State of Kansas
and Oklahoma. A copy of this Agreement of Merger shall also be recorded in the
Office of the Register of Deeds of Sedgwick County, Kansas, where Deli has its
registered office and where its original Articles of Incorporation were
recorded, all pursuant to the requirements of K.S.A. Section 17-6003.

REPRESENTATIONS AND WARRANTIES
OF THE MERGED CORPORATIONS

The respective Merged Corporations represent and warrant to Surviving
Corporation and each of the other Merged Corporations as follows:

A. Each respective corporation is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
Each has the corporate power to carry on its business as it is now being
conducted and is qualified to do business in every jurisdiction in which the
character and location of the assets owned by it or the nature of the business
transacted by it require qualification. Each has the authorized and outstanding
capital as set forth in this Agreement of Merger, and has no options or
obligations to issue additional capital stock to anyone.

<PAGE>

B. Each corporation has delivered to the others a list of information
concerning its assets, including accounts receivable and accounts payable, dated
the date hereof. The information set forth in such lists and copies of
documents referred to in such lists are complete and accurate.

C. There is no suit, action or legal or administrative proceeding
pending, or to the knowledge of such corporation, threatened, against it, which,
if adversely determined, might materially and adversely affect the financial
condition of the corporation or the conduct of its business, nor is there any
decree, injunction or order of any court, governmental department or agency
outstanding against such corporation having any such effect.

D. Each corporation is not in default in any material respect under the
terms of any outstanding contract, agreement, lease or other commitment.

E. As of the Merger Date, the consummation of the transactions
contemplated by this Agreement of Merger will not result in the breach of any
term or provision of or constitute a default under any indenture, mortgage, deed
of trust or other material agreement or instrument to which such corporation is
a party.

F. Each corporation, as of the Merger Date, shall have sufficient funds
in its corporate bank accounts to pay all of such Merged Corporation's accounts
payable.

SERVICE OF PROCESS

Surviving Corporation acknowledges and agrees that it may be sued and
served with process in the State of Kansas in any proceeding for enforcement of
any obligation of Deli. Surviving Corporation hereby irrevocably appoints the
Secretary of State of Kansas as its agent to accept service of process in any
such suit or proceeding. The Secretary of State of Kansas may mail a copy of
any such service of process to 300 IMA Plaza, 250 North Water, Wichita, Kansas
67202.

XII

MISCELLANEOUS

<PAGE>

This Agreement of Merger shall be approved, adopted, certified, executed
and acknowledged by each constituent corporation in accordance with Kansas
Statutes Annotated Section 17-6701 and Oklahoma Statutes Annotated 18 Section
1082. The executed Agreement of Merger shall be on file at the principal place
of business of Surviving Corporation located at 110 West Third Street,
Stillwater, Oklahoma 74074. A copy of the Agreement of Merger shall be
furnished by Surviving Corporation, on request and without cost, to any
shareholder of the constituent corporations.

IN WITNESS WHEREOF, the foregoing Agreement of Merger, having been duly
entered into and signed by New York Bagel Enterprises, Inc., an Oklahoma
corporation, and having been duly entered into and signed by VPR Incorporated,
New York Bagel Shop, Inc., Bagel Boss, Inc. and Bagels of Norman, Inc., all
Oklahoma corporations, and New York Bagel Shop & Delicatessen, Inc., a Kansas
corporation, and having been duly adopted by the shareholders of each of such
corporations, all in accordance with the provisions of the laws of the States of
Kansas and Oklahoma, the President of New York Bagel Enterprises, Inc. and the
Vice Presidents of VPR Incorporated, New York Bagel Shop, Inc., Bagel Boss,
Inc., Bagels of Norman, Inc., and New York Bagel Shop & Delicatessen, Inc., do
now hereby execute this Agreement of Merger by authority of the directors and
shareholders of each constituent corporation, as the respective act, deed and
agreement of each of said corporations, on this 27th day of December, 1995.

NEW YORK BAGEL ENTERPRISES, INC.

ATTEST: By__________________________________________
Robert J. Geresi, President

By______________________________
Robert D. Young, Secretary

VPR INCORPORATED

ATTEST: By__________________________________________
Robert J. Geresi, Vice President

By______________________________
Robert J. Geresi, Secretary

<PAGE>

NEW YORK BAGEL SHOP, INC.

ATTEST: By__________________________________________
Robert J. Geresi, Vice President

By______________________________
Robert J. Geresi, Secretary

BAGEL BOSS, INC.

ATTEST: By__________________________________________
Robert J. Geresi, Vice President

By______________________________
Robert J. Geresi, Secretary

BAGELS OF NORMAN, INC.

ATTEST: By__________________________________________
Robert J. Geresi, Vice President

By______________________________
Robert J. Geresi, Secretary

NEW YORK BAGEL SHOP &
DELICATESSEN, INC.

ATTEST: By__________________________________________
Robert J. Geresi, Vice President

By______________________________
Robert J. Geresi, Secretary

<PAGE>

ACKNOWLEDGEMENTS

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

____________________________________________
Notary Public

My appointment expires:

____________________

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi, Vice President and Secretary of VPR
Incorporated, an Oklahoma corporation, on behalf of the corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

<PAGE>

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi, Vice President and Secretary of New York
Bagel Shop, Inc., an Oklahoma corporation, on behalf of the corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi, Vice President and Secretary of Bagel Boss,
Inc., an Oklahoma corporation, on behalf of the corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

<PAGE>

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi, Vice President and Secretary of Bagels of
Norman, Inc., an Oklahoma corporation, on behalf of the corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995, by Robert J. Geresi, Vice President and Secretary of New York
Bagel Shop & Delicatessen, Inc., a Kansas corporation, on behalf of the
corporation.

____________________________________________
Notary Public

My appointment expires:

____________________

<PAGE>

SECRETARIES' CERTIFICATES

The undersigned, Robert D. Young, Secretary of New York Bagel Enterprises,
Inc., one of the merging corporations mentioned in the within Agreement of
Merger, on behalf of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 300 shares of its capital stock, being a majority
of the shares of said capital stock issued and outstanding, were for the
adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert D. Young, Secretary
New York Bagel Enterprises, Inc.

The undersigned, Robert J. Geresi, Secretary of VPR Incorporated, one of
the merging corporations mentioned in the within Agreement of Merger, on behalf
of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 300 shares of its capital stock, being a majority
of the shares of said capital stock issued and outstanding, were for the
adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert J. Geresi, Secretary
VPR Incorporated

<PAGE>

The undersigned, Robert J. Geresi, Secretary of New York Bagel Shop, Inc.,
one of the merging corporations mentioned in the within Agreement of Merger, on
behalf of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 7,856 shares of its capital stock, being a
majority of the shares of said capital stock issued and outstanding, were for
the adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert J. Geresi, Secretary
New York Bagel Shop, Inc.

The undersigned, Robert J. Geresi, Secretary of Bagel Boss, Inc., one of
the merging corporations mentioned in the within Agreement of Merger, on behalf
of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 4,000 shares of its capital stock, being a
majority of the shares of said capital stock issued and outstanding, were for
the adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert J. Geresi, Secretary
Bagel Boss, Inc.

<PAGE>

The undersigned, Robert J. Geresi, Secretary of Bagels of Norman, Inc., one
of the merging corporations mentioned in the within Agreement of Merger, on
behalf of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 10,000 shares of its capital stock, being a
majority of the shares of said capital stock issued and outstanding, were for
the adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert J. Geresi, Secretary
Bagels of Norman, Inc.

The undersigned, Robert J. Geresi, Secretary of New York Bagel Shop &
Delicatessen, Inc., one of the merging corporations mentioned in the within
Agreement of Merger, on behalf of said corporation, certifies as follows:

The within Agreement of Merger was submitted to the shareholders of said
corporation at a meeting held on the 26th day of December, 1995, and in
accordance with the provisions of Kansas Statutes Annotated Section 17-6702 and
Oklahoma Statutes Annotated 18 Section 1082, pursuant to waiver of notice given
by all persons entitled to receive notice, and at said meeting, said Agreement
of Merger was considered and a vote by ballot in person taken for the adoption
or rejection of said Agreement of Merger, and the votes of the shareholders of
said corporation representing 10,000 shares of its capital stock, being a
majority of the shares of said capital stock issued and outstanding, were for
the adoption of said Agreement of Merger and voted therefor.

____________________________________________
Robert J. Geresi, Secretary
New York Bagel Shop & Delicatessen, Inc.

<PAGE>

CERTIFICATE OF OWNERSHIP AND MERGER
(ARTICLES OF MERGER)

MERGING

NASHVILLE BAGEL CO.
(a Tennessee corporation)

INTO

NEW YORK BAGEL ENTERPRISES, INC.
(an Oklahoma corporation)

IT IS HEREBY CERTIFIED THAT:

1. New York Bagel Enterprises, Inc. is a corporation duly organized and
validly existing under the laws of the State of Oklahoma with its principal
offices located at 110 West Third Street, Stillwater, Oklahoma 74074.

2. New York Bagel Enterprises, Inc. is the owner of all the outstanding
shares of each class of stock of Nashville Bagel Co., a Tennessee corporation,
and hereby merges Nashville Bagel Co. into itself pursuant to Oklahoma Statutes
Annotated 18 Section 1083 and Tenn. Code Ann. Section 48-21-105, which permit
such a merger when one corporation owns at least ninety percent (90%) of the
outstanding shares of each class of stock of a subsidiary corporation to be
merged. New York Bagel Enterprises, Inc., the sole shareholder of such
subsidiary corporation, waived the mailing requirement set forth in Tenn. Code
Ann. Section 48-21-105(c) in writing.

3. The following is a copy of resolutions adopted on the 26th day of
December, 1995 by the Board of Directors of New York Bagel Enterprises, Inc.,
setting forth the plan to effect said merger, which merger is intended to
qualify as a tax-free reorganization pursuant to Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended:

"RESOLVED, That New York Bagel Enterprises, Inc. merge into
itself its wholly owned subsidiary, Nashville Bagel Co., a Tennessee
corporation, pursuant to the laws of the States of Oklahoma and
Tennessee, as hereinafter provided, so that the separate existence of
Nashville Bagel Co. shall cease as soon as the merger shall become
effective. New York Bagel Enterprises, Inc. shall be the surviving
corporation of said merger and shall continue to exist under and be
governed by the laws of the State of Oklahoma. The principal office
of New York Bagel Enterprises, Inc. in the State of Oklahoma will be
located at 110 West Third Street, Stillwater, Oklahoma 74074;"

<PAGE>

"FURTHER RESOLVED, That from the effective date, the merger shall
have the effects provided by Oklahoma and Tennessee law. Without
limiting the generality of the foregoing, on the effective date of the
merger the separate existence of Nashville Bagel Co. shall cease, and
New York Bagel Enterprises, Inc. as the surviving corporation, without
further deed or action, shall possess all of the assets, estate,
property, rights, privileges, immunities, powers, franchises, licenses
and authority of Nashville Bagel Co. and the same shall become vested
in and be held by New York Bagel Enterprises, Inc. as fully and as
entirely and without change or diminution as the same were held before
and enjoyed by Nashville Bagel Co., and New York Bagel Enterprises,
Inc. shall assume all the obligations of Nashville Bagel Co.;"

"FURTHER RESOLVED, That no shares of the common stock of New York
Bagel Enterprises, Inc., nor any cash, property or rights shall be
exchanged for the shares of Nashville Bagel Co. and that no pro rata
issuance of the shares of stock of Nashville Bagel Co. which are owned
by New York Bagel Enterprises, Inc. immediately prior to the effective
date of the merger, shall be made to the shareholders of New York
Bagel Enterprises, Inc., rather such shares of Nashville Bagel Co.
shall be surrendered and extinguished on the effective date of the
merger;"

"FURTHER RESOLVED, That upon the effective date of the merger,
the Articles of Incorporation and Bylaws of New York Bagel
Enterprises, Inc., as in effect immediately prior to such date, shall
continue to be the Articles of Incorporation and Bylaws of New York
Bagel Enterprises, Inc. as the surviving corporation of said merger;"

"FURTHER RESOLVED, That the members of the Board of Directors and
officers of New York Bagel Enterprises, Inc. after the effective date
of the merger shall be the members of the Board of Directors and
officers of New York Bagel Enterprises, Inc. as the surviving
corporation immediately prior to the effective date;"

"FURTHER RESOLVED, That the effective date of the Certificate of
Ownership and Merger setting forth a copy of these resolutions shall
be as of 11:55 p.m., December 31, 1995, after the Certificate of
Ownership and Merger has been filed with the Secretaries of State of
Oklahoma and Tennessee pursuant to Oklahoma Statutes Annotated 18
Section 1083 and Tenn. Code Ann. Section 48-21-105;"

"FURTHER RESOLVED, That the officers and directors of New York
Bagel Enterprises, Inc. be, and they hereby are, authorized and
directed to make, execute, acknowledge and file the Certificate of
Ownership and Merger of New York Bagel Enterprises, Inc. setting forth
a copy of these resolutions and such other documents as shall be
necessary to merge Nashville Bagel Co. into New

<PAGE>

York Bagel Enterprises, Inc. and to file and record the same as provided by
law and to do any and all acts and things whatsoever within the States of
Oklahoma and Tennessee and in any other appropriate jurisdiction to
properly effect this merger."

IN WITNESS WHEREOF, said corporation has caused these presents to be
executed this 27th day of December, 1995.

NEW YORK BAGEL ENTERPRISES, INC.

ATTEST: By
----------------------------------------
Robert J. Geresi, President

- ----------------------------
Robert D. Young, Secretary

<PAGE>

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

BE IT REMEMBERED, that before me, Janet G. Richey, a Notary Public in and
for the County and State aforesaid, came Robert J. Geresi, President, and Robert
D. Young, Secretary, of New York Bagel Enterprises, Inc., an Oklahoma
corporation, personally known to be the persons who executed the foregoing
Certificate of Ownership and Merger as President and Secretary, respectively,
and duly acknowledged the execution of the same.

IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this 27th day of December, 1995.

--------------------------------------------
Janet G. Richey, Notary Public

My Appointment Expires:

<PAGE>

ASSET SALE AND PURCHASE AGREEMENT

THIS ASSET SALE AND PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of this ______ day of December, 1995,

BY AND AMONG NEW YORK BAGEL ENTERPRISES, INC.,
an Oklahoma corporation,
hereinafter referred to as

"BUYER"

AND CENTRAL & RIDGE YOGURT, INC.,
a Kansas corporation,
hereinafter referred to as

"SELLER"

AND PAUL R. HOOVER,
an individual,
hereinafter referred to as

"GUARANTOR"

W I T N E S S E T H:

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1. PURPOSE. The purpose of this Agreement is to set forth the terms of a
sale and purchase of all of the assets and certain defined liabilities of Seller
relating to the conduct by Seller of its restaurant known as "New York Bagel
Shop & Delicatessen" and currently operated by Seller at 310 North Rock Road,
Wichita, Kansas (the "Premises"). Mr. Hoover is a stockholder of Seller.

2. ASSETS. Seller acknowledges and agrees that it owns certain personal
property comprising the restaurant known as "New York Bagel Shop & Delicatessen"
located at the Premises. Subject to the terms and conditions set forth herein,
Seller agrees to sell, and Buyer agrees to purchase, the following assets:

All machinery, equipment, furniture, fixtures, office equipment,
office supplies, customer lists, mailing lists, plans,
specifications, drawings, designs, know-how, marketing and
production information, cash on hand in the amount of Four
Hundred Dollars ($400.00), accounts, accounts

<PAGE>

receivable, loan receivable, employee loans, agreements, contracts,
leases, tools, the License Agreement by and among New York Bagel Shop
& Delicatessen, Inc., a Kansas corporation, Buyer and Seller,
licenses, approvals, authorizations, consents, orders, permits,
prepaid expenses (including insurance and rents), deferred charges,
deposits, leasehold improvements, computer equipment, telephone
numbers, the exclusive right of Buyer to represent itself as carrying
on the business of Seller in continuation thereof, all books and
records, and other personal property and intangible assets of Seller
or used in the conduct of the business of Seller but held nominally by
a third party all or a part of which are described in Exhibit "A"
attached hereto and made a part hereof.

All of the above described assets including those described in greater detail in
Exhibit "A" are hereinafter referred to as the "Assets." Anything contained in
this Agreement to the contrary notwithstanding, this Agreement shall not
constitute an agreement to assign any contract, license, lease, agreement,
commitment, sales order, purchase or any claim or right of any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach thereof or in
any way affect the rights of Seller or Buyer thereunder. Seller shall obtain
the consent of the other party to any of the foregoing to the assignment thereof
to Buyer in all cases in which such consent is required for assignment or
transfer.

3. EXCLUDED ASSETS. Notwithstanding anything contained in Paragraph 2
herein or elsewhere in this Agreement to the contrary, the property listed in
Exhibit "B" hereto is excluded from the Assets being purchased by Buyer from
Seller (the "Excluded Assets").

4. CONSIDERATION. The consideration which Seller agrees to accept, and
Buyer agrees to pay, for the Assets consists of the difference between the
aggregate value of the Assets as valued and set forth in Exhibit "A" hereto less
the Assumed Liabilities as valued and set forth in Exhibit "C" hereto (i.e.:
Assets - Assumed Liabilities = Purchase Price). Prior to the Closing Buyer
shall have the right to cause its accountants and representatives to conduct a
review of the Assets and the Assumed Liabilities and to value the same for
purposes of this Agreement. Seller, if it so elects, shall have the right to
have its accountants and/or representatives perform a review and to inspect the
work papers generated by Buyer's accountants and/or representatives. All the
above described consideration is hereinafter referred to as the "Purchase
Price."

5. ASSUMED LIABILITIES. At Closing, Buyer shall assume the certain
debts, liabilities and obligations of Seller as described in Exhibit "C"
attached hereto and made a part hereof and only those certain debts, liabilities
and obligations to the extent and only in the amount the same shall be
outstanding at Closing and listed in Exhibit "C" hereto. All of the debts,
liabilities and obligations set forth in Exhibit "C" are hereinafter referred to
collectively as the "Assumed Liabilities."

<PAGE>

6. EXCLUDED LIABILITIES. Buyer shall not be obligated with respect to
any Assumed Liabilities listed in Exhibit "C" hereto except to the extent that
it constitutes a valid and legally enforceable claim against Seller. Except for
the Assumed Liabilities specifically assumed by Buyer as set forth in Paragraph
5 herein, Buyer is not assuming any other debts, liabilities or obligations of
Seller including, but not limited to, the debts, liabilities or obligations set
forth in Exhibit "D" hereto. The debts, liabilities, and obligations of Seller
referred to in this Paragraph 6 and set forth in Exhibit "D" which are not being
assumed by Buyer as aforesaid are hereinafter referred to as the "Excluded
Liabilities." Seller shall pay the Excluded Liabilities when due.

7. PURCHASE PRICE ALLOCATION. The Purchase Price shall be allocated as
set forth in Exhibit "E" hereto. The Assumed Liabilities shall be allocated by
Seller, Guarantor and Buyer based upon the individual debt, liability or
obligation as determined upon the date of Closing. Seller, Guarantor and Buyer
acknowledge that Exhibit "E" hereto is a proper allocation of the Purchase Price
and of the Assumed Liabilities and that Seller, Guarantor and Buyer each agree
that they will not take any position inconsistent with this allocation in
preparing financial statements, tax returns, reports to stockholders or
governmental authorities or otherwise which relate to the transactions evidenced
by this Agreement. Seller, Guarantor and Buyer shall agree to the allocations
required under Section 1060 of the Internal Revenue Code of 1986, as amended,
and Seller and Buyer will each file Internal Revenue Service Form 8594
reflecting the final agreed upon Purchase Price allocation.

8. BILLS OF SALE/ASSIGNMENTS. At the Closing, Seller shall execute an
Assignment or Bill of Sale relating to the Assets. Seller shall likewise assign
to Buyer any necessary Certificates of Title, Certificates of Origin for the
Assets and such other documents or instruments that Buyer reasonably believes
are necessary to vest in Buyer marketable title to the Assets. Subsequent to
the Closing, Seller and Guarantor shall execute such other documents as may be
reasonably required to vest in Buyer marketable title to the Assets and to
consummate the transactions contemplated herein.

9. REPRESENTATIONS AND WARRANTIES OF SELLER AND GUARANTOR. As the basis
upon which this Agreement is made, Buyer hereby relies upon, and Seller and
Guarantor, jointly and severally, hereby represent and warrant to Buyer as of
the date of this Agreement and as of the date of Closing, as follows:

(a) INCORPORATION, CORPORATE POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Kansas and has full right, power, authority and capacity to
own its properties, to conduct its business, to execute this
Agreement, to perform its obligations hereunder and to enter into the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement is not prohibited by, and will not be in
violation of, any agreement or instrument to which Seller or its
officers and directors are a party or by which they are bound.

<PAGE>

(b) AUTHORIZATION. Prior to the Closing, the Board of Directors of Seller
shall have duly approved the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, and Seller
shall have delivered to Buyer a certified copy of the corporate
resolutions evidencing the same. The execution and delivery of this
Agreement, the consummation of the transactions described herein, and
the fulfillment of and compliance with the terms and provisions hereof
have been duly authorized by Seller and do not violate any statute,
rule, license, regulation, judicial or administrative order, award,
judgment or decree applicable to Seller or its officers or directors
or conflict with any of the terms, conditions or provisions of the
Articles of Incorporation or Bylaws of Seller or any understanding,
restriction, contract, license or indenture to which Seller is a party
or by which Seller is affected or bound or which is applicable to any
of the Assets. All consents, approvals, resolutions, authorizations,
actions or orders required of Seller for the authorization, execution,
and delivery of, and for the consummation of the transactions
contemplated by, this Agreement have been obtained so that this
Agreement and the transactions contemplated hereby are valid, binding
and enforceable against Seller in accordance with its terms.

(c) BOOKS AND RECORDS. The books and records of Seller are true, complete
and correct in all material respects and there have been no material
transactions involving the business of Seller with respect to the
Assets which should have been set forth in such books and records and
which have not been so set forth. Within a reasonable time prior to
the Closing, Seller shall furnish to Buyer for its examination all the
books, accounts and records of Seller which pertain to the Assets. No
change or addition to the books and records of Seller has been made
since the last date such books and records were furnished to Buyer,
until and including the Closing, other than in the ordinary course of
business.

(d) ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no debts, obligations
(including obligations as a guarantor) or liabilities of any nature,
whether absolute, accrued, contingent or otherwise, which are or could
become a lien on the Assets, except as described elsewhere herein.

(e) UNDISCLOSED TAX LIABILITY. All federal, state, county and local taxes
and assessments which are or will be due and payable have been or will
be duly reported, shall be fully paid and discharged by Seller as of
the Closing and there are or will be no unpaid taxes which are or
could become a lien on the Assets being transferred hereby. All tax
returns of any kind required to be filed have been or will be filed
and the taxes paid as accrued. Seller and Guarantor have no knowledge
of any possible deficiency assessments in respect to any tax returns
filed by Seller.

<PAGE>

(f) LITIGATION. There are no actions, suits, or proceedings pending or
threatened against Seller or affecting any of its properties,
including the Assets, before any federal, state, municipal or other
governmental agency or instrumentality, nor are Seller or Guarantor,
or any of the officers or directors of Seller, aware of any facts
which to it or their knowledge might result in any such action, suit
or proceeding. Seller is not in default with respect to any order or
decree of any court or any such governmental agency or
instrumentality.

(g) TITLE TO PROPERTY. Seller has, or will have as of the date of
Closing, good and marketable title to the Assets, free and clear of
all liens, encumbrances, security interests, leases, equities or
restrictions. Seller is not a party to nor bound by any agreement,
deed, lease or other instrument which affects or impairs the Assets
being transferred pursuant to this Agreement.

(h) COMPLIANCE WITH LAWS. Seller has complied with and is now in
compliance with, in all material respects, all laws, rules,
regulations and orders materially affecting its business, operations
and properties and the consummation of the transactions contemplated
herein do not and will not violate any laws, rules, regulations or
orders.

(i) OTHER AGREEMENTS. Except as described elsewhere herein or in Exhibits
"C" or "D" attached hereto, Seller is not a party to or bound by
(whether written or oral) (i) any employment contracts or agreements,
consulting or other similar formal agreement or any collective
bargaining or labor agreements or any other agreement or arrangement
with any officer, employee, sales representative, distributor, agent,
manufacturer's representative or consultant or person serving in a
similar capacity, with respect to compensation, which will not
terminate as of the Closing, (ii) any pension, retirement, stock
option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, or any
vacation pay or severance pay or other incentive or welfare contract,
plan or so-called fringe benefit agreement (whether formal or
informal, written or oral), which will not terminate as of the
Closing, (iii) any contract for the purchase of any materials,
supplies, equipment or inventory, or for sale of any inventory
(whether formal or informal, written or oral), except contracts
entered into in the ordinary course of business which do not (as to
contracts for purchase by Seller) involve an unperformed commitment,
(iv) any lease or license to use any real or personal property
(whether formal or informal, written or oral), or (v) any contract,
agreement or other commitment requiring a payment by Seller after the
date hereof (whether formal or informal, written or oral). Except as
disclosed by Seller pursuant to Paragraph 6 hereof, Seller is not a
party to or bound by any notes, loan agreements, operating leases,
capitalized leases, letters of credit, commitments, guarantees,
agreements or other arrangements relating to any indebtedness.

<PAGE>

(j) COMPLETENESS OF STATEMENTS. None of the representations, covenants or
warranties by Seller and/or Guarantor in this Agreement or in any
other written instrument furnished to Buyer pursuant hereto or in
connection herewith, contain any untrue statement of a material fact,
any material misstatement of fact or omit to state a material fact
necessary to make the statements herein or therein not misleading,
which shall have a material adverse effect on the business or the
Assets.

(k) BROKER. No person, firm or corporation has acted in the capacity of
broker or finder on Seller's or Guarantor's behalf to bring about the
negotiation or consummation of this Agreement, and Seller and
Guarantor, jointly and severally, agree to indemnify and hold Buyer
harmless against any claims or liabilities asserted against Buyer by
any person acting or claiming to act as a broker or finder on behalf
of Seller or Guarantor.

(l) ENVIRONMENTAL. There are no conditions existing or resulting from
activities associated with Seller's activities, including without
limitation matters relating to air, soil contamination and water
pollution, solid wastes, toxic substances, occupational health
studies, matters relating to waste disposal practices, groundwater and
soil monitoring, written communication with federal, state and/or
local environmental agencies or claims nor any existing, pending or
anticipated violations, citations, claims or complaints relating to or
resulting from activities associated with the business of Seller or
environmental conditions existing at the Premises. There are no and
have been no substances or conditions, in, on, under or emanating from
the Premises including, without limitation, surface waters and
subsurface waters thereof, which could support a claim or cause of
action under any and all federal, state or local environmental
statutes, ordinances, regulations or guidelines.

(m) PRODUCT WARRANTIES, PRODUCT RETURN POLICIES AND SERVICE WARRANTIES.
Seller does not utilize any product warranties, guarantees, product
return policies, service warranties or service policies. There are no
pending, threatened or suspected claims or demands seeking return,
replacement and/or repair of products pursuant to warranties extended
by Seller.

(n) GOVERNMENTAL APPROVALS. The business of Seller as presently conducted
does not require any approval of any governmental body, whether
federal, state, local or foreign, which has not been obtained. The
businesses of Seller as presently conducted in any jurisdiction meets
all known and suspected applicable legal requirements of such
jurisdiction and all known and suspected requisite governmental
approvals have been duly obtained and are in full force and effect,
and there is no basis for any governmental body to deny or rescind any
approval for the conduct of the business of Seller. There is no known
or suspected action or proceeding by any governmental body, including,
but not limited to, safety or environmental investigations, pending or
threatened against Seller or the Premises

<PAGE>

relating to the conduct of its business, and there is no basis for any
such action or proceeding.

(o) DISCOUNTS. There are no outstanding discount and/or no value
certificates, coupons or cards issued by the Seller.

10. REPRESENTATIONS AND WARRANTIES OF BUYER. As the basis upon which this
Agreement is made, Seller hereby relies upon, and Buyer hereby represents and
warrants to Seller as of the date of this Agreement and as of the date of
Closing, as follows:

(a) INCORPORATION, CORPORATE POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Oklahoma and has full right, power, authority and capacity to
own its properties, to conduct its business, to execute this
Agreement, to perform its obligations hereunder and to enter into the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement is not prohibited by, and will not be in
violation of, any agreement or instrument to which Buyer or its
officers and directors are a party or by which they are bound.

(b) AUTHORIZATION. Prior to Closing, the Board of Directors of Buyer
shall have duly approved the execution, delivery and performance of
this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement, the consummation of the
transactions described herein, and the fulfillment of and compliance
with the terms and provisions hereof have been duly authorized by
Buyer and do not violate any statute, rule, license, regulation,
judicial or administrative order, award, judgment or decree applicable
to Buyer or its officers or directors or conflict with or cause
default under or accelerate or create a liability under, any of the
terms, conditions or provisions of the Articles of Incorporation or
Bylaws of Buyer or any agreement, understanding, restriction,
contract, license or indenture to which Buyer is a party or by which
Buyer is affected or bound. All consents, approvals, resolutions,
authorizations, actions or orders required of Buyer for the
authorization, execution, and delivery of, and for the consummation of
the transactions contemplated by, this Agreement have been obtained so
that this Agreement and the transactions contemplated hereby are
valid, binding and enforceable against Buyer in accordance with its
terms.

11. OBLIGATIONS OF SELLER AND GUARANTOR/INDEMNITY. Seller and Guarantor,
jointly and severally, hereby agree to indemnify Buyer and its affiliates from
and against any and all losses, costs, expenses and claims of any nature
whatsoever which heretofore may have arisen or which may hereafter arise out of
(i) the ownership, possession, use, transfer or sale of the Assets or the
business conducted by Seller, Seller's employees, officers, directors, agents
and representatives utilizing the Assets or business (including the previous
sale of inventory and any resulting product liability) prior to and upon
Closing, (ii) the nonpayment as of ninety (90) days from the date of this
Agreement by any debtor of Seller relative to any account receivable, trade

<PAGE>

receivable, loan receivable and employee loan receivable that was assigned by
Seller to Buyer hereunder, and (iii) any breach of any representation, warranty
or covenant of Seller or Guarantor set forth in this Agreement.

12. OBLIGATIONS OF BUYER/INDEMNITY. Buyer hereby agrees to indemnify
Seller from and against any and all losses, costs, expenses and claims of any
nature whatsoever which may arise out of (i) any breach of any representation,
warranty or covenant of Buyer set forth in this Agreement, and (ii) the
ownership, possession, use, transfer or sale of the Assets or the business
conducted by Buyer, Buyer's employees, officers, directors, agents and
representatives utilizing the Assets or business after Closing.

13. PRORATION OF TAXES. All taxes and assessments relating to the Assets
and Assumed Liabilities for 1994 and prior years shall be paid by Seller, and
the taxes and assessments relating to the Assets and Assumed Liabilities for
1995 shall be prorated as of the date of Closing, the said proration to be based
on the 1994 taxes levied or assessments imposed. Buyer shall be responsible for
all taxes and assessments or installments thereof coming due after Closing and
relating to the period after Closing. Seller shall pay and discharge all other
taxes relating to the Assets and Assumed Liabilities which accrue on or prior to
the Closing or which otherwise relate to Seller's business.

14. FEES AND EXPENSES. Seller, Guarantor and Buyer agree to bear their
own expenses for any and all attorneys' fees and other costs involved in the
preparation or negotiation of this Agreement and any other documents relating to
the implementation and consummation of this transaction.

15. CLOSING/POSSESSION. Seller, Guarantor and Buyer acknowledge and agree
that time is of the essence of this Agreement. As a result, the closing of this
Agreement shall take place at 3:00 p.m. on December 28, 1995, at the offices of
Buyer, 110 West Third Street, Stillwater, Oklahoma 74074, or at such other time,
date and place as shall be mutually satisfactory to the parties hereto. The
parties agree that the effective date of the transactions contemplated herein
shall be 11:45 p.m., December 31, 1995. Such effective date and time is
referred to in this Agreement as the "Closing." Buyer shall be given possession
of the Assets as of the Closing, the Purchase Price shall be paid Seller and
risk of loss shall pass to Buyer as of the Closing.

16. INTERIM COVENANTS. Between the date hereof and the Closing, Seller
shall continue to operate its business utilizing the Assets in the ordinary
course of business, except as specifically described herein.

17. GOOD WORKING ORDER. Seller represents that the Assets to be purchased
hereby are "in good working order, normal wear and tear excepted."

18. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer to
consummate the transactions contemplated hereby shall be subject to the
satisfaction on or prior to the Closing of each of the following conditions:

<PAGE>

(a) There shall not have been issued and be in effect any order of any
court or tribunal of competent jurisdiction which (i) makes the
purchase by Buyer of the Assets illegal, or (ii) would impose
limitations on the ability of Buyer effectively to exercise full
rights of ownership of the Assets;

(b) All of Seller's and/or Guarantor's representations and warranties set
forth herein shall be true and correct, Seller and Guarantor shall
have complied with all agreements and covenants set forth herein, and
Buyer's due diligence investigation shall not have revealed any facts
or circumstances which, in the reasonable opinion of Buyer, would make
inadvisable the acquisition contemplated herein;

(c) Seller shall have obtained an estoppel certificate and assignment of
lease related to the real property lease of Seller concerning the
Premises; and

(d) Seller shall have allowed representatives of Buyer to make a physical
inspection(s) of the Assets, Assumed Liabilities and the Premises and
a review of the books, contracts, agreements, tax returns and other
records of Seller and shall have furnished Buyer with such additional
information as Buyer may have reasonably requested. The results of
such due diligence investigation shall be satisfactory to Buyer and
its counsel. If for any reason this Agreement is abandoned or
terminated, Buyer acknowledges and agrees that it will not use or
disclose any information obtained from Seller and that it will
promptly return to Seller all materials obtained during the course of
its investigation. Notwithstanding the foregoing, such a due
diligence investigation shall not relieve Seller from making full,
written disclosure to Buyer of the matters relative to the transaction
contemplated hereby.

19. CONDITIONS TO SELLER'S AND GUARANTOR'S OBLIGATION TO CLOSE. The
obligation of Seller and Guarantor to consummate the transactions contemplated
hereby shall be subject to the satisfaction on or prior to the Closing of each
of the following conditions:

(a) There shall not have been issued and be in effect any order of any
court or tribunal of competent jurisdiction which makes the sale by
Seller of the Assets illegal; and

(b) All of Buyer's representations and warranties set forth herein shall
be true and correct and Buyer shall have complied with all agreements
and covenants set forth herein.

20. ACCESS BY SELLER AND GUARANTOR. Buyer shall, for a period of five (5)
years after the Closing, give to Seller and the Guarantor and their authorized
representatives such access, during normal business hours at the Premises or
Buyer's headquarters as determined by Buyer, to the books and records being
transferred, conveyed and assigned to Buyer hereunder as may be reasonably
required by Seller and Guarantor. Seller and Guarantor shall be entitled, at
their

<PAGE>

own expense, to make extracts and copies of such books and records. Anything
contained herein to the contrary notwithstanding, Buyer shall not be obligated
to give Seller and Guarantor or any such authorized representatives access to
any proprietary or technical information, material relating to any period
subsequent to the Closing or developed by Buyer at its expense or for its
benefit, including, without limitation, tax returns for such subsequent periods,
any appraisal of the Assets and/or any information or material developed by or
for Buyer prior to or after the Closing. Buyer agrees it shall not, during such
five (5) year period, destroy or cause to be destroyed any books or records
without first advising Seller and Guarantor and giving Seller and Guarantor
reasonable opportunity to obtain copies prior to such destruction of those
materials to which Seller and Guarantor are entitled pursuant to this Paragraph
20 at Seller's and/or Guarantor's cost and expense.

21. INSTRUMENTS GIVING CERTAIN ADDITIONAL POWERS AND RIGHTS; FURTHER
ASSURANCES; ETC. Subject to the indemnification provision set forth in
Paragraph 11 herein, at the Closing, Seller shall constitute and appoint Buyer,
its successors and assigns, the true and lawful attorneys of Seller with full
power of substitution, in the name of Buyer or the name of Seller, on behalf of
and for the benefit of Buyer to collect all accounts receivable, trade
receivables, notes receivable and employee loan receivables included with the
Assets and other items being transferred, conveyed and assigned to Buyer as
provided herein, to endorse, without recourse, checks, notes and other
instruments in the name of Seller for such purpose of collection, to institute
and prosecute, in the name of Seller or otherwise but at the expense of Buyer,
all proceedings which Buyer may deem proper in order to collect, assert or
enforce any claim, right or title of any kind or in or to the Assets being
transferred, conveyed and assigned as provided herein, to defend and compromise
any and all actions, suits or proceedings in respect of any of such Assets and
Assumed Liabilities and to do all such acts and things in relation thereto as
Buyer may deem advisable. Seller agrees that the foregoing powers are coupled
with an interest and shall be irrevocable as long as Seller is still an existing
corporation. Seller further agrees that Buyer shall retain for Buyer's own
account any amounts collected pursuant to the foregoing powers, and Seller shall
pay to Buyer, if and when received, any amounts which shall be received by
Seller after the Closing in respect of the Assets to be transferred, conveyed
and assigned to Buyer as provided herein. Seller and Guarantor further agree
that, at any reasonable time and from time to time after the Closing, they will,
upon the request of Buyer, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged or delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney or assurances as may be
required for the better transferring, assigning, conveying, granting, assuring
and confirming to Buyer, or for aiding and assisting in the collection of or
reducing to possession by Buyer, the Assets, or to vest in Buyer good,
indefeasible and marketable title to the Assets.

22. AMENDMENT AND MODIFICATIONS. This Agreement may only be amended or
modified in writing signed by the parties at any time prior to or upon the date
of Closing with respect to any of the terms contained herein.

<PAGE>

23. WAIVER. At any time prior to the Closing, the parties hereto may by
mutual agreement (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and/or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by both parties hereto.

24. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.

25. COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

26. HEADINGS. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

27. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas. Any legal action brought to
enforce or construe this Agreement shall be brought in the courts located in
Sedgwick County, Kansas, and Seller, Guarantor and Buyer hereby agree to the
jurisdiction of such courts and agree that they will not invoke the doctrine of
FORUM NON CONVENIENS or other similar defenses.

28. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs and personal representatives.

29. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS. The
obligations, covenants, agreements, representations, warranties and
indemnifications included or provided for herein or in any exhibit, certificate
or other document delivered pursuant to this Agreement shall survive the date of
Closing.

30. EMPLOYEES. At the close of business on the date of Closing, Seller
shall terminate all of its employees. Buyer intends to, but is not obligated
to, hire some of the employees of Seller.

31. SALES TAXES. The Seller shall pay any and all local, city, county,
state and federal sales taxes due to or as a result of the transactions
contemplated herein.

<PAGE>

32. NOTICES. All notices hereunder shall be deemed if in writing and
delivered personally or sent by registered mail or certified mail, return
receipt requested, to the parties at the following addresses, or at such other
addresses as shall be specified by like notice:

If to Seller: Central & Ridge Yogurt, Inc.
P. O. Box 781507
Wichita, Kansas 67278
ATTN: Paul R. Hoover, President

If to Buyer: New York Bagel Enterprises, Inc.
300 IMA Plaza
250 North Water
Wichita, Kansas 67202
ATTN: Robert J. Geresi, President

If to Paul R. Hoover: Paul R. Hoover
1600 Freedom Road
Wichita, Kansas 67230

Any notice given by mail shall be effective two days after deposit in the United
States mail. Any notice given by facsimile or overnight delivery shall be
effective upon the day after transmission or deposit.

33. PUBLIC ANNOUNCEMENTS. The parties agree that all statements and/or
public announcements, including those to the media, concerning this transaction
shall be subject to prior mutual written approval by the parties.

34. GUARANTOR. Realizing that Seller may be dissolved shortly after
Closing, whether or not such dissolution takes place, and in addition to the
specific representations, warranties, obligations, indemnifications, covenants
and agreements of Guarantor herein, Guarantor hereby agrees to perform and/or
pay after Closing, as applicable, any and all representations, warranties,
obligations, indemnifications, covenants and agreements of Seller herein.

35. EXHIBITS. The Exhibits hereto form an integral part of this Agreement
and are incorporated herein by reference and expressly made a part hereof.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.

NEW YORK BAGEL ENTERPRISES, INC.

By__________________________________________
Robert J. Geresi, President

"BUYER"

CENTRAL & RIDGE YOGURT, INC.

By__________________________________________
Paul R. Hoover, President

"SELLER"

____________________________________________
PAUL R. HOOVER

"GUARANTOR"

<PAGE>

ARTICLES OF INCORPORATION

NEW YORK BAGEL ENTERPRISES, INC.

KNOW ALL MEN BY THESE PRESENTS:

The undersigned incorporator hereby forms and establishes a corporation for
profit under the laws of the State of Kansas as follows:

The name of the corporation is New York Bagel Enterprises, Inc..

II.

The registered office of the corporation is located at 1600 Epic Center,
301 North Main Street, Wichita, Sedgwick County, Kansas 67202-4888, and the
corporation's resident agent at such address is Gregory B. Klenda.

III.

The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the Kansas general corporation
code.

IV.

The corporation shall have authority to issue thirty million (30,000,000)
shares of capital stock comprised of (i) twenty-five million (25,000,000) shares
of Class A Common Stock with a par value of One Cent ($0.01) for each of such
shares, and (ii) five million (5,000,000) shares of Class B Common Stock with a
par value of One Cent ($0.01) for each of such shares, aggregating Three Hundred
Thousand Dollars ($300,000). The Class B Common Stock shall have no voting
power for any purposes whatsoever and the holders of Class A Common Stock shall,
to the exclusion of the holders of Class B Common Stock, have fully voting power
for all

<PAGE>

purposes. The Class B Common Stock shall be automatically converted into Class
A Common Stock upon the corporation's successful completion of a public
offering, if any, of its Class A Common Stock pursuant to the registration
requirements of the Securities Act of 1933, as amended, such that each share of
Class B Common Stock then issued and outstanding shall be converted into one (1)
share of Class A Common Stock.

The name and mailing address of the incorporator are:

Gregory B. Klenda
1600 Epic Center, 301 N. Main
Wichita, KS 67202-4888

VI.

The names and mailing addresses of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualified are:

Robert J. Geresi Paul T. Sorrentino
110 West Third Street 110 West Third Street
Stillwater, OK 74074 Stillwater, OK 74074

David L. Murfin Paul R. Hoover
300 IMA Plaza, 250 N. Water 300 IMA Plaza, 250 N. Water
Wichita, KS 67202 Wichita, KS 67202

Robert D. Young Vincent J. Vrana
300 IMA Plaza, 250 N. Water 110 West Third Street
Wichita, KS 67202 Stillwater, OK 74074

At all elections of directors of the corporation, each stockholder shall be
entitled to as many votes as shall equal the number of votes which, except for
this provision as to cumulative voting, such stockholder would be entitled to
cast for the election of directors with respect to such stockholder's shares of
stock multiplied by the number of directors to be elected by each stockholder,
and each stockholder may cast all of such votes for a single director or may

<PAGE>

distribute them among the number to be voted for, or for any two or more of them
as such stockholder may see fit. All elections of directors shall be by written
ballot only if requested by any stockholder entitled to vote.

VII.

No original issue of the shares of stock of the corporation shall be made
hereafter except as the same may be authorized by resolution of the Board of
Directors. Upon any original issue of shares hereafter so authorized, the
existing stockholders at the time of the adoption of such resolution shall be
entitled to subscribe to shares of the said original issue in proportion to
their then existing stockholders, and on the same terms authorized for such
original issue by the Board of Directors. Upon the adoption of any such
resolution, notice thereof and of their preemptive rights shall be given to the
existing stockholders in writing by mail to their last known addresses, and such
preemptive rights may be exercised by delivering a written election thereof at
the registered office of the corporation within ten (10) days after the mailing
of such notice.

VIII.

There is reserved to the corporation and to existing stockholders in such
manner as shall be set forth in the corporation's Bylaws, the right to purchase
and acquire the stock of any selling stockholders before sale to a non-
stockholder.

IX.

Whenever a compromise or arrangement is proposed between the corporation
and its creditors or any class of them or between the corporation and its
stockholders or any class of them, any court of competent jurisdiction within
the State of Kansas, on the application in a summary way of the corporation or
of any creditor or stockholder thereof or on the application

-3-

<PAGE>

of any receiver or receivers appointed for the corporation under the provisions
of K.S.A. 17-6901, and amendments thereto, or on the application of trustees in
dissolution or of any receiver or receivers appointed for the corporation under
the provisions of K.S.A. 17-6808, and amendments thereto, may order a meeting of
the creditors or class of creditors, or of the stockholders or class of
stockholders of the corporation, as the case may be, to be summoned in such
manner as the court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, or of the stockholders or class
of stockholders of the corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of the corporation as consequence of
such compromise or arrangement and the reorganization, if sanctioned by the
court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.

The corporation shall indemnify and hold harmless, to the fullest extent
permitted under applicable law as it presently exists or may hereafter be
amended, any person who was or is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, by reason of the fact that such person is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
corporation shall further pay or reimburse the reasonable expenses incurred by
such person in advance of the final disposition of the proceeding after the
corporation receives a written affirmation by the person of his or her good
faith belief that he or

-4-

<PAGE>

she has met the standard of conduct necessary for indemnification under
applicable law and a written undertaking by or on behalf of the person to repay
the amount paid or reimbursed if it is ultimately determined that he or she has
not met that standard or if it is ultimately determined that indemnification of
the person against expenses incurred by him or her in connection that proceeding
is prohibited by applicable law.

A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under applicable law as it presently exists
or may hereafter be amended.

Neither the amendment nor repeal of this Article X shall eliminate or
reduce the effect of this Article X in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article X would accrue or
arise prior to such amendment or repeal.

XI.

The original or other Bylaws of the corporation may be adopted, amended or
repealed by the incorporator or by the initial directors named in these Articles
of Incorporation, or, before the corporation has received any payment for any of
its stock, by its Board of Directors. After the corporation has received any
payment for any of its stock, the Bylaws of the corporation may be adopted,
amended or repealed, (a) by a majority vote of the stockholders at a meeting at
which a quorum is present or (b) by a two-thirds vote of the full Board of
Directors. Notice of any change of the Bylaws by the Board of Directors shall
be given to each stockholder having voting rights within ten (10) days after the
date of such action by the Board of Directors.

-5-

<PAGE>

IN WITNESS WHEREOF, the said incorporator has subscribed his name hereto
this 27th day of December, 1995.

---------------------------------------
Gregory B. Klenda

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995 by Gregory B. Klenda.

---------------------------------------
Janet G. Richey, Notary Public

My Appointment Expires

-6-

<PAGE>

CONSENT

The undersigned, being the President and Secretary of New York Bagel
Enterprises, Inc., an Oklahoma corporation, hereby consents to New York Bagel
Enterprises, Inc., a Kansas corporation, using its name.

Dated this 27th day of December, 1995.

---------------------------------------
Robert J. Geresi, President

ATTEST:

By
--------------------------------
Robert D. Young, Secretary

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this 27th day of
December, 1995 by Robert J. Geresi, President, and Robert D. Young, Secretary,
on behalf of the corporation.

---------------------------------------
Janet G. Richey, Notary Public

My Appointment Expires

-7-

<PAGE>

BYLAWS

NEW YORK BAGEL ENTERPRISES, INC.

STOCK

Sec. 1. ISSUANCE. Shares of stock may be issued in accordance with the
Articles of Incorporation on such terms and conditions as may be
determined by the Board of Directors. The form of stock certificates
shall be signed by the Chairman or Vice Chairman of the Board of
Directors, or by the President or Vice President, and by the Treasurer
or an Assistant Treasurer, or by the Secretary or an Assistant
Secretary and, if the corporation chooses to have a seal, shall be
sealed with the corporate seal.

Sec. 2. METHOD OF TRANSFER. Transfers of stock shall be made only on the
books of the corporation, and the old certificate properly endorsed
shall be surrendered and canceled before a new certificate is issued.
All surrendered certificates shall be marked "canceled" with the date
of cancellation by the Secretary and shall be immediately affixed to
the stock books opposite the memorandum of their issue.

Sec. 3. LIMITATIONS ON TRANSFERS. No stockholder may transfer his common
stock to any person without first giving notice to the corporation of
his intention to do so and of the terms and consideration for the
same. Such notice may be by posting the same in a conspicuous place
in the registered office of the corporation. For fifteen (15) days
thereafter, the corporation, acting through its Board of Directors,
shall have the prior right to buy the said stock on the said terms.
If, at the end of fifteen (15) days, the corporation has not exercised
such preferential right, then the stock may be transferred to any
person whatsoever on the said terms; provided, however, if the
corporation is taxed under Subchapter S of the Internal Revenue Code
of 1986, as amended, no such transfer shall be made to any transferee
whose ownership would void or endanger the corporation's S corporation
election, unless such transfer is permitted by the prior written
consent of persons owning a majority of the outstanding shares of the
corporation. Notwithstanding anything to the contrary herein provided
in this section, the transfer of shares of a stockholder in the
corporation may be made subject to such additional or lesser
restrictions as may be imposed by written agreement by and between the
registered owners of such stock and the corporation. Upon the
execution of any such agreement, all certificates of stock of the
corporation shall have endorsed upon them appropriate language
referring to such agreement and a copy of such agreement shall be
filed in the office of the Secretary of the corporation.

<PAGE>

STOCKHOLDERS' MEETINGS

Sec. 4. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation shall be held on the first Tuesday in September of each
year, commencing with the year 1996, at which time there shall be
chosen a Board of Directors consisting of one (1) or more members as
shall be determined by the stockholders; provided, however, that such
number shall not exceed six (6), who need not be stockholders of the
corporation, and who shall serve as directors of the corporation
during the ensuing year and until their successors are elected and
qualify or until their earlier resignation or removal. A notice of
such meeting, either written or printed, shall be mailed not less than
ten (10) nor more than sixty (60) days before such meeting to each
voting stockholder to his post office address appearing upon the
records of the corporation. Such annual meeting need not be held at
the registered office of the corporation, but the notice shall state
the hour and the place where the meeting will be held.

Sec. 5. DEFERRED ANNUAL MEETING. If, for any reason, the annual meeting of
the stockholders shall not be held on the date designated therefor,
the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.

Sec. 6. SPECIAL MEETINGS. Special meetings of the stockholders of the
corporation may be called at any time by the President or the Board of
Directors. It shall also be the duty of the President or Secretary to
call a special meeting of the stockholders whenever requested to do so
by the stockholders owning twenty (20) percent of the entire voting
capital stock. If the President or Secretary on such request neglects
for two (2) days to call a special meeting as requested, then said
stockholders making the request may call a special meeting. Ten (10)
days' written notice of special meetings shall be given by mailing a
written or printed notice thereof to each stockholder to his post
office address appearing on the records of the corporation. Such
special meetings need not be held at the registered office of the
corporation, except any special meeting that is called by the
stockholders after a demand for the same has been neglected as above
set forth. The notice of such special meetings in addition to stating
the time at which the said meeting shall be held, shall briefly state
the object of the meeting.

Sec. 7. QUORUM. The holders of a majority of the issued and outstanding
shares of the capital stock of the corporation having voting power,
present in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting of stockholders except as may
be otherwise provided by law, the Articles of Incorporation, or the
Bylaws of the corporation; but if there be less than a quorum, the
holders of a majority of the stock so present may adjourn the meeting
from time to time. A majority vote of such quorum shall be necessary
for the transaction of any business.

<PAGE>

Sec. 8. CUMULATIVE VOTING. At all elections of directors of the corporation,
each stockholder shall be entitled to as many votes as shall equal the
number of votes which, except for this provision as to cumulative
voting, such stockholder would be entitled to cast for the election of
directors with respect to such stockholder's shares of stock
multiplied by the number of directors to be elected by each
stockholder, and each stockholder may cast all of such votes for a
single director or may distribute them among the number to be voted
for, or for any two or more of them as such stockholder may see fit.

Sec. 9. PRESIDING OFFICERS. All meetings of the stockholders shall be
presided over by the President, and at all such meetings the President
may vote. In the absence of the President, the Vice President shall
preside and shall have all the powers herein conferred upon the
President when acting as the presiding officer. In the absence of the
President and Vice President, the stockholders may appoint any
stockholder to act as Chairman of the meeting.

Sec. 10. ORDER OF BUSINESS. At all meetings of the stockholders, the following
order of business shall be observed as far as consistent with the
purposes of the meeting, viz.:

1. Meeting shall be called to order;
2. Report of Credentials Committee;
3. Reading of the minutes of previous meeting and action thereon;
4. Report of President;
5. Report of Treasurer;
6. Report of Secretary;
7. Report of other committees;
8. Unfinished business;
9. New business; and
10. Election of directors.

Sec. 11. ACTION WITHOUT A MEETING. Unless otherwise provided in the
corporation's Articles of Incorporation, any action required by law to
be taken, or any action which may be taken, at any annual or special
meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by all the holders of outstanding
stock entitled to vote thereon.

DIRECTORS

Sec. 12. MANAGEMENT BY DIRECTORS. The affairs of the corporation shall be
managed by or under the direction of the Board of Directors chosen at
the annual meeting of the stockholders, except as may be otherwise
provided by law or the corporation's Articles of Incorporation. Each
director shall receive such compensation for his

<PAGE>

services as shall be decided from time to time by resolution of the
Board of Directors. A majority of the directors shall constitute a
quorum for the transaction of business. The act of a majority of the
directors present shall be the act of the Board of Directors unless a
greater number is required by the Articles of Incorporation or Bylaws
of the corporation.

Sec. 13. ELECTION OF DIRECTORS. All elections of directors shall be by written
ballot only if requested by any stockholder entitled to vote. A
director shall be deemed qualified as a director when he shall have
indicated in writing acceptance of his election and not before.

Sec. 14. RESIGNATIONS, REMOVALS, AND VACANCIES. A director may resign at any
time upon written notice to the corporation and thereafter he shall
cease to be liable for any acts of the corporation which were done
subsequent to the filing of his resignation. Any director or the
entire Board of Directors may be removed at any time, but only for
cause and only by the affirmative vote of at least two-thirds of the
stockholders of the corporation having voting power, except as may be
otherwise provided by law. In case one or more vacancies by death,
resignation, removal, or otherwise, occur in the Board of Directors
between the time of the annual meetings, the remaining director or
directors shall fill the vacancy or vacancies, and the person or
persons so chosen shall be directors and hold office until their
successors are elected and qualify. In case the entire Board of
Directors shall die, resign, or be removed, then a special meeting of
the stockholders may be called, as hereinbefore provided, for the
election of directors.

Sec. 15. REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be in session immediately at the adjournment of the annual meeting of
the stockholders of the corporation and at the same place where such
annual meeting is held.

Sec. 16. SPECIAL MEETINGS. Special meetings of the directors may be called by
the Chairman of the Board of Directors, the President or Vice
President, or any two directors may call a special meeting. Notice of
such special meetings shall be given by mailing a written or printed
notice thereof to each director to his or her post office address
appearing in the records of the corporation not less than three (3)
days before such special meeting, if held in the county in which is
located the principal place of business of the corporation, or ten
(10) days before such special meeting, if held elsewhere.

Sec. 17. PRESIDING OFFICERS. All meetings of directors shall be presided over
by the Chairman of the Board of Directors, if elected, or failing his
election, the President, and at all such meetings the presiding
officer may vote. In the absence of the President, the Vice President
shall preside and shall have all the powers herein conferred upon the
President when acting as presiding officer. In the absence of the
Chairman of the Board of Directors, the President and Vice President,
the Board of Directors may appoint any director to act as Chairman of
the meeting.

<PAGE>

Sec. 18. ACTION WITHOUT A MEETING. Unless otherwise restricted by the
corporation's Articles of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if
all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the Board of Directors or
committee.

OFFICERS

Sec. 19. ELECTION OF OFFICERS. The directors so chosen at the annual meeting
shall immediately after such annual meeting hold a directors' meeting
at which time they may choose from their own number a Chairman of the
Board of Directors and shall choose a President, Secretary, and
Treasurer, and such other officers, agents, and factors as they may
deem necessary. Each of them shall hold his office until the Board of
Directors chooses someone else in his stead. The Chairman of the
Board of Directors shall be chosen from among the directors. Any
number of offices may be held by the same person.

Sec. 20. VACANCIES. Any vacancy occurring in any office of the corporation by
death, resignation, removal, or otherwise shall be filled by the Board
of Directors.

Sec. 21. SALARIES OF OFFICERS. The salary of all officers shall be fixed by a
majority of the Board of Directors and may be changed from time to
time by the Board of Directors.

Sec. 22. DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if elected, or failing his election, the
President, shall preside at all meetings of the Board of Directors and
shall perform such other duties as may be prescribed from time to time
by the Board of Directors or by these Bylaws.

Sec. 23. DUTIES OF PRESIDENT. The President shall have the power to employ and
discharge all clerks, employees, and agents, subject, however, to the
right of the Board of Directors to direct, by majority vote, the
employment of any agent or other employee or the dismissal of any
agent or other employee. The President shall also preside at all
meetings of the stockholders and, in the absence of the Chairman of
the Board, at meetings of the Board of Directors; shall be ex-officio
a member of all committees; shall perform such other duties as he may
be directed to perform by the Board of Directors; and shall have
general supervision over the business and affairs of the corporation.

Sec. 24. DUTIES OF VICE PRESIDENT. The Vice President, if elected, shall, in
the absence of or incapacity of the President, perform the duties of
that officer.

Sec. 25. DUTIES OF TREASURER. If so required by the Board of Directors, the
Treasurer shall give bond for the faithful performance of his duties
in such sum and with such sureties as the Board of Directors may
prescribe. The Treasurer shall deposit the

<PAGE>

money and securities belonging to the corporation in such
bank or banks, trust companies, and safety deposit vaults as may be
selected by the Board of Directors, and all checks or other orders for
the payment of money or the delivery of securities belonging to the
corporation shall be signed by the Treasurer, the President, or such
other person or persons as the Board of Directors may designate. The
Treasurer shall also keep such books of account as the directors or a
majority of them may direct. A report of the financial condition of
the corporation shall be made by the Treasurer to the President
whenever requested by the President, and a report of like character
shall be submitted by the Treasurer at the annual meeting of
shareholders.

Sec. 26. DUTIES OF SECRETARY. The Secretary shall record all minutes of
meetings of the stockholders and of the Board of Directors in a book
kept for that purpose; and, in his absence, the Chairman may appoint
any person to act as Secretary of the meeting. He shall record all
transfers of stock, and cancel and preserve all certificates of stock
transferred, and he shall also keep a record alphabetically arranged
for all persons who are stockholders of the corporation, showing their
places of residence, the number of shares of stock held by them
respectively, and the time when they became owners of such shares.
The address of any stockholder shall be changed whenever requested in
writing by such stockholder. The Secretary shall also be the transfer
agent of the corporation for the transfer of all certificates of
stock. He shall also keep the seal of the corporation, and affix the
same to all certificates of stock and such other instruments requiring
the seal as may be directed by the Board of Directors. The Secretary
shall have charge of the stock ledger of the corporation and, if he is
requested in writing by any stockholder at least twenty (20) days
prior to any meeting of stockholders, he shall compile a complete list
of stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and
the number of shares of stock registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder for any purpose germane to the meeting during ordinary
business hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock
ledger, such list or the books of the corporation, or to vote in
person or by proxy at such meeting. Said list shall be used by the
Credentials Committee for determining who is entitled to vote. The
Secretary shall also keep such other books and perform such other
duties as may be assigned to him by the Board of Directors.

<PAGE>

MISCELLANEOUS

Sec. 27. SEAL. The corporation shall not be required to have a seal, but in
the event it chooses to do so, the same shall be circular in form and
shall have inscribed thereon the name of the corporation and the words
"Corporate Seal" and "Kansas".

Sec. 28. FISCAL YEAR. The fiscal or business year of the corporation shall end
at such time as the Board of Directors shall determine.

Sec. 29. DIVIDENDS. Dividends may be declared annually, or more frequently, if
the Board of Directors so directs, and shall be paid according to law.
Dividends may be paid in cash, in property or in shares of the
corporation's capital stock, in the case of shares with par value at
par; and in the case of shares without par value at such price as may
be fixed by the Board of Directors.

Sec. 30. HOLIDAYS. Whenever the day set for a meeting as hereinbefore
designated shall fall on a holiday, such meeting shall be held on the
next business day.

Sec. 31. WAIVER OF NOTICE. Any notice required to be given by law, or by the
corporation's Articles of Incorporation or Bylaws, may be waived in
writing by the person entitled to notice, whether before or after the
time stated in the notice.

Sec. 32. AMENDMENTS. These Bylaws may be amended or repealed by the
incorporators or by the initial directors if they were named in the
corporation's Articles of Incorporation, or, before the corporation
has received any payment for any of its stock, by its Board of
Directors. After the corporation has received any payment for any of
its stock, and unless otherwise provided in the corporation's Articles
of Incorporation, the Bylaws of the corporation may be amended or
repealed, (a) by a majority vote of the stockholders at a meeting at
which a quorum is present, or (b) by a two-thirds (2/3rds) vote of the
full Board of Directors.

Sec. 33. INDEMNIFICATION. The corporation shall indemnify all directors,
officers, employees and agents to the extent provided in the
corportion's Articles of Incorporation.

The above Bylaws were adopted at the
first meeting of the Board of Directors
of New York Bagel Enterprises, Inc. held
December 27, 1995.

----------------------------------------
Robert D. Young,
Secretary of Directors' Meeting

<PAGE>

RESTATED AND AMENDED ARTICLES OF INCORPORATION

NEW YORK BAGEL ENTERPRISES, INC.

KNOW ALL MEN BY THESE PRESENTS:

NEW YORK BAGEL ENTERPRISES, INC., a Kansas corporation, originally
incorporated on December 27, 1995 (the date of filing of its original Articles
of Incorporation with the Office of the Secretary of State of Kansas), pursuant
to the provisions of K.S.A. 17-6605, hereby adopts restated Articles of
Incorporation and amends its Articles of Incorporation, which restatement and
amendments restate and integrate and also further amend the Articles of
Incorporation.

Such restatement and amendment made by these Restated and Amended Articles
of Incorporation have been effected in conformity with the provisions of K.S.A.
17-6605. At a special meeting of the Board of Directors of said corporation
held on the 16th day of January, 1996, the Board of Directors adopted
resolutions setting forth the restatement and amendments hereafter set out to
the Articles of Incorporation of the corporation.

Thereafter, on June 4, 1996, as evidenced by a stockholders' consent to
action in lieu of a meeting, all of the stockholders who were entitled to vote
on such restatement and amendments approved the same. The number of voting
shares outstanding and entitled to vote on the Restated and Amended Articles of
Incorporation was 1,012,134; stockholders owning 1,012,134 of such shares
consented to such Restated and Amended Articles of Incorporation; and none of
the stockholders withheld consent.

The capital of the corporation will not be reduced under or by reason of
said restatement and amendments.

<PAGE>

The Articles of Incorporation are hereby superseded by the following
Restated and Amended Articles of Incorporation:

The name of the corporation is New York Bagel Enterprises, Inc.

II.

III.

The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the Kansas general corporation
code.

IV.

The corporation shall have authority to issue shares of capital stock
consisting of the following:

A. Thirty million (30,000,000) shares of common stock, $0.01 par value;
and

B. Five million (5,000,000) shares of preferred stock, no par value.

The Board of Directors is authorized, subject to any limitations prescribed
by law, to provide by resolution or resolutions for the issuance of the
preferred shares in one or more series, to establish the number of shares to be
included in each such series, and to fix the powers, designations, preferences
and the relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of the preferred shares.

A. The number of directors of the corporation shall be as set forth in
the Bylaws of the corporation.

B. The directors of the corporation shall be divided into three (3)
categories as nearly equal in number as possible. Directors initially
elected as Category I directors shall hold office for a term expiring
at the 1997 annual stockholders' meeting. Directors initially elected
as Category II directors shall hold office for a term expiring at the
1998 annual stockholders' meeting, and directors initially elected as
Category III directors shall hold office for a term expiring at the
1999 annual stockholders' meeting. At each annual meeting of
stockholders, the successors

-2-

<PAGE>

to the category of directors whose terms shall then expire shall be
elected to hold office for a term expiring at the third succeeding
annual meeting of stockholders. Each director shall hold office for
the term for which he or she was elected and until his or her
successor is elected and qualified or until his or her earlier
resignation or removal. Any increase or decrease in the authorized
number of directors shall be apportioned by the Board of Directors
among the categories so as to make all categories as nearly equal in
number as possible. A director who is chosen in the manner provided
in the Bylaws to fill a vacancy in the Board of Directors or to fill a
newly-created directorship resulting from an increase in the
authorized number of directors shall hold office until the next
election of the category for which such director shall have been
chosen and until his or her successor is elected and qualified or
until his or her earlier resignation or removal.

C. The elections of directors need not be by written ballot unless the
Bylaws so provide.

VI.

Whenever a compromise or arrangement is proposed between this corporation
and its creditors, or any class of them, or between this corporation and its
stockholders, or any class of them, any court of competent jurisdiction within
the State of Kansas, on the application in a summary way of this corporation or
of any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this corporation under the provisions of K.S.A. 17-6901,
and amendments thereto, or on the application of trustees in dissolution or of
any receiver or receivers appointed for this corporation under the provisions of
K.S.A. 17-6808, and amendments thereto, may order a meeting of the creditors, or
class of creditors, or of the stockholders, or class of stockholders, of this
corporation, as the case may be, to be summoned in such manner as the court
directs. If a majority in number representing 3/4 in value of the creditors, or
class of creditors, or of the stockholders, or class of stockholders, of this
corporation, as the case may be, agree to any compromise or arrangement in the
reorganization, if sanctioned by the court to which the application has been
made, it shall be binding on all the creditors or class of creditors, or on all
stockholders, or class of stockholders, of this corporation, as the case may be,
and also on this corporation.

VII.

A. The corporation shall indemnify and hold harmless, to the fullest
extent permitted under applicable law as it presently exists or may
hereafter be amended, any person who was or is made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the
fact that such person is or was a director or officer of the
corporation or is or was serving at the request of the corporation as
a director, officer, employee, fiduciary, or agent of another
corporation, partnership, joint venture, trust or other enterprise.

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<PAGE>

B. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under applicable law
as it presently exists or may hereafter be amended.

C. Neither the amendment nor repeal of this Article VII shall eliminate
or reduce the effect of this Article VII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this
Article VII, would accrue or arise prior to such amendment or repeal.

VIII.

Except as set forth in Paragraph C of this Article VIII, the affirmative
vote by at least two-thirds of the outstanding shares of the Voting Stock (as
hereinafter defined) shall be required as a requisite for the approval,
authorization, adoption, or consummation by the Corporation (as hereinafter
defined) of any Business Combination (as hereinafter defined) between the
Corporation and a Related Person (as hereinafter defined). The two-thirds vote
requirement shall be calculated by excluding from the voted shares those which
the Related Person is the Beneficial Owner (as hereinafter defined). Such
affirmative vote shall be in addition to the vote of the holders of the
securities of the Corporation otherwise required by law or by agreement between
the Corporation and any other Person (as hereinafter defined), including, but
not limited to, a national securities exchange.

A. For purposes of this Article VIII, and where expressly indicated
herein for purposes of these Articles of Incorporation, the following
terms shall have the following meanings:

(1) "AFFILIATE." The term "Affiliate" shall mean a Person that,
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the
Person specified.

(2) "ASSOCIATE." The term "Associate" as used to indicate a
relationship with any Person, means (a) any corporation or
organization (other than the Corporation) of which such Person is
an officer or partner, or is, directly or indirectly, the
Beneficial Owner of ten percent (10%) or more of any class of
equity securities; (b) any trust or estate in which such Person
has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; or (c) a
relative or spouse of such Person or any relative of such spouse,
who has the same home as such Person.

(3) "BENEFICIAL OWNER." A Person shall be considered to be the
"Beneficial Owner" of any shares of the Voting Stock (whether or
not owned of record), and any such shares shall be considered to
be "Beneficially Owned" by such Person in the following
circumstances:

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<PAGE>

(a) With respect to which such Person or any Affiliate or
Associate of such Person directly or indirectly has or
shares (i) voting power, including the power to vote or to
direct the voting of such shares of the Voting Stock; or
(ii) investment power, including the power to dispose of or
to direct the disposition of such shares of the Voting
Stock;

(b) Which such Person or any Affiliate or Associate of such
Person has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or
the occurrence of an event or contingency) pursuant to any
agreement, arrangement, or understanding or upon the
exercise of conversion rights, exchange rights, warrants or
options, or otherwise; or (ii) the right to vote pursuant to
any agreement, arrangement, or understanding (whether such
right is exercisable immediately or only after the passage
of time or occurrence of an event or contingency); or

(c) Which are Beneficially Owned within the meaning of
paragraphs (a) or (b) of this definition by any other Person
with which such first-mentioned Person or any Affiliate or
Associate of such Person has any agreement, arrangement, or
understanding, written or oral, with the respect to
acquiring, holding, voting, or disposing of any shares of
the Voting Stock of the Corporation or with respect to
acquiring, holding, or disposing of all or substantially
all, or a Substantial Part (as hereinafter defined) of the
assets or business of the Corporation.

For the purpose only of determining whether a Person is the
Beneficial Owner of a percentage specified in this Article of the
outstanding shares of the Voting Stock, such shares shall be
deemed to include any shares of the Voting Stock that may be
issuable pursuant to any agreement, arrangement, or understanding
or upon the exercise of conversion rights, exchange rights,
warrants, options, or otherwise, and which are deemed to be
Beneficially Owned by such Person pursuant to the foregoing
provisions of this Article.

(4) "BUSINESS COMBINATION." The term "Business Combination" shall
include all of the following except to the extent that any of the
following occur pursuant to the participation of a Related Person
in an employee benefit or compensation plan of the Corporation:

(a) Any merger or consolidation of the Corporation with or into
any Related Person;

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<PAGE>

(b) Any merger or consolidation of a Related Person with or into
the Corporation;

(c) Any sale, exchange, lease, transfer, or other disposition,
in a single transaction or in a series of transactions, of
all or a Substantial Part of the assets of the Corporation
to or with a Related Person;

(d) Any sale, exchange, lease, transfer, or other disposition,
in a single transaction or in a series of transactions, of
all or a Substantial Part of the assets of a Related Person
to or with the Corporation;

(e) The issuance of any securities of the Corporation to a
Related Person;

(f) Any reclassification of securities of the Corporation,
recapitalization of the Corporation, or other transaction
other than a redemption in accordance with the security
redeemed, which has the effect, directly or indirectly, of
increasing the power of a Related Person to vote the Voting
Stock in relation to the voting power of the other
stockholders of the Corporation;

(g) Any partial or complete liquidation, spinoff, splitoff, or
splitup of the Corporation or other transaction with a
similar purpose or effect directly or indirectly involving
any Related Person;

(h) Any transaction or event that is intended by any party
thereto to have, or that is likely to have, a similar effect
as any of the transactions or events described in this
definition of Business Combination; or

(i) Any agreement, contract, commitment, or other arrangement
providing for any of the transactions or events described in
this definition of Business Combination.

(5) "CORPORATION." The term "Corporation" shall mean the entity
organized pursuant to these Articles of Incorporation and, unless
contrary to the express provisions of the reference to that term,
that term shall include all subsidiary corporations or other
entities of which the entity organized pursuant to these Articles
of Incorporation owns, directly or indirectly, a majority of the
equity securities thereof, or otherwise controls.

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<PAGE>

(6) "DATE OF DETERMINATION." The term "Date of Determination" shall
mean:

(a) The date on which a binding agreement (except for the
fulfillment of conditions precedent, including, without
limitation, votes of stockholders to approve such a
transaction) is entered into by the Corporation, as
authorized by its Board of Directors, and another Person
providing for any Business Combination;

(b) If such an agreement as referred to in the preceding
paragraph (a) is amended so as to make it less favorable to
the Corporation and its stockholders, the date on which such
amendment is approved by the Board of Directors of the
Corporation; or

(c) In cases where neither of the preceding paragraph (a) nor
(b) shall be applicable, then the record date for
determination of stockholders of the Corporation entitled to
notice of and to vote upon the transaction in question.

(7) "PERSON." The term "Person" shall mean any individual,
partnership, limited partnership, limited liability partnership,
corporation, limited liability company, trust, syndicate,
association, or other entity, other than the Corporation or a
trustee holding stock for the benefit of the employees of the
Corporation pursuant to one or more employee benefit plans or
arrangements. When two or more Persons act as a partnership,
limited partnership, limited liability partnership, corporation,
limited liability company, trust, syndicate, association, or
other entity for the purpose of acquiring, holding, or disposing
of shares of stock, such partnerships, limited partnerships,
limited liability partnerships, corporations, limited liability
companies, trusts, syndicates, associations, or other entities
shall be deemed to be a single "Person."

(8) "RELATED PERSON." The term "Related Person" shall mean any
Person that (a) is the Beneficial Owner as of the Date of
Determination or at any time thereafter of five percent (5%) or
more of the outstanding shares of Voting Stock; (b) any Person
who is an Affiliate of the Corporation and who at any time within
five years immediately preceding the Date of Determination was
the Beneficial Owner of five percent (5%) or more of the then
outstanding shares of the Voting Stock; or (c) any Associate or
Affiliate of any Person described in (a) or (b) above.

(9) "SUBSTANTIAL PART." The term "Substantial Part" shall mean
assets with a fair market value that is equal to or exceeds
twenty percent (20%) of

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<PAGE>

the fair market value of the total assets of the Corporation or
Person in question as of the end of its most recent previous
fiscal year.

(10) "VOTING STOCK." The term "Voting Stock" shall mean all issued
and outstanding shares of capital stock of the entity organized
pursuant to these Articles of Incorporation that are entitled to
vote for the election of directors by their terms or applicable
law.

B. On the basis of information known to the directors, the Board of
Directors shall have the power and duty to make any determinations
required under this Article by the affirmative vote of a majority of
its members, which determinations shall be conclusive and binding on
the Corporation and all other Persons for purposes of this Article:

(1) Whether any Person is the Beneficial Owner, directly or
indirectly, of five percent (5%) or more of the outstanding
shares of Voting Stock, or is an Affiliate or Associate of
another Person;

(2) Whether any proposed sale, lease, exchange, or other disposition
of part of the assets of the Corporation or any other entity
involves a Substantial Part of that entity's assets;

(3) Whether any series of transactions is a series of transactions
for purposes of this Article;

(4) Whether any transaction or event constitutes a Business
Combination for purposes of this Article;

(5) The Date of Determination relating to any Business Combination;
and

(6) Whether any other definition stated in this Article or any other
provision contained herein is applicable to any transaction,
event, or Person.

C. The provisions of this Article shall not be applicable to a Business
Combination if more than two-thirds of all members of the Board of
Directors of the Corporation then in office shall have expressly
approved such Business Combination by resolution.

IX.

Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of
the holders of at least two-thirds of the outstanding capital stock of the
corporation at a meeting called for that purpose; provided, however, that if
the Board of Directors, by an affirmative vote of at least two-thirds of all
members of the Board of Directors then in office, recommends removal of a
director or directors to the stockholders, such removal may be effected

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<PAGE>

by the affirmative vote of the holders of at least a majority of the
outstanding capital stock of the corporation at a meeting of
stockholders called for that purpose.

In the manner set forth in the following sentence, the corporation reserves
the right to amend, alter, change or repeal any provision contained in these
Articles of Incorporation in the manner now or hereafter prescribed by law, and
all rights and powers conferred herein on stockholders, directors and officers
are subject to this reserved power. These Articles of Incorporation may be
amended at any annual or special meeting of the stockholders of the corporation
by at least a two-thirds vote of the stockholders entitled to vote at a meeting
in which a quorum is present in person or by proxy; provided, however, that if
the Board of Directors, by an affirmative vote of at least two-thirds of all
members of the Board of Directors then in office, recommends the advisability of
the amendment, such amendment may be effected by a majority vote of the
stockholders.

XI.

The Bylaws of the corporation may be adopted, amended or repealed (a) by
the holders of at least a majority of the outstanding capital stock of the
corporation at a meeting at which a quorum is present or (b) by at least a
two-thirds vote of the full Board of Directors.

IN WITNESS WHEREOF, said corporation has caused these presents to be
executed by its President and Secretary this _____ day of _________________,
1996.

NEW YORK BAGEL ENTERPRISES, INC.

ATTEST: By
------------------------------------
Robert J. Geresi, President

- -----------------------------------
J. Chris Dennis, Secretary

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<PAGE>

STATE OF KANSAS )
) ss:
COUNTY OF SEDGWICK )

The foregoing instrument was acknowledged before me this day of
, 1996, by Robert J. Geresi and J. Chris Dennis, President and
Secretary, respectively, of New York Bagel Enterprises, Inc., a Kansas
corporation, on behalf of the corporation.

----------------------------------------
Notary Public

My Appointment Expires:

- -----------------------------------

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<PAGE>

RESTATED AND AMENDED

BYLAWS

NEW YORK BAGEL ENTERPRISES, INC.

OFFICES

Section 1. OFFICE. The corporation may have, in addition to its
principal office in the State of Kansas, offices and places of business at such
places, both within and without the State of Kansas, as the Board of Directors
may from time to time designate or the business of the corporation may require.

STOCKHOLDERS

Section 2. ANNUAL MEETING. The annual meeting of the stockholders
shall be held during the month of May of each year for the election of directors
and for the transaction of such other business as may properly come before such
meeting pursuant to the provisions of these Bylaws.

Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time by resolution of the Board of Directors, by the Chairman
of the Board of Directors, or by the written request of holders of more than
two-thirds of all the outstanding shares of stock of the corporation. Such
resolution or request shall state specifically the business to be transacted at
the special meeting. A copy of any such written request shall be delivered to
the Chairman of the Board of the corporation, who shall cause a written or
printed notice of the special meeting complying with the provisions of these
Bylaws to be delivered to the stockholders.

Section 4. PLACE OF MEETING. The annual meeting of the stockholders
shall be held at the principal office of the corporation or at such other place
within or without the State of Kansas as shall be provided for in written,
printed or published notices or waivers of notice. Special meetings of the
stockholders shall be held at such place, within or without the State of Kansas,
as shall be specified in the respective notices or waivers of notice.

Section 5. NOTICE OF MEETING. Written or printed notice of each
meeting of stockholders stating the place, day and hour thereof and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten (10) days or more than sixty (60) days before
the date of such meeting (or at such other time as may be required by statute),
either personally or by mail, or by any other means (including, without
limitation, to instantaneous, overnight, or other means of rapid delivery) by or
at the direction of the Chairman of the Board or the Secretary of the
corporation to each stockholder of record entitled to vote at such meeting.
Such notice shall be deemed to be given when deposited in the United States mail
or other means of delivery addressed to the stockholder at such stockholder's
address as it appears on the records of the corporation, with postage thereon
prepaid or the

<PAGE>

payment of delivery charges thereon provided for, or at the time of actual
delivery, whichever is earlier.

Section 6. WAIVER OF NOTICE. Whenever notice is required to be given
of any annual or special meeting of the stockholders, a written waiver thereof
signed by the person entitled to notice, whether before or after the time stated
in such notice, shall be deemed equivalent to notice. Neither the business to
be transacted at, nor the purpose of, any annual or special meeting of the
stockholders need be specified in any written waiver of notice. Attendance of a
person at a meeting of the stockholders shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.

Section 7. ADJOURNMENT. When any meeting of the stockholders is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after such
adjournment the Board of Directors shall fix a new record date for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting.

Section 8. CONDUCT OF MEETING. The Chairman of the Board shall
designate an individual to serve as the chairman of the meeting who may be any
individual present in person at the meeting, including the Chairman of the
Board. The chairman of the meeting shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the meeting,
including, without limitation, the establishment of procedures for the
maintenance of order, safety, limitations on the time allotted to stockholders
for questions or comments on the affairs of the corporation, restrictions on
entry to such meeting after the time prescribed for the commencement thereof,
and the opening and closing of the voting polls.

Section 9. QUORUM. Except as otherwise provided by statute, by the
Articles of Incorporation or by these Bylaws, the presence at any meeting, in
person or by proxy, of the holders of record of a majority of the shares of each
class of stock then issued and outstanding and entitled to vote at such meeting
shall be necessary and sufficient to constitute a quorum for the transaction of
business. In the absence of a quorum, either a majority of the shares entitled
to vote, present in person or by proxy at such meeting, or any officer entitled
to preside or act as Secretary of such meeting, may adjourn such meeting from
time to time until holders of the number of shares required to constitute a
quorum shall be present in person or by proxy.

Section 10. VOTING. Except as otherwise provided by statute or by the
Articles of Incorporation, and subject to the provisions of these Bylaws, each
stockholder shall, at every meeting of the stockholders, be entitled to one vote
in person or by proxy for each share of voting stock held by such stockholder.
At all meetings of the stockholders, except as otherwise required by statute,
the Articles of Incorporation, or these Bylaws, all matters shall be decided

<PAGE>

by the vote of the holders of a majority of the shares entitled to vote, present
in person or by proxy.

Section 11. TREASURY STOCK. Shares of the capital stock of the
corporation belonging to the corporation shall not be voted directly or
indirectly.

Section 12. PROXIES. At all meetings of stockholders, a stockholder may
vote either in person or by proxy executed by such stockholder or by such
stockholder's duly authorized attorney-in-fact. Such proxy shall be in writing,
shall state the name of the person to cast the vote and the date of the meeting
at which the vote shall be cast, and such proxy shall be filed with the Chairman
of the Board or Secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.

Section 13. FIXING RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose, the
Board of Directors of the corporation may fix in advance a date as the record
date for any such determination of stockholders, such date in any case to be not
more than sixty (60) days and, in case of a meeting of stockholders, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. If no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this Section 13, such
determination shall apply to any adjournment thereof.

Section 14. VOTING LIST. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten (10)
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting.

BOARD OF DIRECTORS

Section 15. GENERAL POWERS. The property, business and affairs of the
corporation shall be controlled and managed by the Board of Directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.

<PAGE>

Section 16. NUMBER AND QUALIFICATIONS. The number of directors which
shall constitute the entire Board of Directors shall be fixed from time to time
by resolution of the Board of Directors but in no event shall there be less than
five (5) or that number otherwise required by the Kansas general corporation
code. Hereafter, within the limits above specified, the number of directors
shall be determined by resolution of the Board of Directors at any meeting of
the Board of Directors. The directors need not be stockholders of the
corporation or residents of the State of Kansas.

Section 17. TERM OF OFFICE. Each director shall hold office until his
or her successor is elected and qualified or until his or her earlier death,
resignation, disqualification or removal.

Section 18. CLASSIFICATION OF DIRECTORS. The directors of the
corporation shall be divided into categories, as nearly equal in number as
possible, in accordance with the provisions of the corporation's Articles of
Incorporation.

Section 19. REMOVAL. Any director, or the entire Board of Directors,
may be removed from office in the manner set forth in the corporation's Articles
of Incorporation.

Section 20. VACANCIES. Any vacancy occurring in the Board of Directors
resulting from the death, resignation, retirement, disqualification or removal
from office of any director or otherwise, and any newly created directorship
resulting from an increase in the authorized number of directors, shall be
filled by the affirmative vote of a majority of the directors then in office. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office until his or her earlier death, resignation,
retirement, disqualification or removal. A director elected to fill a
directorship by reason of an increase in the authorized number of directors
shall hold office until the next succeeding annual meeting of stockholders or
until such subsequent annual meeting of stockholders as may be determined by
resolution of the Board of Directors in order to provide for staggered terms of
office as set out in the Articles of Incorporation and shall hold such office
until his or her successor shall have been elected and shall have qualified or
until his or her earlier death, resignation, retirement, disqualification or
removal.

Section 21. DIRECTORS' COMPENSATION. The Board of Directors shall have
authority to determine, from time to time, the amount of compensation, if any,
which shall be paid to its members for their services as directors and as
members of standing or special committees of the Board of Directors. The Board
of Directors shall also have power in its discretion to provide for and pay to
directors rendering services to the corporation not ordinarily rendered by
directors as such, special compensation appropriate to the value of such
services as determined by the Board of Directors from time to time. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.

Section 22. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall
be a member of the Board of Directors, shall preside at meetings of the Board of
Directors, shall have power to call special meetings of the Board of Directors
and stockholders for any purpose or purposes, and shall have such other
designations and authorities that may be set forth by the Board of Directors.
The Chairman of the Board shall be elected at the annual meeting of the

<PAGE>

Board of Directors by a majority vote of the directors. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside at meetings of
the Board of Directors. The chairman shall be advised of and may attend,
without authority to vote unless he is a member of such committee, all meetings
of committees of the Board of Directors.

MEETINGS OF THE BOARD OF DIRECTORS

Section 23. ANNUAL AND REGULAR MEETINGS. The Board of Directors shall
meet for the appointment of officers and for the transaction of any other
business as may come before such meeting as soon as practicable after
adjournment of the annual meeting of the stockholders, and other regular
meetings of the Board of Directors shall be held at such time as the Board of
Directors may, by resolution, from time to time determine. No notice need be
given of regular meetings of the Board of Directors.

Section 24. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the written request of the Chairman of the
Board, the Chief Executive Officer, the President, or by a majority of the Board
of Directors. A copy of such written request shall be delivered to the Chairman
of the Board of the corporation, who shall cause a written, printed or
telephonic notice of the special meeting complying with the provisions of these
Bylaws to be delivered to the directors.

Section 25. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of any special
meeting shall be given at least three (3) days prior thereto by written or
printed notice delivered personally, by telegram, mail, or by any other means
(including, without limitation, to instantaneous, overnight, or other means of
rapid delivery) to each director at his or her business address or by telephonic
notice to each director. Such printed or written notice shall be deemed to be
delivered when deposited in the United States mail or other means of delivery,
addressed to the directors at each director's business address as it appears on
the records of the corporation, with postage thereon prepaid or the payment of
delivery charges thereon provided for, or at the time of actual delivery,
whichever is earlier. If notice be given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph company
with all charges prepaid. Any director may waive notice of any meeting in a
writing signed by the director, either before, at, or after the time for such
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Except as expressly provided to the
contrary in these Bylaws or under applicable law, neither the business to be
transacted at nor the purpose of any annual, regular, or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.

Section 26. PLACE OF MEETING. Meetings of the Board of Directors,
whether annual, regular or special, shall be held at the principal office of the
corporation, or at such other place within or without the State of Kansas as
shall be provided for in the resolution or notice calling such meeting.

Section 27. QUORUM; ADJOURNMENT. A majority of the Board of Directors
shall constitute a quorum for the transaction of business, and the act of the
majority of the directors

<PAGE>

present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except as may be otherwise specifically provided by statute,
by the Articles of Incorporation or by these Bylaws. If less than a majority of
the Board of Directors is present at a meeting, a majority of the directors
present may adjourn the meeting to another time and place. Notice need not be
given of the adjourned meeting if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is taken, and at
the adjourned meeting any business may be transacted that might have been
transacted at the original meeting.

Section 28. ACTIONS OF THE BOARD OF DIRECTORS WITHOUT A MEETING. If all
the directors then in office severally or collectively consent in writing to any
action taken or to be taken by the directors, such consents shall have the same
force and effect as a unanimous vote of the directors at a meeting duly held
upon proper notice thereof, and may be stated as such in any certificate or
document filed under the laws of the State of Kansas. The Secretary shall file
such consents with the minutes of the meetings of the Board of Directors.

Section 29. PARTICIPATION. Members of the Board of Directors or of any
committee designated by the Board of Directors may participate in a meeting of
the Board of Directors or committee by means of conference telephone call or
similar means of communication as long as all persons participating in the
meeting can hear each other person. Participation in a meeting in this manner
shall constitute presence in person at the meeting.

Section 30. COMMITTEES. By the affirmative vote of a majority of all
the directors then in office, the Board of Directors may authorize and
designate, from time to time or on a regular basis, two (2) or more directors to
constitute one or more committees, which shall have and exercise such authority
as is expressly delegated by the Board of Directors to that committee. Among
the committees that may be so designated are a Compensation Committee and an
Audit Committee. Any committee so designated shall continue to exist and to
have such powers and authority as previously have been granted by the Board of
Directors or these Bylaws until the committee is dissolved or its powers or
authority are altered by the affirmative vote of a majority of all directors
then in office. Notwithstanding the foregoing, no such committee shall have the
power or authority in reference to (a) amending the Articles of Incorporation;
(b) adopting an agreement of merger or consolidation; (c) recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets; (d) recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution; or (e) amending
the Bylaws and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. The Board of Directors may designate one or more directors
as alternate members of any such committee, who may replace any absent or
disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of such absent or disqualified member. The members of any
committee so designated shall continue to serve so long as they are directors,
until they resign from such committee or until they are removed or replaced by
the affirmative vote of a majority of all directors then in office.

<PAGE>

(a) AUDIT COMMITTEE. There shall be an audit committee composed of not
less than two (2) independent members of the Board of Directors who
are not active officers or employees of the corporation or any of its
subsidiaries or affiliates. It shall be the duty of the audit
committee to recommend to the Board of Directors the accounting firm
to be selected by the Board of Directors or to be recommended by it
for stockholder approval, as independent auditor of the corporation
and its subsidiaries, and to act on behalf of the Board of Directors
in meeting and reviewing with the independent auditors, the chief
internal auditor and the appropriate corporate officers, matters
relating to the corporate financial reporting and accounting
procedures and policies, adequacy of financial, accounting and
operating controls and the scope of the respective audits of the
independent auditors and the internal auditor. The committee shall
review the results of such audits with the respective auditing agency
and shall promptly report thereon to the Board of Directors. The
committee shall additionally submit to the Board of Directors any
recommendations it may have from time to time with respect to
financial reporting and accounting practices and policies and
financial, accounting, and operation controls and safeguards.

(b) COMPENSATION COMMITTEE. The Board of Directors may by resolution
passed by a majority of the total number of directors, designate a
compensation committee, to consist of two (2) members of the Board of
Directors, one (1) of whom shall be designated by the Board of
Directors as chairman of the committee. The compensation committee
shall recommend to the Board of Directors compensation and employment
benefits for all officers and stock options for officers, employees
and advisors. The minutes of the meetings of the compensation
committee shall be forwarded immediately to all members of the Board
of Directors. A majority of the members of the compensation committee
may determine its recommendation and fix the time and place of its
meetings unless the Board of Directors shall otherwise provide.

OFFICERS

Section 31. NUMBER. The officers of the corporation shall consist of a
Chief Executive Officer, a President, a Secretary, and a Treasurer. The board
may also elect one or more Vice Presidents (one or more of whom may be
designated as Executive Vice President or Senior Vice President), one or more
Assistant Secretaries or Assistant Treasurers and such other officers (for
example, Chief Operating Officer or Chief Financial Officer) with such rights,
responsibilities and powers as the Board of Directors shall deem advisable. Any
two or more offices may be held by the same person, except the offices of
President and Secretary. No officer need be a director of the corporation.

Section 32. ELECTION AND TERM OF OFFICE. Each officer of the
corporation shall be chosen by the affirmative vote of a majority of all members
of the Board of Directors at its annual meeting and shall hold office until his
or her successor is chosen and qualified or until his or her earlier death,
resignation, or removal. Each appointive officer shall hold office at the
pleasure of the Board of Directors without the necessity of periodic
reappointment.

<PAGE>

Section 33. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of all the members of the Board of Directors
whenever in their judgment the best interest of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.

Section 34. VACANCIES. Vacancies among the officers arising from any
cause shall be filled for the unexpired portion of the term in the manner
provided for the election of the officer to such office.

Section 35. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
in the absence of the Chairman of the Board, preside at meetings of the Board of
Directors and of the stockholders. The Chief Executive Officer shall, subject
to the direction and control of the Board of Directors, in general direct and
supervise the business, property and affairs of the corporation. The Chief
Executive Officer shall perform such other duties and tasks as may be prescribed
by the Board of Directors from time to time.

Section 36. PRESIDENT. The President shall, in the absence of the
Chairman of the Board and the Chief Executive Officer, preside at meetings of
the Board of Directors and of the stockholders and shall have power to call
special meetings of the Board of Directors for any purpose or purposes. The
President, subject to the control of the Board of Directors, shall, in general,
supervise the control of all the administrative affairs of the corporation. The
President shall perform such other duties and tasks as may be prescribed by the
Board of Directors from time to time.

Section 37. VICE PRESIDENTS. At the request of the President or in the
event of the President's absence or disability, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order of
their election) shall perform all the duties of the President, and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the President. Each Vice President shall have such powers and shall
discharge such duties as may be assigned from time to time by the Chief
Executive Officer, the President or the Board of Directors.

Section 38. SECRETARY. The Secretary shall (a) record all the
proceedings of the meetings of the corporation's stockholders and directors in a
book to be kept for that purpose; (b) have charge of the stock book or ledger;
(c) maintain a complete list of all stockholders entitled to vote at
stockholders' meetings and have said list available for inspection by any
stockholder who may be present at such meetings; (d) act as custodian of the
records of the corporation and the Board of Directors, and of the seal of the
corporation, and see that the seal is affixed, when appropriate or necessary, to
all documents, the execution of which on behalf of the corporation shall have
been duly authorized; (e) see that all books, reports, statements, certificates
and other documents and records required by law to be kept or filed are properly
kept and filed; and (f) in general, perform all duties and have all powers
incident to the office of Secretary and perform such other duties and have such
other powers as may from time to time

<PAGE>

be assigned by these Bylaws or by the Chairman of the Board, the President or
the Board of Directors.

Section 39. ASSISTANT SECRETARIES. The Assistant Secretaries may
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Chief Executive Officer, the President or the Board of
Directors shall prescribe.

Section 40. TREASURER. The Treasurer shall (a) have supervision of the
funds, securities, receipts and disbursements of the corporation; (b) cause all
moneys and other valuable effects of the corporation to be deposited in its name
and to its credit in such depositories as shall be selected by the Board of
Directors if pursuant to authority conferred by the Board of Directors; (c)
cause to be kept at the accounting office of the corporation correct books of
account, proper vouchers and other papers pertaining to the corporation's
business; (d) render to the Chairman of the Board, the President or the Board of
Directors, whenever requested, an account of the financial condition of the
corporation and of all transactions as Treasurer; and (e) in general, perform
all duties and have all powers incident to the office of Treasurer, and perform
such other duties and have such other powers as from time to time may be
assigned by these Bylaws or by the Chief Executive Officer, the President or the
Board of Directors.

Section 41. ASSISTANT TREASURERS. The Assistant Treasurers may perform
the duties and exercise the powers of the Treasurer, and shall perform such
other duties as the Chief Executive Officer, the President or the Board of
Directors shall prescribe.

Section 42. DELEGATION. In the event of the absence of any officer of
the corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time or from time to time delegate
all or any part of the powers or duties of any officer to any other officer or
officers or to any director or directors.

Section 43. SALARIES. The salaries or other compensation of all elected
officers of the corporation shall be set by the Board of Directors, and may be
changed from time to time by a majority vote of the Board of Directors. The
Board of Directors may, from time to time, delegate to the President or to the
compensation committee the authority to set the compensation of any or all of
the other non-elected officers of the corporation.

EXECUTION OF INSTRUMENTS

Section 44. EXECUTION OF INSTRUMENTS GENERALLY. All documents,
instruments or writings of any nature shall be signed, executed, verified,
acknowledged and delivered by such officer of officers or by such agent or
agents of the corporation and in such manner as the Board of Directors from time
to time may determine. In the absence of such designation, the signature of the
Chairman of the Board shall suffice.

Section 45. CHECKS, DRAFTS AND LIKE INSTRUMENTS. All notes, drafts,
acceptances, checks, endorsements and all evidences of indebtedness of the
corporation whatsoever shall be signed by such officer or officers or by such
agent or agents of the corporation and in such manner as the Board of Directors
from time to time may determine. Endorsements or

<PAGE>

instruments for deposit to the credit of the corporation in any of its duly
authorized depositories shall be made by rubber stamp of the corporation or in
such other manner as the Board of Directors may from time to time determine.

Section 46. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.

Section 47. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution from the Board of Directors. Such authority may be
general or confined to specific instances.

Section 48. PROXIES. Proxies to vote with respect to shares of stock of
other corporations that may be owned by or stand in the name of this corporation
may be executed on behalf of this corporation by the Chairman of the Board,
Chief Executive Officer, President, Vice President or Secretary, or by any other
person or persons authorized to do so by the Board of Directors.

Section 49. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.

CAPITAL STOCK

Section 50. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman of the Board, the President or a Vice President, and
by the Treasurer or an assistant Treasurer, or the Secretary or an assistant
Secretary of the corporation. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificates which the
corporation shall issue to represent such class or series of stock. If the
corporation shall appoint a transfer agent or registrar for its stock, then if a
certificate is signed (1) by a transfer agent or an assistant transfer agent, or
(2) by a transfer clerk acting on behalf of the corporation and a registrar, the
signatures of any such Chairman, President, Vice President, Treasurer, assistant
Treasurer, Secretary or assistant Secretary may be facsimile. In case of any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates, shall cease to be such
officer or officers of the corporation, whether because of death, resignation,
retirement, disqualification, removal or otherwise, before such certificate or
certificates have been issued, then such certificate or certificates may
nevertheless be adopted by the corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the corporation.

<PAGE>

Section 51. TRANSFERS OF SHARES. Transfer of shares shall be made only
upon the transfer books of the corporation, kept at the office of the
corporation or respective transfer agents designated to transfer the several
classes of stock, and before a new certificate is issued, the old certificate
shall be surrendered for cancellation. Until and unless the Board of Directors
appoints some other person, firm or corporation as its transfer agent or
transfer clerk (and upon the revocation of any such appointment, thereafter
until a new appointment is similarly made), the Secretary of the corporation
shall be the transfer agent or transfer clerk of the corporation without the
necessity of any formal action of the Board of Directors, and the Secretary, or
any person designated by him, shall perform all of the duties thereof.

Section 52. LOST CERTIFICATES. No certificate evidencing shares of the
stock of the corporation shall be issued in place of any certificate alleged to
have been lost, stolen, or destroyed except upon production of whatever evidence
or proof of such loss, theft, or destruction and upon furnishing indemnification
to the corporation in such manner and amount as the Chairman of the Board, the
President, any Vice President, the Secretary, or the Treasurer may require.

Section 53. SALE OF STOCK RETURNED TO CORPORATION. In the event stock
is returned to the corporation and the owner paid in full therefor, the
directors of the corporation shall be vested with authority to resell said stock
to such person or persons and upon such terms, as may be determined by the Board
of Directors.

Section 54. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.

MISCELLANEOUS

Section 55. DIVIDENDS. Dividends, if any, may be declared by action of
the Board of Directors at any annual, regular or special meeting. Dividends may
be paid in cash, in property or in shares of the capital stock of the
corporation, or in any combination thereof except as otherwise provided in the
statutes of the State of Kansas.

Section 56. INCENTIVE PLANS. In furtherance and not in limitation of
the powers conferred by the laws of the State of Kansas, the Board of Directors
is expressly authorized and empowered to establish bonus, pension, profit-
sharing, stock option, or other types of incentive or compensation plans for the
employees, officers, directors and advisors of the corporation, and to fix the
amount of profits to be shared or distributed, and to determine the persons to
participate in any such plans and the amount and nature of their respective
participation.

Section 57. SEAL. The corporation's seal shall be in such form as shall
be adopted and approved, from time to time, by the Board of Directors. The seal
may be used by causing it or a facsimile thereof to be impressed, affixed,
imprinted or in any manner reproduced.

<PAGE>

Section 58. FISCAL YEAR. The fiscal year of the corporation shall be
established by the Board of Directors.

Section 59. AMENDMENTS. These Bylaws may be altered, amended or
repealed and new Bylaws may be approved in accordance with the laws of the State
of Kansas and the corporation's Articles of Incorporation.

Section 60. INDEMNIFICATION. The corporation shall indemnify all
directors, officers, employees and agents to the extent provided in the
corporation's Articles of Incorporation.

The above Bylaws were adopted at a special
meeting of the Board of Directors of New York
Bagel Enterprises, Inc. held January 16,
1996, but shall be effective upon the filing
of the corporation's Restated and Amended
Articles of Incorporation with the Kansas
Secretary of State.

--------------------------------------------
J. Chris Dennis
Secretary of Directors' Meeting

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.

GRANT OF INCENTIVE STOCK OPTION

Date of Grant: , 1996.

This Grant of Incentive Stock Option (this "Agreement"), dated as of the
date of grant first stated above (the "Date of Grant"), is delivered

BY NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as

"COMPANY"

TO ,
-----------------------------
an individual,
hereinafter referred to as

"GRANTEE"

WHEREAS, the Board of Directors of Company (the "Board") on ,
1996, adopted, with subsequent stockholder approval, the New York Bagel
Enterprises, Inc. 1996 Incentive Plan (the "Plan");

WHEREAS, Grantee is an employee or officer of Company or one of its
subsidiaries (Grantee's employer is sometimes referred to herein as the
"Employer");

WHEREAS, the Plan provides for the granting of incentive stock options by a
committee to be appointed by the Board (the "Committee") to employees and
officers of Company or any subsidiary of Company to purchase, or to exercise
certain rights with respect to, shares of the common stock, One-Cent par value
($0.01), of the Company (the "Stock"), in accordance with the terms and
provisions thereof; and

WHEREAS, the Committee considers Grantee to be a person who is eligible for
a grant of incentive stock options under the Plan, and has determined that it
would be in the best interest of Company to grant the incentive stock options
documented herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, Company and Grantee hereby agree as follows:

<PAGE>

1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, Company, with the approval and at the direction of the Committee, hereby
grants to Grantee, as of the Date of Grant, an option to purchase up to
( ) shares of Stock at a purchase price per share
of Dollars ($ ). Such option is
hereinafter referred to as the "Option" and the shares of Stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "Option
Shares." The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")).

2. VESTING OF EXERCISE RIGHTS. Subject to the other terms of this
Agreement, the Option shall become exercisable in five (5) installments, Grantee
having the right hereunder to purchase from Company the following number of
Option Shares upon exercise of the Option, on and after the following dates, in
cumulative fashion:

(a) On and after the expiration of six months from the Date of Grant, up
to one-fifth (ignoring fractional shares) of the total number of
Option Shares

(b) On and after the first anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares

(c) On and after the second anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares

(d) On and after the third anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares and

(e) On and after the fourth anniversary of the Date of Grant, the
remaining Option Shares.

3. TERMINATION OF OPTION.

(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and
become null and void after the expiration of five (5) years from the
Date of Grant (the "Option Term").

(b) Upon the occurrence of Grantee's ceasing for any reason to be employed
by the Employer, the Option, to the extent not previously exercised,
shall terminate and become null and void immediately upon such
termination of Grantee's employment, except in a case where the
termination of Grantee's employment is by reason of retirement,
disability or death. Upon a termination of Grantee's employment by
reason of retirement, disability or death, the Option may be exercised
during the following periods, but only to the extent that the Option
was outstanding and exercisable on any such date of retirement,
disability or death: (i) the one-year period following the date of
such termination of Grantee's

<PAGE>

employment in the case of a disability (within the meaning of Section
22(e)(3) of the Code), (ii) the six-month period following the date of
issuance of letters testamentary or letters of administration to the
executor or administrator of Grantee's estate, in the case of
Grantee's death during Grantee's employment by the Employer, but not
later than one year after Grantee's death, and (iii) the three-month
period following the date of such termination in the case of
retirement on or after attainment of age 65, or in the case of
disability other than as described in (i) above. In no event,
however, shall any such period extend beyond the Option Term.

(c) In the event of the death of Grantee, the Option may be exercised by
Grantee's legal representative, but only to the extent that the Option
would otherwise have been exercisable by Grantee.

(d) A transfer of Grantee's employment between Company and any subsidiary
of Company, or between any subsidiaries of Company, shall not be
deemed to be a termination of Grantee's employment.

(e) Notwithstanding anything to the contrary set forth herein or in the
Plan, in the event Grantee shall (i) commit any act of malfeasance or
wrongdoing affecting Company or any subsidiary of Company, (ii) breach
any covenant not to compete, or employment contract, with Company or
any subsidiary of Company, (iii) commit or fail to commit any act
which would be adverse to the best interest of Company, or (iv) engage
in conduct that would warrant Grantee's discharge for cause (excluding
general dissatisfaction with the performance of Grantee's duties, but
including any act of disloyalty or any conduct clearly tending to
bring discredit upon Company or any subsidiary of Company), any
unexercised portion of the Option shall immediately terminate and be
void in the Board's sole determination.

4. EXERCISE OF OPTIONS.

(a) Grantee may exercise the Option with respect to all or any part of the
number of Option Shares then exercisable hereunder by giving the
Secretary of the Company at the Company's principal executive office
written notice delivered in person or by mail of Grantee's intent to
exercise. The notice of the exercise shall specify the number of
Option Shares as to which the Option is to be exercised and the date
of exercise thereof, which date shall be at least five (5) days after
the giving of the notice unless an earlier time shall have been
mutually agreed upon.

<PAGE>

their Fair Market Value (as defined in Paragraph 12) on the exercise
date. On the exercise date specified in Grantee's notice or as soon
thereafter as is practicable, a certificate or certificates for the
Option Shares then being purchased shall be issued to Grantee upon
full payment of the exercise price for such Option Shares. The
obligation of Company to deliver Stock shall, however, be subject to
the condition that if at any time the Committee shall determine in its
sole discretion that the listing, registration or qualification of the
Option or the Option Shares upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the Option or the issuance or purchase of Stock
thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable
to the Committee.

(c) If Grantee fails to pay for any of the Option Shares specified in the
notice or fails to accept delivery thereof, Grantee's right to
purchase the Option Shares may be terminated by Company.

5. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE. In the event of any
stock dividend or subdivision of the shares of common stock of Company into a
greater number of shares, the purchase price hereunder shall be proportionately
reduced and the number of shares subject to the Option shall be proportionately
increased conversely, in the event of any combination of the outstanding shares
of common stock of Company, the purchase price hereunder shall be
proportionately increased and the number of shares of Stock subject to the
Option shall be proportionately reduced.

6. INVESTMENT REPRESENTATION. Upon demand by the Committee, Grantee
shall deliver to the Committee, at the time of any exercise of the Option or
portion thereof, a written representation that the Stock to be acquired upon
such exercise is to be acquired for investment and not for resale or with a view
to the distribution thereof. Upon such demand by the Committee, delivery of
such representation and all additional applicable representations as determined
by the Committee prior to the delivery of any certificates representing the
Stock issuable upon exercise of the Option and prior to the expiration of the
Option Term shall be a condition precedent to the right of Grantee to purchase
any shares of Stock.

7. RIGHTS AS A STOCKHOLDER. Neither Grantee nor any personal
representative shall be, or shall have any of the rights and privileges of, a
stockholder of Company with respect to any shares of Stock purchasable or
issuable upon the exercise of the Option, in whole or in part, prior to the date
of exercise of the Option.

<PAGE>

or pursuant to a qualified domestic relations order, nor shall the Option be
subject to attachment, execution or other similar process. In the event of (a)
any attempt by Grantee to alienate, assign, pledge, hypothecate or otherwise
dispose of the Option, except as provided for herein, or (b) the levy of any
attachment, execution or similar process upon the rights or interests hereby
conferred, then Company may terminate the Option by notice to Grantee and the
Option shall thereupon become null and void.

9. NO RIGHT TO CONTINUED EMPLOYMENT. The granting of the Option nor its
exercise shall not be construed as granting to Grantee any right with respect to
continuance of employment by the Employer. Except as may otherwise be limited
by a separate written agreement between the Employer and Grantee, the right of
the Employer to terminate at will Grantee's employment with the Employer at any
time (whether by dismissal, discharge, retirement or otherwise) is specifically
reserved by Company, as the Employer or on behalf of the Employer (whichever the
case may be), and acknowledged by Grantee.

10. DISPOSITION OF SHARES. No share of Stock acquired by the exercise of
an Option granted hereunder shall be transferable, other than by will or by the
laws of descent and distribution, within two (2) years of the Date of Grant or
within one (1) year after the transfer of Option Shares pursuant to exercise of
the Option. Each certificate representing shares of Stock acquired by the
exercise of the Option shall bear a legend to that effect. Grantee hereby
further acknowledges that the transfer of the shares of Stock acquired by the
exercise of the Option may be limited by Rule 144 of the General Rules and
Regulations promulgated under the Securities Act of 1933, as amended.

11. AMENDMENT OF OPTION. The Option may be amended by the Board or the
Committee at any time (a) if the Board or the Committee determines, in either's
sole discretion, that amendment is necessary or advisable in light of any
addition to or change in the Code, or in the regulations issued thereunder, or
any federal or state securities law or other law or regulation, which change
occurs after the Date of Grant and by its terms applies to the Option, or (b)
other than in the circumstances described in clause (a), with the consent of
Grantee.

12. FAIR MARKET VALUE. For purposes of this Agreement, the term "Fair
Market Value" of a share of Stock shall mean the Fair Market Value of the Stock
as determined in good faith by the Committee provided, however, that (a) if the
Stock is admitted to trading on a national securities exchange, Fair Market
Value on any date shall be the last sale price reported for the Stock on such
exchange on such date or, if no sale was reported on such date, on the last date
preceding such date on which a sale was reported, as quoted in THE WALL STREET
JOURNAL (Southwest Edition), (b) if the shares of stock are admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") and have been designated as a National Market System ("NMS")
security, Fair Market Value on any date shall be the last sale price reported
for the shares of Stock on such system on such date or on the last day preceding
such date on which a sale was reported, as quoted in THE WALL STREET JOURNAL
(Southwest Edition), or (c) if the shares of Stock are admitted to quotation on
NASDAQ and have not been designated a NMS security or are listed on another
comparable quotation system,

<PAGE>

Fair Market Value on any date shall be the average of the highest bid and lowest
asked prices of the shares of Stock on such system on such date.

13. INCORPORATION OF PLAN BY REFERENCE. The Option is granted pursuant to
the terms of the Plan, the terms of which are incorporated herein by reference,
and the Option shall in all respects be interpreted in accordance with the Plan.
Grantee hereby agrees to be bound by the terms of the Plan. The Committee shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.

14. SCOPE OF AGREEMENT. This Agreement shall inure to the benefit of, and
be binding upon and enforceable against, the heirs, legal representatives,
successors and assigns of the parties.

15. AMENDMENTS. Except as otherwise provided herein, this Agreement may
not be modified or amended except by an instrument in writing executed by the
party against whom enforcement of any such modification or amendment is sought.

16. INTEGRATION. This Agreement constitutes the entire agreement among
the parties hereto and there have been no other prior agreements, understandings
or arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof.

17. COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

18. HEADINGS. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

19. NOTICES. Any notice, consent, approval, demand or other communication
to be given, made or provided for under this Agreement shall be in writing and
deemed to be fully given by its delivery personally to the person or persons
specified below or two (2) days after its being sent by registered or certified
mail, return receipt requested, to the following addresses, or to such other
address or to the attention of such other person as any party hereto shall
hereafter specify by written notice to the other party hereto:

If to Company:

----------------------
----------------------
----------------------

----------------------

<PAGE>

If to Grantee:
----------------------
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----------------------

20. GOVERNING LAW. In all respects, including all matters of
construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the State of Kansas applicable to contracts made and performed in such
state.

21. FURTHER ASSURANCE. Each party hereto agrees that it will, from time
to time, as may reasonably be requested by any party hereto, execute,
acknowledge, obtain, and deliver such documents, assignments, consents, and
other instruments as may be required in order to complete and effect the
transactions completed by this Agreement.

IN WITNESS WHEREOF, Company and Grantee have executed this Agreement in a
manner appropriate to each as of the day and year first above written.

NEW YORK BAGEL ENTERPRISES, INC.

By
-------------------------------------

Title
----------------------------------

"COMPANY"

ACCEPTED AND AGREED TO:

---------------------------------------
"GRANTEE"

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

Date of Grant: , 1996.

This Non-Qualified Stock Option Agreement (this "Agreement"), dated as of
the date of grant first stated above (the "Date of Grant"), is delivered

BY NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as

"COMPANY"

TO ,
-----------------------------------------------
an individual,
hereinafter referred to as

"GRANTEE"

WHEREAS, Grantee is a member of the Board of Directors of Company;

WHEREAS, Company wishes to compensate Grantee for Grantee's contributions
and activities on behalf of Company; and

WHEREAS, the Board of Directors of Company adopted a resolution effective
, 1996, to issue non-qualified stock options to certain members of the
Board of Directors who are not otherwise an officer or an employee of the
Company.

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, Company and Grantee hereby agree as follows:

1. GRANT OF OPTION. Subject to the terms and conditions hereinafter set
forth, Company hereby grants to Grantee, as of the Date of Grant, an option to
purchase up to shares of common stock of the Company (the "Stock") at a
purchase price per share of . Such option
is hereinafter referred to as the "Option" and the shares of stock purchasable
upon exercise of the Option are hereinafter sometimes referred to as the "Option
Shares."

<PAGE>

(a) On and after the expiration of six months from the Date of Grant, up
to one-fifth (ignoring fractional shares) of the total number of
Option Shares;

(b) On and after the first anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares;

(c) On and after the second anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares;

(d) On and after the third anniversary of the Date of Grant, up to an
additional one-fifth (ignoring fractional shares) of the total number
of Option Shares; and

(e) On and after the fourth anniversary of the Date of Grant, the
remaining Option Shares.

3. TERMINATION OF OPTION.

(b) Upon the occurrence of Grantee's ceasing for any reason to be a member
of Company's Board of Directors, the Option, to the extent not
previously exercised, shall terminate and become null and void
immediately upon such termination of Grantee's membership on Company's
Board of Directors, except in a case where the termination of
Grantee's membership on Company's Board of Directors is by reason of
death. Upon a termination of Grantee's membership on Company's Board
of Directors by reason death, the Option may be exercised during the
following period, but only to the extent that the Option was
outstanding and exercisable on any such date of death: the six-month
period following the date of issuance of letters testamentary or
letters of administration to the executor or administrator of
Grantee's estate, but not later than one year after Grantee's death.
In no event, however, shall any such period extend beyond the Option
Term.

(c) In the event of the death of Grantee, the Option may be exercised by
Grantee's legal representative, but only to the extent that the Option
would otherwise have been exercisable by Grantee.

(d) Notwithstanding anything to the contrary set forth herein, in the
event the effective date of Company's first public offering of its
common stock does not occur on or before , 1996, then
the Option and all rights hereunder with respect thereto shall
immediately terminate and become null and void.

(e) Notwithstanding anything to the contrary set forth herein, in the
event Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting Company or any subsidiary of Company, (ii) breach any
agreement with Company or any subsidiary of Company, (iii) commit or
fail to commit any act which would be

<PAGE>

adverse to the best interest of Company, or (iv) engage in conduct
that would warrant Grantee's dismissal from Company's Board of
Directors, any unexercised portion of the Option shall immediately
terminate and be void in the Board's sole determination.

4. EXERCISE OF OPTIONS.

(a) Grantee may exercise the Option with respect to all or any part of the
number of Option Shares then exercisable hereunder by giving the
Secretary of Company at the Company's principal executive office
written notice delivered in person or by mail of Grantee's intent to
exercise. The notice of the exercise shall specify the number of
Option Shares as to which the Option is to be exercised and the date
of exercise thereof, which date shall be at least five (5) days after
the giving of the notice unless an earlier time shall have been
mutually agreed upon.

(b) Full payment (in U.S. dollars) by Grantee of the option price for the
Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior
written consent of the Company, in whole or in part through the
surrender of previously acquired shares of Stock at their Fair Market
Value (as defined in Paragraph 12) on the exercise date. On the
exercise date specified in Grantee's notice or as soon thereafter as
is practicable, a certificate or certificates for the Option Shares
then being purchased shall be issued to Grantee upon full payment of
the exercise price for such Option Shares. The obligation of Company
to deliver Stock shall, however, be subject to the condition that if
at any time the Company shall determine in its sole discretion that
the listing, registration or qualification of the Option or the Option
Shares upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the
Option or the issuance or purchase of Stock thereunder, the Option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to Company.

(c) If Grantee fails to pay for any of the Option Shares specified in the
notice or fails to accept delivery thereof, Grantee's right to
purchase the Option Shares may be terminated by Company.

5. ADJUSTMENT OF OPTION SHARES AND OPTION PRICE. In the event of any
stock dividend or subdivision of the shares of common stock of Company into a
greater number of shares, the purchase price hereunder shall be proportionately
reduced and the number of shares subject to the Option shall be proportionately
increased; conversely, in the event of any combination of the outstanding shares
of common stock of Company, the purchase price hereunder shall be
proportionately increased and the number of shares of Stock subject to the
Option shall be proportionately reduced.

6. INVESTMENT REPRESENTATION. Upon demand by Company, Grantee shall
deliver to Company, at the time of any exercise of the Option or portion
thereof, a written representation

<PAGE>

that the Stock to be acquired upon such exercise is to be acquired for
investment and not for resale or with a view to the distribution thereof. Upon
such demand by Company, delivery of such representation and all additional
applicable representations as determined by Company prior to the delivery of any
certificate representing the Stock issuable upon exercise of the Option and
prior to the expiration of the Option Term shall be a condition precedent to the
right of Grantee to purchase any shares of Stock.

8. NON-TRANSFERABILITY OF OPTION. During Grantee's lifetime, the Option
hereunder shall be exercisable only by Grantee or any guardian or legal
representative of Grantee, and the Option shall not be transferrable otherwise
by will or the laws of descent and distribution (but shall be exercisable by
Grantee's executor or administrator pursuant to Paragraph 3(b) hereof) or
pursuant to a qualified domestic relations order, nor shall the Option be
subject to attachment, execution or other similar process. In the event of (a)
any attempt by Grantee to alienate, assign, pledge, hypothecate or otherwise
dispose of the Option, except as provided for herein, or (b) the levy of any
attachment, execution or similar process upon the rights or interests hereby
conferred, then Company may terminate the Option by notice to Grantee and the
Option shall thereupon become null and void.

9. RIGHTS AS BOARD MEMBER. The granting of the Option nor its exercise
shall not be construed as conferring upon Grantee any right with respect to the
directorship held by Grantee or to any continuance of membership on the Board of
Directors of Company or any subsidiary, nor shall it interfere in any way with
the right of Company or any subsidiary to terminate Grantee's directorship at
any time in accordance with Kansas law.

11. AMENDMENT OF OPTION. The Option may be amended by the Board of
Directors of Company or by a committee appointed by the Board of Directors (the
"Committee") at any time (a) if the Board of Directors or the Committee
determines, in either's sole discretion, that amendment is necessary or
advisable in the light of any addition to or change in the Code, or in the
regulations issued thereunder, or any federal or state securities law or other
law or regulation, which change occurs after the Date of Grant and by its terms
applies to the Option, or (b) other than in the circumstances described in
clause (a), with the consent of Grantee.

<PAGE>

12. FAIR MARKET VALUE. For purposes of this Agreement, the term "Fair
Market Value" of a share of Stock shall mean the Fair Market Value of the Stock
as determined in good faith by Company; provided, however, that (a) if the
shares of Stock are admitted to trading on a national securities exchange, Fair
Market Value on any date shall be the last sale price reported for the shares of
Stock on such exchange on such date or, if no sale was reported on such date, on
the last date preceding such date on which a sale was reported, as quoted in THE
WALL STREET JOURNAL (Southwest Edition), (b) if the shares of Stock are admitted
to quotation on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") and have been designated as a National Market System
("NMS") security, Fair Market Value on any date shall be the last sale price
reported for the shares of Stock on such system on such date or on the last day
preceding such date on which a sale was reported, as quoted in THE WALL STREET
JOURNAL (Southwest Edition), or (c) if the shares of Stock are admitted to
quotation on NASDAQ and have not been designated a NMS security or are listed on
another comparable quotation system, Fair Market Value on any date shall be the
average of the highest bid and lowest asked prices of the shares of Stock on
such system on such date.

14. SCOPE OF AGREEMENT. This Agreement shall inure to the benefit of, and
be binding upon and enforceable against, the heirs, legal representatives,
successors and assigns of the parties.

18. HEADINGS. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

<PAGE>

or to such other address or to the attention of such other person as any party
hereto shall hereafter specify by written notice to the other party hereto:

If to Company:

----------------------
----------------------
----------------------
----------------------

If to Grantee:
----------------------
----------------------
----------------------

IN WITNESS WHEREOF, Company and Grantee have executed this Agreement in a
manner appropriate to each as of the day and year first above written.

NEW YORK BAGEL ENTERPRISES, INC.

By
------------------------------------

Title
---------------------------------

"COMPANY"

ACCEPTED AND AGREED TO:

---------------------------------------
"GRANTEE"

<PAGE>

NEITHER THIS DEBENTURE NOR THE UNDERLYING COMMON SHARES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE CORPORATION WILL NOT TRANSFER THIS
DEBENTURE, OR ANY COMMON SHARES ISSUED PURSUANT TO ITS CONVERSION PROVISION,
UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH NOTE OR SHARES UNDER
THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR (ii) IT
FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS
OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER
IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL
APPLICABLE STATE SECURITIES LAWS.

NEW YORK BAGEL ENTERPRISES, INC.
an Oklahoma corporation

4% CONVERTIBLE AND SUBORDINATED
DEBENTURE DUE DECEMBER 14, 1999

SECTION 1. TERMS. New York Bagel Enterprises, Inc., an Oklahoma corporation
("Corporation"), which term includes any successor corporation, for value
received, hereby promises to pay to The Estate of Stephen Z. Plotkin, a
Tennessee probate estate ("Payee"; Payee and any permitted subsequent holder[s]
hereof are hereinafter referred to collectively as "Holder"), the principal sum
of ONE HUNDRED FIFTEEN THOUSAND Dollars and no/cents ($115,000.00) on December
14, 1999 (the "Maturity Date"), subject to section 6 herein. Subject to Section
6 herein, interest on the outstanding principal amount shall accrue and be
payable annually at the rate of 4% per annum, until paid, with the first such
annual interest payment being due on December 14, 1996. Corporation shall pay
Holder four (4) annual principal payments of Twenty Eight Thousand Seven Hundred
Fifty Dollars and no/cents ($28,750.00) commencing December 14, 1996. If any of
the principal or interest is not so paid, and at the option of Holder, or its
assigns, all principal and interest shall become immediately due and payable.

SECTION 2. PAYMENTS. Payments of principal and interest shall be made in
lawful money of the United States of America to Holder at the address provided
to the Corporation by the Holder, as appears on this instrument below or at such
other addresses as sent by Holder to the Corporation by registered US mail at
least twenty (20) days before said payment date.

SECTION 3. DEFAULT. The occurrence of one or more of the following events
shall constitute an event of default:

PAGE 1 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

3.1 Continued nonpayment of the interest due on this Debenture for more than
thirty (30) days beyond the payment date when due.

3.2 The nonpayment of the principal of this Debenture when the same shall have
become due and payable.

3.3 The entry of a decree or order by a court having jurisdiction in the
premises adjudging the Corporation a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Corporation under the federal Bankruptcy Act
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, or trustee of the Corporation, or any substantial part if
its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
ninety (90) consecutive days.

3.4 The institution by the Corporation of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the federal Bankruptcy Act or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee, or
trustee of the Corporation, or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Corporation in furtherance of any such
action.

3.5 Default, without a defense in the obligation of the Corporation for a
material sum of borrowed money, other than this Debenture, which shall continue
for a period of thirty (30) days.

3.6 The sale, or attempted sale, of substantially all of the assets of the
Corporation, other than to an affiliate of the Corporation, as long as this
Debenture is assumed in the same transactions.

3.7 The breach of any representation, warranty or covenant of the Corporation
contained herein or in that certain Stock Purchase Agreement dated as of the
date hereof by and among the Corporation, Payee and Dr. Lori Adelson.

SECTION 4. ACCELERATION; DEFAULT RATE. At the option of the Holder, and
without demand or notice, all principal and any unpaid interest shall become
immediately due and payable upon a

PAGE 2 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

default as set forth in Section 3 above. Also, upon the occurrence of any event
of default as set forth herein all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to 15%, regardless of whether or not
there has been an acceleration of the payment of principal as set forth herein.
All such interest shall be paid at the time of and as a condition precedent to
the curing of any such default.

SECTION 5. SUBORDINATION.

5.1 The rights of the Holder under the terms of this Debenture shall be
subordinated to:

5.1.1 The principal of, premium, if any, other related fees and
expenses and accrued and unpaid interest (whether accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Corporation) on (i) any secured indebtedness of the Corporation for money
borrowed, whether outstanding on the date of execution of this Debenture or
thereafter created, incurred or assumed, (ii) guarantees by the Corporation of
any secured indebtedness for money borrowed by any other person, whether
outstanding on the date of execution of this Debenture or thereafter created,
incurred or assumed, and (iii) any secured indebtedness evidenced by notes,
debentures, bonds or other instruments of indebtedness for the payment of which
the Corporation is responsible or liable, by guarantees or otherwise, whether
outstanding on the date of execution of this Debenture or thereafter created,
incurred or assumed;

5.1.2 any other secured indebtedness, liability, or obligation,
contingent or otherwise, of the Corporation and any guarantee, endorsement, or
other contingent obligation in respect thereof, whether outstanding on the date
of execution of this Debenture or thereafter created, incurred or assumed; and

5.1.3 modifications, renewals, extensions, and refundings of any such
indebtedness, liabilities, or obligations; unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
specifically provided that such indebtedness, liabilities, or obligations or
such modification, renewal, extension, or refunding thereof, or the obligations
of the Corporation pursuant to such a guarantee, are not superior in right of
payment to this Debenture.

5.2 In the event that the assets of the Corporation are insufficient to satisfy
this Debenture and all other debentures

PAGE 3 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

issued contemporaneously by the Corporation, the available assets of the
Corporation shall be distributed pro rata to all such Holders based on the total
principal and interest then due to each such Holder.

5.3 The rights of the Holder, under the terms of this Debenture shall be
superior to any obligation due any holder of any capital stock of the
Corporation arising solely out of the fact that such person is an owner of the
common shares of the Corporation.

SECTION 6. RIGHT OF CONVERSION. Subject to compliance with the procedure for
conversion set forth in Section 7, the Holder may convert any one or more Twenty
Five Thousand Dollar and no/cents ($25,000.00) portion(s) of the principal
amount due under this Debenture into such number of restricted shares of the
Corporation's common stock as is computed utilizing a conversion formula (the
"Conversion Price") equal to 0.69% of the Corporation's outstanding common stock
(in the event the entire debenture is converted) by giving the notice specified
below, which notice shall be given at least thirty (30) days prior to the
Maturity Date. This right of conversion may be exercised by the Holder only
twice (if not fully exercised the first time) and only during the 270 day period
following ten (10) days after the Corporation's successful completion of a
public offering of its common stock, if any, pursuant to the registration
requirements of the Securities Act of 1933, as amended, whereby the Corporation
receives offering proceeds greater than Ten Million Dollars ($10,000,000). To
the extent the Holder exercises this right of conversion this Debenture shall be
void and of no further effect upon the Corporation's issuance of the conversion
shares, including, without limitation, the reduction or elimination of the debt
due hereunder. The conversion shares shall be restricted common stock and shall
be legended with all appropriate legends, including, without limitation, the
following:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES ACT OF ANY STATE. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER THAT ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. A STOP ORDER HAS BEEN
PLACED UPON THE TRANSFER OF THIS CERTIFICATE, SUBJECT TO COMPLIANCE WITH
THE APPLICABLE SECURITIES LAW AND THE ABOVE. THE TRANSFER OF STOCK
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO SUCH RESTRICTIONS UPON
TRANSFER OF THE SAME AS IS PROVIDED IN A CERTAIN LOCK-UP

PAGE 4 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

TRANSFER OF STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO SUCH
RESTRICTIONS UPON TRANSFER OF THE SAME AS IS PROVIDED IN A CERTAIN LOCK-UP
AGREEMENT AND A STOP ORDER HAS BEEN PLACED UPON ITS TRANSFER SUBJECT TO
COMPLIANCE WITH SUCH AGREEMENT.

SECTION 7.

7.1 PROCEDURE FOR CONVERSION. In order to convert the debenture, in whole
or in part, the Holder shall provide timely written notice of conversion to the
Corporation, specifying the amount of the Debenture being converted. Such notice
shall be signed by the Holder in writing and shall be in substantially the
following form. If less than all of the principal due under the Debenture is
converted, the Corporation shall execute and deliver to the Holder a new
Debenture in the aggregate principal amount equal to the unconverted portion of
the principal of the Debenture. Such replacement Debenture shall contain a
notation as to the amount of accrued interest due thereon and the date from
which interest shall accrue on the remaining principal amount thereof (which
shall be the date of conversion).

FORM OF NOTICE

New York Bagel Enterprises, Inc.
Wichita, Kansas

The undersigned, as the Holder of a certain 4% Convertible and Subordinated
Debenture dated as of December 14, 1995 (the "Debenture") issued by New York
Bagel Enterprises, Inc. (the "Corporation"), hereby elects to convert the
Debenture into Common Stock of the Corporation (the "Shares") at the Conversion
Price (as adjusted, if applicable) as specified in the Debenture. Capitalized
terms not otherwise defined herein are defined in the Debenture.

The undersigned directs that the certificates representing the Shares be
issued as follows:

--------------------------------------------------------------------

The parties agree that the only persons that the undersigned may direct
that the Shares be issued to are either the Payee or Dr. Lori Adelson.

PAGE 5 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

If less than all of the original principal amount of the Debenture has
been converted, the undersigned directs that a new Debenture for the remaining
unpaid principal amount be issued to the Holder.

The original Debenture, marked "SURRENDERED," shall be delivered to
the Corporation so marked within ten (10) days of the date of this notice, as a
prerequisite for the issuance of a certificate representing the Shares.

Seller and Heir are acquiring the Shares for their own account for purposes
of investment and without expectation, desire, or need for resale and not with
the view toward distribution, resale, subdivision, or fractionalization of the
Shares. Prior to conversion pursuant to this Notice, Seller and Heir have
reviewed all information provided to them by Purchaser and have had the
opportunity to ask questions of and receive answers from representatives of the
Purchaser concerning the Purchaser, the Shares, and this conversion, and to
obtain certain additional information requested by the Seller and Heir. The
Seller and Heir are sophisticated investors, and have had the full benefit of
advice of competent legal counsel and certified public accountants in connection
with the acquisition of the Shares and the negotiation and execution of the
Debenture.

Seller and Heir understand that the Shares to be transferred herein has not been
registered under the Securities Act of 1933, or under any state securities law.

Dated:

Holder:

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

PAGE 6 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

7.2 POST-CONVERSION COVENANT. After any conversion hereunder, the Holder shall
agree to and shall execute any documents evidencing any restrictions on sale of
the underlying shares required by the Corporation's Underwriters in anticipation
of or as a result of an initial public offering of the Corporation's capital
stock.

7.3 INVESTMENT REPRESENTATIONS.

Seller and Heir are acquiring the Debenture and any shares upon
conversion for their own account for purposes of investment and without
expectation, desire, or need for resale and not with the view toward
distribution, resale, subdivision, or fractionalization of the Debenture. Prior
to Closing, Seller and Heir have reviewed all information provided to them by
Purchaser and have had the opportunity to ask questions of and receive answers
from representatives of the Purchaser concerning the Purchaser, the Debenture
and any shares upon conversion offered and sold hereby, and this sale, and to
obtain certain additional information requested by the Seller and Heir. The
Seller and Heir are sophisticated investors, and have had the full benefit of
advice of competent legal counsel and certified public accountants in connection
with the acquisition of the Debenture and any shares upon conversion and the
negotiation and execution of this-Agreement. Seller and Heir understand that
the Debenture and any shares upon conversion to be transferred herein has not
been registered under the Securities Act of 1933, or under any state securities
law.

SECTION 8. ISSUANCE OF SHARES ON CONVERSION. As promptly as practicable after-
receipt of the notice specified in Section 7 above and the surrender, as therein
provided, of the Debenture in the proper form for conversion, the Corporation
shall deliver or cause to be delivered to the Holder , a certificate
representing the number of fully paid and nonassessable Shares into which such
Debenture (or the above referenced portion thereof) may be converted based on
the Conversion Price in accordance with the provisions herein. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date the Debenture shall have been surrendered for conversion, accompanied
by such notice so that the rights of the Holder shall cease with respect to such
Debenture at such time, and the Holder, to the extent entitled to receive the
Shares upon conversion shall be treated for all purposes as having become the
record holder of such Shares at such time, provided, however, that no such
surrender on any date when the stock transfer books of the Corporation shall be
closed shall be effective to constitute the Holder upon such conversion as the
record holder of such Shares on such date, but such surrender shall be
effective to constitute

PAGE 7 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

the Holder as the record holder thereof for all purposes immediately prior to
the close of business on the next succeeding day on which such stock transfer
books are open.

SECTION 9. NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.

A. The exercise of Holder's right to convert the Debenture shall not
affect Holder's right to receive accrued but unpaid interest on the Debenture
prior to conversion or the Holder's right to receive interest after conversion
on that portion of the principal of the Debenture which is not so converted.

B. Holder shall not be entitled to receive any cash dividend payable on
the Corporation's Shares until compliance with the Debenture surrender
requirements and issuance of the resulting Shares as set forth above.

SECTION 10. ANTI-DILUTION PROVISIONS. The number and kind of securities
purchasable upon the conversion of this Debenture shall be subject to adjustment
from time to time after the Corporation's planned "roll-up" transaction, in
whatever manner effected, as follows:

10.1 In case the Corporation shall (i) pay a dividend or make a distribution on
the outstanding common shares payable in common shares, (ii) subdivide the
outstanding common shares into a greater number of shares, (iii) combine the
outstanding common shares into a lesser number of shares, or (iv) issue by
reclassification of the common shares any common shares of the Corporation, the
Holder of this Debenture shall thereafter be entitled, upon conversion, to
receive the number and kind of shares which, if this Debenture had been
converted immediately prior to the happening of such event, the Holder would
have owned upon such conversion and been entitled to receive upon such dividend,
distribution, subdivision, or combination. Such adjustment shall become
effective on the day next following (x) the record date of such dividend or
distribution or (y) the day upon which such subdivision, or combination
reclassification shall become effective.

10.2 If at any time the Corporation is required to issue shares of its common
shares in excess of the number of common shares then authorized, both the
Corporation and the Holder shall cooperate in taking any and all steps
reasonably necessary to increase the number of authorized common shares of the
Corporation to effectuate the purposes of this Section 10.

PAGE 8 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

10.3 Irrespective of any adjustments in the number or kind of shares to be
received upon conversion of this Debenture, the form of debentures theretofore
or thereafter issued shall continue to express the number and kind of shares as
are stated in this debenture.

SECTION 11. CORPORATION TO RESERVE COMMON SHARES. The Corporation covenants
that it will at all times after Holder can convert pursuant to Section 6 herein
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued common shares, or its issued common shares held in
its treasury, or both, for the purpose of effecting conversions of debentures,
the full number of common shares of then deliverable upon the conversion of this
Debenture not theretofore converted; and if at any time the number of authorized
but unissued common shares shall not be sufficient to effect the conversion of
this Debenture, the Corporation will take such corporate action as may in the
opinion of its counsel be necessary to increase its authorized but unissued
common shares to such number of shares as shall be sufficient for that purpose.

SECTION 12. USURY LAWS. Should the usury laws of any state be deemed
applicable with respect to the Debenture, the Corporation will not assert such
laws as a defense.

SECTION 13. FRACTIONAL SHARES. Fractional Shares or script representing
fractional Shares shall not be issued upon the exercise of this Debenture.

SECTION 14. ASSIGNMENT, EXCHANGE, OR LOSS OF DEBENTURE.

14.1 Upon presentation and surrender of this Debenture to the Corporation at its
principal office with the assignment form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Corporation shall, without charge,
execute and deliver a new debenture in the name of either the Payee or Dr. Lori
Adelson and this Debenture shall promptly be canceled. The Payee and the Holder
is permitted to assign this Debenture or the Shares resulting from the
conversion as set forth in Section 6 herein to Dr. Lori Adelson only; therefore,
as to the Debenture and the Shares, if any, there are no other permitted assigns
of the Payee or the Holder.

14.2 Upon receipt by the Corporation of evidence satisfactory to it of the loss,
theft, destruction, or mutilation of this debenture, and (in the case of loss,
theft, or destruction) of reasonably satisfactory indemnification and bond, and
(in the case of mutilation) upon surrender and cancellation of this

PAGE 9 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

debenture, the Corporation will execute and deliver a new debenture, which shall
constitute the same contractual obligation on the part of the Corporation, such
that this Debenture so lost, stolen, destroyed, or mutilated shall be considered
void and not enforceable by anyone and everyone.

SECTION 15. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Corporation, either at law or
equity. The rights of the Holder are limited to those expressed in this
Debenture and are not enforceable against the Corporation except to the extent
set forth herein.

SECTION 16. NOTICES. All notices and other communications required or
permitted under this Debenture shall be validly given, made, or served if in
writing and delivered personally or sent by registered mail, to the Corporation
at the following address:

Paul R. Hoover
Vice President of Franchise Development
New York Bagel Enterprises, Inc.
300 IMA Plaza
250 North Water
Wichita, Kansas 67202

with copy to:

Gregory B. Klenda, Esq.
Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main
Wichita, Kansas 67202-4888

All notices and other communications required or permitted under this Debenture
shall be validly given, made or served if in writing and delivered personally or
sent by registered mail, to the Holder at the following address:

Dr. Lori Adelson
5874 East Ashland Drive
Nashville, Tennessee 37215

with copy to:

Perry A. March, Esq.
Levine, Mattson, Orr & Geracioti
210 Third Avenue North
Nashville, Tennessee 37201

PAGE 10 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

SECTION 17. PRONOUNS. Any masculine personal pronoun shall be considered to
mean the corresponding feminine or neuter personal pronoun, as the context
requires.

SECTION 18. LAW GOVERNING. This Debenture shall be governed by and construed
in accordance with the laws of the State of Oklahoma.

SECTION 19. TITLES AND CAPTIONS. All section titles or captions contained in
this Debenture are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Debenture.

SECTION 20. COMPUTATION OF TIME. In computing any period of time pursuant to
this Debenture, the day of the act, event or default from which the designated
period of time begins to run shall be included, unless it is a Saturday, Sunday,
or a legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.

SECTION 21. PRESUMPTION. This Debenture or any section thereof shall not be
construed against any party due to the fact that said Debenture or any section
thereof was drafted by said party.

SECTION 22. FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Debenture.

SECTION 23. PARTIES IN INTEREST. Nothing herein shall be construed to be to
the benefit of any third party, nor is it intended that any provision shall be
for the benefit of any third party.

SECTION 24. ATTORNEYS' FEES. If suit or action is instituted in connection
with any controversy arising out of this Debenture, or in the enforcement of any
rights hereunder, the prevailing party shall be entitled to recover in addition
to costs such sums as the court may adjudge as reasonable attorneys' fees,
including attorneys' fees of any appeal.

SECTION 25. CORPORATION'S RIGHT TO OFFSET. Corporation shall have the right
to offset any amounts due pursuant to the terms of this Debenture against any
and all Payee's, Dr. Lori Adelson's and/or Nashville Bagel Co.'s, a Tennessee
corporation, breach of their individual or collective representations,
warranties and

PAGE 11 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

covenants and amounts due to Corporation set forth herein or as contained in
that certain Stock Purchase Agreement by and among the Corporation, Payee, Dr.
Lori Adelson and Nashville Bagel Co.

IN WITNESS WHEREOF, Paul R. Hoover, as Vice President of New York Bagel
Enterprises, Inc., has executed this Debenture to be effective as of the 14th
day of December, 1995.

NEW YORK BAGEL ENTERPRISES, INC.
an Oklahoma corporation

by: /s/ Paul R. Hoover
--------------------------------
Paul R. Hoover Vice President
[OFFICER'S NAME & TITLE]

STATE OF TENNESSEE )
) ss:
County of Davidson )

On this 14th day of December, 1995, before me appeared Paul R. Hoover, to
me personally known, who being duly sworn did say that he/she is the Vice
President of NEW YORK BAGEL ENTERPRISES, INC., the within named Oklahoma
corporation, and that the instrument was signed in behalf of said corporation
and acknowledged the instrument to be the free act and deed of the corporation.

/s/ ??????????
---------------------------------
NOTARY PUBLIC FOR TENNESSEE
My Commission Expires: 1-20-99
My County of Residence is: Davidson

PAGE 12 - CONVERTIBLE SUBORDINATED DEBENTURE

<PAGE>

STOCKHOLDERS' AGREEMENT

THIS STOCKHOLDERS' AGREEMENT ("Agreement") is made and entered into as of
this 1st day of January, 1996,

BY AND AMONG ROBERT J. GERESI,
VINCENT J. VRANA, and
PAUL T. SORRENTINO,
individuals,
hereinafter referred to individually as

"STOCKHOLDER"

and collectively as

"OKLAHOMA STOCKHOLDERS"

AND PAUL R. HOOVER, DAVID L. MURFIN, NANCY
MURFIN MOXLEY, MARK A. MOXLEY, BARBARA
MURFIN MURPHY, V. RICHARD HOOVER, and
PHILIP FAUBERT,
individuals,
hereinafter referred to individually as

"STOCKHOLDER"

and collectively as

"KANSAS STOCKHOLDERS"

AND ROBERT J. GERESI, VINCENT J. VRANA, PAUL
T. SORRENTINO, RODNEY JOE TRIZZA, BRENT
DURHAM, JOHN R. GERESI, CHAD E. WATKINS,
and MARKUS K. SCHOLLER,
individuals,
hereinafter referred to individually as

"STOCKHOLDER"

and collectively as

"CLASS B STOCKHOLDERS"

<PAGE>

AND NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as

"CORPORATION"

W I T N E S S E T H:

WHEREAS, the Oklahoma Stockholders own of record 506,067 of the outstanding
shares of the Class A Common Stock, voting, par value $.01 per share, of the
Corporation (the "Class A Stock");

WHEREAS, the Kansas Stockholders own of record 506,067 of the outstanding
shares of the Class A Stock;

WHEREAS, the Class B Stockholders own of record 987,866 of the Class B
Common Stock, nonvoting, par value $.01 per share, of the Corporation (the
"Class B Stock");

WHEREAS, the Class B Stock shall be automatically converted into Class A
Stock upon the Corporation's successful completion of an initial public
offering, if any, of its Class A Stock pursuant to the registration requirements
of the Securities Act of 1933, as amended, such that each share of Class B Stock
then issued and outstanding shall be converted into one (1) share of Class A
Stock;

WHEREAS, the Board of Directors of the Corporation (the "Board") shall
initially consist of six (6) directors, of which three (3) directors are to be
designated by the Oklahoma Stockholders (the "Oklahoma Designees") and three (3)
directors are to be designated by the Kansas Stockholders (the "Kansas
Designees"); and

WHEREAS, each of the parties hereto desires to enter into this Agreement in
order to set forth certain provisions regarding the management of the
Corporation.

ARTICLE I
DEFINITIONS

Section 1.1 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings indicated:

<PAGE>

"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act (hereinafter defined).

"Agreement" shall have the meaning set forth in the recitals hereto.

"Articles" shall mean the Articles of Incorporation of the Corporation, as
amended from time to time.

"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 of the
Exchange Act. For the purposes of this definition, "Beneficial Owner" and
"Beneficially Own" shall refer to the ownership interest of a Beneficial Owner.

"Board" shall have the meaning set forth in the recitals hereto.

"Class A Stock" shall have the meaning set forth in the recitals hereto.

"Class B Stock" shall have the meaning set forth in the recitals hereto.

"Class B Stockholder" shall have the meaning set forth in the recitals
hereto.

"Common Stock" shall mean the Class A Stock, the Class B Stock and any
other issued and outstanding class of common stock of the Corporation.

"Corporation" shall have the meaning set forth in the recitals hereto.

"Designee" and "Designees" shall have the meaning set forth in Section
2.1(a) hereof.

"Director" shall mean a member of the Board of Directors of the
Corporation.

"Dispose Of" shall mean to pledge, hypothecate, give away, sell, grant an
option with respect to, bequeath (by will or by the laws of descent and
distribution), or otherwise transfer to anyone, whether or not the transferee is
then a Stockholder. "Disposition" shall have a correlative meaning.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any regulations promulgated thereunder.

"Kansas Designees" shall have the meaning set forth in the recitals hereto.

"Kansas Stockholders" shall have the meaning set forth in the recitals
hereto.

"Oklahoma Designees" shall have the meaning set forth in the recitals
hereto.

"Oklahoma Stockholders" shall have the meaning set forth in the recitals
hereto.

<PAGE>

"Stockholder" shall have the meaning set forth in the recitals hereto and
shall also mean any person, other than the Corporation, who is or becomes a
party to this Agreement.

ARTICLE II
MANAGEMENT

Section 2.1 BOARD REPRESENTATION.

(a) At and following the execution of this Agreement, the Corporation and
the Stockholders will take such action as may be necessary to cause the Board to
include the Oklahoma Designees and the Kansas Designees. The Oklahoma Designees
and the Kansas Designees are sometimes collectively referred to herein as the
"Designees" and individually as a "Designee." If any such Designee is unwilling
or otherwise unable to serve as a Director of the Corporation, the person
originally nominating such Designee shall be entitled to nominate a replacement
who shall then be a Designee for purposes of this Section 2.1(a). The original
members of the Board are those individuals named in the Corporation's Articles
as filed with the Secretary of State of Kansas on December 27, 1995.

(b) The Corporation shall nominate and recommend the Designees to the
Stockholders and all holders of the Corporation's Common Stock for election as
Directors and shall otherwise use all legal efforts to cause the Designees to be
elected to the Board. Each of the Stockholders agrees to vote, or cause to be
voted, all of the shares of Common Stock Beneficially Owned or held of record by
such Stockholders at any regular or special meeting of the Stockholders of the
Corporation called for the purpose of filling positions on the Board, or in any
written consent executed in lieu of such a meeting of Stockholders, and agrees
to take all actions otherwise necessary to cause the election to the Board of
the Oklahoma Designees and the Kansas Designees as described herein.

(c) If, following a Designee's election to the Board, a Designee shall
vacate such position on the Board for any reason, including, without limitation,
by reason of the death, removal or retirement of such Designee, the Stockholder
who nominated such Designee shall, as promptly as practicable, notify the Board
in writing of a replacement Designee. The Stockholders shall, at the request of
the nominating Stockholder, promptly use their best efforts to cause their
respective Designees on the board to (i) call a special meeting of the Board of
the Corporation for the purpose of filling such vacancy and vote to fill such
vacancy with such replacement Designee or (ii) execute a written consent in lieu
of a meeting to fill such vacancy with such replacement Designee as a Director
within ten (10) days of the occurrence of such vacancy, or if the Board elects
as a Director to fill such vacancy a person other than such replacement
Designee, each Stockholder immediately shall execute and deliver or cause to be
executed and delivered to the Corporation, in accordance with Section 17-6518 of
the General Corporation Code of the State of Kansas, as the same now exists or
may hereafter be amended, or the provisions of any successor statute, a written
consent or written consents, with respect to all of the shares of Common Stock
Beneficially Owned or held of record by such Stockholder, removing from the
Board such person elected by the Board as a Director and electing the

<PAGE>

designated replacement Designee, and shall use all legal efforts to ensure the
election to the Board of such replacement Designee to fill the unexpired term of
the Designee whom such new Designee is replacing.

(d) In the event that the Board is classified into two or more classes
having staggered terms, then the Oklahoma Designees and the Kansas Designees
shall be allocated equally, as nearly as possible, to each class.

Section 2.2 FUNDAMENTAL TRANSACTIONS.

(a) The Corporation and Oklahoma Stockholders agree that neither of them
shall, and the Oklahoma Stockholders shall use their best efforts to cause the
Oklahoma Designees not to, approve of or cause to occur any transaction
involving the Corporation and Oklahoma Stockholders or Affiliates of Oklahoma
Stockholders, without the prior written consent of Kansas Stockholders.

(b) The Corporation and Kansas Stockholders agree that neither of them
shall, and the Kansas Stockholders shall use their best efforts to cause the
Kansas Designees not to, approve of or cause to occur any transaction involving
the Corporation and Kansas Stockholders or Affiliates of Kansas Stockholders
without the prior written consent of Oklahoma Stockholders.

ARTICLE III
MISCELLANEOUS

Section 3.1 STOCK OWNERSHIP. Each Stockholder severally represents and
warrants to each of the other parties to this Agreement, on the date hereof,
that they are the record and Beneficial Owner of, with good and marketable title
to, the Common Stock and hold the Common Stock free and clear of all security
interests, rights or claims of others, liens and encumbrances.

Section 3.2 PLEDGE OF STOCK. A Stockholder may pledge all or a portion
of its Common Stock provided that such pledgee acknowledges in writing the
existence of, and agrees to be bound by, the provisions of this Agreement.

Section 3.3 TERMINATION. This Agreement shall terminate:

(a) Three years from the date of this Agreement.

(b) Upon consent of all of the parties hereto who are then subject to this
Agreement.

<PAGE>

(d) As to any Stockholder, when such Stockholder shall cease to
Beneficially Own any Class A Stock (or any legal or Beneficial Ownership
therein) other than by reason of a breach of this Agreement.

Section 3.4 LEGENDS. The certificates evidencing all Class A and Class
B Stock at any time Beneficially Owned by a Stockholder shall bear the following
legends unless and until such time as such Stockholder shall deliver an opinion
of counsel reasonably acceptable to the Corporation and its counsel to the
effect that such legend is not required under this Agreement or that this
Agreement has been terminated in accordance with its terms, and, in the case of
a transferee, that such Disposition is not in violation of this Agreement and
that the transferee is not subject to or bound by the provisions of this
Agreement, and stating the basis therefor:

"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT DATED
AS OF JANUARY 1, 1996, BY AND AMONG ROBERT J. GERESI, VINCENT J.
VRANA, PAUL T. SORRENTINO, PAUL R. HOOVER, DAVID L. MURFIN, NANCY
MURFIN MOXLEY, MARK A. MOXLEY, BARBARA MURFIN MURPHY, V. RICHARD
HOOVER, RODNEY JOE TRIZZA, BRENT DURHAM, JOHN R. GERESI, CHAD E.
WATKINS, PHILIP FAUBERT, MARKUS K. SCHOLLER AND NEW YORK BAGEL
ENTERPRISES, INC., COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF
NEW YORK BAGEL ENTERPRISES, INC., AND ARE HELD AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OTHERWISE GRANTED AS
SECURITY OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE THEREWITH.

NO REGISTRATION OF TRANSFER OF THE COMMON STOCK WILL BE MADE ON THE
BOOKS OF NEW YORK BAGEL ENTERPRISES, INC. UNLESS SUCH TRANSFER IS MADE
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION FROM APPLICABLE
FEDERAL, STATE AND FOREIGN REGISTRATION REQUIREMENTS.

THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO SUCH RESTRICTIONS UPON TRANSFER OF THE SAME AS MAY BE PROVIDED IN
THE CORPORATION'S ARTICLES OF INCORPORATION AND/OR BYLAWS.

Section 3.5 SECRETARY TO RETAIN COPY. A copy of this Agreement shall be
filed with the Secretary of the Corporation.

<PAGE>

Section 3.6 STOCK CHANGES. This Agreement shall also apply to any share
of Class A and Class B Stock acquired by a Stockholder following the date
hereof.

Section 3.7 FURTHER ACTIONS. At any time and from time to time each
party agrees, at such party's expense, to take such actions and to execute and
deliver such documents as may be necessary to effectuate the purposes of this
Agreement. Each party hereto will not take any action that would (i) result in
a breach of any covenant, representation or warranty or any other obligation of
such party under this Agreement or (ii) impede, interfere with or discourage the
transactions contemplated by this Agreement.

Section 3.8 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
failure on any of their part to comply with the terms of this Agreement shall
cause the other parties hereto immediate and irreparable harm that cannot be
adequately compensated by the remedies at law, and that in the event of such
breach or violation, or threatened breach or violation, the other parties hereto
may seek to have such provisions of this Agreement specifically enforced by
preliminary and permanent injunctive relief without having to prove the
inadequacy of the available remedies at law or any actual damages and without
posting bond or other security. Any remedy sought or obtained by a party hereto
shall not be considered either exclusive or a waiver of the rights of a party
hereto or of any other person to assert any other remedies they have at law or
in equity. In any proceeding upon a motion for any such injunctive relief, a
parties' ability to answer in damages shall not be a bar, or be interposed as a
defense, to the granting of such injunctive relief. Any rights under this
Section 3.8 may be enforced in any appropriate court in the State of Kansas.

Section 3.9 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings among the parties hereto.

Section 3.10 SCOPE OF AGREEMENT. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective heirs, personal
representatives, successors and assigns.

Section 3.11 AMENDMENTS. This Agreement may not be modified or amended
except by an instrument in writing executed by the party against whom
enforcement of any such modification or amendment is sought.

Section 3.12 COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one (1) and the same instrument.

Section 3.13 HEADINGS. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

<PAGE>

Section 3.14 NOTICES. Any notice, consent, approval, demand or other
communication to be given, made or provided for under this Agreement shall be in
writing and deemed to be fully given by its delivery personally or by
telefacsimile to the person or persons specified below or two (2) business days
after deposit in the United States Mail, first class, postage prepaid, by
registered or certified mail, return receipt requested, or sent by nationally
recognized express courier service, postage or delivery charges prepaid, to the
following addresses, or to such other address or to the attention of such other
person as any party hereto shall hereafter specify by written notice to the
other party hereto.

Any party of the Oklahoma Stockholders may be noticed at the following
address and/or telefacsimile number:

110 West Third Street
Stillwater, OK 74074
(405) 624-3722

Any of the Kansas Stockholders or Class B Stockholders may be noticed at
the following address and/or telefacsimile number:

300 I.M.A. Plaza
250 North Water Street
Wichita, KS 67202
(316) 267-6004

Section 3.15 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

Section 3.16 GOVERNING LAW. In all respects, including all matters of
construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the State of Kansas applicable to contracts made and performed in such
state, and any applicable laws of the United States of America.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

--------------------------------------------
ROBERT J. GERESI

--------------------------------------------
VINCENT J. VRANA

--------------------------------------------
PAUL T. SORRENTINO

"Oklahoma Stockholders"

--------------------------------------------
PAUL R. HOOVER

--------------------------------------------
DAVID L. MURFIN

--------------------------------------------
NANCY MURFIN MOXLEY

--------------------------------------------
MARK A. MOXLEY

--------------------------------------------
BARBARA MURFIN MURPHY

--------------------------------------------
V. RICHARD HOOVER

--------------------------------------------
PHILIP FAUBERT

"Kansas Stockholders"

<PAGE>

--------------------------------------------
ROBERT J. GERESI

--------------------------------------------
VINCENT J. VRANA

--------------------------------------------
PAUL T. SORRENTINO

--------------------------------------------
RODNEY JOE TRIZZA

--------------------------------------------
BRENT DURHAM

--------------------------------------------
JOHN R. GERESI

--------------------------------------------
CHAD E. WATKINS

--------------------------------------------
MARKUS K. SCHOLLER

"Class B Stockholders"

NEW YORK BAGEL ENTERPRISES, INC.

ATTEST: By
------------------------------------------
Robert J. Geresi, Chief Executive Officer

- ----------------------------
Robert D. Young, Secretary

"Corporation"

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
1996 INCENTIVE PLAN

1. PURPOSE. The purposes of the New York Bagel Enterprises, Inc. 1996
Incentive Plan (the "Plan") are to provide additional incentives to those
officers, key employees, nonemployee directors and advisors of New York Bagel
Enterprises, Inc. and its Subsidiaries (as hereinafter defined) whose
substantial contributions are essential to the continued growth and success of
the Company's business, to strengthen their commitment to the Company and its
Subsidiaries, to motivate those officers, employees, nonemployee directors and
advisors to perform their assigned responsibilities faithfully and diligently,
and to attract and retain competent and dedicated individuals whose efforts will
result in the long-term growth and profitability of the Company. To accomplish
these purposes, the Plan provides that the Company may grant Incentive Stock
Options, Nonqualified Stock Options, and Restricted Stock (as each term is
hereinafter defined).

2. DEFINITIONS. For purposes of the Plan:

(a) "ADJUSTED FAIR MARKET VALUE" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of
the Shares in any transaction (or series of transactions) constituting or
resulting in a Change in Control or (ii) the highest Fair Market Value of a
Share during the ninety (90) day period ending on the date of a Change in
Control.

(b) "ADVISOR" means any person performing services for the Company or
any Subsidiary of the Company, with or without compensation, to whom the
Company chooses to grant Nonqualified Stock Options in accordance with the
Plan, provided that bona fide services must be rendered by such person and
such services shall not be rendered in connection with the offer or sale of
securities in a capital-raising transaction.

(c) "AGREEMENT" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and
setting forth the terms and conditions thereof.

(d) "AWARD" means a grant of Restricted Stock.

(e) "BOARD" means the Board of Directors of the Company.

(f) "CHANGE IN CAPITALIZATION" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) or exchange of Shares for a different number or kind of shares or
other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-
up, issuance of warrants or rights or debentures, stock dividend, stock
split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, public offering,
private placement, change in corporate structure or otherwise, which in
the judgment of the Committee is material or significant.

<PAGE>

(g) "CHANGE IN CONTROL" means any of the following events:

(i) The acquisition (other than from the Company) by any
"Person" (as the term is used for purposes of Sections 13(d) or 14(d)
of the Exchange Act) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%)
or more of the combined voting power of the Company's then outstanding
voting securities; or

(ii) The individuals who, as of May 1, 1996, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the Board; provided, however, that if the
election, or nomination for election by the Company's stockholders, of
any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board; or

(iii) Approval by the stockholders of the Company of (a) a
merger or consolidation involving the Company if the stockholders of
the Company, immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or
indirectly, more than seventy percent (70%) of the combined voting
power of the then outstanding voting securities of the corporation
resulting from such merger or consolidation in substantially the same
proportion as their ownership of the combined voting power of the
voting securities of the Company outstanding immediately before such
merger or consolidation or (b) a complete liquidation or dissolution
of the Company or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.

Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to Section 2(g)(i) solely because twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the
Company or any Subsidiary or (ii) any corporation which, immediately prior
to such acquisition, is owned directly or indirectly by the stockholders of
the Company in the same proportion as their ownership of stock in the
Company immediately prior to such acquisition.

(h) "CODE" means the Internal Revenue Code of 1986, as amended.

(i) "COMMITTEE" means a committee consisting of at least three (3)
Disinterested Persons appointed by the Board to administer the Plan and to
perform the functions set forth herein.

(j) "COMPANY" means New York Bagel Enterprises, Inc., a Kansas
corporation.

<PAGE>

(k) "DISINTERESTED PERSON" means a disinterested administrator with
respect to the Company or any Subsidiary as described in Rule 16b-3(b)(2)
under the Exchange Act.

(l) "DIVISION" means any of the operating units or Divisions of the
Company designated as a Division by the Committee.

(m) "ELIGIBLE EMPLOYEE" means any officer or other designated
employees of the Company or a Subsidiary designated by the Committee as
eligible to receive Options or Awards subject to the conditions set forth
herein.

(n) "EMPLOYEE" means an employee of the Company or any Subsidiary of
the Company that adopts the Plan, as defined under Section 3401(c) of the
Code and regulations thereunder.

(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(p) "FAIR MARKET VALUE" means the fair market value of the Shares as
determined in good faith by the Committee; provided, however, that (i) if
the Shares are admitted to trading on a national securities exchange, Fair
Market Value on any date shall be the last sale price reported for the
Shares on such exchange on such date or, if no sale was reported on such
date, on the last date preceding such date on which a sale was reported, as
quoted in THE WALL STREET JOURNAL (Southwest Edition), (ii) if the Shares
are admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") and have been designated as a
National Market System ("NMS") security, Fair Market Value on any date
shall be the last sale price reported for the Shares on such system on such
date or on the last day preceding such date on which a sale was reported,
as quoted in THE WALL STREET JOURNAL (Southwest Edition) or (iii) if the
Shares are admitted to quotation on NASDAQ and have not been designated a
NMS security or are listed on another comparable quotation system, Fair
Market Value on any date shall be the average of the highest bid and lowest
asked prices of the Shares on such system on such date.

(q) "GRANTEE" means an Eligible Employee to whom an Award has been
granted under the Plan.

(r) "INCENTIVE STOCK OPTION" means an Option within the meaning of
Section 422 of the Code.

(s) "NONEMPLOYEE DIRECTOR" means a member of the Board who is not an
employee or an officer of the Company or any Subsidiary.

(t) "NONQUALIFIED STOCK OPTION" means an Option which is not an
Incentive Stock Option.

<PAGE>

(u) "OPTION" means an Incentive Stock Option, a Nonqualified Stock
Option, or either or both of them.

(v) "OPTIONEE" means a person to whom an Option has been granted
under the Plan.

(w) "RESTRICTED STOCK" means Shares issued or transferred to an
Eligible Employee which are subject to restrictions. Restricted Stock may
be subject to restrictions which lapse over time without regard to the
performance of the Company, a Subsidiary or a Division, pursuant to Section
7 hereof.

(x) "SHARES" means the Class A common stock, One Cent ($.01) par
value, of the Company (including any new, additional or different stock or
securities resulting from a Change in Capitalization).

(y) "SUBSIDIARY" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations,
other than the last corporation in the unbroken chain, owns stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

(z) "TEN-PERCENT STOCKHOLDER" means an Eligible Employee, who, at the
time an Incentive Stock Option is to be granted to such Eligible Employee,
owns (within the meaning of Section 422(b)(6) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, or of a parent or a Subsidiary within the
meaning of Section 422(b)(6) of the Code.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of
the Plan. A quorum shall consist of not less than three members of the
Committee and a majority of a quorum may authorize any action. Each member
of the Committee shall be a Disinterested Person. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan, Agreements,
Options or Awards, and all members of the Committee shall be fully
indemnified by the Company with respect to any such action, determination
or interpretation.

(b) Subject to the express terms and conditions set forth herein, the
Committee or the Board shall have the power from time to time:

(i) to determine those Eligible Employees, Nonemployee Directors
or Advisors to whom Options shall be granted under the Plan, the
number of Incentive Stock Options and/or Nonqualified Stock Options to
be granted to each

<PAGE>

Eligible Employee, the number of Nonqualified Stock Options to be
granted to each Nonemployee Director or Advisor, and to prescribe the
terms and conditions (which need not be identical) of each Option,
including the purchase price per Share subject to each Option, and
make any amendment or modification to any Agreement consistent with
the terms of the Plan; and

(ii) to select those Eligible Employees to whom Awards shall be
granted under the Plan and to determine the number of Shares of
Restricted Stock to be granted pursuant to each Award, the terms and
conditions of each Award, including the restrictions relating to such
Shares, and make any amendment or modification to any Agreement
consistent with the terms of the Plan.

(i) to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, without
limitation, correcting any defect or supplying any omission, or
reconciling any inconsistency in the Plan or in any Agreement, in the
manner and to the extent it shall deem necessary or advisable to make
the Plan fully effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final, binding and
conclusive upon the Company, a Subsidiary, and the Optionees and
Grantees, as the case may be;

(ii) to determine the duration and purposes for leave of absence
which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for
purposes of the Plan;

(iii) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and

(iv) generally, to exercise such powers and to perform such acts
as are deemed necessary or advisable to promote the best interests of
the Company with respect to the Plan;

provided, however, that the Committee may delegate to senior members
of the management of the Company the right to exercise those powers
described in Sections (b)(i) and (ii) with respect to Eligible
Employees and Advisors.

4. STOCK SUBJECT TO PLAN.

(a) The maximum number of Shares that may be issued or transferred
pursuant to Options and Awards under the Plan is four hundred thousand
(400,000) Shares (or the number and kind of shares of stock or other
securities to which such Shares are adjusted

<PAGE>

upon a Change in Capitalization pursuant to Section 8) and the Company
shall reserve for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly
out of each, such number of Shares as shall be determined by the Board.

(b) Whenever any outstanding Option or Award or portion thereof
expires, is cancelled or is otherwise terminated for any reason (other than
by exercise of the Option), the Shares allocable to the cancelled or
otherwise terminated portion of such Option or Award may again be the
subject of Options and Awards hereunder.

(c) Whenever any Shares subject to an Award or Option are forfeited
for any reason pursuant to the terms of the Plan, such Shares may again be
the subject of Options and Awards hereunder.

5. ELIGIBILITY. Subject to the provisions of the Plan, the Committee
shall have full and final authority to select those Eligible Employees who will
receive Options and/or Awards and those Nonemployee Directors and Advisors who
will receive Nonqualified Stock Options; provided, however, that no Eligible
Employee shall receive any Incentive Stock Options unless such Eligible Employee
is an employee of the Company, a parent or a Subsidiary (within the meaning of
Section 422 of the Code) at the time the Incentive Stock Option is granted.
Incentive Stock Options may be granted only to persons who are Eligible
Employees.

6. OPTIONS. The Committee may grant Options in accordance with the Plan
and the terms and conditions of the Option shall be set forth in an Agreement.
Each Option and Agreement shall be subject to the following conditions:

(a) PURCHASE PRICE. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
set forth in the Agreement, provided that the purchase price per Share
under each Incentive Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share at the time the
Incentive Stock Option is granted (one hundred ten percent (110%) in the
case of an Incentive Stock Option granted to a Ten-Percent Stockholder).

(b) DURATION. Options granted hereunder shall be for such term as
the Committee shall determine, provided that no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years from the date
it is granted (five (5) years in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder). The Committee may, subsequent to
the granting of any Option, extend the term thereof but in no event shall
the term as so extended exceed the maximum term provided for in the
preceding sentence.

(c) NON-TRANSFERABILITY. No Option hereunder shall be transferable
by the Optionee to whom granted otherwise than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, and an Option may be exercised during

<PAGE>

the lifetime of such Optionee only by the Optionee or such Optionee's
guardian or legal representative. The terms of such Option shall be final,
binding and conclusive upon the beneficiaries, executors, administrators,
heirs and successors of the Optionee.

(d) VESTING. Subject to Section 6(i) hereof, each Option shall be
exercisable in such installments (which need not be equal) and at such
times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.

(e) METHOD OF EXERCISE. The exercise of any Option shall be made
only by a written notice delivered in person or by mail to the Secretary of
the Company at the Company's principal executive office, specifying the
number of Shares to be purchased and accompanied by payment therefor and
otherwise in accordance with the Agreement pursuant to which the Option was
granted. The purchase price for any Shares purchased pursuant to the
exercise of an Option shall be paid in full upon such exercise, as
determined by the Committee in its discretion, in cash, by check, or by
transferring Shares to the Company upon such terms and conditions as
determined by the Committee. The written notice pursuant to this Section
6(e) may also provide instructions from the Optionee to the Company that
upon receipt of the purchase price in cash from the Optionee's broker or
dealer, designated as such on the written notice, in payment for any Shares
purchased pursuant to the exercise of an Option, the Company shall issue
such Shares directly to the designated broker or dealer. Any Shares
transferred to the Company as payment of the purchase price under an Option
shall be valued at their Fair Market Value on the day preceding the date of
exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Agreement evidencing the Option to the Secretary of the Company
who shall endorse thereon a notation of such exercise and return such
Agreement to the Optionee. No fractional Shares shall be issued upon
exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.

(f) RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and until (i)
the Option shall have been exercised pursuant to the terms thereof, (ii)
the Company shall have issued and delivered the shares to the Optionee and
(iii) the Optionee's name shall have been entered as a stockholder of
record on the books of the Company. Thereupon, the Optionee shall have
full voting, dividend and other ownership rights with respect to such
Shares.

(g) TERMINATION OF EMPLOYMENT OR SERVICE. The Agreement shall set
forth the terms and conditions of the Option upon the termination of the
Employee's employment, or upon termination of the Advisor's services, with
the Company, Subsidiary or a Division (including an Optionee's ceasing to
be employed by a Subsidiary or Division as a result of the sale of such
Subsidiary or Division or an interest in such Subsidiary or Division) as
the Committee may, in its discretion, determine at the time the

<PAGE>

Option is granted or thereafter; provided, however, that no Option shall be
exercisable beyond its maximum term as described in Section 6(b) hereof.

(h) MODIFICATION OR SUBSTITUTION. Subject to the terms of the Plan,
the Committee may, in its discretion, modify outstanding Options or accept
the surrender of outstanding Options (to the extent not exercised) and
grant new Options in substitution for them. Notwithstanding the foregoing,
no modification of an Option shall adversely alter or impair any rights or
obligations under any Agreement without the Optionee's consent.

(i) EFFECT OF CHANGE IN CONTROL. Notwithstanding anything contained
in the Plan or any Agreement to the contrary, in the event of a Change in
Control, (i) all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable and (ii) an Optionee will be
permitted to surrender for cancellation within sixty (60) days after such
Change in Control, any Option or portion of an Option to the extent not yet
exercised and the Optionee will be entitled to receive a cash payment in an
amount equal to the excess, if any, of (x)(A) in the case of Nonqualified
Stock Options, the greater of (1) the Fair Market Value, on the date
preceding the date of surrender, of the Shares subject to the Option or
portion thereof surrendered or (2) the Adjusted Fair Market Value of the
Shares subject to the Option or portion thereof surrendered or (B) in the
case of an Incentive Stock Option, the Fair Market Value, at the time of
surrender, of the Shares subject to the Option or portion thereof
surrendered, over (y) the aggregate purchase price for such Shares under
the Option; provided, however, that in the case of an Option granted within
six (6) months prior to the Change in Control to any Optionee who may be
subject to liability under Section 16(b) of the Exchange Act, such Optionee
shall be entitled to surrender for cancellation such Optionee's Option
during the sixty (60) day period commencing upon the expiration of six (6)
months from the date of grant of any such Option.

7. RESTRICTED STOCK. The Committee may grant Awards of Restricted Stock
which shall be evidenced by an Agreement between the Company and the Grantee.
Awards of Restricted Stock may be granted at no cost or at a specified price to
the Grantee. Each Agreement shall contain such restrictions, price, terms and
conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. Awards of Restricted Stock
shall be subject to the following terms and provisions:

(a) RIGHTS OF GRANTEE. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the
issuance of such Shares. If a Grantee shall fail to execute the Agreement
evidencing a Restricted Stock Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other

<PAGE>

documents which the Committee may require within the time period prescribed
by the Committee at the time the Award is granted, the Award shall be null
and void. At the discretion of the Committee, Shares issued in connection
with a Restricted Stock Award shall be deposited together with the
applicable stock powers with an escrow agent designated by the Committee.
Unless the Committee determines otherwise, and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee
shall have all of the rights of a stockholder with respect to such Shares,
including the right to vote the Shares.

(b) PURCHASE PRICE. The Committee, in its sole discretion, shall
determine the purchase price, if any, at which Shares of Restricted Stock
shall be sold to a Grantee hereunder, provided that such purchase price
shall in any event be payable in cash by the Grantee at the time the
Shares of Restricted Stock are sold.

(c) NON-TRANSFERABILITY. Until any restrictions imposed upon the
Shares of Restricted Stock awarded to a Grantee shall have lapsed in the
manner set forth in Section 7(d), such Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee.

(d) LAPSE OF RESTRICTIONS.

(i) GENERALLY. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms
and conditions as the Committee may determine.

(ii) EFFECT OF CHANGE IN CONTROL. Notwithstanding anything
contained in the Plan to the contrary, in the event of a Change in
Control, all restrictions upon any Shares of Restricted Stock shall
lapse immediately and all such Shares shall become fully vested in the
Grantee.

(e) TERMINATION OF EMPLOYMENT. Each Agreement shall set forth the
terms and conditions of the Award of Shares of Restricted Stock upon the
termination of the Grantee's employment with the Company, a Subsidiary or a
Division (including a Grantee's ceasing to be employed by a Subsidiary or a
Division as a result of the sale of such Subsidiary or Division or an
interest in such Subsidiary or Division) as the Committee may, in its
discretion, determine at the time the Award is granted or thereafter.

(f) MODIFICATION OR SUBSTITUTION. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Restricted Stock or accept
the surrender of outstanding Awards of Restricted Stock (to the extent not
exercised) and grant new Awards in substitution for them. Notwithstanding
the foregoing, no modification of an Award shall adversely alter or impair
any rights or obligations under any Agreement without the Grantee's
consent.

<PAGE>

(g) TREATMENT OF DIVIDENDS. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on such Shares by the Company shall be
(i) deferred until the lapsing of the restrictions imposed upon such Shares
and (ii) held by the Company for the account of the Grantee until such
time. In the event of such deferral, there shall be credited at the end of
each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with
interest accrued thereon, shall be made upon the lapsing of restrictions
imposed on such Shares, and any dividends deferred (together with any
interest accrued thereon) in respect of any Shares of Restricted Stock
shall be forfeited upon the forfeiture of such Shares of Restricted Stock
pursuant to Section 7(e) or otherwise.

(h) DELIVERY OF SHARES. Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall promptly cause a stock certificate
to be delivered to the Grantee with respect to such Shares, free of all
restrictions hereunder.

8. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.

(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to the maximum
number and class of Shares or other stock or securities with respect to
which Options or Awards may be granted under the Plan, the number and class
of Shares or other stock or securities which are subject to outstanding
Options or Awards granted under the Plan, and the purchase price therefor,
if applicable.

(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments
in the purchase price) shall be made in such manner as not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the
extent otherwise permitted by Sections 422 and 424 of the Code.

(c) If, by reason of a Change in Capitalization, a Grantee of an
Award shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities (other than rights or warrants to purchase securities), such new
additional or different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were applicable to
the Shares subject to the Option prior to such Change in Capitalization.

9. EFFECT OF CERTAIN TRANSACTIONS. Subject to Sections 6(i) and
7(d)(ii), in the event of (i) the liquidation or dissolution of the Company or
(ii) a merger or consolidation of the Company (a "Transaction"), all Options and
Awards issued hereunder shall continue in effect in accordance with their
respective terms and each Optionee and Grantee shall be entitled to receive in
respect of each Share subject to any outstanding Options or Awards, as the case
may be, upon

<PAGE>

exercise of any Option or Award or upon payment or transfer in respect of any
Award, the same number and kind of stock, securities, cash, property or other
consideration that each holder of a Share was otherwise entitled to receive in
the Transaction in respect of a Share.

10. RELEASE OF FINANCIAL INFORMATION. A copy of the Company's annual
report to stockholders shall be delivered to each Optionee and Grantee at the
time such report is distributed to the Company's stockholders.

11. TERMINATION AND AMENDMENT OF THE PLAN.

(a) The Plan shall terminate on the day preceding the tenth (10th)
anniversary of its effective date and no Option or Award may be granted
thereafter. The Board may sooner terminate or amend the Plan (other than
to reduce the rights of Optionees and Grantees, as the case may be, under
Sections 6(i) and 7(d)(ii)), at any time and from time to time; provided,
however, that to the extent necessary under Section 16(b) of the Exchange
Act and the rules and regulations promulgated thereunder, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations at an annual or special
meeting held within twelve (12) months before or after the date of adoption
of such amendment.

(b) Except as provided in Sections 8 and 9 hereof, rights and
obligations under any Option or Award granted before any amendment of the
Plan shall not be adversely altered or impaired by such amendment, except
with the consent of the Optionee or Grantee, as the case may be.

12. NON-EXCLUSIVITY OF THE PLAN. The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable.

13. LIMITATION OF LIABILITY. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:

(a) give any person any right to be granted an Option or Award other
than at the sole discretion of the Committee;

(b) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;

(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person in any particular position
at any particular rate of compensation or for any particular period of
time.

<PAGE>

14. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.

(a) This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of
Kansas without giving effect to the conflicts of laws principles thereof,
except to the extent that such law is preempted by federal law.

(b) The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals
by governmental agencies as may be deemed necessary or appropriate by the
Committee.

(c) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith.
Any provisions inconsistent with such Rule shall be inoperative and shall
not affect the validity of the Plan.

(d) The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Employees granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.

(e) Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option
or the issuance of Shares, no Options shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of
any conditions as acceptable to the Committee.

(f) Notwithstanding anything contained in the Plan to the contrary,
in the event that the disposition of Shares acquired pursuant to the Plan
is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the
extent required by the Securities Act of 1933, as amended, and Rule 144 or
other regulations thereunder. The Committee may require any individual
receiving Shares pursuant to the Plan, as a condition precedent to receipt
of such Shares (including upon exercise of an Option), to represent and
warrant to the Company in writing, in addition to other applicable
representations, that the Shares acquired by such individual are acquired
without a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration thereof under
said Act or pursuant to an exemption applicable under the Securities Act of
1933, as amended, or the rules and

<PAGE>

regulations promulgated thereunder. The certificates evidencing any of
such Shares shall be appropriately legended to reflect their status as
restricted securities as aforesaid.

15. MISCELLANEOUS.

(a) MULTIPLE AGREEMENTS. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same
time, or at some other time. The Committee may also grant more than one
Option or Award to a given Eligible Employee, Nonemployee Director or
Advisor during the term of the Plan, either in addition to, or in
substitution for, one or more Options or Awards previously granted to that
Eligible Employee, Nonemployee Director or Advisor. The grant of multiple
Options and/or Awards may be evidenced by a single Agreement or multiple
Agreements, as determined by the Committee.

(b) WITHHOLDING OF TAXES.

(1) The Company shall have the right to deduct from any
distribution of cash to any Optionee or Grantee, an amount equal to
the federal, state and local income taxes and other amounts as may be
required by law to be withheld (the "Withholding Taxes") with respect
to any Option or Award. If an Optionee or Grantee is entitled to
receive Shares upon exercise of an Option or pursuant to an Award, the
Optionee or Grantee shall pay the Withholding Taxes to the Company
prior to the issuance, or release from escrow, of such Shares. In
satisfaction of the Withholding Taxes to the Company, the Optionee or
Grantee may make a written election (the "Tax Election"), which may be
accepted or rejected in the discretion of the Committee, to have
withheld a portion of the Shares issuable to such Optionee or Grantee
upon exercise of the Option or pursuant to an Award having an
aggregate Fair Market Value equal to the Withholding Taxes, provided
that (i) in respect of an Optionee or Grantee who may be subject to
liability under Section 16(b) of the Exchange Act (unless such
Optionee or Grantee's employment was terminated due to disability or
death), the Tax Election is made either at least six (6) months prior
to the date that the amount of the Withholding Taxes are determined
(the "Tax Date") or during the ten (10) day period beginning on the
third (3rd) business day and ending on the twelfth (12th) business day
following the release for publication of the Company's quarterly or
annual statements of earnings, (ii) the Tax Election is made prior to
the Tax Date, and (iii) the Tax Election is irrevocable; provided,
however, in the event that the Tax Date occurs subsequent to the
exercise of the Option or issuance of Shares, the Optionee or Grantee
shall tender back to the Company on the Tax Date that number of Shares
having a Fair Market Value on the date preceding the Tax Date at least
equal to the Withholding Taxes.

(2) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to Optionee pursuant to Optionee's exercise
of an Option within the

<PAGE>

two (2) year period commencing on the day after the date of the grant
or within the one (1) year period commencing on the day after the date
of transfer of such Share or Shares to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice
to the Company at its principal executive office, and immediately
deliver to the Company the amount of Withholding Taxes.

(c) DESIGNATION OF BENEFICIARY. Each Optionee and Grantee may designate a
person or persons to receive, in the event of such Optionee or Grantee's death,
any Option or Award or any amount payable pursuant thereto, to which such
Optionee or Grantee would then be entitled. Such designation will be made upon
forms supplied by and delivered to the Company and may be revoked in writing.
If an Optionee fails effectively to designate a beneficiary, then such
Optionee's estate will be deemed to be the beneficiary.

16. EFFECTIVE DATE. The effective date of the Plan shall be the date of
its adoption by the Board, subject only to the approval by the affirmation votes
of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Kansas within twelve (12)
months of such adoption.

NEW YORK BAGEL ENTERPRISES, INC.

ATTEST: By
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Robert J. Geresi, Chief Executive
Officer

By
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J. Chris Dennis, Secretary

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EXHIBIT 23.1

CONSENT OF KLENDA, MITCHELL, AUSTERMAN & ZUERCHER, L.L.C.

The Board of Directors
New York Bagel Enterprises, Inc.

We hereby consent to the use in this Registration Statement on Form S-1 of
the references made to our firm herein, in particular to the section captioned
"Legal Matters."

/s/ Klenda, Mitchell, Austerman & Zuercher, L.L.C.

Wichita, Kansas
June 12, 1996

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EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
New York Bagel Enterprises, Inc.:

We consent to the use of our reports relating to the combined balance sheets
of New York Bagel Enterprises, Inc. as of December 31, 1994 and 1995, and the
related combined statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1995, the statements of operations, stockholder's equity and cash flows of
Nashville Bagel Co., Inc. for each of the years in the three-year period ended
June 30, 1995 and for the period from July 1, 1995 through December 14, 1995,
and the statements of operations, stockholders' deficit, and cash flows of
Central & Ridge Yogurt, Inc. for the year ended December 31, 1995, included
herein and to the references to our firm under the headings "Selected Combined
Financial Data" and "Experts" in the prospectus.

Our report relating to our audits of Nashville Bagel Co., Inc. refers to a
change in the method of accounting for income taxes in 1994.

/s/ KPMG Peat Marwick LLP

Wichita, Kansas
June 12, 1996