NEW YORK BAGEL ENTERPRISES INC, 10-Q, 1997-11-12

NEW YORK BAGEL ENTERPRISES INC
10-Q, 1997-11-12
EATING PLACES

Previous: SIGNATURE RESORTS INC, S-8, 1997-11-12

Next: METRO NETWORKS INC, 10-Q, 1997-11-12

<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 28, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________

Commission File Number 0-21205

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

Kansas 73-1369185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
(Address of principal executive offices and zip code)

(316) 267-7373
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [x] Yes [ ] No

As of November 12, 1997, there were 4,667,500 shares of the Registrant's
Common Stock outstanding.

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.

INDEX

Page No.
PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Unaudited Consolidated Balance Sheets at September 28, 1997
and December 29, 1996 3

Unaudited Consolidated Statements of Operations for the
Thirty-Nine Weeks and Thirteen Weeks Ended
September 28, 1997 and September 29, 1996 4

Unaudited Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended September 28, 1997
and September 29, 1996 5

Notes to Unaudited Consolidated Financial Statements 6

Risk Factors 10

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12

PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds 21

Item 6. Exhibits and Reports on Form 8-K 21

Exhibits
10.1 Form of New York Bagel Enterprises, Inc. Non-qualified Option
Agreement.
10.2 Loan Agreement dated September 5, 1997, By and Among New York Bagel
Enterprises, Inc., Lots A' Bagels, Inc. and NationsBank, N.A.
10.3 Agreement of Purchase and Sale dated October 21, 1997, By and
Between New York Bagel Enterprises, Inc. and Commercial Equity,
Inc.
10.4 Form of Lease Between Commercial Equity, Inc., as Lessor, and New
York Bagel Enterprises, Inc., as Lessee.
10.4.1 Schedule of Leases By and Between New York Bagel Enterprises, Inc.
and Commercial Equity, Inc.
18 Letter of KPMG Peat Marwick LLP dated November 11, 1997 regarding
change in accounting principle concerning restaurant preopening
costs.
27 Financial Data Schedule.

SIGNATURES 22

<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements

NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1997 AND DECEMBER 29, 1996

September 28, December 29,
Assets 1997 1996(a)
------ ------------ ------------
(Unaudited)
Cash and cash equivalents $ 53,264 $ 1,305,130
Investment securities available for sale -- 4,265,862
Accounts receivable 217,603 315,293
Inventories, raw materials 342,430 272,261
Deferred costs 20,021 239,269
Income tax receivable 298,165 87,783
Prepaid expenses and other current assets 417,023 120,145
----------- -----------
Total current assets 1,348,506 6,605,743
Property, plant and equipment, net 10,638,262 7,616,344
Goodwill, net of accumulated amortization of
$17,755 and $26,341 at September 28, 1997 and
December 29, 1996, respectively 1,230,913 806,016
Deferred income taxes 1,137,518 --
Other assets 339,048 145,118
----------- -----------
$14,694,247 $15,173,221
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
------------------------------------
Bank overdraft $ 320,369 $ --
Notes payable to bank 411,628 --
Current installments of long-term debt 28,750 28,750
Accounts payable 1,274,259 515,206
Accrued payroll and benefits 156,561 220,182
Accrued liabilities 326,362 262,113
Deferred income taxes -- 56,808
Current portion of deferred franchise fees 41,000 61,000
Distributions payable -- 164,194
----------- -----------
Total current liabilities 2,558,929 1,308,253
Notes payable to bank, less current installments 288,372 --
Long-term debt, less current installments 57,500 57,500
Deferred franchise fees 15,000 34,000
Deferred rents payable 91,486 72,035
Deferred income taxes -- 26,600
Other long-term liabilities 263,571 --
----------- -----------
Total liabilities 3,274,858 1,498,388
----------- -----------
Stockholders' equity:
Class A common stock, $.01 par value.
Authorized 30,000,000 shares; issued
and outstanding 4,667,500 shares. 46,675 46,675
Additional paid in capital 13,390,769 13,390,769
Retained earnings (accumulated deficit) (2,018,055) 237,389
----------- -----------
Total stockholders' equity 11,419,389 13,674,833
----------- -----------
$14,694,247 $15,173,221
----------- -----------
----------- -----------

(a) The balance sheet at December 29, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.

See accompanying notes to unaudited consolidated financial statements.

3
<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTY-NINE WEEKS AND THIRTEEN WEEKS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Thirteen Weeks
Weeks Ended Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants $13,758,705 $7,565,457 $4,753,958 $2,715,597
Franchise revenues 349,775 514,778 60,705 175,045
----------- ---------- ---------- ----------
Total revenues 14,108,480 8,080,235 4,814,663 2,890,642
----------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 4,463,507 2,675,144 1,592,755 941,832
Restaurant operating expenses 7,381,975 3,528,567 2,773,109 1,326,935
General and administrative expenses 1,267,250 608,260 553,367 206,377
Depreciation and amortization 699,013 349,641 265,701 172,428
Provision for impairments and closures 3,557,733 -- 3,557,733 --
----------- ---------- ---------- ----------
17,369,478 7,161,612 8,742,665 2,647,572
----------- ---------- ---------- ----------
Operating income (loss) (3,260,998) 918,623 (3,928,002) 243,070
Interest income (expense), net 102,369 (197,345) 7,084 (34,281)
----------- ---------- ---------- ----------
Earnings (loss) before income taxes (3,158,629) 721,278 (3,920,918) 208,789
Income tax expense (benefit) (1,032,226) 151,000 (1,324,947) 151,000
----------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of accounting change (2,126,403) 570,278 (2,595,971) 57,789
Cumulative effect of accounting change,
net of income tax benefit of $80,782 (129,041) -- -- --
----------- ---------- ---------- ----------
Net earnings (loss) $(2,255,444) $ 570,278 $(2,595,971) $ 57,789
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------

Pro forma earnings to reflect income taxes:
Income tax expense -- 277,068 -- 75,780
Earnings (loss) before cumulative effect
of accounting change (2,126,403) 444,210 (2,595,971) 133,009
Earnings (loss) per share before
cumulative effect of accounting change (.46) .14 (.56) .04
Cumulative effect of accounting change
per share (.03) -- -- --
Net earnings (loss) per share (.48) .14 (.56) .04

Pro forma amounts assuming the new method
of accounting for restaurant preopening costs
is applied retroactively:
Net earnings (loss) (2,126,403) 358,659 (2,595,971) 121,923
Net earnings (loss) per share (.46) .11 (.56) .03

Weighted average number of shares
outstanding 4,667,500 3,219,225 4,667,500 3,581,958
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

4
<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks
Ended
Sept. 28, Sept. 29,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(2,255,444) $ 570,278
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 699,013 349,641
Cumulative effect of accounting change 129,041 --
Provision for impairments and store closures 3,557,733 --
Increase (decrease) in cash resulting from changes in
listed items, net of effects from acquisitions:
Deferred income taxes (1,140,144) 74,000
Inventory (59,091) (26,816)
Income taxes receivable (210,382) 14,000
Prepaid expenses and other current assets (292,985) (107,361)
Accounts receivable 97,690 (77,740)
Deferred costs 9,425 (254,281)
Other assets (167,093) (56,443)
Accounts payable 352,825 536,508
Accrued liabilities, accrued payroll and benefits,
and deferred rents payable 19,375 374,695
Income taxes payable -- 79,000
Deferred franchise fees (39,000) (97,000)
----------- -----------
Net cash provided by operating activities 700,963 1,378,481
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (5,679,499) (3,203,839)
Acquisitions, net of cash acquired (1,381,908) (248,122)
Purchase of investment securities available for sale (7,244,552) (2,536,048)
Proceeds from sales and maturities of investment
securities available for sale 11,510,414 --
----------- -----------
Net cash used in investing activities (2,795,545) (5,988,009)
----------- -----------
Cash flows from financing activities:
Proceeds from initial public offering -- 14,121,604
Proceeds from issuance of notes payable and long-term debt 700,000 1,525,000
Principal payments on notes payable and long-term debt -- (4,775,000)
Decrease in distributions payable (164,194) --
Distributions to stockholders -- (41,000)
Debt issuance costs (13,459) --
Bank overdraft 320,369 --
----------- -----------
Net cash provided by financing activities 842,716 10,830,604
----------- -----------
Net increase (decrease) in cash (1,251,866) 6,221,076
Cash at beginning of period 1,305,130 133,425
----------- -----------
Cash at end of period $ 53,264 $ 6,354,501
----------- -----------
----------- -----------
Noncash investing and financing activities:
Additions of property, plant and equipment included
in accounts payable $ 406,228 $ --
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

5
<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS

The Company owns and franchises New York Bagel and Lots A' Bagels
restaurants that provide a wide variety of bagels that are made from scratch,
boiled and baked in the traditional "New York style." Breakfast menu items
include a wide variety of bagels and custom-blended cream cheeses, gourmet
coffees, muffins and croissants. Lunch and dinner items include an
assortment of bagel delicatessen sandwiches, prepared salads, cookies and
soft drinks. As of September 28, 1997, the Company has 43 Company-owned
restaurants primarily located in Oklahoma, Kansas, Colorado and Tennessee and
28 franchised restaurants located throughout the United States. As of
September 29, 1996, the Company had 23 Company-owned and 30 franchised
restaurants.

Effective January 1, 1996, the Company elected to change its fiscal year
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. Effective August
27, 1996 the Company completed an initial public offering in which it sold
1,867,500 shares of its Class A common stock and realized net proceeds of
$14,679,032.

(2) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements are for
interim periods and consequently, do not include all disclosures required by
generally accepted accounting principles for annual financial statements. It
is suggested that the accompanying consolidated financial statements be read
in conjunction with the annual financial statements included in the Company's
1996 Form 10-K. In the opinion of management of the Company, the financial
statements reflect all adjustments (all of which were of a normal recurring
nature except as discussed in notes 3 and 4) necessary to present fairly the
financial position of the Company and the results of operations and cash
flows for the interim periods.

(3) CHANGE IN ACCOUNTING PRINCIPLE

Effective September 28, 1997, the Company changed its accounting policy
on restaurant preopening costs. In prior periods, the Company initially
capitalized and then amortized preopening costs over the initial 12-months of
a restaurant's operation. Under the new method, the Company will expense
such restaurant preopening costs as incurred. Management believes the change
is preferable to obtain a better matching of expenses with revenues. The
change is considered a cumulative effect-type accounting change and,
accordingly, the cumulative effect as of January 1, 1997 has been reported in
the accompanying financial statements. Financial statements for fiscal 1996
and prior periods have not been restated but net earnings and earnings per
share computed on a pro forma basis have been reflected in the accompanying
financial statements for all periods presented as if the accounting change
had been applied consistently during all periods affected. Financial
statements for the quarters ended March 30, 1997 and June 29, 1997 have
been restated to reflect adoption of the new accounting policy as follows:

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Thirteen Weeks Ended
March 30, June 29,
1997 1997
--------- --------
Net earnings as originally reported $ 259,055 $210,513
Effect of accounting change 30,230 (32,283)
--------- --------
Income before cumulative effect of accounting
change 289,285 178,230
Cumulative effect of accounting change (129,041) --
--------- --------
Net earnings as restated $ 160,244 $178,230
--------- --------
--------- --------

Earnings per share as originally reported $ .06 $ .05
Effect of accounting change .01 (.01)
--------- --------
Earnings per share before cumulative effect
of accounting change .07 .04
Cumulative effect of accounting change (.03) --
--------- --------
Earnings per share as restated $ .04 $ .04
--------- --------
--------- --------

The effect of adopting the accounting change on earnings before cumulative
effect of accounting change, net earnings and earnings per share for all
interim periods of 1997 is to increase (decrease) such amounts as follows:

Thirty-Nine
Thirteen Weeks Ended Weeks Ended
March 30, June 29, Sept. 28, Sept. 28,
1997 1997 1997 1997
-------- --------- -------- ---------
Earnings before cumulative effect $ 30,230 $(32,283) $(65,603) $ (67,656)
Net earnings $(98,811) $(32,283) $(65,603) $(196,697)
Earnings per share $ (.02) $ (.01) $ (.01) $ (.04)

(4) IMPAIRMENTS OF LONG-LIVED ASSETS AND STORE CLOSURES

As of September 28, 1997, the Company has recorded a provision for
impairments and store closures. Such provision has been recorded in
accordance with the Financial Accounting Standards Board Standard #121
"Impairment of Long-Lived Assets (FAS 121) and Emerging Issues Task Force
Issue No. 94-3 "Liability Recognition of Costs to Exit an Activity." The
provision recorded of $3,557,733 included in the accompanying 1997 financial
statements consists of the following:

Impairment of long-lived assets $2,786,702
Impairment of goodwill associated with other
long-lived assets considered impaired 507,460
Closed store operating leases 263,571
----------
Total provision $3,557,733
----------
----------

7
<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

For purposes of determining impairment, management groups long-lived
assets at a market level due to the bakery-satellite relationships which, in
management's estimation, results in the market-level as the lowest
level for which there are cash flows that are largely independent of the cash
flows of groups of assets. Each market was reviewed for profitability with
those markets not currently profitable being further reviewed for impairment.

Such review included management developing an estimate of future cash flows
of the market. If the estimated future cash flows (undiscounted and without
interest charges) were not sufficient to recover the carrying value of the
long-lived assets, including associated goodwill, of the market, such assets
were considered to be impaired.

The impairment charge represents a reduction of the carrying value of the
impaired assets to estimated fair value. Estimated fair values were
determined by using a combination of discounted estimated future cash flows
and valuation multiples recently used by the Company in actual acquisitions.
Management judgment is inherent in the estimated fair value determinations
and, accordingly, actual results could vary significantly from such estimates.

Store closure costs are recognized when a decision is made to close a
restaurant within the next twelve months. Store closure costs include the
costs of writing down the carrying amount of a restaurant's assets to
estimated fair value less costs of disposal, and the net present value of any
remaining noncancelable lease payments after the expected closure date net of
estimated sublease income considered by management to be probable. Net
revenues from restaurants approved for closure are not considered material.

(5) NOTES PAYABLE TO BANK

In September 1997 the Company completed a credit facility agreement with a
bank of which $700,000 has been drawn as of September 28, 1997. The
Borrowings under the facility include promissory notes that bear interest at a
variable rate equal to the bank's prime rate (8.5% at September 28, 1997).
One note is due in 36 monthly installments plus interest beginning October
1997 and one note is due in September 1998 with interest payments due
quarterly.

(6) INCOME TAXES

Prior to the Company's initial public offering, the Company operated as
an S corporation, and accordingly, income tax expense or benefit was not
recorded in the accompanying 1996 financial statements for the period January
1, 1996 through August 26, 1996 as the Company's results of operations were
reported to the Company's stockholders for inclusion in their individual
income tax returns. Effective August 26, 1996 (Termination Date) and in
connection with the initial public offering, the Company terminated it's S
corporation status. Income tax expense has been provided for all periods
subsequent to August 26, 1996. Proforma income tax expense has been included
for the thirty-nine weeks and thirteen weeks ended September 29, 1996 as if
the Company had not operated as an S corporation during such periods.

8
<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(7) EARNINGS (LOSS) PER SHARE

Earnings per share for the thirty-nine weeks and thirteen weeks ended
September 29, 1996 is calculated based on net earnings less pro forma income
tax expense. In addition, the cumulative effect of the accounting change on
a per share basis has been presented for the thirty-nine weeks ended
September 28, 1997. Finally, proforma net earnings (loss) per share for all
periods has been presented for the change in accounting as described in note
3 to reflect what earnings (loss) per share would have been had the
accounting change been applied consistently during all periods presented.

(8) ACQUISITIONS

Effective December 6, 1996, the Company purchased substantially all of
the operating assets and business operations and assumed certain liabilities
of Lots A' Bagels, Inc. for an initial cash payment of $2,100,000. In
addition, certain contingent consideration was to be paid as additional
purchase price based on Lots A' Bagels, Inc.'s earnings (as defined in the
purchase agreement) for the period July 1, 1996 through March 30, 1997. The
acquisition was accounted for by the purchase method of accounting in
December 1996. On July 17, 1997, the Company paid $515,000 as full payment
of the contingent consideration, which was recorded as additional goodwill
and is reflected in the accompanying September 28, 1997 consolidated
financial statements.

Effective February 28, 1997, the Company purchased substantially all of
the operating assets and business operations of Bagel Buds, Inc. for
$415,000. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the operations of Bagel Buds, Inc. have been
included in the accompanying statements of operations subsequent to February
28, 1997. The initial purchase price has been allocated to the assets
acquired based on their estimated fair values at date of acquisition.
Goodwill as of September 28, 1997 arising from the acquisition amounted to
$248,250. The effect of the acquired operations on revenues, net earnings
and earnings per share for the thirty-nine weeks and thirteen weeks ended
September 28, 1997 is not material. Pro forma disclosures have been omitted
due to immateriality.

Effective May 9, 1997, the Company purchased substantially all of the
operating assets and business operations of M.Y. Bagel Shop, Inc. for
$323,000. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the operations of M.Y. Bagel Shop, Inc. have
been included in the accompanying statements of operations subsequent to May
9, 1997. The initial purchase price has been allocated to the assets
acquired based on their estimated fair values at date of acquisition.
Goodwill as of September 28, 1997 arising from the acquisition amounted to
$148,975. The effect of the acquired operations on revenues, net earnings
and earnings per share for the thirty-nine weeks and thirteen weeks ended
September 28, 1997 is not material. Pro forma disclosures have been omitted
due to immateriality.

<PAGE>

RISK FACTORS

THIS REPORT INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS
OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS REPORT REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE ANY ACTIONS THAT MAY
PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED
UNDER THE "RISK FACTORS" SECTIONS OF THIS REPORT AND THE COMPANY'S FORM 10-K
ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, RISKS ASSOCIATED WITH THE
COMPANY'S ABILITY TO SUCCESSFULLY AND TIMELY INTEGRATE RESTAURANT
ACQUISITIONS, INCLUDING CERTAIN ACQUIRED FRANCHISED RESTAURANTS, THE
COMPANY'S ABILITY TO DEVELOP, CONSTRUCT, ACQUIRE OR FRANCHISE ADDITIONAL
RESTAURANTS IN ACCORDANCE WITH THE COMPANY'S DEVELOPMENT SCHEDULE, MANAGEMENT
OF QUARTER TO QUARTER EARNINGS AND INCREASES IN OPERATING COSTS. ALL
SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY SUCH FACTORS.

EXPANSION. As of September 28, 1997, there were 71 restaurants in
operation, consisting of 36 New York Bagel Company-owned and 28 franchised
restaurants and seven Lots A' Bagels restaurants. In addition, there were
ten Company-owned restaurants and three franchised restaurants in various
stages of development. By the end of 1997, the Company contemplates having
approximately 47 to 50 Company-owned and 30 to 31 franchised restaurants in
operation. The Company has used a significant portion of the net proceeds of
its initial public 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

10
<PAGE>

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 1996 and the thirty-nine week period ended September 28, 1997.
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."

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.

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.

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

11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company opened its first restaurant in 1986, and has developed, as of
September 28, 1997, 30 of its 43 Company-owned restaurants in Oklahoma,
Kansas, Tennessee, Texas, New Mexico and Missouri. In addition to developing
new restaurants, the Company has acquired one bagel restaurant in Tennessee,
seven Lots A' Bagels restaurants in Colorado and five franchised New York
Bagel restaurants in Kansas, New Mexico and Texas. The Company commenced
franchising the New York Bagel concept in 1993 and, at September 28, 1997 has
17 franchisees operating 28 restaurants.

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.

Cost of sales include 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.

12
<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>
Thirty-Nine Weeks Thirteen Weeks
Ended Ended
September September September September
28, 29, 28, 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales from Company-owned restaurants 97.5% 93.6% 98.7% 93.9%
Franchise revenues 2.5 6.4 1.3 6.1
--------- --------- --------- ---------
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales (1) 32.4% 35.4% 33.5% 34.7%
Restaurant operating expenses (1) 53.7 46.6 58.3 48.9
General and administrative expenses 9.0 7.5 11.5 7.1
Depreciation and amortization 5.0 4.3 5.5 6.0
Provision for impairment and store closures 25.2 -- 73.9 --

Operating income (loss) (23.1) 11.4 (81.6) 8.4
Interest income (expense), net 0.7 (2.4) 0.1 (1.2)
Income tax expense (benefit) (7.3) 3.4 (2) (27.5) 2.6 (2)
Cumulative effect of accounting change 0.9 -- -- --
Net earnings (loss) (16.0) 5.5 (53.9) 4.6
</TABLE>
- --------------------
(1) As a percentage of sales from Company-owned restaurants.
(2) Includes pro forma income tax expense.

THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996

Total revenues increased by $1.9 million, or 66.6%, to $4.8 million for
the period ended September 28, 1997 compared to $2.9 million for the period
ended September 29, 1996, primarily due to an increase in the number of
Company-owned restaurants open.

Sales from Company-owned restaurants increased $2.0 million, or 75.1%, to
$4.8 million for the period ended September 28, 1997 compared to $2.7 million
for the period ended September 29, 1996. This increase is largely the result
of opening ten additional Company-owned restaurants and the acquisition of
ten bagel restaurants during the period subsequent to September 29, 1996. At
September 28, 1997, the Company had 43 Company-owned restaurants compared to
23 restaurants at September 29, 1996.

Franchise revenues decreased by $114,000, or 65.3%, to $61,000 for the
period ended September 28, 1997 compared to $175,000 for the period ended
September 29, 1996. The decrease

13
<PAGE>

in franchise revenues is due to a decrease in both royalty revenues and
initial franchise fees. The decrease in initial franchise fees of $60,000 is
due to the opening of no franchise restaurants during the period ended
September 28, 1997 compared to recognition of initial fees related to four
franchise restaurants for the period ended September 29, 1996. The decrease
of $54,000 in royalty revenues is due to the discontinuance of royalty
revenue recognition on certain franchise restaurants due to collectible
concerns and a net decrease in franchise restaurants due to closures and
Company acquisitions. At September 28, 1997, there were 28 franchised
restaurants compared to 30 restaurants at September 29, 1996.

Cost of sales increased by $651,000, or 69.1%, to $1.6 million for the
period ended September 28, 1997 compared to $942,000 for the period ended
September 29, 1996, 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 33.5% for the period ended September 28, 1997 from
34.7% for the period ended September 29, 1996, primarily as a result of
purchasing and operating efficiencies experienced in 1997, and, to a lesser
extent, modest price increases taken during late 1996. Prices of the
Company's commodities (meat and cheese, flour and other bakery ingredients)
have generally remained fairly stable during the comparable periods.

Restaurant operating expenses increased by $1.4 million, or 109.0%, to
$2.8 million for the period ended September 28, 1997 compared to $1.3 million
for the period ended September 29, 1996, primarily due to the increase in
Company-owned restaurant sales discussed above and as a result of the
accounting change discussed below. As a percentage of Company-owned
restaurant sales, restaurant operating expenses increased to 58.3% for the
period ended September 28, 1997 from 48.9% for the period ended September 29,
1996. Such increase is primarily due to: (i) the change in accounting for
restaurant pre-opening costs as further discussed below, (ii) the acquisition
of Lots A' Bagels, Inc. and (iii) maturing sales volumes in new markets. The
seven Lots A' Bagels restaurants in Colorado Springs, Colorado traditionally
experience increased restaurant operating expenses primarily due to higher
labor and occupancy costs, and increased direct advertising costs. As Lots
A' Bagels, Inc. was acquired in December 1996, such traditionally higher
restaurant operating expenses are not reflected in the period ended September
29, 1996. Occupancy and other operating costs, as a percent of net sales,
have increased due to the operating and leasing of new restaurant sites in
new markets in which sales volumes have not yet matured.

General and administrative expenses increased by $347,000, or 168.1%, to
$553,000 for the period ended September 28, 1997 compared to $206,000 for the
period ended September 29, 1996. This increase is primarily attributable to
overall growth of the Company. As a percentage of total revenues, general
and administrative expenses increased to 11.5% for the period ended September
28, 1997 from 7.1% for the period ended September 29, 1996. Such increase is
primarily due to $156,000 of receivables that were written off due to
uncollectibility. The receivables written off were primarily amounts due
from franchisees for royalties, initial fees and equipment sales. Other
general and administrative expenses, such as legal, accounting, Securities
and Exchange Commission ("SEC") filings and other reporting costs, have also
increased due to both the growth of the Company and its public company
compliance requirements.

14
<PAGE>

Depreciation and amortization increased by $93,000 or 54.0%, to $266,000
for the period ended September 28, 1997 compared to $172,000 for the period
ended September 29, 1996. This increase is primarily the result of the
significant addition of capital expenditures to develop and acquire
additional Company-owned restaurants subsequent to September 29, 1996. New
restaurants incur higher depreciation and amortization costs as compared to
older restaurants. However, as a percentage of total revenues, depreciation
and amortization decreased to 5.5% for the period ended September 28, 1997
from 6.0% for the period ended September 29, 1996. The decrease as a
percentage of total revenues is due to the accounting change discussed below
in which $56,000 of pre-opening amortization is included in 1996 as compared
to no related expense in 1997. The decrease in profitability, exclusive of
the onetime charges, is primarily due to increased depreciation and
amortization and restaurant operating expenses coupled with the decrease in
franchise revenues.

A provision for impairment and store closures of $3,557,753 has been
recorded in the period ended September 28, 1997. Such charge relates to the
impairment of long-lived assets in accordance with FAS 121. Based on
management's review of its Company-owned operating markets, four markets were
determined to be impaired. The impairment charge writes down the carrying
value of long-lived assets (property, equipment and goodwill) within such
markets to their estimated fair value. In addition, the Company approved for
closure four underperforming restaurants. Accordingly, a charge has been
recognized to writedown the carrying value of long-lived assets to estimated
fair value and to accrue the present value of future noncancelable lease
payments. Due to the fact these stores are not profitable and in some cases
not cash flowing, management approved such stores for closure. Actual close
dates should be in the fourth quarter of 1997. See also note 4 to the
unaudited financial statements.

Net interest income increased by $41,000 to $7,000 for the period ended
September 28, 1997 compared to net interest expense of $34,000 for the period
ended September 29, 1996. This increase in net interest income is the result
of interest income earned during 1997 from the remaining net proceeds of the
Company's initial public offering. In addition, virtually all existing debt
from 1996 was retired with these proceeds. Due to the fact the Company has
utilized all of its proceeds from its initial public offering, the Company
expects that it will incur interest expense for the foreseeable future as
remaining restaurant development will be funded in part with the Credit
Facility with NationsBank. See "Liquidity."

Income tax benefit for the thirteen week period ended September 28, 1997
is at an effective tax rate of 33.8% as compared to the Company's historical
tax rate of 39% due to the impairment charge includes goodwill that is not
deductible for income tax reporting purposes.

THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997
COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996

Total revenues increased by $6.0 million, or 74.6%, to $14.1 million for
the period ended September 28, 1997 compared to $8.1 million for the period
ended September 29, 1996, primarily due to an increase in the number of
Company-owned restaurants open.

Sales from Company-owned restaurants increased $6.2 million, or 81.9%, to
$13.8 million for the period ended September 28, 1997 compared to $7.6
million for the period ended September 29, 1996. This increase is largely
the result of opening ten additional Company-owned restaurants and the
acquisition of ten bagel restaurants during the period subsequent to
September 29, 1996. At

15
<PAGE>

September 28, 1997, the Company had 43 Company-owned restaurants compared to
23 restaurants at September 29, 1996.

Franchise revenues decreased by $165,000, or 32.1%, to $350,000 for the
period ended September 28, 1997 compared to $515,000 for the period ended
September 29, 1996. The decrease in franchise revenues is due to a decrease
in royalty revenues of $105,000 and decrease in initial franchise fees of
$60,000. The decrease in initial franchise fees is due to the opening of five
franchise restaurants during the period ended September 28, 1997 compared to
recognition of initial fees related to twelve franchise restaurants for the
period ended September 29, 1996. Royalty revenues have decreased due to the
discontinuance of royalty revenue recognition on certain franchise
restaurants due to collectibility concerns and a net decrease in franchised
restaurants from 30 at September 29, 1996 to 28 at September 28, 1997 due to
Company acquisitions and closures.

Cost of sales increased by $1.8 million, or 66.9%, to $4.5 million for
the period ended September 28, 1997 compared to $2.7 million for the period
ended September 29, 1996, 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 32.4% for the period ended
September 28, 1997 from 35.4% for the period ended September 29, 1996,
primarily as a result of purchasing and operating efficiencies experienced in
1997, and, to a lesser extent, modest price increases taken during late 1996.
Prices of the Company's commodities (meat and cheese, flour and other bakery
ingredients) have generally remained fairly stable during the comparable
periods.

Restaurant operating expenses increased by $3.9 million, or 109.2%, to
$7.4 million for the period ended September 28, 1997 compared to $3.5 million
for the period ended September 29, 1996, primarily due to the increase in
Company-owned restaurant sales discussed above and the accounting change
discussed below. As a percentage of Company-owned restaurant sales,
restaurant operating expenses increased to 53.7% for the period ended
September 28, 1997 from 46.6% for the period ended September 29, 1996. Such
increase is primarily due to: (i) the change in accounting for restaurant
pre-opening costs as further discussed below, (ii) the acquisition of Lots A'
Bagels, Inc. and (iii) maturing sales volumes in new markets. The seven Lots
A' Bagels restaurants in Colorado Springs, Colorado traditionally experience
increased restaurant operating expenses primarily due to higher labor and
occupancy costs, and increased direct advertising costs. As Lots A' Bagels,
Inc. was acquired in December 1996, such traditionally higher restaurant
operating expenses are not reflected in the period ended September 29, 1996.
Occupancy costs and other operating expenses, as a percent of net sales, have
increased due to the operating and leasing of new restaurant sites in new
markets in which sales volumes have not yet matured.

General and administrative expenses increased by $659,000, or 108.3%, to
$1.3 million for the period ended September 28, 1997 compared to $608,000 for
the period ended September 29, 1996. This increase is primarily attributable
to the overall growth of the Company. As a percentage of total revenues,
general and administrative expenses have increased to 9.0% for the period
ended September 28, 1997, compared to 7.5% for the period ended September 29,
1996. This increase is primarily due to writeoff of uncollectible receivables
and increased legal and accounting costs, SEC filing fees and other general
and administrative costs due to both the growth of the Company and its

16
<PAGE>

public company compliance requirements.

Depreciation and amortization increased by $349,000 or 100.0%, to
$699,000 for the period ended September 28, 1997 compared to $350,000 for the
period ended September 29, 1996. As a percentage of total revenues,
depreciation and amortization increased to 5.0% for the period ended
September 28, 1997 from 4.3% for the period ended September 29, 1996. This
increase is primarily the result of the significant addition of capital
expenditures to develop and acquire additional Company-owned restaurants.
New restaurants incur higher depreciation and amortization costs as compared
to older restaurants. In addition, depreciation and amortization in 1996
includes $100,000 of restaurant pre-opening costs amortization as compared to
no related expense in 1997 due to the accounting change discussed below. The
decrease in profitability, exclusive of the onetime charges during the third
fiscal quarter, is primarily due to increased depreciation and amortization
and restaurant operating expenses coupled with the decrease in franchise
revenues.

A provision for impairment and store closures of $3,557,753 has been
recorded in the period ended September 28, 1997. Such charge relates to the
impairment of long-lived assets in accordance with FAS 121. Based on
management's review of its Company-owned operating markets, four markets were
determined to be impaired. The impairment charge writes down the carrying
value of long-lived assets (property, equipment and goodwill) within such
markets to their estimated fair value. In addition, the Company approved for
closure four underperforming restaurants. Accordingly, a charge has been
recognized to writedown the carrying value of long-lived assets to estimated
fair value and to accrue the present value of future noncancelable lease
payments. Due to the fact these restaurants are not profitable and in some
cases not cash flowing, management approved such restaurants for closure.
Actual close dates should be in the fourth quarter of 1997. See also note 4
to the unaudited financial statements.

Net interest income increased by $300,000 to $102,000 for the period
ended September 28, 1997 compared to net interest expense of $197,000 for the
period ended September 29, 1996. This increase in net interest income is the
result of interest income earned during 1997 from the remaining net proceeds
of the Company's initial public offering. In addition, virtually all
existing 1996 debt was retired with these proceeds. Due to the fact the
Company has utilized all of its proceeds from its initial public offering,
the Company expects that it will incur interest expense for the foreseeable
future as remaining restaurant development will be funded in part with the
Credit Facility with NationsBank. See "Liquidity."

Income tax benefit for the thirty-nine weeks ended September 28, 1997 is
at an effective tax rate of 32.7% as compared to the Company's historical tax
rate of 39% due to the impairment charge includes goodwill that is not
deductible for income tax reporting purposes.

CHANGE IN ACCOUNTING PRINCIPLE

Effective September 28, 1997 the Company changed its accounting policy on
restaurant preopening costs. In prior periods, the Company initially
capitalized and then amortized preopening costs over the initial 12-months of a
restaurant's operation. Under the new method, the Company will expense such
restaurant preopening costs as incurred. Management believes the change is
preferable to obtain a better matching of expenses with revenues. The change is
considered a cumulative effect-type accounting change and, accordingly, the
cumulative effect as of January 1, 1997 has been reported in the accompanying
financial statements. Financial statements for fiscal 1996 and prior

<PAGE>

periods have not been restated but net earnings and earnings per share
computed on a pro forma basis have been reflected in the accompanying
financial statements for all periods presented as if the accounting change
had been applied consistently during all periods affected. Financial
statements for the quarters ended March 30, 1997 and June 29, 1997 have also
been restated to reflect adoption of the new accounting policy as disclosed
in note 3 to the unaudited financial statements.

Due to the change, restaurant pre-opening costs incurred in 1997 of
$316,185 and $165,288 have been recorded as restaurant operating expenses in
the accompanying financial statements for the thirty-nine weeks and thirteen
weeks ended September 28, 1997, respectively. In addition, the net book
value of capitalized pre-opening costs at January 1, 1997 of $210,000 has
been recognized in 1997 as a cumulative effect of an accounting change. The
cumulative effect charge is net of tax and is reported as part of the
restated quarter ended March 30, 1997.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has issued SFAS No. 128,
EARNINGS PER SHARE ("Statement 128") which replaces the current accounting
standard regarding computation of earnings per share. Statement 128 requires
a dual presentation of basic earnings per share (based on the weighted
average number of common shares outstanding) and diluted earnings per share
which reflects the potential dilution that could occur if contracts to issue
securities (such as stock options) were exercised. Statement 128 is
effective for financial statements issued for periods ending after December
15, 1997. The Company believes that adoption of Statement 128 will not have
a material effect on the earnings per share amounts for the periods ended
September 28, 1997 and September 29, 1996 as presented in the accompanying
unaudited consolidated financial statements.

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 $5.7 million and
$3.2 million for the thirty-nine weeks ended September 28, 1997 and September
29, 1996, respectively. The Company has funded its capital expenditures with
proceeds from its initial public offering, cash flows from operating
activities and proceeds from notes payable to bank of $700,000. Cash flows
from operating activities were $701,000 and $1.4 million for the periods
ended September 28, 1997 and September 29, 1996, respectively.

Effective August 27, 1996 the Company completed the initial public
offering of its common stock in which it sold 1,867,500 shares of its Class A
common stock and received net proceeds of $14,679,032. Approximately $4.5
million of the net proceeds were used to retire all outstanding bank
indebtedness. In addition, the Company distributed $156,000 on March 4, 1997
to the stockholders existing prior to its initial public offering in
connection with their estimated federal and state income tax obligations
attributable to the Company's 1996 earnings prior to the Termination Date.

Based on its contemplated expansion plans, the Company estimates that its
remaining capital expenditures will be approximately $1.0 million in 1997.
This estimate includes the estimated costs

18
<PAGE>

of developing new Company-owned restaurants.

SALE/LEASEBACK PROGRAM

During October 1997, the Company entered into an agreement to sell and
lease back three-restaurant sites with an entity owned by an officer of the
Company and a significant stockholder, both of whom are Directors. This
sale/leaseback program includes three owned restaurant locations in which the
Company will sell such properties to such entity for approximately $1.2
million and lease back over a 15 year period. The Company believes that the
terms and conditions of both the real estate sale and the related lease back
are fair and reasonable and were on terms at least as favorable as would be
available from non-affiliated parties. The Company will utilize the proceeds
to fund the Company's continued restaurant development. The Company intends
to enter into similar sale/leaseback transactions in the future.

CREDIT FACILITY

On September 5, 1997, the Company entered into a loan agreement with
revolving line of credit and term loan facilities, which has a maximum
aggregate commitment of $10.0 million (the "Credit Facility") with
NationsBank, N.A. (the "Bank"). The Credit Facility provides for a $10.0
million revolving line of credit commitment, subject to availability under a
borrowing base calculated by reference to the level of eligible equipment,
inventory and accounts receivable, and includes a $2.0 million sublimit for
new construction, remodeling and acquisition of restaurant locations. The
Credit Facility also contains a "mini-perm" facility financing for new
construction, remodeling and acquisition of restaurant locations, with a ten
year amortization and a balloon payment within five years. Interest on
borrowings outstanding under the revolving line of credit facility is payable
at an annual rate set forth in each note, the first such note being equal to
the Bank's prime rate. The Credit Facility is secured by substantially all
of the Company's assets and matures on September 30, 1998. As of September
28, 1997, the Company had $700,000 in outstanding borrowings pursuant to the
Credit Facility.

FINANCIAL CONDITION

Total assets at September 28, 1997 are $14,694,247 as compared to
$15,173,221 at December 29, 1996. Cash and cash equivalents and investment
securities available for sale have decreased significantly due to the
Company's significant capital investments in developing and acquiring
Company-owned restaurants. Deferred costs have been reduced due to the
aforementioned accounting change in that the Company now expenses such costs
as incurred. Goodwill has also increased due to three acquisitions completed
since year-end 1996. Current liabilities have experienced a significant
increase as significant development costs for new restaurants have been
incurred in which initial public offering proceeds have been exhausted. As
discussed above, the additional development has and will be funded with
borrowings from bank and a sale/leaseback program on owned properties. The
Company has stockholders' equity of $11.4 million at September 28, 1997
including an accumulated deficit of $2.0 million which arose in the third
quarter of 1997 due to the significant provision for impairments and store
closures that was recorded at that time. The majority of such provision has
been reflected as a reduction to the carrying value of property and

19
<PAGE>

equipment.

YEAR 2000 COMPLIANCE

The Company and its subsidiary are taking actions to provide that their
computer systems are capable of processing for the periods in the year 2000
and beyond. The costs associated with this are not expected to significantly
affect operating cash flow, however, there is no assurance that the Company's
actions in this regard will be successful.

<PAGE>

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

Effective August 27, 1996 the Company completed the initial public
offering of its common stock in which it sold 1,867,500 shares, 67,500 of
which shares were sold on October 1, 1996 in relation to the underwriters'
over-allotment option, of its Class A common stock and received net proceeds
of $14,679,032. The registration statement also registered 207,500 shares of
common stock on behalf of certain selling stockholders. Rauscher Pierce
Refsnes, Inc. and J.C. Bradford & Co. were the managing underwriters of such
offering. The Company's Registration Statement on From S-1, No. 333-05785,
SEC No. 0-21205, was declared effective by the SEC on August 26, 1996, and
was terminated on October 1, 1996 upon the Company's sale of the
over-allotment shares to the underwriters. The Company registered 2,075,000
shares of its common stock at $9.00 per share, $18,675,000 aggregate. The
Company incurred expenses of $1,176,525 for underwriting discounts and
commissions, and $951,943 for other offering expenses. Such expenses were
paid to non-affiliates of the Company. As of September 28, 1997 the Company
has utilized all of its net proceeds as follows: (i) Construction of
buildings and facilities, $ 2,857,852 ($90,216 of which was indirectly paid
to officers and persons holding 10% or more of the Company's common stock);
(ii) Purchase of machinery and equipment $1,449,629; (iii) Purchase of real
estate $1,717,623 ($263,000 of which was indirectly paid to officers and
persons holding 10% or more of the Company's common stock); (iv) Acquisition
of other businesses $3,850,178; and (v) Repayment of indebtedness $4,803,750.

Item 6. Exhibits and Reports on Form 8-K

Exhibits
10.1 Form of New York Bagel Enterprises, Inc. Non-qualified Option
Agreement.
10.2 Loan Agreement dated September 5, 1997, by and Among New York Bagel
Enterprises, Inc., Lots A' Bagels, Inc. and NationsBank, N.A.
10.3 Agreement of Purchase and Sale dated October 21, 1997, by and
Between New York Bagel Enterprises, Inc. and Commercial Equity,
Inc.
10.4 Form of Lease Between Commercial Equity, Inc., as Lessor, and New
York Bagel Enterprises, Inc., as Lessee.
10.4.1 Schedule of Leases By and Between New York Bagel Enterprises, Inc.
and Commercial Equity, Inc.
18 Letter of KPMG Peat Marwick LLP dated November 11, 1997 regarding
change in accounting principle concerning restaurant preopening
costs.
27 Financial Data Schedule.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 12th day of November, 1997.

NEW YORK BAGEL ENTERPRISES, INC.

By: /s/ ROBERT J. GERESI
-----------------------------------
Robert J. Geresi
Chief Executive Officer
and President

By: /s/ JON H. CRAMER
-----------------------------------
Jon H. Cramer
Chief Financial Officer,
Secretary and Treasurer

<PAGE>

INDEX TO EXHIBITS

<PAGE>

NEW YORK BAGEL ENTERPRISES, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

Date of Grant:
-------------------------

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, 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
___________, to issue non-qualified stock options to Grantee.

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."

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;

<PAGE>

(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 __________ (____) 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 Company, 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 death. Upon a
termination of Grantee's employment 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 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, or (iii) commit
or fail to commit any act which would be adverse to the best interest
of Company, any unexercised portion of the Option shall immediately
terminate and be void in the Company's Board of Directors' 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

<PAGE>

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 the NASDAQ's NMS (as defined
herein) 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 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.

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

<PAGE>

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.

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. 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
the continuance of employment by Company. Except as may otherwise be limited by
a separate written agreement between Company and Grantee, the right of Company
to terminate at will Grantee's employment with Company 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 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 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 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, (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

<PAGE>

reported, as quoted in THE WALL STREET JOURNAL, 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attn:
-------------------------------

If to Grantee:
---------------------
---------------------
---------------------

19. 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.

<PAGE>

20. 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 contemplated 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>

LOAN AGREEMENT
NEW YORK BAGEL ENTERPRISES, INC.

THIS AGREEMENT is made and entered into by New York Bagel Enterprises, Inc., a
Kansas corporation, and Lots A' Bagels, Inc., a Kansas corporation
(collectively, the "BORROWER") and NationsBank, N.A. ("BANK").

WHEREAS, Borrower has requested Bank to lend it up to TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) in the form of a revolving line of credit to be used
for the Borrower's general corporate activities, including, INTER ALIA, real
estate and equipment financing, funding of acquisitions and short term working
capital needs; and

WHEREAS, Bank is willing to make the loan to Borrower, subject to terms and
conditions acceptable to Bank, as set forth below and in the other Loan
Documents (as hereinafter defined).

NOW, THEREFORE, in consideration of the premises and of the mutual agreements
contained herein, and the benefits to be derived herefrom, the parties agree as
follows:

ARTICLE 1. DEFINITIONS.

Section 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:

ADVANCE means a disbursement by Bank of any of the proceeds of the Loan.

AGREEMENT means this Loan Agreement executed by Borrower and Bank, as the
Agreement may from time to time be renewed, extended, modified, amended,
supplemented, replaced or restated.

APPLICATION FOR ADVANCE means a Request for Advance, together with a
written application by Borrower to the Bank in form and substance satisfactory
to Bank, pursuant to which Borrower shall (a) specify the amount of the Advance
and the Business Day for which the Advance is requested, (b) certify to Bank
that as of the date of the Application for Advance, all representations and
warranties contained in the Loan Documents remain true and correct, (c) certify
to Bank that as of the date of the Application for Advance, Borrower is in
compliance with all covenants contained in the Loan Documents, and (d) no
Default or Event of Default has occurred or will occur as the result of the
requested Advance.

ASSIGNMENT OF PERMITS, LICENSES AND AGREEMENTS means an assignment,
executed on even date herewith, for collateral purposes, of all permits,
licenses and agreements affecting the Collateral granted by Borrower in favor of
Bank, in form and substance acceptable to Bank, as the Assignment of Permits,
Licenses and Agreements may be renewed, extended, modified, amended,
supplemented, replaced and restated.

<PAGE>

BORROWING BASE means an amount equal to the sum of 75% of Borrower's
Eligible Receivables, as defined below, PLUS 50% of Borrower's Eligible
Inventory, as defined below, PLUS 50% of Borrower's Eligible Equipment.

BORROWING BASE CERTIFICATE means the certificate described in SECTION
4.3.b).

BORROWING BASE REPORT means a written report prepared by Borrower and in
form and substance acceptable to Bank containing a statement of aging of
accounts receivable and listings of inventory and equipment.

BUSINESS DAY means any day of the week other than Saturday, Sunday or any
other day on which Bank is required or authorized by law or executive order to
close.

CLOSING DATE means the date of execution and delivery of this Agreement or
the date Bank makes its first Advance to Borrower, whichever occurs first.

COLLATERAL means all of Borrower's personal property of any kind including,
but not limited to, Borrower's right, title and interest in the Secured
Collateral, securing or to secure the Loan pursuant to this Agreement or any of
the Security Documents, and, in the event Borrower hereafter acquires any real
property in connection with any Advance, Collateral shall also include such real
property.

COMMITMENT FEE has the meaning set forth in SECTION 2.1.e).

DEFAULT means any condition or event which with the giving of notice or
lapse of time or both would, unless cured or waived, become an Event of Default.

ELIGIBLE EQUIPMENT means Borrower's equipment, furniture, trade fixtures,
machinery, appliances, and other personal property used or useful by Borrower in
the operation of its business, with the ineligibility of any and all items or
classes of equipment to be determined by the Bank in its sole discretion.

ELIGIBLE INVENTORY shall mean Borrower's inventory of finished goods and
merchandise held for retail sale in the ordinary course of its business, all of
which inventory shall be owned solely by Borrower, free of liens, security
interests and encumbrances (except for the Bank's Lien and Permitted
Encumbrances) and shall be of good and merchantable quality, free from defects,
and saleable in the ordinary course of Borrower's business, and shall not
include damaged items, consigned inventory, or obsolete or slow-moving items,
with the ineligibility of any and all items or classes of inventory to be
determined by the Bank in its sole discretion.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 2

<PAGE>

ELIGIBLE RECEIVABLES shall mean bona fide existing accounts receivable
owned solely by Borrower, with the ineligibility of any and all items or classes
of accounts to be determined by Bank in its sole discretion.

EMPLOYEE BENEFIT PLAN means at any time an employee benefit plan as defined
in Section 3(3) of ERISA that is now or was previously maintained, sponsored or
contributed to by Borrower.

ENVIRONMENTAL DAMAGES means all claims, demands, liabilities (including
strict liability), losses, damages (including consequential damages), causes of
action, judgments, penalties, fines, costs and expenses (including fees, costs
and expenses of attorneys, consultants, contractors, experts and laboratories)
of any and every kind or character, contingent or otherwise, matured or
unmatured, known or unknown, foreseeable or unforeseeable, made, incurred,
suffered, brought, or imposed at any time and from time to time, caused by or
related to any Hazardous Substance or the violation of any Environmental
Requirement at, above, over, under, on, from or otherwise pertaining to the
business operations of Borrower or the Collateral.

ENVIRONMENTAL REQUIREMENT means any agreement or restriction or any
federal, state or local law, statute, ordinance, code, rule, regulation,
license, authorization, decision, order, injunction, decree, or rule of common
law (and any judicial interpretation of any of the foregoing) pertaining to any
Hazardous Substance or the environment (including, but not limited to, ground,
air, water or noise pollution or contamination, and underground or above ground
tanks) and shall include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, ET
SEQ., as amended by the Superfund Amendments and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ., the
Federal Water Pollution Control Act, 33 U.S.C. Section 1801 ET SEQ., the Toxic
Substance Control Act, 15 U.S.C. Section 2601, ET SEQ., the Clean Air Act, 42
U.S.C. Section 7401, ET SEQ., the Safe Drinking Water Act, 42 U.S.C. Section
300f, ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901, ET SEQ. and the regulations, orders, decrees and publications promulgated
pursuant thereto, or any other federal, state or local governmental law,
ordinance, rule or regulation, regulating or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as may now or at any time hereafter be changed, amended or come into
effect. The term "underground storage tanks" shall have the same meaning and
definition set forth in paragraph (1) of 42 U.S.C. Section 6991. The term
"above ground storage tanks" shall have the same meaning and definition set
forth in K.S.A. 65-34,102(a).

ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time, together with all regulations issued pursuant thereto.

EVENT OF DEFAULT has the meaning set forth in SECTION 8.1.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 3

<PAGE>

FINANCING STATEMENTS means collectively, all financing statements executed
or to be executed by Borrower to perfect the security interests granted to Bank
in any of the Collateral securing the Loan.

GAAP means generally accepted accounting principles consistently applied as
in effect at the time of application of the provisions hereof.

GOVERNMENTAL AUTHORITY means any government, any state or other political
subdivision thereof, or any Person exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.

GOVERNMENTAL REQUIREMENTS means Environmental Requirements, all laws,
ordinances, codes, rules, regulations, orders, writs, injunctions or decrees of
any Governmental Authority applicable to Borrower or the Collateral.

HAZARDOUS SUBSTANCES means without limitation, asbestos, urea formaldehyde
foam insulation, any flammable, explosive, radioactive or corrosive materials,
petroleum hydrocarbons, polychlorinated biphenyls, hazardous materials,
hazardous wastes, hazardous or toxic substances, other elements, compounds,
pollutants, contaminants or related materials defined, regulated, controlled,
limited or prohibited in any of the Environmental Requirements.

Notwithstanding the foregoing, the term "Hazardous Substances" shall not include
chemicals routinely used in office areas or janitorial supplies, cleaning fluids
or chemicals necessary for the day-to-day operation and maintenance of Borrower
or the Collateral; provided that such chemicals and cleaning fluids are used,
stored and disposed of in compliance with all Governmental Requirements of any
Governmental Authority claiming to have or having jurisdiction over Borrower or
the Collateral.

IMPOSITIONS means all real estate and personal property taxes, charges for
any easement, license or agreement maintained for the benefit of the Collateral
or any part thereof, and all other Taxes, charges and assessments and any
interest, cost or penalties with respect thereto, general, special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which
at any time prior to or after the execution of this Agreement may be assessed,
levied or imposed upon the Collateral or any part thereof, or the ownership,
use, sale, occupancy or enjoyment thereof.

INSURANCE POLICIES means:

(a) Casualty insurance providing comprehensive coverage of the Collateral
against fire, windstorm, tornado and other casualty in an amount equal to one
hundred percent (100%) of the replacement cost of the Collateral;

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 4

<PAGE>

(b) Comprehensive General Liability Insurance for owners and contractors,
including blanket contractual liability, products and completed operations,
personal injury (including employees), independent contractors, explosion,
collapse and underground hazards with a minimum coverage amount of $5 million,
together with umbrella coverage in an amount acceptable to Bank, arising out of
any one occurrence or in any increased amount reasonably required by Bank;

(d) Worker's Compensation Insurance for statutory limits; and

(e) Any other insurance, including business interruption insurance in such
amounts and as customarily carried by comparable companies engaged in business
similar to that of Borrower covering the Collateral as Bank may require.

All insurance policies shall be "occurrence" based policies, issued on forms and
with companies satisfactory to Bank. Certificates of Insurance evidencing all
Insurance Policies shall be delivered to Bank at Bank's address for notices set
forth in this Agreement. Copies of all insurance policies shall be made
available to Bank for inspection. All Insurance Policies shall be in amounts,
with deductibles, and in form and substance otherwise satisfactory to Bank, and
shall have a provision giving Bank at least thirty (30) days' prior written
notice of change of coverage and at least ten (10) days' prior written notice of
cancellation or non-renewal. Each all-risk policy issued with respect to the
Collateral shall have loss payable clauses in favor of Bank, with loss proceeds
payable to Bank.

LEGAL REQUIREMENTS means (a) any and all present and future judicial
decisions, permits, licenses or certificates, or Governmental Requirements in
any way applicable to Borrower or any Collateral, including the ownership,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction thereof; (b) the presently or subsequently effective bylaws,
articles of incorporation, operating agreement, articles of organization, or any
partnership, limited partnership, joint venture, trust or other form of business
association agreement of Borrower; (c) any and all covenants, conditions or
restrictions applicable to the Collateral or the ownership, use or occupancy
thereof; and (d) any and all leases or contracts (written or oral) of any nature
that relate in any way to the Collateral, or any such lease or contract to which
Borrower may be bound.

LIEN means with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 5

<PAGE>

LOAN means the loans contemplated under this Agreement. The Loan is a
"business loan" within the meaning of K.S.A. 16-207(f).

LOAN DOCUMENTS means this Agreement, the Security Agreement, the Note, the
Assignment of Permits, Licenses and Agreements, the Financing Statements, and
such other documents, evidencing, securing or pertaining to the Loan as shall,
from time to time, be executed and delivered by Borrower or any other Person to
Bank pursuant to this Agreement, as any of them may from time to time be
renewed, extended, modified, amended, restated, replaced or supplemented, and
including further, without limitation, each Application for Advance, including
future amendments and supplements thereto.

MATERIAL ADVERSE EFFECT means an effect resulting from any circumstance or
event of whatever nature (including, but not limited to, the filing of, or any
adverse determination or development in, any litigation, arbitration or
governmental investigation or proceeding) which (a) has any adverse effect
whatsoever upon the ability of Bank to enforce any material provisions of any of
the Loan Documents; (b) is material and adverse to any of the Collateral or the
business, financial condition or other property of Borrower; or (c) impairs the
ability of Borrower to fulfill any material obligation under the Loan Documents.

MATURITY DATE means September 30, 1998.

NOTE means each and every commercial promissory note, in form and substance
acceptable to Bank, executed by Borrower at any time during the term of the Loan
and payable to the order of Bank, the aggregate principal balance of which shall
not exceed TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), and includes any
amendments thereto and all promissory notes given in renewal, extension,
modification, restatement, rearrangement or replacement thereof.

OBLIGATIONS means all present and future indebtedness, obligations and
liabilities, or any part thereof, of Borrower now existing or hereafter arising
under or in connection with this Agreement, the Note or any of the other Loan
Documents (specifically including, without limitation, the principal amount
outstanding under the Note), pursuant to the Loan Documents, together with (a)
all interest accrued thereon; (b) all reasonable or necessary costs, expenses
and attorneys' fees of Bank incurred in connection with the preparation of the
Loan Documents and any amendments, waivers or extensions of the Loan Documents
and the administration thereof; (c) the reimbursement and payment of all sums
which are advanced by Bank, in accordance with the terms of this Agreement or
any other Loan Document, to pay or satisfy amounts required to be paid by
Borrower under this Agreement or under any other instrument, agreement or
document at any time executed in connection with or as security for any part of
the Loan, in accordance with the terms of this Agreement or any other Loan
Document, or any amounts which are advanced by Bank to pay any Taxes,
Impositions, insurance premiums, Liens, assignments, charges or claims against
any of the Collateral; and (d) all costs, charges, commissions, reasonable
attorneys'

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 6

<PAGE>

fees and expenses owing and to become owing in connection with the
enforcement and collection of the foregoing obligations and indebtedness, and
those owing to or to become owing in connection with the repossession,
operation, maintenance, preservation or foreclosure of any of the Collateral,
regardless of whether such indebtedness, obligations and liabilities are
direct, contingent, fixed, liquidated, unliquidated, joint, several or joint
and several. The Obligations shall include all renewals, extensions,
modifications, amendments, rearrangements and replacements of any of the
above-described obligations, liabilities and indebtedness.

PENSION PLAN means any Employee Plan that is now or was previously covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Internal Revenue Code.

PERMITTED ENCUMBRANCES mean:

a) Bank's Liens securing the Note;

b) Inchoate statutory or operators' liens securing obligations for labor,
services, materials and supplies furnished to Borrower, which (i) are not
delinquent; (ii) have not been filed of record with appropriate officers of
Sedgwick County, Kansas, or are only notices of a right to claim of lien in the
event of non-payment without references to any specific overdue sum; or (iii)
are being contested on behalf of Borrower in good faith and for which Borrower
has obtained a proper payment and performance bond in the amount of the
contested claim;

c) Mechanics', materialmen's, warehousemen's, journeymen's and carriers'
liens and other similar liens arising by operation of law or statute in the
ordinary course of business if (i) the underlying claim is not delinquent and
did not in any event cover a billing period exceeding sixty (60) days; (ii) the
liens have not been filed of record with appropriate officers of Sedgwick
County, Kansas or are only notices of a right to claim of lien in the event of
non-payment without references to any specific overdue sum; or (iii) the claim
giving rise to such lien is being contested on behalf of Borrower in good faith
and for which Borrower has obtained a proper payment and performance bond in the
amount of the contested claim;

d) Liens for Taxes or Impositions not yet due or not yet delinquent, or,
if delinquent, that are being contested on behalf of Borrower, as permitted by
and in accordance with the terms and conditions set forth in SECTION 6.8;

e) Valid licenses and grants by Borrower to the New York Bagel franchise,
and related tradenames, trademarks and trade dress existing as of the date of
this Agreement; and

f) Valid liens of any landlord of Borrower provided under any lease of
Borrower in effect as of the date of this Agreement as such lease exists as of
the date of this Agreement.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 7

<PAGE>

PERSON means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

REQUEST FOR ADVANCE means each and every request for advance executed by
Borrower from time to time substantially in the form attached hereto as EXHIBIT
A.

SECURED COLLATERAL means and refers to Borrower's deposits, accounts,
rents, revenues, income, fees, charges, accounts or other payments, accounts
receivable, instruments, documents, chattel paper, general intangibles,
tradenames, trademarks, trade dress, franchise rights, licenses, furniture,
trade fixtures, machinery, appliances, equipment, goods and inventory including
any additions or substitutions therefor and all cash and non-cash proceeds
(including insurance proceeds) therefrom whether now owned or hereafter
acquired, all other personal property located at, used or intended to be used in
connection with the Collateral, together with any other property heretofore or
hereinafter pledged or secured to Bank to secure this or any other obligation of
Borrower to Bank, and, in the event Borrower hereafter acquires any real
property in connection with any Advance, Secured Collateral shall also include
such real property.

SECURITY AGREEMENT means that certain security agreement, in form and
substance acceptable to Bank, executed on even date herewith by Borrower in
favor of Bank securing the payment of the Note and the payment and performance
of all obligations specified in the Security Agreement, this Agreement and the
other Loan Documents, and evidencing a valid and enforceable first priority
security interest in and to the Secured Collateral, as the Security Agreement
may from time to time be renewed, extended, modified, restated, replaced,
amended or supplemented, including, without limitation any and all mortgages
that may from time to time be executed by Borrower in favor of Bank to secure
Bank's lien in the Secured Collateral or any part thereof.

SECURITY DOCUMENTS means collectively, this Agreement, the Security
Agreement, the Assignment of Permits, Licenses and Agreements and all other
documents or instruments granting a lien and/or security interest in favor of
Bank as collateral for the Loan, all Financing Statements related thereto, and
all modifications, renewals or extensions thereof and any documents executed in
modification, renewal, extension, amendment, supplement or replacement thereof.

TAXES means all taxes, assessments, filing or other fees, levies, imposts,
duties, deductions, withholdings, stamp taxes, income taxes, interest
equalization taxes, capital transaction taxes, foreign exchange taxes or other
charges of any nature whatsoever, from time to time or at any time imposed by
law or any Governmental Authority; and TAX means any one of the foregoing.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 8

<PAGE>

UCC means the Kansas uniform commercial code.

Section 1.2. SINGULAR AND PLURAL OF DEFINITIONS. Each term defined in the
singular form in SECTION 1.1. shall mean the plural thereof when the plural form
of such term is used in this Agreement, and each term defined in the plural form
in SECTION 1.1. shall mean the singular thereof when the singular form of such
term is used in this Agreement.

Section 1.3. GENDER AND CONSTRUCTION. Words of any gender shall be held and
construed to include any other gender. The use of the words "herein," "hereof,"
"hereunder" and other similar compounds of the word "here" shall refer to this
entire Agreement and not to any particular section, paragraph or provision.

Section 1.4. CAPTIONS. The captions in this Agreement are for the convenience
of reference only and shall not define, affect or limit any of the terms or
provisions of this Agreement and shall be disregarded in construing the language
of any such term or provision.

Section 1.5. CAPITALIZED TERMS. Capitalized terms used herein shall have the
same meaning given to such terms in the other Loan Documents (copies of which
are attached as EXHIBIT B) unless otherwise defined herein or the context
clearly indicates otherwise.

ARTICLE 2. THE LOAN.

Section 2.1. GENERAL TERMS. Bank agrees, on the terms and conditions of this
Agreement, to make a loan to Borrower in the aggregate principal amount of not
to exceed TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) at any given time, as
follows:

a) NOTE. The Loan shall be evidenced by the Note, which will be executed by
Borrower at the time of each authorized Advance in the amount of the Advance.

b) MATURITY DATE, PAYMENT AND TERMINATION OF COMMITMENT. Principal and
interest accruing on the Loan and the other Obligations shall be calculated, due
and payable as set forth in each Note. Any unfunded commitment under any Note
shall expire and terminate automatically on the Maturity Date. Subject to and
upon the terms, covenants and conditions as set forth in the Note and this
Agreement, Borrower may borrow, repay and reborrow under the Loan, at any time
and from time to time until the Maturity Date or the termination of the Bank's
commitment whichever is earlier.

c) CONDITIONS TO ADVANCES. Borrower shall not be entitled to any Advance,
unless and until Borrower shall have satisfied each of the applicable conditions
precedent set forth in ARTICLE 4.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 9

<PAGE>

d) TERM. The term of the Loan shall be governed by the Note, but in no event
shall exceed a period of fifteen (15) months from the date of the first Advance.

e) FEES. In consideration of Bank making the Loan, Borrower agrees to pay a
commitment fee ("COMMITMENT FEE") to Bank annually, in arrears, in accordance
with the following schedule:

1) one-quarter of one percent (.025%) on the entire $10,000,000.00 loan
amount if the average outstanding principal balance of the Loan is
$1,000,000.00 or less;

2) one-eighth of one percent (.0125%) on the entire $10,000,000.00 loan
amount if the average outstanding principal balance of the Loan is at least
$1,000,001.00, but less than or equal to $2,000,000.00; or

3) no commitment fee if the average outstanding principal balance of the
Loan is greater than $2,000,000.00.

The average outstanding principal balance shall be calculated on an annual basis
beginning September 1, 1997, through the Maturity Date.

ARTICLE 3. COLLATERAL TO SECURE THE LOAN.

Section 3.1. COLLATERAL. The Loan shall be secured by a security interest,
granted pursuant to the Security Agreement in favor of Bank, in all of the
Secured Collateral.

ARTICLE 4. CONDITIONS TO CLOSING AND MAKING OF ADVANCES.

Section 4.1. APPLICATIONS FOR ADVANCES. At least ten (10) Business Days before
the requested date of each Advance, Borrower shall deliver to Bank an
Application for Advance. Each Application for Advance shall be irrevocable and
shall specify the amount of the Advance and the Business Day for which the
Advance is requested. Except as otherwise previously or concurrently disclosed
to Bank in writing, each Application for Advance by or on behalf of Borrower
shall be deemed to ratify and confirm that all representations and warranties in
this Agreement and the other Loan Documents remain true and correct as of the
date of the Application for Advance, and unless the Bank is notified to the
contrary before the Advance is made, Borrower's acceptance and use of the funds
so advanced shall be deemed to ratify and confirm that all such representations
and warranties remain true and correct on the date of such Advance.

Section 4.2. CLOSING; INITIAL ADVANCE. The obligation of Bank to close on the
Loan and make an initial Advance under this Agreement is subject to the
following conditions precedent:

a) Borrower shall have delivered to Bank the duly and properly executed Loan
Documents;

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 10

<PAGE>

b) Borrower shall have delivered to Bank evidence satisfactory to Bank that all
Insurance Policies have been obtained and all premiums paid;

c) Borrower shall have delivered to Bank duly executed and properly certified
copies of documents authorizing the execution of and performance by Borrower of
this Agreement and the other Loan Documents and all other documents or
instruments contemplated herein or therein;

d) Borrower shall have delivered to Bank a current certificate of good standing
for Borrower issued by the Kansas Secretary of State;

e) Borrower shall have provided to Bank, Borrower's Federal tax identification
number;

f) Borrower shall have delivered to Bank, a current certified copy of
Borrower's articles of incorporation and a true, correct and complete copy of
Borrower's by-laws as currently in effect;

g) Bank shall have received the opinion of Borrower's counsel in form and
substance acceptable to Bank; and

h) Borrower shall have paid to Bank, Bank's costs and legal expenses incurred
in connection with the preparation of the Loan Documents and related legal
services.

Section 4.3. CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to
make each and every Advance under the Loan is subject to the following
conditions precedent:

a) NO EVENT OF DEFAULT. No Event of Default shall have occurred and be
continuing and no event which, with notice or lapse of time or both, would
become such an Event of Default, shall have occurred and be continuing;

b) BORROWING BASE CERTIFICATE. Borrower shall have submitted to Bank a
Borrowing Base Certificate, in form and substance acceptable to Bank, which
calculates the Borrowing Base and the amount of credit available to fund the
particular Advance being requested and the total amount of credit then available
under the Loan; PROVIDED, HOWEVER, that Advances for construction financing as
contemplated in SECTION 4.4(c), below, shall not require the submission of such
a certificate;

c) NOTE. Borrower shall have executed and delivered the Note and any other
documents requested by Bank applicable to the Advance; and

d) SUBORDINATION OF LANDLORD'S LIEN. To the extent any lease agreement entered
into by Borrower after the date of this Agreement purports to create a lien in
favor of any landlord in the

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 11

<PAGE>

Collateral, and if requested by Bank, Borrower shall obtain a subordination
of such lien to the Lien of Bank hereunder.

Section 4.4. LIMITATIONS AS TO PARTICULAR ADVANCES. The following conditions
precedent shall apply as to the particular types of Advances set forth below,
and the obligation of Bank to make such Advances is subject to the following:

a) ADVANCES FOR WORKING CAPITAL. Before Borrower shall be entitled to receive
any Advance for use as short term working capital, Borrower shall demonstrate to
Bank's satisfaction in the exercise of its sole discretion, the existence of a
clear repayment source that will enable Borrower to repay such Advance within
twelve (12) months from the date of the Advance.

b) ADVANCES FOR EQUIPMENT PURCHASES. Any Advance requested by Borrower to
finance its purchase of restaurant equipment packages, machinery and other
personal property for the conduct of Borrower's business, shall not exceed
seventy-five percent (75%) of the actual cost of the property being purchased
(as determined by Bank in the exercise of its sole discretion) and shall be
amortized for purposes of repayment over a period of no more than three (3)
years.

c) CONSTRUCTION FINANCING. With respect to Advances requested by Borrower to
finance new construction, remodeling or acquisition of restaurant locations:

1) the aggregate of all such Advances shall at no time exceed a
$2,000,000.00 cap. An Advance will not be included in the calculation of
the cap if Borrower obtains a written commitment for permanent financing,
in form and substance satisfactory to Bank, sufficient to repay the Advance
in full on or before the Maturity Date;

2) Borrower agrees to execute and deliver to Bank, a mortgage and
assignment of leases and rents, in form and substance satisfactory to Bank,
covering any real property to be acquired for such construction or
remodeling; and

3) Borrower agrees to execute and deliver to Bank any and all other
documents as may be requested by Bank in its sole discretion in order to
document said construction financing.

In the event that upon completion of construction, remodeling or acquisition
Borrower is unable to obtain long-term financing to replace the Advances of Bank
pursuant to this subsection, Bank will provide Borrower with "mini-perm"
financing with repayment terms based upon: i) a ten (10) year amortization
schedule; ii) a balloon maturity date of no more than five (5) years; and iii)
no commitment from Bank to renew. Any "mini-perm" financing provided hereunder
shall likewise be included for purposes of calculating the $2,000,000.00 cap set
forth in SECTION 4.4. c) 1), above.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 12

<PAGE>

d) ADVANCES IN EXCESS OF $2 MILLION OR FOR TERM EXCEEDING MATURITY DATE. With
respect to Advances in an amount in excess of $2,000,000.00 or for a term that
would expire beyond the Maturity Date, Borrower shall be required to obtain the
prior written approval of Bank before a Request for Advance for such an amount
is submitted.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES.

To induce Bank to make the Loan, Borrower represents and warrants, and so long
as any of the Obligations remain due and owing by Borrower under the Loan
continuously represents and warrants to Bank as follows:

Section 5.1. CORPORATE EXISTENCE. Each corporation comprising the Borrower is
a corporation duly organized and existing under the laws of the State of Kansas
and is in good standing where required under the laws of the states of Alabama,
Colorado, Kentucky, Missouri, New Mexico, Oklahoma, South Carolina, Texas and
Kansas and each corporation is duly authorized to the extent required by
applicable law to transact business in all places in which it operates whether
as of the date of this Agreement or hereafter.

Section 5.2. BORROWER'S AUTHORITY, ETC. Borrower has the power and authority
to enter into and perform the Loan Documents, and all actions necessary or
required to be taken by Borrower for the execution, delivery and performance by
Borrower of the Loan Documents have been duly authorized and taken by Borrower,
and the Loan Documents have been duly executed and delivered by or on behalf of
Borrower. The Loan Documents constitute legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms. The execution
and delivery of the Loan Documents by or on behalf of Borrower does not conflict
with or constitute on the part of Borrower a breach of, or default under any of
the terms, conditions, provisions, or restrictions of its articles of
incorporation, by-laws or any mortgage, lease or other agreement or instrument
to which Borrower is subject or by which Borrower may be bound.

Section 5.3. ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.

Section 5.4. TITLE TO COLLATERAL. Subject only to the Permitted Encumbrances,
Borrower holds full legal and equitable title to the Collateral, including,
without limitation, all right, title and interest in the New York Bagel
franchise and related tradenames, trademarks, and trade dress.

Section 5.5. FINANCIAL STATEMENTS. Borrower's financial statements furnished
to Bank in connection with the Loan, including, without limitation, Borrower's
financial information filed pursuant to the Securities Exchange Act of 1934, as
amended, Borrower's monthly internal financial reports and Borrower's operating
plan for Borrower's current fiscal year, correctly reflect the financial
condition of Borrower, and no material adverse change has since occurred.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 13

<PAGE>

Section 5.6. LITIGATION. Borrower is not a party to any litigation which could
have a Material Adverse Effect on its financial condition, the Collateral or the
Loan. Nor to the best of Borrower's knowledge, does there exist any basis upon
which such litigation could be instituted.

Section 5.7. LIENS OR ENCUMBRANCES. The Collateral is not subject to any Liens
or encumbrances, except the Permitted Encumbrances.

Section 5.8. ERISA. Borrower is in compliance in all material respects with
all applicable provisions of the ERISA, and Borrower has not incurred any
liability to the Pension Benefit Guaranty Corporation or any Person succeeding
to any or all of its functions thereunder.

Section 5.9. TAXES. Borrower has filed all required federal, state and local
tax returns and have timely paid all Taxes and Impositions shown on such returns
to be owing, and there are no claims for Taxes or Impositions which have been
asserted against Borrower and which are unpaid except those, if any, which have
been disclosed to Bank in writing.

Section 5.10. BANK'S RELIANCE ON BORROWING BASE CERTIFICATE. Borrower
understands and agrees that Bank intends to rely on the Borrowing Base
Certificates (delivered to Bank in accordance with SECTION 4.3.b) hereof), not
only in connection with determining the amount of credit available under the
Loan, but also in determining the creditworthiness of Borrower.

Section 5.11. PRINCIPAL PLACE OF BUSINESS. Borrower's principal place of
business and chief executive office is located at 300 IMA Plaza, 250 North Water
Street, Wichita, Kansas 67202-1213.

Section 5.12. FRANCHISE AGREEMENTS. All franchise agreements to which Borrower
is a party are in full force and effect and, to the best of Borrower's
knowledge, are free from any default by Borrower or any act or omission of
Borrower that with notice or passage of time or both would become a default by
Borrower thereunder; provided, that Borrower anticipates and Bank acknowledges
that Borrower may terminate certain franchise agreements from time to time.

ARTICLE 6. AFFIRMATIVE COVENANTS.

To induce Bank to make the Loan, Borrower covenants and agrees, and so long as
any of the Obligations remain due and owing by Borrower under the Loan
continuously covenants and agrees as follows:

Section 6.1. FINANCIAL COVENANTS.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 14

<PAGE>

a) FINANCIAL RATIOS. Borrower will maintain at all times: (i) a ratio of
total debt to tangible net worth of no greater than 0.8 to 1; (ii) a current
ratio of no less than 1.2 to 1 (excluding current portions of long-term debt
from current liabilities and Advances hereunder); and (iii) earnings before
interest, taxes, depreciation and amortization ("EBITDA") to debt service ratio
of 1.5 to 1, after considering normalized repayment schedule of Borrower's short
and long term debt; all as determined in accordance with GAAP.

b) BORROWER'S FINANCIAL STATEMENTS AND TAX RETURNS. Borrower will furnish to
Bank the following:

1) As soon as available, but in any event, within one hundred twenty (120)
days after the close of each fiscal year, (i) a copy of its consolidated
annual financial report for such year, prepared in accordance with GAAP by
a firm of independent certified public accountants satisfactory to Bank;
(ii) internal annual budget and projections as generally prepared by
Borrower; and (iii) annual depreciation schedule of all fixed assets;

2) As soon as available, but in any event within forty-five (45) days
after the close of each fiscal quarter, a consolidated interim balance
sheet and operating statement reflecting Borrower's financial condition as
of the close of the quarter and results of its operation since the
beginning of its fiscal year;

3) As soon as available, but in any event within thirty (30) days after
the close of each fiscal quarter a Borrowing Base Report;

4) As soon as available, but in any event not later than ten (10) days
from filing, copies of all information filed by Borrower with the
Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended;

5) As soon as available, but in any event upon Bank's request within
thirty (30) days after the end of each month, Borrower's monthly financial
statements as generally prepared by Borrower;

6) Within ten (10) days from the filing thereof, true, correct and
complete copies of Borrower's Federal tax returns; and

7) Such additional information as the Bank, from time to time, may
reasonably request.

Section 6.2. INSPECTION AND AUDIT. Borrower will permit any authorized
representative or agent of the Bank to examine, inspect, copy, verify and audit,
all in a reasonable manner, any of Borrower's facilities, its books and records
(including those electronically stored) and the Collateral.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 15

<PAGE>

Section 6.3. CORPORATE EXISTENCE. Borrower will conduct its business in an
orderly, efficient and regular manner, keep in full force and effect its
corporate existence and all rights, licenses, franchises and distributor
agreements necessary to conduct its business, and materially comply with all
applicable laws, ordinances, codes, rules, regulations, orders, writs,
injunctions or decrees of any government, state, political subdivision or court.

Section 6.4. INSURANCE. The risk of loss or damage to or destruction of the
Collateral shall at all times be borne by Borrower. Borrower shall at all times
maintain or cause to be maintained in force the Insurance Policies, and shall
furnish to Bank upon request, a certificate or certificates from the respective
insurer(s) setting forth the nature and extent of all insurance maintained by
Borrower in accordance with this Agreement and the other Loan Documents.
Borrower shall deliver to Bank certified copies of each renewal or substitute
Insurance Policy (and corresponding certificate with premiums fully paid) at
least ten (10) days before the termination of the policy it renews or replaces.
All premiums on Insurance Policies required hereunder shall be paid as they
become due and payable, and evidence thereof shall be promptly delivered to
Bank. Borrower shall comply or cause compliance at all times with the
provisions of any Insurance Policy covering or applicable to Borrower or the
Collateral or any portion thereof.

Section 6.5. PRESERVE COLLATERAL. Borrower shall do or cause to be done all
things necessary to preserve, protect, maintain, replace and repair the
Collateral and keep the same in good condition, ordinary wear and tear excepted.

Section 6.6. EXISTENCE, FRANCHISES AND PERMITS. Borrower shall do or cause to
be done at all times all things necessary to preserve, protect, defend, renew
and extend any and all franchises, tradenames, trademarks, trade dress, permits,
licenses, privileges, concessions and other material rights (including those
related to land use and development, construction, access, water rights and use,
noise, waste disposal and pollution control) that are or may be applicable from
time to time to Borrower for the conduct of its business.

Section 6.7. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Borrower shall timely
comply with all material Governmental Requirements applicable to the Collateral,
the Loan or any Loan Documents, and all applicable organizational documents and
other agreements to which it is a party, and promptly deliver to Bank evidence
of such compliance upon request. Borrower assumes full responsibility for the
compliance of the Collateral in all material respects with all Governmental
Requirements. Promptly upon Borrower's receipt of any notice from a
Governmental Authority of noncompliance with any Governmental Requirements
applicable to the Collateral, the Loan or any of the Loan Documents, Borrower
shall provide Bank written notice thereof.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 16

<PAGE>

Section 6.8. TAXES; CLAIMS FOR LABOR AND MATERIALS. Borrower shall promptly
pay or cause to be paid when due all costs, Taxes, Impositions and other
expenses incurred in connection with the Collateral, and Borrower shall keep the
Collateral free and clear of any Lien, other than the Permitted Encumbrances.
Notwithstanding anything to the contrary in this Agreement, Borrower may
contest, to the extent and in the manner permitted by law, the validity or
amount of any claim of any broker, contractor, consultant, architect or other
Person providing labor, materials or services with respect to the Collateral,
any Governmental Requirement or any Tax or Imposition levied by Governmental
Authority, and such contest on the part of the Borrower shall not be a Default
or an Event of Default hereunder and shall not release Bank from its obligation
to make Advances hereunder if and so long as (i) the amount, applicability or
validity thereof is being contested in good faith by appropriate action promptly
initiated and diligently conducted in accordance with good business practices
and no part of the Collateral or other material property or assets of Borrower
is subject to levy or execution, which, if taken, would have a Material Adverse
Effect; (ii) if reasonably requested by Bank, Borrower shall have established
cash reserves satisfactory to Bank with respect thereto; and (iii) Borrower
shall have notified Bank of such circumstances in detail satisfactory to Bank;
and provided, further, that in the event such contest is unsuccessful, then
Borrower shall promptly pay any such claim.

Section 6.9. HOLD HARMLESS. Borrower shall protect, indemnify, hold harmless
and defend, at Borrower's own cost and expense, Bank, any participants in the
Loan, and the officers, directors, partners, employees, agents, attorneys,
heirs, personal representatives, successors and assigns of each of the foregoing
Persons (each, an "Indemnified Person"), from and against, and if and to the
extent paid, reimburse each such Indemnified Person for, any and all losses,
liabilities, claims, damages, deficiencies, interest, judgments, costs and
expenses (including, but not limited to, all court costs and reasonable
attorneys' fees and expenses) of any and every kind and nature arising out of or
by reason of (a) any investigation, litigation, or other proceeding arising out
of or by reason of the execution of this Agreement or any other Loan Document by
Bank and the transactions contemplated thereby, including, but not limited to,
any use effected or proposed by Borrower of the proceeds of the Loan; (b) any
representation made by Borrower hereunder or under any of the other Loan
Documents; and (c) any Environmental Damages; provided, however, that nothing
contained in this SECTION 6.9 shall be construed as an agreement by Borrower to
indemnify and defend any Indemnified Person for such Indemnified Person's (a)
willful misconduct which directly or indirectly causes or results in the harm or
loss being indemnified or (b) any unexcused or unlawful breach by Bank of any of
its obligations under this Agreement or any of the other Loan Documents.

Section 6.10. CHARACTER OF BUSINESS. Borrower will continue to carry on
substantially the same types of business carried on at the date hereof and
businesses reasonably related thereto and will not engage in any business which
would materially change the general type of business previously conducted
without Bank's prior written approval which approval shall not be unreasonably
withheld or delayed.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 17

<PAGE>

Section 6.11. FRANCHISEES. Borrower agrees that following an Event of Default,
Bank shall have the right to notify all of Borrower's franchisees of the
occurrence of an Event of Default and request that any and all sums due or to
become due to Borrower from said franchisees shall be paid to Bank, and said
franchisees shall have no liability to Borrower as a result of making such
payments to Bank after the receipt of said notice.

ARTICLE 7. NEGATIVE COVENANTS.

Borrower covenants and agrees that so long as any portion of the Loan remains
unpaid, Borrower will not, without the prior written consent of Bank which
consent shall not be unreasonably withheld or delayed:

Section 7.1. RESTRICTION ON INDEBTEDNESS. Create, guaranty, assume, permit to
exist or become liable, directly or indirectly, in respect of any indebtedness
of any kind or character (including, without limitation, any liability by way of
endorsement, guarantee, agreement to repurchase or to supply funds, extensions
or credit in support of the obligations or undertakings of others, and any
indebtedness secured by mortgages or other liens or encumbrances whether or not
assumed) other than the Loan and all current indebtedness of Borrower as such
indebtedness exists as of the date of this Agreement, including, without
limitation, the Permitted Encumbrances, and current operating liabilities
incurred in the ordinary course of business of Borrower.

Section 7.2. RESTRICTION ON CAPITAL EXPENDITURES. Engage in capital
expenditures in any one fiscal year in excess of $1,000,000.00 alone or in the
aggregate other than those consented to by Bank in an Advance.

Section 7.3. RESTRICTIONS ON STOCK REPURCHASE. Directly or indirectly
purchase, redeem, or retire any of the Borrower's common stock, or any warrants,
rights, or options to purchase (excluding specifically any expiration or
termination of any incentive stock option or non-qualified stock option granted
by Borrower).

Section 7.4. LOANS AND ADVANCES. Loan any amounts to officers, directors,
employees, stockholders or any member of their families, or to affiliates or
subsidiary companies during the term of the Loan that would exceed $100,000 in
the aggregate.

Section 7.5. MERGER; SALES OF ASSETS. Merge or consolidate in any individual
transaction valued at greater than $1,000,000.00 with any other Person or sell
substantially all of its assets to any other Person.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 18

<PAGE>

Section 7.6. DISTRIBUTIONS. Make distributions or pay dividends to
stockholders in any one fiscal year in excess of $1,000,000.00.

Section 7.7. LIMITATIONS ON LIENS. Create, incur, assume or permit to exist
any voluntary or involuntary Lien on the Collateral, with the exception of the
Permitted Encumbrances.

Section 7.8. WASTE ASSETS OR ALTER THE COLLATERAL. Commit or permit any waste
of the Collateral, or any portion thereof, or without the prior written consent
of Bank, make or permit to be made any alterations or additions to the
Collateral other than in the ordinary course of Borrower's business.

Section 7.9. TRANSFER OF COLLATERAL. Assign, sell, lease, license, pledge, or
otherwise transfer its interests in the Collateral other than in the ordinary
course of Borrower's business operations as they exist as of the date of this
Agreement or in excess of $100,000.00 for any one transaction not to exceed
$250,000.00 for all transactions in any given calendar year. Borrower has not
performed, and will not perform, any act which might prevent Borrower from
performing its undertakings hereunder, impairing Bank's Lien in the Collateral
or which might prevent Bank from operating under or enforcing any of the terms
and conditions hereof or under the other Loan Documents which would materially
limit Bank in such operation or enforcement.

Section 7.10. USE VIOLATIONS. Use, maintain or operate or allow the use,
maintenance or operation of the Collateral in any manner which materially (i)
violates any Legal Requirement; (ii) may be dangerous unless safeguarded as
required by law; (iii) constitutes a public nuisance; (iv) makes void, voidable
or cancelable any insurance then in force with respect thereto; or (v) makes
void, voidable or cancelable any governmental permit.

Section 7.11. ERISA. With respect to any Employee Benefit Plan of Borrower (i)
violate or fail to be in full compliance with such Employee Benefit Plan in any
material respect; (ii) fail to timely file all reports and filings required by
the ERISA to be filed by Borrower; (iii) engage in any material "prohibited
transactions" (as defined in Part 4 of Title 1 of ERISA) or any material
"reportable events" (as described in Section 4043 of ERISA); (iv) engage in, or
commit, any act that could result in the imposition of a material tax or penalty
against Borrower; (v) incur any material accumulated funding deficiency (as
defined in Section 412 of the Internal Revenue Code of 1986, as amended); or
(vi) terminate any Employee Benefit Plan such that a lien could be asserted
against any assets of Borrower on account thereof pursuant to ERISA.

Section 7.12. HAZARDOUS SUBSTANCES. Place, install, dispose of or release or
cause, permit or allow the placing, installation, disposal, spilling, leaking,
dumping or release of any Hazardous Substance or storage tank (or similar
vessel) in violation of any Environmental Requirement.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 19

<PAGE>

Section 7.13. CHANGE IN MANAGEMENT. Change the current senior executive
management of Borrower.

Section 7.14. NAME CHANGE. Cause or permit any change to be made in its name
unless Borrower shall have notified Bank of such change prior to the effective
date of such change, and shall have first taken all action required by Bank for
the purpose of further perfecting or protecting Bank's security interest in the
Collateral.

Section 7.15. BUSINESS LOCATION. Change the location of its chief executive
office or principal place of business, which is currently located in Wichita,
Kansas.

ARTICLE 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR.

Section 8.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an event of default ("EVENT OF DEFAULT") under this
Agreement:

a) FAILURE TO PAY. Default in the payment when due of any portion of any
principal or interest or other sums due hereunder or under any of the Notes,
which default shall continue more than ten (10) days after written notice
thereof from Bank to Borrower;

b) DEFAULT IN OTHER OBLIGATIONS UNDER LOAN DOCUMENTS. Default in the
performance or observance of any other covenant or agreement undertaken by
Borrower under this Agreement or the other Loan Documents, which default shall
not have been corrected within thirty (30) days after written notice thereof
from Bank to Borrower;

c) REPRESENTATIONS. Any statement, representation, certification or warranty
herein or in any of the Loan Documents, in any certificate, in any financial
statement or in any other writing heretofore or hereafter delivered to Bank in
connection with the Loan is false, fraudulent or misleading in any material
respect when given;

d) DEFAULT UNDER OTHER OBLIGATIONS. Default in the payment when due (subject
to applicable grace periods), whether by acceleration or otherwise, of any other
indebtedness or undertaking of Borrower or default in the performance or
observance of any obligation or condition with respect to any such other
indebtedness or undertaking, if the effect of such default is to accelerate the
maturity of such other indebtedness or undertaking or to permit the holder(s)
thereof, or any trustee or agent for such holder(s), to cause such other
indebtedness or undertaking to become due and payable prior to its expressed
maturity;

e) FAILURE TO PAY TRADE CREDITORS. Default in the payment of indebtedness to
trade creditors of Borrower when due, and such default shall continue for a
period of ninety (90) days; PROVIDED, HOWEVER, that, to the extent Borrower's
failure to make payment is the result of a valid dispute,

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 20

<PAGE>

as determined by Bank in its reasonable discretion, said failure shall not
constitute an Event of Default;

f) BANKRUPTCY OR INSOLVENCY OF BORROWER.

1) Commencement of any voluntary proceedings under any bankruptcy or
insolvency laws now or hereafter in effect or assignment for the benefit of
creditors by Borrower;

2) The filing or commencement of an involuntary case or other proceeding
against Borrower seeking liquidation, reorganization or other relief with
respect to Borrower or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for
Borrower or any substantial part of its property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a period of
seventy-five (75) days; or the entry of an order for relief against
Borrower under the federal bankruptcy laws now or hereafter in effect; and

3) The willful concealment or removal of any part of the property of
Borrower with intent to hinder, delay or defraud creditors, or the transfer
of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law;

g) INJUNCTION. The issuance of any injunction or other order by any court of
competent jurisdiction enjoining the Borrower from conducting its business as it
exists on the date hereof or enjoining or prohibiting Borrower or Bank from
performing this Agreement or any of the other Loan Documents, and such
injunction or order is not vacated within sixty (60) days after the granting
thereof;

h) JUDGMENT. The entry of one or more judgments or orders, against Borrower if
such judgment(s) or order(s) is (are) in excess of $150,000 (alone or in the
aggregate), is not covered by insurance or is not satisfied or appealed from
(with execution or similar process stayed) within the time period allowed by law
for automatically staying execution on such judgments or orders;

i) GARNISHMENT OR ATTACHMENT. Service of any order of attachment, garnishment
or levy or the existence or the making or issuance of any tax lien or similar
process on or with respect to a material portion of the Collateral, which has
not been released in full within thirty (30) days from the earlier of service,
attachment or execution; and

j) MATERIAL ADVERSE EFFECT. The occurrence or existence of any fact or set of
circumstances that in Bank's sole opinion has resulted in a Material Adverse
Effect.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 21

<PAGE>

Section 8.2. REMEDIES. Upon the occurrence of an Event of Default, Bank,
acting by or through agents, trustees or otherwise without further notice
(including, without limitation, notice of default, notice of intent to
accelerate or of acceleration) except for any notice that is expressly required
herein, and WITHOUT DEMAND, PRESENTMENT, PROTEST OR ACTION OF ANY NATURE
WHATSOEVER ALL OF WHICH ARE HEREBY WAIVED BY BORROWER, may (i) declare the
entire unpaid balance of the Loan and all Obligations, together with all accrued
interest thereon to be immediately due and payable, and (ii) exercise any and
all other rights, remedies and recourses granted hereunder or under the other
Loan Documents or otherwise now or hereafter existing in equity, at law, by
virtue of statute or otherwise. Anything contained herein to the contrary
notwithstanding, the obligations and commitment of the Bank shall terminate
forthwith.

Section 8.3. WAIVER. Any Event of Default and its resulting consequences as
set forth above may be waived by Bank, but such waiver shall not constitute a
precedent for future action and no delay or failure on the part of the Bank to
exercise any right, power, or privilege hereunder shall operate as a waiver
thereof.

ARTICLE 9. MISCELLANEOUS.

Section 9.1. MODIFICATION OF LOAN DOCUMENTS. No modification, amendment,
consent or waiver whatsoever of any provision under any of the Loan Documents
shall be effective unless in writing and approved by the party against whom
enforcement is sought, and then only to the extent set forth in such writing.

Section 9.2. RIGHTS CUMULATIVE. The rights, remedies and powers provided to a
party in the Loan Documents or otherwise are cumulative, and the exercise of any
particular right, remedy or power does not preclude the exercise of any other
right, remedy or power in addition to, or as an alternative of, such remedy.

Section 9.3. PROVISIONS SEVERABLE. If any one or more of the provisions of
this Agreement operates, in whole or in part, or if any one or more of the
provisions of this Agreement would prospectively operate, in whole or in part,
to invalidate this Agreement, then said provision or provisions shall be deemed
null and void, but shall not affect any other provision of this Agreement, and
its remaining provisions shall in no way be affected, prejudiced or disturbed
thereby.

Section 9.4. TRANSFER OF RIGHTS BY BANK. Borrower acknowledges and agrees that
Bank may, from time to time, sell or offer to sell participation interests in
the Loan in their entirety or any portion, to one or more participants, or may
directly assign or offer to assign, all or a portion of its right, title and
interest in the Loan to one or more assignees. Borrower shall execute,
acknowledge and deliver any and all instruments reasonably requested by Bank in
connection with the foregoing.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 22

<PAGE>

Section 9.5. BORROWER'S OBLIGATIONS ABSOLUTE; NO ASSIGNMENT. Borrower
understands and agrees that the liability created hereunder is not dependent or
conditioned upon the execution of the Loan Documents by any other party. The
Loan Documents may not be assigned by Borrower without the express written
consent of Bank.

Section 9.6. BORROWER ADDITIONALLY BOUND. Borrower understands and agrees that
it is additionally bound by the terms and conditions of the other Loan
Documents, which terms and provisions are incorporated herein and made a part of
this Agreement. To the extent that any term or provision of the other Loan
Documents conflicts with a term or provision of this Agreement, the term or
provision of this Agreement shall control; PROVIDED, HOWEVER, that to the extent
the other Loan Documents provide additional rights or remedies that do not
conflict with the provisions of this Agreement or as to which this Agreement is
silent, such rights and remedies shall remain in full force and effect.

Section 9.7. BORROWER IN CONTROL; NOT A JOINT VENTURE. In no event shall
Bank's rights and interests under the Loan Documents be construed to give Bank
the right to control, or deemed to indicate that Bank is in control of, the
business, properties, management functions or operating decisions made by
Borrower. The relationship between Borrower and Bank is solely that of borrower
and lender. No term, provision or condition of any of the Loan Documents shall
be construed as creating a joint venture, partnership or association between
Bank and Borrower, and Bank has no fiduciary or other special relationship with
Borrower.

Section 9.8. SURVIVAL OF REPRESENTATIONS. All covenants, agreements,
undertakings, indemnities, representations and warranties made by either of the
parties herein or in any certificate delivered pursuant hereto, including, but
not limited to the Borrowing Base Reports, will survive the delivery of the Loan
Documents and the making of the Loan evidenced thereby, and any investigation at
any time made by or on behalf of Bank will not diminish Bank's right to rely
thereon. All statements contained in any certificate or other instrument
delivered by or on behalf of the Borrower under or pursuant to the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents constitute representations and warranties made by the Borrower
hereunder.

Section 9.9. FURTHER ASSURANCES. The parties agree to execute, acknowledge,
obtain and deliver such documents as may be required from time to time in order
to complete and effect the transactions contemplated by the Loan Documents.

Section 9.10. NO THIRD PARTY BENEFICIARIES. None of the Loan Documents create
any rights to or for the benefit of any Person not a party thereto.

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 23

<PAGE>

Section 9.11. NEGOTIATED JOINTLY. The parties have participated jointly in the
negotiation of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, there shall be no presumption or burden of proof which
arises favoring or disfavoring any party by virtue of the authorship of any of
the provisions hereof.

Section 9.12. NOTICES. All notices, requests, demands, waivers and
communications to any party under the Loan Documents shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, (ii) mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or (iii) sent by next-day or overnight mail or delivery or (iv) sent by
telecopy or telegram to the following address:

If to Borrower: New York Bagel Enterprises, Inc.
Lots A' Bagels, Inc.
300 IMA Plaza
250 North Water Street
Wichita, KS 67202-1213
Attn: Mr. Robert J. Geresi,
Chairman and Chief Executive Officer
316-267-8154 (facsimile)

with copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, KS 67202-4888
Attn: Gregory B. Klenda
316-267-0333 (facsimile)

If to Bank: M. Drayton Alldritt, Sr. Vice President
NationsBank, N.A.
P.O. Box 4
100 North Broadway
Wichita, KS 67201-0004
316-261-2234 (facsimile)

with copy to: Fleeson, Gooing, Coulson & Kitch, L.L.C.
125 North Market, Suite 1600
Wichita, KS 67202
Attn: Thomas J. Lasater
316-267-1754 (facsimile)

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 24

<PAGE>

or to such other address as shall be designated by such party in a written
notice to the other party in accordance with the foregoing procedure.

Section 9.13. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.

Section 9.14. APPLICABLE LAW. The laws of the State of Kansas shall govern the
construction and interpretation of this Agreement.

Section 9.15. CONFIDENTIALITY. Each party covenants and agrees that all non-
public information obtained from the other party pursuant to this Agreement
shall be kept strictly confidential and not be disclosed to any third party,
except as may be required by applicable law.

THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, ARE THE FINAL EXPRESSION
OF THE AGREEMENT BETWEEN BANK AND BORROWER AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT BETWEEN US. BANK ______
AND BORROWER _______ EACH HEREBY ACKNOWLEDGE AND AFFIRM THAT NO SUCH UNWRITTEN,
ORAL AGREEMENTS EXIST. EACH PARTY HERETO ACKNOWLEDGES THAT SUFFICIENT SPACE HAS
BEEN PROVIDED HEREIN, AND IN THE OTHER LOAN DOCUMENTS, FOR THE PLACEMENT OF
NONSTANDARD TERMS.

[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 25

<PAGE>

IN WITNESS WHEREOF, this Loan Agreement is executed on this 5th day of
September, 1997.

Borrower: NEW YORK BAGEL ENTERPRISES, INC.

By:
--------------------------------------------
Robert J. Geresi, Chairman & Chief Executive
Officer

STATE OF KANSAS )
) SS.
COUNTY OF SEDGWICK )

This instrument was acknowledged before me on September 5, 1997, by Robert J.
Geresi, Chairman and Chief Executive Officer of New York Bagel Enterprises, Inc.

-------------------------------
Signature of notarial officer
My Appointment Expires:

LOTS A' BAGELS, INC.

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

STATE OF KANSAS )
) SS.
COUNTY OF SEDGWICK )

This instrument was acknowledged before me on September 5, 1997, by Robert J.
Geresi as President of Lots A' Bagels, Inc.

-------------------------------
Signature of notarial officer

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 26

<PAGE>

My Appointment Expires:

Bank: NationsBank, N.A.

By:
--------------------------------------------
M. Drayton Alldritt, Senior Vice President

LOAN AGREEMENT
NationsBank, N.A./New York Bagel
Page 27

<PAGE>

EXHIBIT "A"

REQUEST FOR ADVANCE

<PAGE>

EXHIBIT "B"

OTHER LOAN DOCUMENTS

<PAGE>

AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of the
21st day of October, 1997,

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

"SELLER"

AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereinafter referred to as

"BUYER"

W I T N E S S E T H :

WHEREAS, Seller is the current owner of certain real property located in
the city of Stillwater, Oklahoma, and more particular described in Exhibit "A"
("Oklahoma Land"), and all buildings, structures, facilities, improvements and
fixtures located thereon, including, without limitation, an approximately 2,500
square foot facility currently used as a New York Bagel Cafe restaurant
("Oklahoma Improvements"). The Oklahoma Land and the Oklahoma Improvements are
hereinafter collectively referred to as the "Oklahoma Facility";

WHEREAS, Seller is the current owner of certain real property located in
the city of Springfield, Missouri, and more particular described in Exhibit "B"
("Missouri Land"), and all buildings, structures, facilities, improvements and
fixtures located thereon, including, without limitation, an approximately 1,890
square foot facility currently used as a New York Bagel Cafe restaurant
("Missouri Improvements"). The Missouri Land and the Missouri Improvements are
hereinafter collectively referred to as the "Missouri Facility";

WHEREAS, Seller is the current owner of certain real property located in
the city of Lubbock, Texas, and more particular described in Exhibit "C" ("Texas
Land"), and all buildings, structures, facilities, improvements and fixtures
located thereon, including, without limitation, an approximately 4,131 square
foot facility used as a New York Bagel Cafe restaurant ("Texas Improvements").
The Texas Land and the Texas Improvements are hereinafter collectively referred
to as the "Texas Facility"; and

WHEREAS, Seller desires to sell all of its right, title and interest in and
to the Oklahoma Facility, the Missouri Facility and the Texas Facility
(hereinafter collectively referred to as the "Properties") to Buyer, and Buyer
desires to purchase all of Seller's right, title and interest in and to all the
Properties from Seller, all on the terms and conditions of this Agreement.

<PAGE>

NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the parties hereto agree as follows:

1. PURCHASE AND SALE. Seller agrees to sell all of its right, title and
interest in and to all the Properties to Buyer, and Buyer agrees to purchase all
of Seller's right, title and interest in and to all the Properties from Seller,
on the terms and conditions hereinafter set forth in this Agreement.

2. PURCHASE PRICE.

2.1 The aggregate purchase price ("Purchase Price") for all the
Properties shall be One Million One Hundred Seventy-one Thousand One
Hundred Twenty-five Dollars ($1,171,125); which Purchase Price is comprised
of: (a) Three Hundred Forty-six Thousand One Hundred Twenty-five Dollars
($346,125) for the Oklahoma Facility ("Oklahoma Purchase Price"); (b) Four
Hundred Twenty-five Thousand Dollars ($425,000) for the Missouri Facility
("Missouri Purchase Price"); and (c) Four Hundred Thousand Dollars
($400,000) for the Texas Facility ("Texas Purchase Price").

2.2 The Purchase Price shall be paid at the Closing (as hereinafter
defined) by delivering the Oklahoma Purchase Price, the Missouri Purchase
Price and the Texas Purchase Price, respectively, to Seller by wire
transfer of immediately available federal funds.

3. CONDITION OF TITLE TO PROPERTIES.

3.1 At Closing, Seller shall assign to Buyer all of its right, title
and interest to each of the Properties free and clear of all liens, except
for (i) liens securing real property taxes and assessments, which
constitute liens not yet due and payable; and (ii) such other exceptions
and reservations (other than liens) shown on those certain Preliminary
Title Reports ("Preliminary Reports") issued by the title companies set
forth in Exhibit "D" ("Title Companies") for each of the Properties which
are approved in writing by Buyer. All exceptions to title permitted
pursuant to this Paragraph 3.1 are referred to in this Agreement as
"Permitted Exceptions." Seller shall provide Buyer with a copy of the
Preliminary Reports and copies of all exceptions described therein as soon
as possible. Buyer shall have ten (10) business days after the date of
Buyer's receipt thereof within which to notify Seller in writing of Buyer's
disapproval of any exceptions set forth in the Preliminary Reports. In the
event of Buyer's disapproval of any exception in any of the Preliminary
Reports, this Agreement shall thereupon terminate.

3.2 At the Closing, Buyer's right, title and interest in and to the
Properties shall be evidenced by the commitment of the title company to
issue an ALTA Owner's Form B-1970 policy of title insurance with all
endorsements required by Buyer, with liability in the amount of the
Oklahoma Purchase Price, the Missouri Purchase Price and the Texas Purchase
Price, respectively, showing fee simple interest in the Properties vested
in Buyer, subject only to the Permitted Exceptions (collective, the "Title
Policies") and the standard printed

<PAGE>

exceptions (except that the exceptions relating to mechanic's liens and
survey matters shall be deleted from the final title insurance policy).

4. BUYER'S CONTINGENCIES. Buyer's obligation to purchase any of the
Properties is subject to satisfaction of the following contingencies described
in Subparagraphs (a) through (g) in this Paragraph 4 ("Contingencies") prior to
the Closing Date (as hereinafter defined) or earlier date set forth below. Each
and all of the following Contingencies are for the sole benefit of Buyer and may
be waived or deemed satisfied by Buyer in Buyer's sole and absolute discretion:

(a) Buyer shall have approved and both Buyer and Seller shall
have executed those certain leases ("Leases") between Buyer, as the
lessor, and Seller, as the lessee, relating to each of the Properties,
upon terms and conditions mutually satisfactory to the parties, each
of which Lease shall by its terms have the Closing Date as the
"Commencement Date" thereunder.

(b) Buyer shall have reviewed and approved each of the
Preliminary Reports and all recorded exceptions to title thereon, as
and when provided under Paragraph 3 hereof, and Title Companies shall
be committed to issue all Title Policies as required hereunder without
expense to Buyer.

(c) Seller shall have delivered to Buyer no later than five (5)
days prior to the date scheduled for Closing, and Buyer shall have
reviewed and approved, an ALTA land title survey for each of the
Properties, each prepared by a professional land surveyor entirely
satisfactory to Buyer, showing all improvements located thereon,
plotting all record easements, covenants and other encumbrances
located thereon, with the record legal description of appearing on the
face thereof.

(d) Seller shall have delivered to Buyer, and Buyer shall have
reviewed and approved, a tax lien search as to each of the Properties,
each updated as of not earlier than thirty (30) days prior to the
Closing Date.

(e) Seller shall have delivered to Buyer, and Buyer shall have
reviewed and approved, a Phase I Environmental Site Assessment as to
each of the Properties dated within three hundred and sixty (360) days
of the Closing Date.

(f) Buyer shall have approved its inspection and examination of
the physical condition of the Properties. Buyer shall have access to
all the Properties at reasonable times and shall have the right to
conduct, at Buyer's expense, soil tests, engineering feasibility
studies, environmental investigations and such other studies with
respect to the physical condition of all the Properties as Buyer may
desire. Buyer shall hold and save Seller harmless from and against
any and all loss, cost, damage, liability, entry or expense, arising
out of or in any way related to damage to property, injury to or death
of persons, or the assertion of lien claims caused by such

<PAGE>

entry, inspection and implementation of soil tests, environmental
investigations and other studies with respect to the physical
condition of the Properties; provided, however, that notwithstanding
any contrary provision contained herein, Buyer shall have no liability
to Seller for any diminution in value of the Properties directly or
indirectly resulting from or related to any information pertaining to
the Properties discovered by Buyer and reported to Seller or its
agents pursuant to the terms of this Agreement. If Buyer elects to
terminate this Agreement by reason of failure of the Contingencies set
forth in this Paragraph 4(f), Buyer shall promptly upon such election
deliver to Seller all written reports, studies and information
prepared by third parties for Buyer which pertain to the physical
condition of the Properties.

(g) Seller shall have delivered to Buyer and Title Companies all
corporate resolutions, certificates and other documentation as may be
reasonably required by Buyer and/or Title Companies.

(h) Buyer's obligation to purchase the Properties is conditioned
on Buyer obtaining on or before the Closing financing of the Purchase
Price on terms and conditions acceptable to Buyer in Buyer's sole
discretion. In the event this contingency is not met by the Closing
Date, this Agreement shall, at Buyer's option, terminate without any
remaining liability of any party.

If Buyer disapproves any Contingency prior to the Closing or earlier date
set forth above, Buyer's sole remedy shall be to terminate this Agreement and
Seller shall have no obligation to remedy any Contingency which Buyer
disapproves.

5. REPRESENTATIONS AND WARRANTIES BY SELLER.

5.1 Seller makes the representations and warranties in this Paragraph
5, each and all of which shall survive any and all inquiries and
investigations made by Buyer and shall survive the Closing:

(a) Seller is a corporation duly organized, validly existing and
good standing under the laws of the State of Kansas which has the
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. Seller, and the specific,
individual parties signing this Agreement on behalf of Seller,
represent and warrant that the parties signing this Agreement on
behalf of Seller have the full legal power, authority and right to
execute and deliver this Agreement.

(b) Neither the entering into this Agreement nor the performance
of any of Seller's obligations under this Agreement will violate the
terms of any contract, agreement or instrument to which Seller is a
party.

<PAGE>

(c) Each of the Properties is zoned to permit the operation of a
restaurant thereon, and all improvements on each of the Properties
conform to all existing building, zoning, environmental or other laws
and ordinances, and are in good operating condition and repair as of
the Closing Date. Seller has not received any notice of any presently
uncured violation of any law, ordinance, rule or regulation
(including, without limitation, those relating to zoning, building,
fire, health and safety) of any governmental, quasi-governmental
authority bearing on the construction, operation, ownership or use of
any of the Properties.

(d) Seller has not received any notice of any pending widening,
modification or realignment of any street or highway contiguous to
either property or any existing or proposed eminent domain proceeding
which would result in a taking of all or any part of any of the
Properties.

(e) None of the easements, covenants, conditions, restrictions
or agreements to which any of the Properties is subject interferes
with or is breached by the use or operation of the Properties as
presently used and operated as a restaurant.

(f) Seller has not been served with any litigation, and no
arbitration proceedings have been commenced, which do or will affect
any aspect of any of the Properties or Seller's ability to perform its
obligations under this Agreement. In addition, Seller has not been
threatened in writing with any litigation (or arbitration) by a third
party which would affect any aspect of any of the Properties or
Seller's ability to perform its obligations under this Agreement.

(g) Adequate gas, telephone, electricity, water and sewer
facilities are available to all the Properties, and all such
facilities serving the Properties have been paid for such that Buyer
will not be subject to charges or assessments for capital or hookup
costs relating to such facilities.

(h) There are not any written commitments to, or written
agreements with, any governmental or quasi-governmental authority or
agency materially affecting any of the Properties which have not been
heretofore disclosed by Seller to Buyer in writing.

(i) All expenses in connection with the construction of all the
improvements on all the Properties have been fully paid, such that
there is no possibility of any mechanics' or materialmens' liens being
asserted or filed in the future against any of the Properties in
respect of any initial construction activities undertaken prior to the
Closing.

<PAGE>

(j) Seller has not been served or notified by any governmental
or quasi-governmental authority that (i) any of the Properties, or any
adjoining property, contains or may contain any "Hazardous Materials"
in violation of any "Environmental Regulations" (as those terms are
defined in Paragraph 5.1(k) below); or (ii) Hazardous Materials have
heretofore been stored, used or maintained on, in or under any of the
Properties in violation of any Environmental Regulations. In
addition, to the best of Seller's knowledge, but without any specific
investigation therefore, there are no Hazardous Materials located in,
on or under all or any portion of any of the Properties or the area
surrounding any of the Properties.

(k) As used in this Agreement, the terms "Environmental
Regulations" and "Hazardous Materials" shall have the following
meanings:

(i) "ENVIRONMENTAL REGULATIONS" shall mean all applicable
statutes, regulations, rules, ordinances, codes, license,
permits, orders, approvals, plans, authorizations, and similar
items, of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial
and administrative and regulatory decrees, judgments and orders
relating to the protection of human health or the environment,
including, without limitation: (1) all requirements, including,
without limitation, those pertaining to reporting, licensing,
permitting, investigation and remediation of emissions,
discharges, releases or threatened releases of Hazardous
Materials, whether solid, liquid or gaseous in nature, into the
air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, whether
solid, liquid or gaseous in nature; and (2) all requirements
pertaining to the protection of the health and safety of
employees or the public.

(ii) "HAZARDOUS MATERIALS" shall mean (1) any flammables,
explosive or radioactive materials, hazardous waste, toxic
substances or related materials including, without limitation,
substances defined as "hazardous substances," "hazardous
materials," "toxic substances" or "solid waste" in the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
ET SEQ.; the Toxic Substances Control Act, 15 U.S.C., Section
2601 ET SEQ.; the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 ET SEQ.; Occupational Safety and Health
Act, 29 U.S.C. Section 651, ET SEQ.; and any and all similar
state and local laws and ordinances, and the regulations now or
hereafter adopted, published and/or promulgated pursuant thereto;
(2) those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and amendments thereto)
or by the Environmental Protection

<PAGE>

Agency (or any successor agency) as hazardous substances
(40 C.F.R. Part 302 and amendments thereto); (3) those substances
defined as "hazardous wastes," "hazardous substances" or "toxic
substances" in any similar federal, state or local laws or in the
regulations adopted and publications promulgated pursuant to any
of the foregoing laws or which otherwise are regulated by any
governmental authority, agency, department, commission, board or
instrumentality of the United States of America, the States of
Oklahoma, Missouri or Texas, or any political subdivision
thereof; (4) any pollutant or contaminant or hazardous, dangerous
or toxic chemicals, materials, or substances within the meaning
of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and
administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, all as amended; (5) petroleum or
any by-products thereof; (6) any radioactive material, including
any source, special nuclear or by-product material as defined at
42 U.S.C. Sections 2011 ET SEQ., as amended, and in the
regulations adopted and publications promulgated pursuant to said
law; (7) asbestos in any form or condition; and (8)
polychlorinated biphenyls.

(l) There are no other written agreements for the use, occupancy
or possession of any of the Properties, or any portion thereof. There
are no oral agreements for the use, occupancy or possession of any of
the Properties or any portion thereof.

(m) Until the Closing, each of the Properties will continue to
be operated in substantially the same manner as operated as of the
date of this Agreement. Seller will not do or cause anything to be
done that would change, alter or modify the operation of each of the
Properties in the manner in which it is operated as of the date of
this Agreement, without the prior written consent of Buyer.

(n) Seller has neither engaged nor dealt with any broker or
finder in connection with the sale contemplated by this Agreement and
Seller shall indemnify, defend and hold Buyer harmless from and
against, any commission or finder's fee payable to any party who
represents or claims to represent Seller.

(o) Seller will not alter the physical condition of any of the
Properties from and after the date of this Agreement through, and
including, the Closing Date, reasonable wear and tear excepted.
Subject to Paragraphs 10 and 11 hereof, if, through no fault of
Seller, the physical condition of any of the Properties is different
as of the Closing from that as of the date of this Agreement, the
terms and conditions of Paragraph 5.2, below shall apply.

<PAGE>

5.2 Each and all of the representations and warranties set forth in
Paragraph 5.1 above shall be true and correct as of the Closing; provided
that, if, prior to the Closing, new events have occurred which were beyond
the control of Seller (other than pursuant to Paragraphs 10 and 11 hereof)
and which render any previously true representation or warranty untrue,
Seller shall immediately disclose those matters by written notice to Buyer.
Buyer shall have ten (10) business days after the earlier of (i) such
disclosure; or (ii) Buyer's independent discovery that such representation
or warranty has become untrue, to elect, in its sole and absolute
discretion, and as its sole remedy, by written notice to Seller within said
ten (10) business day period, whether (i) to purchase the Properties or
(ii) terminate this Agreement. If Buyer fails to notify Seller of its
election to terminate this Agreement within said ten (10) business day
period provided above, Buyer shall be deemed to have accepted the modified
representations and warranties and elected to purchase the Properties.

6. REPRESENTATIONS AND WARRANTIES BY BUYER.

Buyer makes the following representations and warranties in this Paragraph
6, each and all of which shall survive any and all inquiries and investigations
made by Seller and shall survive the Closing and recordation of the Warranty
Deeds:

6.1 Buyer is a corporation duly organized, validly existing and good
standing under the laws of the State of Kansas which has the power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. Buyer, and the specific, individual parties signing
this Agreement on behalf of Buyer represent and warrant that the parties
signing this Agreement on behalf of Buyer have the full legal power,
authority and right to execute and deliver this Agreement.

6.2 Buyer has neither engaged nor dealt with any broker or finder in
connection with the sale contemplated by this Agreement and Buyer shall
indemnify, defend and hold Seller harmless from and against, any commission
or finder's fee payable to any party who represents or claims to represent
Buyer.

7. INDEMNIFICATION.

7.1 Subject to any other provisions of this Agreement to the
contrary, each party agrees to indemnify ("Indemnitor") and hold the other
party ("Indemnitee") harmless from and against any claim, loss, damage or
expense, including any reasonable attorneys' fees (including attorneys'
fees on appeal), asserted against or suffered by the Indemnitee resulting
from:

(a) Any breach by the Indemnitor of this Agreement; or

(b) The inaccuracy or breach of any of the representations,
warranties or covenants made by the Indemnitor in this Agreement.

<PAGE>

7.2 The Indemnitee shall submit any claim for indemnification under
this Agreement to the Indemnitor in writing within a reasonable time after
Indemnitee determines that an event has occurred which has given rise to a
right of indemnification under this Paragraph 7 and shall give Indemnitor a
reasonable opportunity to investigate and cure any default of Indemnitor
under this Agreement and eliminate or remove any claim by a third party.
Notwithstanding the foregoing, if the nature of Indemnitor's default or the
third party claim is such that it would be impracticable or unreasonable to
give Indemnitor an opportunity to investigate and cure such default and
remove such claim, Indemnitee need not give Indemnitor such opportunity.

7.3 If such claim for indemnification relates to a claim or demand
presented in writing by a third party against Indemnitee, Indemnitor shall
have the right to employ counsel reasonably acceptable to Indemnitee to
defend any such claim or demand, and Indemnitee shall make available to
Indemnitor, or its representatives, all records and other materials in its
possession or under its control reasonably required by Indemnitor for its
use in contesting such liability. If Indemnitor does not elect to defend
any such claim or demand, Indemnitee may do so at its option, but shall not
have any obligation to do so.

8. CLOSING.

8.1 Provided that all Contingencies set forth in Paragraph 4 have
been satisfied or waived, as provided therein, the parties shall close the
transactions ("Closing") on November 1, 1997 or earlier date agreed upon by
the parties ("Closing Date"). Upon the Closing, Seller shall deliver
exclusive right of possession of each of the Properties to Buyer subject
only to the permitted exceptions.

8.2 At the Closing, Buyer shall deliver to Seller the following funds
and documents:

(a) The Purchase Price (in the aggregate amount specified in
Paragraph 2), as adjusted pursuant to this Agreement; and

(b) Duly executed Leases between Buyer, as lessor, and Seller,
as lessee, relating to each of the Properties.

8.3 Upon the Closing, Seller shall pay all closing costs and expenses
incurred by both Seller and Buyer in connection with this transaction,
including, without limitation, (a) the entire cost of the Title Policies;
(b) the cost of any and all documentary transfer tax or stamps or other
sales tax; (c) all recording fees; and (d) all of Buyer's costs and
expenses as defined below. "Buyer's costs and expenses" shall mean all
costs and expenses incurred by Buyer, including, without limitation,
Buyer's attorneys' fees and expenses not to exceed Five Thousand Dollars
($5,000) in connection with the negotiation, drafting, due diligence review
and investigation, and the closing of the transactions contemplated herein.
Buyer is to incur

<PAGE>

no direct cost or expense in connection with the Closing of the
transactions contemplated herein.

8.4 If the Closing fails to occur as provided hereunder as a result
of the default of this Agreement by a party, the defaulting party shall pay
all title charges; provided, however, that nothing in this Paragraph 8
shall be deemed to limit, and the provisions of this Paragraph 8 shall be
in addition to, all other rights and remedies of the nondefaulting party.

9. PRORATIONS. There shall be no prorations of any costs or expenses
related to any of the Properties owing to the fact that the Leases are so-called
triple-net leases and all costs and expenses which would otherwise be prorated
shall be paid by Seller pursuant to the Leases.

10. DAMAGE OR DESTRUCTION PRIOR TO CLOSING. If any of the Properties, or
any portion thereof, is damaged or destroyed prior to the Closing from any cause
whatsoever, whether insured risk or not, including, without limitation, fire,
flood, accident or other casualty which, according to Buyer's and Seller's best
estimate, would cost more than Ten Thousand Dollars ($10,000) to repair, Buyer
shall have the option, upon written notice to Seller, to either (i) terminate
this Agreement, or (ii) purchase all the Properties. If Buyer elects to
purchase the Properties, Seller shall promptly repair such Property. In the
event that Buyer's and Seller's best estimate of the cost of repair is Ten
Thousand Dollars ($10,000) or less, Buyer shall purchase the Properties and
Seller shall promptly repair such Property. Should any damage or destruction
occur prior to the Closing, the date scheduled for the Closing shall be extended
for a period of time not to extend thirty (30) days, for the purpose of allowing
Buyer and Seller sufficient time to estimate the cost of repair. If Buyer fails
to notify Seller of its election under this Paragraph 10, Buyer shall be deemed
to have elected to purchase the Properties.

11. EMINENT DOMAIN.

11.1 The words "condemnation" or "condemned" as used in this Paragraph
11 shall mean the exercise of, or intent to exercise, the power of eminent
domain expressed in writing, as well as the filing of any action or
proceeding for such purpose, by any person, entity, body, agency or
authority having the right or power of eminent domain (the "condemning
authority").

11.2 If Seller receives written notice from a condemning authority
advising of a condemnation of all or any portion of the Properties
("Condemnation Notice"), Seller shall immediately advise Buyer of same in
writing and deliver therewith a copy of the Condemnation Notice. Within
three (3) days after Buyer's receipt of the Condemnation Notice, Buyer
shall notify Seller of its election to either (i) terminate this Agreement
or (ii) purchase the Properties. If Buyer elects to purchase the
Properties, Seller shall transfer to Buyer at the Closing all proceeds from
condemnation or Seller's right to receive all such proceeds. If Buyer
fails to notify Seller of its election under this Paragraph 11, Buyer shall
be deemed to have elected to purchase the Properties.

<PAGE>

12. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants, conditions, agreements and obligations contained in or relating to
this Agreement shall survive the Closing and the recordation of the Warranty
Deeds.

13. NOTICES. All notices to be given pursuant to this Agreement shall be
either (i) personally delivered; (ii) sent via certified or registered mail,
postage prepaid; or (iii) overnight courier. If sent via personal delivery,
receipt shall be deemed effective on the day of delivery. If sent via certified
or registered mail, receipt shall be deemed effective the second business day
after being deposited in the United States mail. If sent via overnight courier,
receipt shall be deemed effective the next business day after the sending
thereof. All notices to be given pursuant to this Agreement shall be given to
the parties at the following respective address:

To Buyer: Commercial Equity, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: David L. Murfin, President
Telecopier No.: 316-267-6004

with a copy to: Foulston & Siefkin L.L.P.
700 NationsBank Financial Center
Wichita, Kansas 67202
Attention: William R. Wood II
Telecopier No.: 316-267-6345

To Seller: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: Paul R. Hoover
Vice President - Strategic Planning
Telecopier No.: (316) 267-8154

with a copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, Kansas 67202-4888
Attention: Gregory B. Klenda
Telecopier No.: (316) 267-0333

14. ENTIRE AGREEMENT. This Agreement, and the exhibits attached hereto,
represent the entire Agreement between the parties in connection with the
transactions contemplated hereby and the subject matter hereof and this
Agreement supersedes and replaces any and all prior and

<PAGE>

contemporaneous agreements, understandings and communications between the
parties, whether oral or written, with regard to the subject matter hereof.
There are no oral or written agreements, representations or inducements of
any kind existing between the parties relating to this transaction which are
not expressly set forth herein. This Agreement may not be modified except by
a written agreement signed by both Buyer and Seller.

15. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, legal representatives,
administrators, successors in interest and assigns.

16. WAIVER. No waiver by any party at any time of any breach of any
provision of this Agreement shall be deemed a waiver or a breach of any other
provision herein or a consent to any subsequent breach of the same or another
provision. If any action by any party shall require the consent or approval of
another party, such consent or approval of such action on any one occasion shall
not be deemed a consent to or approval of such action on any subsequent occasion
or a consent to or approval of any other action.

17. CAPTIONS AND HEADINGS. The captions and paragraph numbers appearing
in this Agreement are inserted only as a matter of convenience and do not
define, limit, construe, or describe the scope or intent of this Agreement.

18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be considered an original and all of which taken together shall
constitute one and the same instrument.

19. GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in, and shall be construed in accordance with, the laws of the State of
Kansas.

20. ATTORNEYS' FEES. If either party named herein brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action (or proceeding), on trial or appeal, shall
be entitled to its reasonable attorneys' fees to be paid by the losing party as
fixed by the Court (or if applicable, the arbitrator).

21. TIME OF ESSENCE. Time is of the essence with respect to all matters
contained in this Agreement.

22. DATE OF AGREEMENT. All references in this Agreement to "the date of
this Agreement" or "the date hereof" shall be deemed to refer to the date set
forth in the first paragraph of this Agreement.

23. INVALIDITY OF ANY PROVISION. If any provision (or any portion of any
provision) of this Agreement is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of this Agreement, the
legality, validity, and enforceability of the remaining provisions (or the
balance of such provision) shall not be affected thereby.

<PAGE>

24. DRAFTING OF AGREEMENT. Buyer and Seller acknowledge that this
Agreement has been negotiated at arm's length, that each party has been
represented by independent counsel and that this Agreement has been drafted by
both parties and no one party shall be construed as the draftsperson.

25. NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is entered into for
the sole benefit of Buyer and Seller and no other parties are intended to be
direct or incidental beneficiaries of this Agreement and no third party shall
have any right in, under or to this Agreement.

26. INCORPORATION OF EXHIBITS. Each and all of the exhibits to this
Agreement are incorporated herein as if set forth in full in this Agreement.

27. PUBLIC ANNOUNCEMENTS. The parties agree that all statements and/or
public announcements, including those to the media, concerning this transaction
shall be subject to the parties' collective approval, which approval shall not
be unreasonably or untimely withheld.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph of this Agreement.

NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation

By:
------------------------------------------
Robert J. Geresi, Chief Executive Officer

"SELLER"

COMMERCIAL EQUITY, INC.,
a Kansas corporation

By:
------------------------------------------
David L. Murfin, President

"BUYER"

<PAGE>

EXHIBIT A

Legal description of Oklahoma Land

Lot 2, Boomer Creek Commercial Park, Payne County, State of Oklahoma,
commonly known as 414 North Perkins Road, Stillwater, Oklahoma 74074

<PAGE>

EXHIBIT B

Legal description of Missouri Land

All of Lot 1 in Lone Pine Place, a subdivision in the City of
Springfield, Greene County, Missouri, except the west 50 feet

<PAGE>

EXHIBIT C

Legal description of Texas Land

Tract "N" West Chase Addition to the City of Lubbock, Lubbock County,
Texas

<PAGE>

EXHIBIT D

List of Title Companies

Stillwater, Oklahoma Land: Lawyers Title of Oklahoma City, Inc.
Lawyers Title Building
Suite 202
1141 N. Robinson
Oklahoma City, Oklahoma 73103
Attention: Kristi Burns

Springfield, Missouri Land: Hogan Land Title Company
921 Boonville
Springfield, Missouri 65802
Attention: Suzi Harleman

Lubbock, Texas Land: Service Title Company
1502 Texas Avenue
Lubbock, Texas 79401
Attention: Tom Jones

<PAGE>

LEASE

BETWEEN

COMMERCIAL EQUITY, INC., as Lessor

and

NEW YORK BAGEL ENTERPRISES, INC., as Lessee

November 1, 1997

<PAGE>

TABLE OF CONTENTS

ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Leased Property . . . . . . . . . . . . . . . . . . 1
1.2 Term. . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Definitions . . . . . . . . . . . . . . . . . . . . 2

ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Minimum Rent. . . . . . . . . . . . . . . . . . . . 6
(a) Initial Term . . . . . . . . . . . . . . . . . 6
(b) Extended Terms . . . . . . . . . . . . . . . . 6
3.2 Additional Charges. . . . . . . . . . . . . . . . . 6
3.3 Net Lease . . . . . . . . . . . . . . . . . . . . . 6
3.4 Late Charge . . . . . . . . . . . . . . . . . . . . 7

ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Payment of Impositions. . . . . . . . . . . . . . . 7
4.2 Notice of Impositions . . . . . . . . . . . . . . . 8
4.3 Utility Charges . . . . . . . . . . . . . . . . . . 9
4.4 Insurance Premiums. . . . . . . . . . . . . . . . . 9
4.5 Payables. . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 No Termination, Abatement, etc. . . . . . . . . . . 9
5.2 Abatement Procedures. . . . . . . . . . . . . . . . 10

ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Ownership of the Leased Property. . . . . . . . . . 10
6.2 Lessee's Personal Property. . . . . . . . . . . . . 10

ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Condition of Leased Property. . . . . . . . . . . . 10
7.2 Use of the Leased Property. . . . . . . . . . . . . 11

ARTICLE VIII. . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Compliance with Legal and Insurance
Requirements, Instruments, etc. . . . . . . . . . . 11
8.2 Legal Requirement Covenants . . . . . . . . . . . . 11

<PAGE>

ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.1 Maintenance and Repair. . . . . . . . . . . . . . . 12
9.2 Encroachments, Restrictions, etc. . . . . . . . . . 12

ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Lessee's Obligations for Hazardous Materials. . . . 13
10.2 Definition of Hazardous Materials . . . . . . . . . 13

ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. No Liens. . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Permitted Contests. . . . . . . . . . . . . . . . . 14

ARTICLE XIII. . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.1 General Insurance Requirements. . . . . . . . . . . 15
13.2 Replacement Cost. . . . . . . . . . . . . . . . . . 15
13.3 Additional Insurance. . . . . . . . . . . . . . . . 16
13.4 Waiver of Subrogation . . . . . . . . . . . . . . . 16
13.5 Form Satisfactory, etc. . . . . . . . . . . . . . . 16
13.6 Increase in Limits. . . . . . . . . . . . . . . . . 16
13.7 Blanket Policy. . . . . . . . . . . . . . . . . . . 17
13.8 No Separate Insurance . . . . . . . . . . . . . . . 17
13.9 Continuous Coverage . . . . . . . . . . . . . . . . 17

ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Insurance Proceeds. . . . . . . . . . . . . . . . . 17
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance Proceeds . . . . . 18
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance. . . . . . . . 18
14.4 Lessee's Property . . . . . . . . . . . . . . . . . 18
14.5 Restoration of Lessee's Property. . . . . . . . . . 18
14.6 No Abatement of Rent. . . . . . . . . . . . . . . . 19
14.7 Termination of Option to Extend . . . . . . . . . . 19
14.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.1 Definitions . . . . . . . . . . . . . . . . . . . . 19
15.2 Parties' Rights and Obligations . . . . . . . . . . 19
15.3 Total Condemnation. . . . . . . . . . . . . . . . . 19
15.4 Allocation of Portion of Award. . . . . . . . . . . 20

<PAGE>

15.5 Partial Taking. . . . . . . . . . . . . . . . . . . 20
15.6 Temporary Taking. . . . . . . . . . . . . . . . . . 20

ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.1 Events of Default . . . . . . . . . . . . . . . . . 21
16.2 Certain Remedies. . . . . . . . . . . . . . . . . . 23
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . 23
16.4 Waiver. . . . . . . . . . . . . . . . . . . . . . . 24
16.5 Application of Funds. . . . . . . . . . . . . . . . 24

ARTICLE XVII. . . . . . . . . . . . . . . . . . . . . . . . . . 25
17. Lessor's Right to Cure Lessee's Default . . . . . . 25

ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . 25
18.1 Options to Extend . . . . . . . . . . . . . . . . . 25
18.2 Minimum Rent During Extended Terms. . . . . . . . . 25

ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . 26
19. Holding Over. . . . . . . . . . . . . . . . . . . . 26

ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . 26
20. Risk of Loss. . . . . . . . . . . . . . . . . . . . 26

ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . 26
21. Indemnification . . . . . . . . . . . . . . . . . . 26

ARTICLE XXII. . . . . . . . . . . . . . . . . . . . . . . . . . 27
22.1 Subletting and Assignment . . . . . . . . . . . . . 27
22.2 Attornment. . . . . . . . . . . . . . . . . . . . . 28

ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . 28
23. Officers' Certificates. . . . . . . . . . . . . . . 28

ARTICLE XXIV. . . . . . . . . . . . . . . . . . . . . . . . . . 28
24. Lessor's Right to Inspect . . . . . . . . . . . . . 28

ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . 28
25. No Waiver . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE XXVI. . . . . . . . . . . . . . . . . . . . . . . . . . 29
26. Remedies Cumulative . . . . . . . . . . . . . . . . 29

ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . 29
27. Acceptance of Surrender . . . . . . . . . . . . . . 29

iii

<PAGE>

ARTICLE XXVIII. . . . . . . . . . . . . . . . . . . . . . . . . 29
28. No Merger of Title. . . . . . . . . . . . . . . . . 29

ARTICLE XXIX. . . . . . . . . . . . . . . . . . . . . . . . . . 29
29. Conveyance by Lessor. . . . . . . . . . . . . . . . 29

ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30. Quiet Enjoyment . . . . . . . . . . . . . . . . . . 29

ARTICLE XXXI. . . . . . . . . . . . . . . . . . . . . . . . . . 30
31. Notices . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XXXII . . . . . . . . . . . . . . . . . . . . . . . . . 31
32.1 Lessor May Grant Liens. . . . . . . . . . . . . . . 31
32.2 Lessee's Right to Cure. . . . . . . . . . . . . . . 31
32.3 Breach by Lessor. . . . . . . . . . . . . . . . . . 32

ARTICLE XXXIII. . . . . . . . . . . . . . . . . . . . . . . . . 32
33.1 Survival of Obligations . . . . . . . . . . . . . . 32
33.2 Late Charges; Interest. . . . . . . . . . . . . . . 32
33.3 Limits of Lessor's Liability. . . . . . . . . . . . 32
33.4 Addendum, Amendments and Exhibits . . . . . . . . . 32
33.5 Headings. . . . . . . . . . . . . . . . . . . . . . 32
33.6 Time. . . . . . . . . . . . . . . . . . . . . . . . 32
33.7 Days. . . . . . . . . . . . . . . . . . . . . . . . 32
33.8 Rent. . . . . . . . . . . . . . . . . . . . . . . . 33
33.9 Applicable Law. . . . . . . . . . . . . . . . . . . 33
33.10 Successors and Assigns. . . . . . . . . . . . . . . 33
33.11 Recordation . . . . . . . . . . . . . . . . . . . . 33
33.12 Prior and Future Agreements . . . . . . . . . . . . 33
33.13 Partial Invalidity. . . . . . . . . . . . . . . . . 33
33.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . 33
33.15 Authority of Lessor and Lessee. . . . . . . . . . . 33
33.16 Relationship of the Parties . . . . . . . . . . . . 33
33.17 Counterparts. . . . . . . . . . . . . . . . . . . . 34
33.18 Brokers . . . . . . . . . . . . . . . . . . . . . . 34
33.19 Computer Disc . . . . . . . . . . . . . . . . . . . 34

<PAGE>

LEASE

THIS LEASE (this "Lease") is made as of this 1st day of November, 1997, by
and between COMMERCIAL EQUITY, INC., a Kansas corporation, herein called
"Lessor," and NEW YORK BAGEL ENTERPRISES, INC., a Kansas corporation, herein
called "Lessee," subject to the terms, conditions and contingencies set forth
below.

ARTICLE I

1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee, and Lessee rents and hires from
Lessor all of the following (collectively, the "Leased Property"):

(i) The real property described in Exhibit "A" attached hereto
(the "Land");

(ii) All buildings, structures, Fixtures (as hereinafter defined)
and other improvements of every kind including, without limitation, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site
and off-site), parking areas and roadways appurtenant to such buildings and
structures presently situated upon the Land (collectively, the "Leased
Improvements");

(iii) All easements, rights and appurtenances relating to the
Land and the Leased Improvements; and

(iv) All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components thereof,
permanently affixed to or incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-cooling and air conditioning
systems and apparatus, sprinkler systems and fire and theft protection
equipment, all of which to the greatest extent permitted by the law, are hereby
deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, to the extent
acquired by Lessor pursuant to the "Purchase Agreement" as defined in Article II
hereof (collectively, the "Fixtures").

The Leased Property includes the Building operated as a New York Bagel
Cafe restaurant and located at the Location set forth in Schedule 1 attached
hereto. Notwithstanding the foregoing, the Leased Property shall not include
any property not acquired by Lessor from the Seller pursuant to the Purchase
Agreement. The Leased Property is subject to all covenants, conditions,
restrictions, easements, and other matters of record, and all other matters that
affect title, zoning and any other matters set forth in that certain title
policy issued by the title company set forth in Schedule 1 attached hereto
concurrently with Lessor's purchase of the Leased Property and all matters
disclosed in the survey obtained in connection with such title insurance
(collectively, the "Permitted Title Matters").

<PAGE>

1.2 TERM. The initial term of this Lease (the "Initial Term") shall
be the period commencing on the closing (the "Closing") under the Purchase
Agreement (the "Commencement Date") and expiring fifteen (15) years after the
Commencement Date. Lessee has the right to extend the term of this Lease, at
Lessee's option, as provided in Article XVIII, below. (The Initial Term plus
all validly exercised options to extend, if any, shall be referred to herein as
the "Term").

ARTICLE II

2. DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided, (i) the terms defined in this Article II have the meanings
assigned to them in this Article II and include the plural as well as the
singular; (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles at the time applicable; and (iii) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Article, Paragraph or other subdivision:

ADDITIONAL CHARGES. As defined in Paragraph 3.2.

ADDITIONAL RENT. As defined in Paragraph 3.1.

AFFILIATE. When used with respect to any corporation, the term
"Affiliate" shall mean any person or entity (including any trust) which,
directly or indirectly, controls or is controlled by or is under common control
with such corporation. For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through the ownership
of voting securities, partnership interests or other equity interests. For the
purposes of this definition, "person" shall mean any natural person, trust,
partnership, corporation, joint venture or other legal entity.

BUILDING. That certain building currently operated as a New York
Bagel Cafe restaurant which is part of the Leased Property, as defined in
Article I, above.

BUILDING MORTGAGE. As defined in Article XIII.

BUILDING MORTGAGEE. As defined in Article XIII.

BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday, and Friday,
which is not a day on which national banks in the State of Kansas are authorized
or obligated, by law or executive order, to close.

CALENDAR YEAR. The period from January 1 through and including
December 31 in the same calendar year.

<PAGE>

CODE. The Internal Revenue Code of 1986, as amended.

ENCUMBRANCE. As defined in Article XXXII.

EVENT OF DEFAULT. As defined in Article XVI.

EXTENDED TERM. As defined in Article XVIII.

FIXTURES. As defined in Article I.

IMPOSITIONS. Collectively, all taxes (including, without limitation,
all ad valorem, sales and use or any other taxes as the same relate to or are
imposed upon Lessee or Lessor or the business conducted upon the Leased
Property), assessments (including, without limitation, all assessments for
public improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term), water,
sewer or other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property, Lessor, or the business conducted thereon by
Lessee (including all interest and penalties thereon due to any failure in
payment by Lessee), and all increases in all the above from any cause
whatsoever, including reassessment, which at any time prior to, during or in
respect of the Term may be assessed or imposed on or in respect of or be a lien
upon (a) Lessor's interest in the Leased Property or any part thereof; (b) the
Leased Property or any part thereof; or (c) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Leased Property or the leasing or use of the Leased Property or any part
thereof by Lessee. Without limiting the foregoing, the term "Imposition" shall
include any sales tax paid under this Lease, depreciation recapture, any other
taxes (except for the specific exclusions stated below), fees or charges imposed
by the State and any potential subdivision thereof relating to the Leased
Property, or this Lease, whether relating to any period prior to or after the
Commencement Date. Nothing contained in this Lease shall be construed to
require Lessee to pay (1) the following taxes and fees to the extent they relate
to Lessor's business generally (as opposed to relating specifically to Lessor's
ownership of the Building, lease thereof to Lessee or income therefrom): any
federal, state or local income tax of Lessor, taxes based on outstanding
corporate shares of Lessor or Lessor's equity or capitalization, regardless of
whether denominated as an income tax, franchise tax, capital tax or otherwise;
(2) any income or capital gain tax imposed with respect to the sale, exchange or
other disposition, or operation, by Lessor of any Leased Property or the
proceeds thereof; or (3) estate, inheritance, gift taxes or documentary transfer
taxes.

INSURANCE REQUIREMENTS. All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.

LAND. As defined in Article I.

<PAGE>

LEASE. As defined in the Preamble.

LEASE YEAR. The twelve (12) month period from January 1 to December
31 in each calendar year. In the case of the beginning of the Initial Term, the
provision "Lease Year" shall mean the period from the Commencement Date (defined
in Paragraph 1.2, above) to December 31, 1997; in the case of the end of the
Term, the provision "Lease Year" shall mean the period from the last January 1
to occur in the Term to the date of expiration of the Lease. The Lease Year
1997 shall mean the Commencement Date through December 31, 1997; the Lease Year
1998 shall mean January 1, 1998 through December 31, 1998, and so on.

LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in Article I.

LEGAL REQUIREMENTS. All federal, state, county, municipal, and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees, and injunctions affecting either the Leased Property or the
construction, use or alteration thereof whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; or (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
thereto, and all covenants, agreements, restrictions, and encumbrances contained
in any instruments, either of record or known to Lessee, at any time in force
affecting the Leased Property.

LESSEE. New York Bagel Enterprises, Inc., a Kansas corporation (and
any assignee permitted subject to the terms and conditions in this Lease).

LESSEE'S PERSONAL PROPERTY. All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers, or movable trade fixtures
or other personal property, and consumable inventory and supplies, owned by
Lessee and used or useful in Lessee's business on the Leased Property,
including, without limitation, all items of furniture, furnishings, equipment,
supplies and inventory, except items acquired by Lessor pursuant to the Purchase
Agreement.

LESSOR. Commercial Equity, Inc., a Kansas corporation, and its
successors and assigns. Unless Lessee is notified by Lessor otherwise, Lessor's
address is: Commercial Equity, Inc., 300 I.M.A. Plaza, 250 North Water Street,
Wichita, Kansas 67202-1213, Attention: David L. Murfin, President.

MINIMUM RENT. As defined in Paragraph 3.1.

NOTICE. A notice given pursuant to Article XXXI hereof.

OFFICERS' CERTIFICATE. A certificate of Lessee signed by (i) the
Chairman of the Board of Directors, Chief Executive Officer or the President or
any authorized Vice President; and (ii) the Secretary, or another officer
authorized by appropriate resolution to so sign by the Board of

<PAGE>

Directors. Any signature required above may be substituted with a signature
of another person whose power and authority to act has been authorized by an
appropriate corporate resolution.

OVERDUE RATE. On any date, a rate equal to the Prime Rate (defined
below), plus five percent (5%); provided, however, that it is the intent of
Lessor and Lessee that the Overdue Rate (and all other interest rates provided
for hereunder) be in strict compliance with applicable usury laws of the State
of Kansas, and that in the event the Overdue Rate (or other interest rate
provided for hereunder) shall be deemed to exceed that permitted to be charged
by the laws of the State of Kansas, any and all excess sums collected by Lessor
shall be credited against the Rent payable under this Lease or if there is no
Rent due, promptly refunded to Lessee.

PAYMENT DATE. Any due date for the payment of the installments of
Minimum Rent or any other payments required under this Lease.

PRIMARY INTENDED USE. As defined in Paragraph 7.2.2.

PRIME RATE. On any date, a rate equal to the annual rate on such date
announced by NationsBank, N.A. to be its prime rate for 90-day unsecured loans
to its corporate borrowers of the highest credit standing or, if not available,
such other rate as may be published by THE WALL STREET JOURNAL as the prime rate
in its listing of "MONEY RATES."

PURCHASE AGREEMENT. That certain Agreement of Purchase and Sale,
dated October 21, 1997, between Lessee as "Seller" and Lessor as "Buyer"
providing for Lessor's acquisition of all of Lessee's interest in and to the
Leased Property.

RENT. Any and all monetary obligations of Lessee owing under this
Lease.

STATE. As defined in Schedule 1 attached hereto and incorporated
herein.

SUBSIDIARIES. Corporations, of which either Lessee or Lessor owns,
directly or indirectly, more than 50% of the voting stock (individually, a
"Subsidiary").

TERM. Collectively, the Initial Term plus any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.

UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of condition of the
Building such that by reason of damage or destruction, or a partial taking by
Condemnation, in the good faith judgment of Lessor, reasonably exercised, the
Building cannot be operated on a commercially practicable basis for its Primary
Intended Use taking into account.

UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an

<PAGE>

obligation hereunder; provided that lack of funds shall not be deemed a cause
beyond the control of either party hereto unless such lack of funds available
to Lessor results from Lessee's failure to perform any of its obligations
under this Lease.

The above does not include all the definitions to be used in this
Lease. Various definitions of other terms are included in the other Articles of
this Lease.

ARTICLE III

3.1 MINIMUM RENT. Lessee will pay to Lessor in lawful money of the
United States of America which shall be legal tender for the payment of public
and private debts, at Lessor's address set forth above or at such other place or
to such other person, firms or corporations as Lessor from time-to-time may
designate in a Notice, Minimum Rent (as defined below), during the Term, as
follows:

(a) INITIAL TERM. The "Minimum Rent" shall be the annual sums
as stated in Schedule 1 attached hereto and incorporated herein. The Minimum
Rent shall be paid in advance in equal, consecutive monthly installments on the
first day of each calendar month of the Term. Minimum Rent shall be prorated
for any partial month at the beginning or end of the Term.

(b) EXTENDED TERMS. The Minimum Rent during the Extended Terms
shall be as stated in Article XVIII, below.

3.2 ADDITIONAL CHARGES. In addition to the Minimum Rent, (1) Lessee
will also pay and discharge as and when due and payable all other amounts,
liabilities, obligations and Impositions which Lessee assumes or agrees to pay
under this Lease, and (2) in the event of any failure on the part of Lessee to
pay any of those items referred to in the immediately preceding clause (1)
above, Lessee will also promptly pay and discharge every fine, penalty, interest
and cost which may be added for non-payment or late payment of such items (the
items referred to in clauses (1) and (2) above being referred to herein
collectively as the "Additional Charges"), and Lessor shall have all legal,
equitable and contractual rights, powers and remedies provided either in this
Lease or by statute or otherwise in the case of non-payment of the Additional
Charges. If any elements of Additional Charges shall not be paid within seven
(7) Business Days after its due date and Lessor pays any such amount (which
Lessor shall have the right, but not the obligation, to do), then, in addition
to Lessor's other rights and remedies, Lessee will pay Lessor on demand, as
Additional Charges, interest on such unpaid Additional Charges computed at the
Overdue Rate from the due date of such installment to the date of Lessee's
payment thereof.

3.3 NET LEASE. Subject to the provisions of Article V, below,
without limiting any provision of this Lease, the Rent shall be paid absolutely
net to Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Minimum Rent throughout the Term, all as more fully set forth in
Articles IV, VIII, IX and XIII, and other provisions of this Lease, so that,
accordingly, Lessee shall pay all Additional Charges and any other expenses of
any kind associated with this Lease

<PAGE>

and the Leased Property to insure that Lessor receives the Minimum Rent, net
of all expenses. Further, because Lessee, prior to the date of this Lease,
is the owner of fee simple title to the Leased Property, Lessee shall be
responsible for all Additional Charges and all other amounts due under this
Lease for any period prior to and during the Term.

3.4 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY
LESSEE TO LESSOR OF RENT (INCLUDING, WITHOUT LIMITATION MINIMUM RENT AND
ADDITIONAL CHARGES) WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS
LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH
COSTS INCLUDE, WITHOUT LIMITATION, PROCESSING AND ACCOUNTING CHARGES.
ACCORDINGLY, IF ANY INSTALLMENT OF MINIMUM RENT OR ANY OTHER SUM DUE FROM LESSEE
SHALL NOT BE RECEIVED BY LESSOR WITHIN FIVE (5) BUSINESS DAYS AFTER SUCH AMOUNT
SHALL BE DUE, THEN WITHOUT ANY REQUIREMENT FOR NOTICE TO LESSEE, LESSEE SHALL
PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH OVERDUE AMOUNT.
THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE
ESTIMATE OF THE COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE.
ACCEPTANCE OF SUCH LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE A WAIVER
OF LESSEE'S DEFAULT OR BREACH WITH RESPECT TO ANY UNPAID OVERDUE AMOUNTS, NOR
PREVENT LESSOR FROM EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES GRANTED
UNDER THIS LEASE WITH RESPECT TO ANY SUCH UNPAID OVERDUE AMOUNTS.

ARTICLE IV

4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions coming
due prior to or during the Term, or which relate to any period within the Term
or prior to the Term, before any fine, penalty, interest or cost may be added
for non-payment (or earlier if required by any taxing authority), such payments
to be made directly to the taxing authorities where feasible, and will promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be
deemed absolutely fixed upon the date such Impositions become a lien upon the
Leased Property or any part thereof. If any Imposition may, at the option of
the taxpayer, lawfully (without penalty) be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessee, at its expense, shall, to the extent required or permitted by
Legal Requirements, prepare and file all tax returns and reports in respect of
any Imposition as may be required by governmental authorities. If any refund
shall be due from any taxing authority in respect of any Imposition, the same
shall be paid over to or retained by Lessee if no Event of Default shall

<PAGE>

have occurred hereunder and be continuing, but if such Event of Default has
occurred and is continuing (i.e., it has not been cured), such refund shall
be paid to Lessor and utilized to cure any such continuing Event of Default.
After fully curing such Event of Default, any excess funds from such refund
shall be paid by Lessor to Lessee. Any such funds retained by Lessor, as
provided above, shall be applied as provided in Article XVI. Lessor and
Lessee shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property
as may be necessary to prepare any required returns and reports. In the
event governmental authorities classify any property covered by this Lease as
personal property, Lessee shall file all personal property tax returns in
such jurisdictions where it must legally so file. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessee will provide to Lessor copies of assessment notices
indicating a value in excess of the reported value in sufficient time for
Lessor to file a protest. Lessee may, upon notice to Lessor, at Lessee's
option and at Lessee's sole cost and expense, protest, appeal or institute
such proceedings as Lessee may deem appropriate to effect a reduction of real
estate or personal property assessments and Lessor, at Lessee's sole cost and
expense as aforesaid, shall fully cooperate with Lessee in such protest,
appeal, or other action, provided that Lessee may not withhold payments
pending such challenges except under the conditions set forth in Article XII.
Lessor shall have the right to require that Lessee pay to Lessor 1/12th of
the annual Impositions each month concurrently with the payment of Minimum
Rent, effective (a) upon the occurrence of any Event of Default relating to
the payment or nonpayment of Impositions (and irrespective of whether such
Event of Default is continuing or has been cured); (b) as to any Event of
Default not covered in the preceding subparagraph (a), upon the occurrence of
the second Event of Default under this Lease (and irrespective of whether any
such Events of Default are continuing or have been cured); and (c) once any
Event of Default has occurred hereunder that has not been cured within sixty
(60) days. Unless Lessee is notified by Lessor otherwise, Lessee shall pay
all Impositions directly to the appropriate taxing or other authorities to
which payments are due, and Lessee shall provide Lessor written evidence and
notice that all such payments have been made. Without limiting any of the
other indemnities set forth in this Lease, Lessee hereby agrees to defend,
indemnify, protect and hold harmless Lessor in connection with any
Impositions that relate to any time prior to or during the Term, and Lessee
acknowledges and agrees that it will not make claims against, or otherwise
look to, Lessor to reimburse Lessee for payments made relating to any period
prior to the Commencement Date.

4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt Notice to Lessee
for all Impositions payable by Lessee hereunder of which Lessor has knowledge,
but Lessor's failure to give any such Notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions, but such failure shall obviate
any default hereunder for a reasonable time after Lessee receives notice (from
any source) of any Imposition which it is obligated to pay. However,
notwithstanding the foregoing, it shall be Lessee's sole duty to inquire and
determine all of the Impositions for which it is liable as provided herein and
shall promptly pay such Impositions when due, and Lessor shall have no duty of
inquiry concerning Impositions.

<PAGE>

4.3 UTILITY CHARGES. Lessee will pay or cause to be paid all charges
for electricity, power, gas, oil, water, sewer connection and all other
utilities used in or for the Leased Property during the Term.

4.4 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Article XIII during the Term.

4.5 PAYABLES. Lessee acknowledges and agrees that prior to the
Commencement Date, certain liabilities and other obligations were incurred
arising from the development, construction and operation of the Building for
which Lessee is and shall remain responsible and liable and Lessor shall have no
responsibility, liability or obligation whatsoever with respect to the same.
Therefore, Lessee agrees as part of this Lease to pay all liabilities and
obligations concerning the Building, whether arising before or after the
Commencement Date.

ARTICLE V

5.1 NO TERMINATION, ABATEMENT, ETC. Subject to the provisions of
Paragraph 5.2, Lessee shall not be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent, nor shall the
respective obligations of Lessor and Lessee be otherwise affected by reasons of
(a) any damage to, or destruction of, any Leased Property or any portion
thereof; (b) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, the interference
with such use by any person, corporation, partnership or other entity, or by
reason of eviction by paramount title; (c) any claim which Lessee has or might
have against Lessor or by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding-up
or other proceedings affecting Lessor or any assignee or transferee of Lessor;
or (e) for any other cause whether similar or dissimilar to any of the foregoing
other than a discharge of Lessee from any such obligations as a matter of law.
Lessee hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law to (i)
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof; or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent payable under this Lease. The
obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent due under this Lease shall continue to be
payable in all events, irrespective of Lessor's performance or non-performance
under this Lease, unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.

5.2 ABATEMENT PROCEDURES. In the event Lessee is entitled to an
abatement of Minimum Rent under Article XV (by reason of any Condemnation as
provided thereunder), the Lease shall not terminate (except as provided in
Article XV) but the Minimum Rent shall be abated in proportion to the reduced
capacity of the Leased Property for the use made of the same by Lessee at the
time of the Condemnation. If Lessor and Lessee are unable to agree upon the
amount of such

<PAGE>

abatement within thirty (30) days after any partial taking as provided under
Article XV, the matter shall be submitted by either party to a court of
competent jurisdiction for resolution, but Lessee during such resolution
shall continue to perform its obligations hereunder, including, without
limitation, payment of that portion of the Minimum Rent which is not then in
dispute.

ARTICLE VI

6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges and agrees
that the Leased Property is the property of Lessor and that Lessee has only the
right to the exclusive possession and use of the Leased Property upon the terms
and conditions of this Lease.

6.2 LESSEE'S PERSONAL PROPERTY. Lessee may (and shall as provided
hereinbelow), at its expense, install, assemble or place on any parcels of the
Land or in any of the Leased Improvements, any items of Lessee's Personal
Property, and Lessee may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. All of Lessee's
Personal Property not removed by Lessee within twenty (20) days following the
expiration or earlier termination of this Lease shall be considered abandoned by
Lessee and may be used, appropriated, sold, destroyed, or otherwise disposed of
by Lessor without first giving notice thereof to Lessee and without any payment
to Lessee and without any obligation to account therefor. Lessee shall, within
twenty (20) days following the expiration or earlier termination of this Lease,
at its sole cost and expense, repair any damage to the Land or the Leased
Improvements occasioned by the installation, maintenance or removal of Lessee's
Personal Property, and restore the Land or Leased Improvements to its condition
immediately prior to any such installation. To the extent allowed by law,
Lessor and Lessee agree that the provisions of this Paragraph 6.2 shall be in
substitution of any statutory obligations Lessor may have to give Lessee notice
of demand for removal of Lessee's Personal Property and notice of sale of
Lessee's Personal Property. Lessor and Lessee agree that Lessor shall not be
required to sell Lessee's Personal Property or account to Lessee therefor.

ARTICLE VII

7.1 CONDITION OF LEASED PROPERTY. Lessee acknowledges receipt and
delivery of possession of the Leased Property and further acknowledges that
Lessee has examined and otherwise has knowledge of the condition of the Leased
Property prior to the execution and delivery of this Lease and has found the
same to be in good order and repair and satisfactory for it purposes hereunder.
Lessee is leasing the Leased Property "AS-IS" in its present condition. Lessee
waives any claim or action against Lessor in respect of the condition of the
Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATIONS, EXPRESS OR
IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS
FITNESS FOR USE, DESIGN OR CONDITION FOR THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT.

<PAGE>

7.2 USE OF THE LEASED PROPERTY.

7.2.1 Lessee covenants that it will obtain and, at all times
during the Term, maintain all approvals needed to use and operate the Leased
Property under applicable federal, state and local law.

7.2.2 After the Commencement Date and during the entire Term,
Lessee shall use or cause to be used the Leased Property as a New York Bagel
Cafe restaurant or other restaurant (the particular such use to which the Leased
Property is put at any particular time is herein referred to as the "Primary
Intended Use"). Lessee shall not use the Leased Property or any portion thereof
for any other use without the prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed.

7.2.3 Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Building nor shall Lessee cause or
permit any nuisance thereon.

7.2.4 Lessee shall neither suffer nor permit the Leased
Property to be used in such a manner as (i) might reasonably tend to impair
Lessor's title thereto or to any portion thereof; or (ii) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Leased Property or any portion thereof.

ARTICLE VIII

8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, INSTRUMENTS,
ETC. Subject to Article XII relating to permitted contests, Lessee, at its
sole cost and expense, will promptly comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair, and restoration of the Leased Property, whether or not
compliance therewith shall require structural changes in any of the Leased
Improvements or interfere with the use and enjoyment of the Leased Property.

8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and agrees that
the Leased Property and Lessee's Personal Property shall not be used for any
unlawful purpose. Lessee further warrants and represents that Lessee has
obtained all necessary approvals and has given all necessary notices to allow
Lessee to operate the Leased Property for its Primary Intended Use.

<PAGE>

ARTICLE IX

9.1 MAINTENANCE AND REPAIR.

9.1.1 Lessee, at its sole cost and expense, will keep the
Leased Property and all sidewalks and curbs appurtenant thereto and which are
under Lessee's control in good order and repair (whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of the Leased Property, or any portion thereof), and, except as
otherwise provided in Article XIV, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, whether
interior or exterior, structural or non-structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
Commencement Date (concealed or otherwise). All repairs shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work.
Lessee will not take or omit to take any action the taking or omission of which
may materially or adversely impair the value or the usefulness of the Leased
Property or any part thereof for its Primary Intended Use. Any repair work
performed by Lessee shall be paid for so that no lien (i.e., mechanics',
materialmen's or other liens) shall attach to the Leased Property, subject to
the provisions of Article XII.

9.1.2 Lessor shall not under any circumstances be required in
connection with this Lease to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations, or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by law, the
right to make repairs at the expense of Lessor pursuant to any law in effect at
the time of the execution of this Lease or hereafter enacted. Lessor shall have
the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' or materialmen's
lien laws now or hereafter existing.

9.1.3 Lessee shall not make any modifications, alterations or
improvements to the Leased Improvements or any portion thereof, whether by
addition or deletion, without Lessor's prior written consent, which consent
shall not be unreasonably withheld or delayed.

9.1.4 Lessee will, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property in the condition in which
the Leased Property was originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as permitted or required under this Lease
and except for ordinary wear and tear (subject to the obligation of Lessee to
maintain the Leased Property in good order and repair during the entire Term).

9.2 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the

<PAGE>

request of Lessor at the behest of any person affected by any such encroachment,
violation or impairment, Lessee shall, at its sole cost and expense, (and after
Lessor's prior approval) subject to Lessee's right to sue Lessor's predecessors
in title with respect thereto or to contest the existence of any such
encroachment, violation or impairment and, in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
the Leased Property; or (ii) make such changes in the Leased Improvements, and
take such other actions, as Lessee in the good faith exercise of its judgment
deems reasonably practicable, to remove such encroachment, and to end such
violation or impairment, including, if necessary, the alteration of any of the
Leased Improvements, and in any event take all such actions as may be necessary
in order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation, impairment
or encroachment. Lessee's obligations under this Paragraph 9.2 shall be in
addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance.

ARTICLE X

10.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS MATERIALS. Lessee shall, at
its sole cost and expense, take all actions as required to cause the Leased
Property including, without limitation, the Land and all Leased Improvements, to
be free and clear of the presence of all Hazardous Materials during the Term;
provided, however, that Lessee shall be entitled to use and maintain Hazardous
Materials on the Leased Property in connection with Lessee's business and in
compliance with all applicable laws. In this connection, Lessee shall, upon its
discovery, belief or suspicion of the presence of Hazardous Materials on, in or
under any part of the Leased Property, including, without limitation, the Land
and all Leased Improvements, immediately notify Lessor and, at no expense to
Lessor, cause any such Hazardous Materials to be removed immediately, in
compliance with all applicable laws and in a manner causing the least disruption
of or interference with the operation of Lessee's business. Lessee hereby
agrees to fully indemnify, protect, defend and hold harmless Lessor from any
costs, damages, claims, liability or loss of any kind or nature arising out of
or in any way in connection with the presence, suspected presence, removal or
remediation of Hazardous Materials in, on, or under the Leased Property, or any
part thereof.

10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes of this Lease,
"Hazardous Materials" shall include, without limitation, any substance,
material, waste, pollutant or contaminant, now or hereafter defined, listed or
regulated by the "Environmental Laws" (defined below) or any other federal state
or local law, regulation or order or by common law decision. "Environmental
Laws" means and includes any law, ordinance, regulation or requirement now or
hereinafter in effect relating to land use, air, soil, surface water,
groundwater (including the protection, cleanup, removal, remediation or damage
thereof), human health and safety or any other environmental matter, including,
without limitation, the following laws as the same may be amended from time to
time: Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Sec. 9601, et seq.; Federal Resource Conservation and Recovery
Act, 42 U.S.C. Sec. 6901, et seq.; Clean

<PAGE>

Water Act, 33 U.S.C. Sec. 1251, et seq.; Toxic Substances Control Act, 15
U.S.C. Sec. 2601, et seq.; Refuse Act, 33 U.S.C. Sec. 407; Occupational
Safety and Health Act, 29 U.S.C. Sec. 651, et seq.; Clean Air Act, 42 U.S.C.
Sec. 7401, et seq.; and any and all similar state and local laws and
ordinances and the regulations now or hereafter adopted, published and/or
promulgated pursuant thereto.

ARTICLE XI

11. NO LIENS. Subject to the provisions of Article XII relating to
permitted contests, Lessee will not directly or indirectly, voluntarily or by
operation of law, create or allow to remain and will promptly discharge at its
expense any lien, mortgage, encumbrance, attachment, title retention agreement,
or claim upon the Leased Property or any attachment, levy, claim, or encumbrance
in respect of the Rent.

ARTICLE XII

12. PERMITTED CONTESTS. Lessee shall have the right to contest the amount
or validity of any Imposition or any Legal Requirement or Insurance Requirement
or any lien, attachment, levy, encumbrance, charge or claim ("Claims") not
otherwise permitted by Article XI, by appropriate legal proceedings in good
faith and with due diligence, and to delay payment if legally permitted;
provided this shall not be deemed or construed in any way as relieving,
modifying or extending Lessee's covenants to pay or its covenants to cause to be
paid any such charges at the time and in the manner as in this Lease provided
and further provided that, such legal proceedings (and delay in payment) shall
not cause the sale of the Leased Property, or any part thereof, to satisfy the
same or cause Lessor or Lessee to be in default under any mortgage or deed of
trust encumbering the Leased Property or any interest therein or otherwise
threaten to cause loss or damage to Lessor or the Leased Property. Upon the
reasonable request of Lessor, Lessee shall provide to Lessor reasonable security
satisfactory to Lessor to assure the payment of all Claims which may be assessed
against the Leased Property, together with interest and penalties, if any,
thereon. Lessor agrees to join in any such proceedings if the same be required
to legally prosecute such contest of the validity of such Claims; provided,
however, that Lessor shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any proceedings brought by
Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such
costs or expenses. In the event that Lessee fails to pay any Claims when due
or, upon Lessor's request, to provide the security therefor as provided in this
Article XII and to diligently prosecute any contest of the same or in the event
the same threatens to cause loss or damage to Lessor or the Leased Property,
Lessor may, upon thirty (30) days advance written Notice to Lessee, pay such
charges together with any interest and penalties and the same shall be repayable
by Lessee to Lessor at the next Payment Date provided for in this Lease.
Provided, however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or otherwise threaten to
cause loss or damage to Lessor, then Lessor shall give such written Notice as is
practical under the circumstances. Lessee shall be entitled to any refund of
any Claims and such charges and penalties or interest thereon which have been
paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed.

<PAGE>

ARTICLE XIII

13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the provisions of
Paragraph 13.8, during the Term, Lessee shall at all times keep the Leased
Property, and all property located in or on the Leased Property, insured with
the kinds and amounts of insurance described below. This insurance shall be
written by companies authorized to do insurance business in the state in which
the Leased Property is located. The policies must name Lessor as loss payee and
additional named insured, shall contain a provision that such insurance may not
be canceled or amended without at least thirty (30) days' notice to Lessor and
shall be payable to Lessor as provided in Article XIV. In addition, upon
Lessor's written request, the policies shall name as mortgagee, loss payee and
additional insured the holder ("Building Mortgagee") of any mortgage, deed of
trust or other security agreement and any other Encumbrance placed on the Leased
Property in accordance with the provisions of Article XXXII, as well as any
other entity interested in the Leased Property ("Building Mortgage") by way of a
standard form of mortgagee's loss payable endorsement. Evidence of insurance
shall be deposited with Lessor and, if requested, with any Building
Mortgagee(s). The policies on the Leased Property, including the Leased
Improvements, Fixtures and Lessee's Personal Property, shall insure against the
following risks:

13.1.1 Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as "All Risk," and all
physical loss perils normally included in such All Risk insurance, including,
without limitation, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as defined below in
Paragraph 13.2);

13.1.2 Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not less
than One Million Dollars ($1,000,000.00) per occurrence, and with an annual
aggregate of Three Million Dollars ($3,000,000.00);

13.1.3 Flood (if the Leased Property is located in whole or in
part within a flood plain area, as designated by any governmental or other
responsible agency and if such insurance is available pursuant to applicable
law) and such other hazards and in such amounts as may be customary for
comparable properties in the area; and

13.1.4 Any other kinds of insurance, and in such amounts, as
Lessor may reasonably require from time to time to the extent available in the
state where the Leased Property is located.

13.2 REPLACEMENT COST. The term "full replacement cost" as used
herein, shall mean the full actual replacement cost of the Leased Property as
determined from time-to-time upon the request of Lessor or Lessee (but not more
frequently than once in every 24 months), including an increased cost of
construction endorsement, less exclusions provided in the standard form of fire
insurance policy in the state where the Leased Property is located. Lessor and
Lessee agree that as

<PAGE>

of the Commencement Date the full replacement cost shall be deemed to be that
amount set forth in Schedule 1 attached hereto and incorporated herein.

13.3 ADDITIONAL INSURANCE. In addition to the insurance described
above, Lessee shall maintain such additional insurance as may be reasonably
required from time-to-time by Lessor or any Building Mortgagee (to the extent
available in the state where the Leased Property is located) and shall further
at all times maintain adequate worker's compensation insurance coverage for all
persons employed by Lessee on the Leased Property. Such worker's compensation
insurance shall be in accordance with the requirements of applicable federal,
state and local law.

13.4 WAIVER OF SUBROGATION. All insurance policies carried by either
party covering the Leased Property, the Fixtures, the Building, or Lessee's
Personal Property including, without limitation, contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so. Upon written request, each party shall provide the other party with a copy
of each insurance policy with the waiver clause or endorsement attached.

13.5 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in this Article XIII shall be written in a form reasonably
satisfactory to Lessor and by insurance companies reasonably satisfactory to
Lessor. Subject to the foregoing, Lessor agrees that it will not unreasonably
withhold its approval as to the form of the policies of insurance or as to the
insurance companies selected by Lessee. Lessee shall pay all of the premiums
therefor, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and, with respect to any renewal policy, prior to the
expiration of the existing policy), and in the event of the failure of Lessee
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to Lessor at the
times required, Lessor shall be entitled, but shall have no obligation, to
effect such insurance and pay the premiums therefor, which premiums shall be
repayable by Lessee to Lessor upon written demand therefor, and failure to repay
the same shall constitute an Event of Default within the meaning of Paragraph
16.1(b). Each insurer mentioned in this Article XIII shall agree, by
endorsement on the policy or policies issued by it, or by independent instrument
furnished to Lessor, that will give to Lessor (and to any Building Mortgagee, if
required by the same) thirty (30) days written notice before the policy or
policies in questions shall be altered, allowed to expire or cancel.

13.6 INCREASE IN LIMITS. In the event that Lessor or a Building
Mortgagee shall at any reasonable time deem the limits of the personal injury or
property damage public liability insurance then carried to be insufficient,
Lessee shall thereafter carry the insurance with increased limits until further
change pursuant to the provisions of this Paragraph; provided that if Lessor
desires to increase the limits of insurance, and such is not pursuant to the
request of a Building Mortgagee, then Lessor may not demand an increase in
limits above the limits generally consistent with the requirements of owners of
restaurant facilities in the State.

<PAGE>

13.7 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article XIII, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessee; provided,
however, that the coverage afforded Lessor will not be reduced or diminished or
otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article XIII are otherwise satisfied.

13.8 NO SEPARATE INSURANCE. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party take out
separate insurance concurrent in form or contributing in the event of loss with
that required in this Article, to be furnished or which may reasonably be
required to be furnished, by Lessee or increase the amount of any then existing
insurance by securing any additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Lessor and all Building Mortgagees, are included therein
as additional insureds, and the loss is payable under said insurance in the same
manner as losses are payable under the Lease. Lessee shall immediately notify
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amount of the then existing insurance.

13.9 CONTINUOUS COVERAGE. Lessee was the owner of the Leased Property
prior to the date of this Lease. Therefore, Lessee already has in place
insurance with respect to the Leased Property. Lessee shall assure that there
is no gap in the insurance coverage provided in connection with the Building at
or after the Commencement Date, and therefore, the insurance provided by Lessee
shall be continuous, with the types and amounts of coverage, described herein to
be applicable on the Commencement Date. To the extent there is not full,
complete and continuous coverage for all issues, no matter when arising, claimed
or occurring, Lessee shall, at its sole cost, obtain such insurance.

ARTICLE XIV

14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any loss
of or damage to the Leased Property, or any portion thereof, which is insured
under any policy of insurance required by Article XIII of this Lease, where the
total proceeds paid by the insurer are less than $150,000.00, shall be paid to
Lessee and applied to the reconstruction or repair, as the case may be, of any
damage to or destruction of the Leased Property, or any portion thereof. All
proceeds payable by reason of any loss of or damage to the Leased Property, or
any portion thereof, which is insured under any policy of insurance required by
Article XIII of this Lease where the total proceeds paid by the insurer are
equal to or in excess of $150,000.00 shall be paid to Lessor and held by Lessor
in trust (subject to the provisions of Paragraph 14.7) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Leased Property, or any portion thereof, and shall be paid
out by Lessor from time-to-time for the reasonable costs of such reconstruction
or repair. Any excess proceeds of insurance remaining after the completion of
the restoration or reconstruction of the Leased Property shall go to Lessee,
provided this Lease is in force and there

<PAGE>

exists no uncured Event of Default; otherwise such excess shall be paid to
Lessor for application as set forth in Article XVI hereof. In the event
neither Lessor nor Lessee is required or elects to repair and restore, and
this Lease is terminated as described in Paragraph 14.7, all such insurance
proceeds shall be retained by Lessor. All salvage resulting from any risk
covered by insurance shall belong to Lessor except that any salvage relating
to Lessee's Personal Property shall belong to Lessee.

14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE PROCEEDS.

14.2.1 If during the Term, the Leased Property is totally or
partially destroyed by a risk covered by the insurance described in Article XIII
and whether or not the Building thereby is rendered Unsuitable for Its Primary
Intended Use, Lessee shall restore the Leased Property to substantially the same
condition as existed immediately before the damage or destruction.

14.2.2 If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessee or Lessor from the insurance required
under Article XIII, Lessee shall be obligated to restore the Leased Property and
pay the extra cost therefor, provided that, prior to commencing the repair and
restoration, Lessee shall either (i) contribute any excess amount needed to
restore the Leased Property, or (ii) provide Lessor with satisfactory evidence
that such funds are, and throughout the entire period of reconstruction will be,
available. If Lessee contributes such excess in cash, such excess shall be paid
by Lessee to Lessor to be held in trust, together with any insurance proceeds,
for application to the cost of repair and restoration.

14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED
BY INSURANCE. If during the Term, the Leased Property is damaged or destroyed
irrespective of the extent of the damage from a risk not covered by the
insurance described in Article XIII, whether or not such damage or renders the
Building Unsuitable for Its Primary Intended Use, Lessee shall restore the
Leased Property to substantially the same condition it was in immediately before
such damage or destruction and such damage or destruction shall not terminate
this Lease.

14.4 LESSEE'S PROPERTY. All insurance proceeds payable by reason of
any loss of or damage to any of Lessee's Personal Property shall be paid to
Lessee, and Lessee shall hold such insurance proceeds in trust to pay the cost
of repairing or replacing damaged Lessee's Personal Property. Any proceeds in
excess of the cost of repairing or replacing any such Lessee's Personal Property
shall belong to Lessee.

14.5 RESTORATION OF LESSEE'S PROPERTY. Without limiting Lessee's
obligation to restore the Leased Property as provided in Paragraphs 14.2 and
14.3, Lessee shall also pay the cost to restore all Alterations and other
improvements made by Lessee which Lessee elects to restore, including Lessee's
Personal Property to the extent that Lessee's Personal Property is necessary to
the operation of the Leased Property for its Primary Intended Use in accordance
with applicable Legal Requirements.

<PAGE>

14.6 NO ABATEMENT OF RENT. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during any period required
for repair and restoration.

14.7 TERMINATION OF OPTION TO EXTEND. Any termination of this Lease
by reason of damage to or destruction of the Leased Property shall cause any
options to extend the Lease under Article XVIII to be terminated and without
further force or effect.

14.8 WAIVER. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage to or destruction of the Leased Property
which Lessor is obligated to restore or may restore under any of the provisions
of this Lease.

ARTICLE XV

15.1 DEFINITIONS.

15.1.1 "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor;
or (b) a voluntary sale or transfer by Lessor to any Condemnor, either under
threat of Condemnation or while legal proceedings for Condemnation are pending.

15.1.2 "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.

15.1.3 "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.

15.1.4 "Condemnor" means any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.

15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
taking of all or any part of the Leased Property or any interest in this Lease
by Condemnation, the rights and obligations of the parties shall be determined
by this Article XV.

15.3 TOTAL CONDEMNATION. If title to the fee of the whole of the
Leased Property shall be taken or condemned by any Condemnor, this Lease shall
cease and terminate as of the Date of Condemnation by said Condemnor. If title
to the fee of less than the whole of the Leased Property shall be so taken or
condemned, which nevertheless renders the Leased Property Unsuitable for Its
Primary Intended Use, as reasonably determined by Lessor and Lessee, Lessee and
Lessor shall each have the option by written Notice to the other, at any time at
or prior to the taking of possession by, or the date of vesting of title in,
such Condemnor, whichever first occurs, to terminate this Lease as of the date
of the occurrence of such first event. If such Notice has timely been given,
this Lease shall thereupon cease and terminate. Upon the termination of the
Lease, all Minimum Rent, and

<PAGE>

Additional Charges paid or payable by Lessee hereunder shall be apportioned
as of the date the Lease terminates.

15.4 ALLOCATION OF PORTION OF AWARD. The total Award made with
respect to all or any portion of the Leased Property or for loss of rent, or for
loss of business, whether or not beyond the Term of this Lease, or for the loss
of value of the leasehold shall be solely the property of and payable to Lessor
and Lessee hereby assigns to Lessor any and all rights in such Award; provided,
however, that Lessee shall be entitled to make a separate claim for the taking
of Lessee's Personal Property and relocation expense as long as any such claim
will not in any way diminish Lessor's Award, or for any other loss that can be
awarded to Lessee separately from Lessor's claim and which will not in any
respect whatsoever diminish or threaten to diminish the total amounts to be
awarded to Lessor, as set forth above or otherwise. To the extent Lessee's
claim may thereafter reduce Lessor's claim, Lessee shall, and hereby does,
assign its claim to Lessor. In any Condemnation proceedings, each of the Lessor
and Lessee shall seek its own claim in conformity herewith, at its own expense.

15.5 PARTIAL TAKING. If title to the fee of less than the whole of
the Leased Property shall be so taken or condemned, and the Leased Property is
still suitable for its Primary Intended Use, as reasonably determined by Lessor
and Lessee, or if Lessee or Lessor shall be so entitled, but shall not elect to
terminate this Lease as provided in Paragraph 15.3 hereof, Lessee, at its own
cost and expense (subject to Lessor's contribution described below), shall with
all reasonable dispatch restore the untaken portion of any Leased Improvements
on the Leased Property so that such Leased Improvements shall constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existed immediately prior to such Condemnation. Lessor shall contribute to the
cost of restoration that part of its Award specifically allocated to such
restoration, provided, however, the amount of such contribution shall not exceed
the cost of restoration. The Minimum Rent shall be reduced as set forth in
Paragraph 5.2.

15.6 TEMPORARY TAKING. Lessee agrees that if, at any time after the
date hereof, the whole or any part of the Leased Property or of Lessee's
interest under this Lease, shall be Condemned by any Condemnor for its temporary
use or occupancy, this Lease shall not terminate by reason thereof, and Lessee
shall continue to pay, in the manner and at the times herein specified, the full
amounts of Minimum Rent and Additional Charges. Except only to the extent that
Lessee may be prevented from doing so pursuant to the terms of the order of the
Condemnor, Lessee shall also continue to perform and observe all of the other
terms, covenants, conditions and obligations hereof, on the part of the Lessee
to be performed and observed, as though such Condemnation had not occurred. In
the event of any such Condemnation as in this Paragraph 15.6 described, the
entire amount of any such Award made for such temporary use, whether paid by way
of damages, rent or otherwise, shall be paid to Lessee to the extent
attributable to any period within the Initial Term (as extended by any already
exercised options to extend) and except as otherwise provided hereunder.
Notwithstanding the foregoing, in the event that any temporary use or occupancy
covered under this Paragraph 15.6 renders any portion of the Leased Property
Unsuitable for its Primary Intended Use

<PAGE>

(or otherwise reduces the number of residents the Leased Property can
accommodate) for a period in excess of twelve (12) calendar months, Lessee
shall have the right to elect a reduction in Minimum Rent as set forth in
Paragraph 5.2 commencing on the twelve (12) month anniversary of any such use
or occupancy and continuing so long as such temporary use or occupancy
continues, in which event any Award made for such temporary use or occupancy
shall be paid to Lessor to the extent attributable to the period that Minimum
Rent is so abated. Lessee covenants that upon the termination of any such
period of temporary use or occupancy as set forth in this Paragraph 15.6, it
will, at its sole cost and expense, restore the Leased Property as nearly as
may be reasonably possible, to the condition in which the same was
immediately prior to the Condemnation, unless such period of temporary use or
occupancy shall extend beyond the expiration of the Term, in which case
Lessee shall not be required to make such restoration, and in such case,
Lessee shall contribute to the cost of such restoration that portion of its
entire Award which is specifically allocated to such restoration in the
judgment or order of the court, if any.

ARTICLE XVI

16.1 EVENTS OF DEFAULT. Any one or more of the following events shall
be an "Event of Default":

(a) if Lessee fails to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such failure
is not cured by Lessee within a period of five (5) Business Days; or

(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after Notice thereof from Lessor, unless
such failure cannot with due diligence be cured within a period of thirty (30)
days, in which case such failure shall not be deemed an Event of Default if
Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof within ninety (90) days; or

(i) admit in writing its inability to pay its debts
generally as they become due;

(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency law;

(iii) make an assignment for the benefit of creditors;

(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property; or

<PAGE>

(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof; or

(d) if Lessee, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or an order for relief thereunder is entered against it
or a court of competent jurisdiction shall enter an order or decree appointing,
without the consent of Lessee, a receiver for Lessee or of the whole or
substantially all of its property or the Building, or approving a petition filed
against Lessee seeking reorganization or arrangement of Lessee under the Federal
bankruptcy laws or other applicable law or statute of the United States of
America or any state thereof, and such judgment, order or decree shall not be
vacated or set aside within one hundred twenty (120) days from the date of the
entry thereof; or

(e) if Lessee shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution, or shall, in any manner,
permit the sale or divestiture of substantially all of its assets; or

(f) subject to the provisions of Article XII hereof, if the
estate or interest of Lessee in the Leased Property or any part thereof be
levied upon or attached in a proceeding and the same shall not be vacated or
discharged within the later of ninety (90) days after commencement thereof or
thirty (30) days after Notice thereof from Lessor, or a mechanic's or similar
lien is filed with respect to the Leased Property and is not released or bonded
around for a period exceeding sixty (60) days after Lessee first has knowledge
of the same; or

(g) if Lessee voluntarily ceases operations on the Leased
Property for a period in excess of two (2) days other than for required
remodeling or if required by law; or

(h) if any of Lessee's representations or warranties expressly
set forth in this Lease (or financial statements provided to Lessor) proves to
be untrue when made in any material respect which materially and adversely
affects Lessor; or

(i) if Lessee attempts to assign or sublease, in violation of
the provisions of this Lease; or

(j) subject to the provisions of Article XII hereof, if Lessee
ceases to maintain in effect any license, permit, certificate or approval
necessary or otherwise required to operate the Building in accordance with its
Primary Intended Use.

Upon the occurrence of an Event of Default, in addition to all of
Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) Business Days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.

<PAGE>

In the event litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation shall receive,
in addition to its damages incurred, such sum as the court shall determine as
its reasonable attorneys' fees, and all costs and expenses incurred in
connection therewith, including reasonable attorneys' fees and costs incurred on
appeal.

16.2 CERTAIN REMEDIES. Lessor shall have all remedies and rights
provided under this Lease and/or otherwise available at law and in equity as a
result of an Event of Default or Lessee's other breach under this Lease,
including, to the extent permitted by the laws of the State, the right to
appoint a receiver as a matter of strict right without regard to the solvency of
Lessee, for the purpose of procuring the Leased Property, preventing waste,
protecting and otherwise enforcing the provisions of this Lease and for any and
all other purposes for which a receiver is allowed under the laws of the State.
Without limiting the foregoing, if an Event of Default occurs (and the event
giving rise to such Event of Default has not been cured within the curative
period, if any, relating thereto as set forth in this Lease) whether or not this
Lease has been terminated pursuant to Paragraph 16.1, Lessee shall, to the
extent permitted by law, and if required by Lessor to so do, immediately
surrender to Lessor the Leased Property pursuant to the provisions of Paragraph
16.1 and quit the same and Lessor may enter upon and repossess the Leased
Property, in person, by agent or by a court-appointed receiver, by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Lessee and
all other persons and any and all personal property from the Leased Property
subject to any requirements of law. Without limiting all other rights and
remedies of Lessor under this Lease and under law, Lessor shall have the right
to accelerate all Rent (including Minimum Rent) and therefore, upon Lessee's
default, at Lessor's option, all such Rent shall become immediately due and
payable in accordance with Paragraph 16.3, below. Further, without limiting all
other rights and remedies of Lessor under this Lease and under law, Lessor shall
be entitled to recover from Lessee, and Lessee shall therefore be liable for,
all costs of recovering possession (including without limitation all costs
associated with any receiver) and renovating the Leased Property for a new
lessee and all other costs of re-leasing, including, but not limited to,
broker's commissions and attorneys' fees, except as limited by Paragraph 16.3
below.

16.3 DAMAGES. Neither (i) the termination of this Lease pursuant to
Section 16.1; (ii) the repossession of the Leased Property; (iii) the failure of
Lessor, notwithstanding reasonable good faith efforts, to relet the Leased
Property; nor (iv) the reletting of all or any portion thereof, shall relieve
Lessee of its liability and obligations hereunder, all of which shall survive
any such termination, repossession or reletting (except for proceeds received on
subletting). In the event of any such termination, Lessee shall forthwith pay
to Lessor all Rent due and payable with respect to the Leased Property to and
including the date of such termination.

(a) Lessor shall not be deemed to have terminated this Lease
unless Lessor delivers written Notice to Lessee of such election. If Lessee
voluntarily elects to terminate this Lease upon an Event of Default, then in
addition to all remedies available to Lessor, Lessor may recover the sum of:

<PAGE>

(i) the worth at the time of award of the unpaid Rent
which had been earned at the time of termination;

(ii) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;

(iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided; and

(iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom.

The "worth at the time of award" of the amounts referred to
in subparagraphs (i) and (ii) above is computed by allowing interest at the
Overdue Rate. The worth at the time of award of the amount referred to in
subparagraph (iii) is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of Kansas City at the time of award plus one percent
(1%).

(b) Without limiting Lessor's other remedies provided herein and
provided by law, Lessor may continue the Lease in effect after Lessee's breach
and abandonment and recover Rent as it becomes due, provided that, in such
event, Lessee has the right to sublet or assign subject only to reasonable
conditions imposed by Lessor. Accordingly, without termination of Lessee's
right to possession of the Leased Property, Lessor may demand and recover each
installment of Minimum Rent and other sums payable by Lessee to Lessor under the
Lease as the same becomes due and payable, which Minimum Rent and other sums
shall bear interest at the maximum interest rate permitted in accordance with
the laws of the State (or the Overdue Rate, whichever is lower), from the date
when due until paid, and Lessor may enforce, by action or otherwise, any other
term or covenant of this Lease. If Lessor elects to recover each installment of
Rent as it becomes due, then Lessor may file any number of lawsuits for the
recovery of the amounts due hereunder.

16.4 WAIVER. If this Lease is terminated pursuant to Paragraph 16.1,
Lessee waives, to the extent permitted by applicable law, the benefit of any
laws now or hereafter in force exempting property from liability for rent or for
debt.

16.5 APPLICATION OF FUNDS. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any Event
of Default shall be applied to Lessee's obligations in the order which Lessor
may determine or as may be prescribed by the laws of the State.

<PAGE>

ARTICLE XVII

17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease,
and to cure the same within the relevant time periods, if any, provided under
this Lease, Lessor, after fifteen (15) days' Notice to and demand upon Lessee,
and without waiving or releasing any obligation of Lessee or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property, in person, by agent or
by court-appointed receiver, for such purpose and take all such action thereon
as, in Lessor's opinion, may be necessary or appropriate therefor. Provided,
however, that should Lessor reasonably determine that the giving of such Notice
would risk loss to the Leased Property, or cause damage to Lessor, then Lessor
shall give such written Notice as is practical under the circumstances. No such
entry shall be deemed an eviction of Lessee. In exercising any remedy under
this Article XVII, Lessor shall use its good faith efforts not to violate any
rights of residents of the Building. All sums so paid by Lessor and all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which sums or
expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of this Lease.

ARTICLE XVIII

18.1 OPTIONS TO EXTEND. Provided there exists no uncured Event of
Default under this Lease at the time Lessee exercises any option to extend (in
accordance with this Article XVIII), Lessee will have the right to extend this
Lease for two (2) periods of five (5) years each (each such additional term
shall be referred to herein as an "Extended Term"), commencing immediately
following the end of the Initial Term or the immediately preceding Extended
Term, as the case may be. The Lease during any Extended Term shall be on the
same terms and conditions as during the Initial Term, except that the Minimum
Rent shall be determined as set forth in Paragraph 18.2 below. In the event
Lessee desires to exercise any option to extend granted in this Article XVIII,
Lessee shall give Landlord written notice ("Notice to Extend") not less than one
hundred eighty (180) days prior to the expiration of the Initial Term or the
immediately preceding Extended Term, as the case may be. If Lessee fails to
give Landlord any such notice, then such option to extend and all future options
to extend granted in this Article XVIII shall be null and void and of no further
force or effect.

18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent at the
commencement of each Extended Term shall be the annual sums as stated in
Schedule 1 attached hereto and incorporated herein.

<PAGE>

ARTICLE XIX

19. HOLDING OVER. If Lessee shall for any reason remain in possession of
the Leased Property after the expiration of the Term or earlier termination of
the Term hereof, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, one and one-half times the
aggregate of (i) one-twelfth of the aggregate Minimum Rent payable with respect
to the last Lease Year of the Term; (ii) all Additional Rent accruing or
otherwise payable during the month; (iii) all Additional Charges accruing during
the month; and (iv) all other sums payable by Lessee pursuant to the provisions
of this Lease. During such period of month-to-month tenancy, Lessee shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to month-to-month tenancies, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.

ARTICLE XX

20. RISK OF LOSS. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures
(to the extent caused by or through Lessee), attachments, levies or executions
(other than those caused by or through Lessor) is assumed by Lessee, and Lessor
shall in no event be answerable or accountable therefor, nor shall any of the
events mentioned in this Paragraph entitle Lessee to any abatement of Rent
except as specifically provided in this Lease, or any right to terminate this
Lease, except as provided in Articles XIV or XV, above. Without limiting the
foregoing, Lessor shall not be liable for injury or damage to the person or
goods, wares, merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers, or any other person in or about the Leased
Property, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning, or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Leased Property, or upon other portions of the Land, or any part thereof, or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is accessible or not. Lessor shall
not be liable for any damages arising from any act or neglect of Lessee, or any
other party named above. Lessor shall, however, remain liable for any damages
arising from Lessor's own gross negligence or willful misconduct.

ARTICLE XXI

21. INDEMNIFICATION. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, hold harmless and defend Lessor
from and against all liabilities, obligations, claims, demands, damages,
penalties, causes of action, costs, and expenses (including, without limitation,

<PAGE>

actual reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of any of the
following: (a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining sidewalks,
whether occurring prior to or after the Commencement Date provided however, that
if any such liability, obligation, demand, claim or cause of action is covered
by liability insurance pursuant to Article XIII, and if the insurance carrier is
providing a defense acceptable to Lessor in the reasonable exercise of Lessor's
discretion, or has otherwise acknowledged coverage for same, then Lessee shall
not be obligated to duplicate the defense, investigation, adjustment, or other
steps being taken by the insurer; (b) any occupancy, use, misuse, non-use,
condition, maintenance, or repair by Lessee of the Leased Property; (c) any
Impositions (which are the obligations of Lessee to pay pursuant to the
applicable provisions of this Lease, which include any Impositions arising prior
to the Commencement Date); (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease; (e) the non-performance of any of
the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord (Lessee) thereunder; (f) any
Hazardous Materials, as defined in Paragraph 10.2, above that now or hereafter
during the Term may be located in, on or around, or may potentially affect, any
part of the Land or Leased Improvements; and (g) any and all other matters
pertaining to the Leased Property or the operation of the Building after the
date of this Lease or otherwise during the Term. Any amounts which became
payable by Lessee under this Paragraph shall be paid within ten (10) days of the
date the same becomes due and if not timely paid, shall bear a late charge (to
the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. Lessee, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Lessor or may compromise or otherwise dispose of the same as Lessee sees
fit, at Lessee's sole cost, but after consultation with and approval by Lessor.
Nothing herein shall be construed as indemnifying Lessor against its own gross
negligence or willful misconduct. Lessee's liability for a breach of the
provisions of this article arising during the Term hereof shall survive any
termination of this Lease.

ARTICLE XXII

22.1 SUBLETTING AND ASSIGNMENT. Lessee may not assign, sublease or
sublet, encumber, appropriate, pledge or otherwise transfer, the Lease or the
leasehold or other interest in the Leased Property without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or delayed.
Upon Lessor's consent, in the case of any assignment, any such assignee shall
assume in writing and agree to keep and perform all of the terms of this Lease
on the part of Lessee to be kept and performed and shall be, and become, jointly
and severally liable with Lessee for the performance thereof. In the case of
either an assignment or a subletting, (i) an original counterpart of each
sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor, and (ii) Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder.

<PAGE>

22.2 ATTORNMENT. Lessee shall insert in each sublease permitted under
Paragraph 22 provisions to that effect that (i) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and the rights of
Lessor hereunder; (ii) in the event this Lease shall terminate before the
expiration of such sublease, the sublessee thereunder will, at Lessor's option,
attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder, as a result of the termination
of this Lease; and (iii) in the event the sublessee receives a written Notice
from Lessor or Lessor's assignees, if any, stating that Lessee is in default
under this Lease, the sublessee shall thereafter be obligated to pay all rentals
accruing under said sublease directly to the party giving such Notice, or as
such party may direct. All rents received from the sublessee by Lessor or
Lessor's assignees, if any, as the case may be, shall be credited against
amounts owing by Lessee under this Lease.

ARTICLE XXIII

23. OFFICERS' CERTIFICATES. At any time from time-to-time upon not less
than twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an
Officers' Certificate certifying that this Lease unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid and
such other information concerning this Lease as may be reasonably requested by
Lessor. Any such certificate furnished pursuant to this Paragraph may be relied
upon by Lessor and any prospective purchaser or lender of the Leased Property.

ARTICLE XXIV

24. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property on at least one
Business Day's prior notice during usual business hours subject to any security,
health, safety, or confidentiality requirements of Lessee or any governmental
agency or insurance requirement relating to the Leased Property, or imposed by
law or applicable regulations.

ARTICLE XXV

25. NO WAIVER. The waiver by Lessor or Lessee of any term, covenant or
condition in this Lease shall not be deemed to be a waiver of any other term,
covenant or condition or any subsequent waiver of the same or any other term,
covenant or condition contained in this Lease. The subsequent acceptance of
rent hereunder by Lessor or any payment by Lessee shall not be deemed to be a
waiver of any preceding default of any term, covenant or condition of this
Lease, other than the failure to pay the particular amount so received and
accepted, regardless of the knowledge of any preceding default at the time of
the receipt or acceptance.

<PAGE>

ARTICLE XXVI

26. REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of each party now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by each party of any one or more of
such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by such party of any or all of such other rights, powers and
remedies.

ARTICLE XXVII

27. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or of
the Leased Property or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Lessor and no act
by Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.

ARTICLE XXVIII

28. NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation, or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate; and (b) the fee estate in the
Leased Property.

ARTICLE XXIX

29. CONVEYANCE BY LESSOR. If Lessor or any successor owner of the Leased
Property shall transfer or assign Lessor's title or interest in the Leased
Property or this Lease other than as security for a debt, then, subject to the
provisions of this Article XXIX and provided the new owner has agreed in writing
for the benefit of Lessee to recognize this Lease and be bound by all of the
terms and conditions hereof, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such transfer or assignment and all such future
liabilities and obligations shall thereupon be binding upon the new owner.

ARTICLE XXX

30. QUIET ENJOYMENT. So long as Lessee shall pay all Rent as the same
becomes due and shall comply with all of the terms of this Lease and perform its
obligations hereunder, and except for any claims, actions, liens or encumbrances
arising from the acts or omissions of Lessee or otherwise from events occurring
prior to the Commencement Date here under, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term hereof, free of any claim
or other

<PAGE>

action by Lessor or anyone claiming by, through or under Lessor, but subject
to all liens and encumbrances of record as of the date hereof or hereafter
consented to by Lessee. Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant or any covenant of
this Lease shall give Lessee any right to cancel or terminate this Lease or
abate, reduce or made a deduction from or offset against the Rent or any
other sum payable under this Lease, or to fail to perform any other
obligation of Lessee hereunder.

ARTICLE XXXI

31. NOTICES. All notices, demands, requests, consents, approvals, and
other communications ("Notice" or "Notices") hereunder shall be in writing and
personally served upon an Executive Officer of the party being served or mailed
(by registered or certified mail, return receipt requested and postage prepaid),
overnight delivery service addressed to the respective parties, as follows:

If to Lessee: New York Bagel Enterprises, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: Mr. Paul R. Hoover
Vice President - Strategic Planning

with a copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main Street
Wichita, Kansas 67202-4888
Attention: Mr. Gregory B. Klenda

If to Lessor: Commercial Equity, Inc.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
Attention: David L. Murfin, President

with a copy to: Foulston & Siefkin L.L.P.
700 NationsBank Financial Center
Wichita, Kansas 67202
Attention: William R. Wood II

<PAGE>

or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices sent
by overnight delivery service) shall be effective upon receipt, and Notice given
by mail shall be completed three (3) Business Days after the time of deposit in
the U.S. Mail system. For the purposes hereof, the term "Executive Officer"
shall mean the Chairman of the Board of Directors, the Chief Executive Officers,
the President, any Vice President, or the Secretary of the corporation upon
which service is to be made.

ARTICLE XXXII

32.1 LESSOR MAY GRANT LIENS. Lessor may, subject to the terms and
conditions set forth below in this Paragraph 32.1, from time-to-time, directly
or indirectly, create or otherwise cause to exist any lien or encumbrance or any
other change of title ("Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing. Any such Encumbrance shall contain the right to
prepay (whether or not subject to a prepayment penalty) and shall provide that
it is subject to the rights of Lessee under this Lease, provided that any holder
of an Encumbrance shall (a) give Lessee the same notice, if any, given to Lessor
of any default or acceleration of any obligation underlying any such mortgage or
any sale in foreclosure under such mortgage; (b) permit Lessee to cure any such
default on Lessor's behalf within any applicable cure period, and Lessee shall
be reimbursed by Lessor or shall be entitled to offset against Minimum Rent
payments next accruing or coming due for any and all costs incurred in effecting
such cure, including, without limitation, out-of-pocket costs incurred to effect
any such cure (including reasonable attorneys' fees); (c) permit Lessee to
appear and to bid at any sale in foreclosure made with respect to, and/or any
sale by virtue of the exercise of the power of sale contained in, any such
mortgage, and (d) provide that in the event of foreclosure or other possession
of the Leased Property by the Mortgagee, that the Mortgagee (or other purchaser)
shall be bound by the terms and provisions of this Lease. Upon the reasonable
request of Lessor, Lessee shall execute an agreement to the effect that this
Lease shall be subject and subordinate to the lien of a new mortgage on the
Leased Property, and that in the event of any default or foreclosure under such
mortgage, Lessee shall attorn to the new mortgagee, and as otherwise requested
by Lessor on the condition that the mortgagee execute a non-disturbance
agreement recognizing this Lease and agreeing, for itself and its successor and
assigns, to comply with the provisions of this Article XXXII.

32.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of Paragraph
32.3, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to any other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with interest
thereon from the date on which such sums or expenses are paid or incurred by
Lessee, shall be paid by Lessor to Lessee on demand, but may not be offset by
Lessee against payments of Rent hereunder.

<PAGE>

32.3 BREACH BY LESSOR. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed, and such failure shall continue for a period of thirty
(30) days after Notice thereof from Lessee unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor, within said thirty (30) day
period, proceeds promptly, continuously and with due diligence to cure the
failure and diligently completes the curing thereof. The time within which
Lessor shall be obligated to cure any such failure shall also be subject to
extension of time due to the occurrence of any Unavoidable Delay.

ARTICLE XXXIII

33.1 SURVIVAL OF OBLIGATIONS. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Lessee or
Lessor arising prior to, or in connection with any event occurring prior to, the
date of any expiration or termination of this Lease or the date of Lessee's
surrender of possession, whichever is later, shall survive such termination or
surrender of possession.

33.2 LATE CHARGES; INTEREST. If any interest rate provided for in any
provision of this Lease is based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.

33.3 LIMITS OF LESSOR'S LIABILITY. Lessee specifically agrees to look
solely to the assets of Lessor for recovery of any judgment against Lessor, it
being specifically agreed that no constituent shareholder, officer or director
of Lessor shall ever be personally liable for any such judgment or the payment
of any monetary obligation to Lessee. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Lessee might
otherwise have to obtain injunctive relief against Lessor or Lessor's successors
in interest, or any action not involving the personal liability of Lessor
(original or successor). Additionally, Lessor shall be exonerated from any
further liability under this Lease upon Lessor's transfer or other divestiture
of its ownership of the Leased Property, provided that the assignee or grantee
shall expressly assume in writing the obligations of Lessor hereunder.
Furthermore, in no event shall Lessor (original or successor) ever be liable to
Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause.

33.4 ADDENDUM, AMENDMENTS AND EXHIBITS. Any addendum, amendments and
exhibits attached to this Lease are hereby incorporated in this Lease and made a
part of this Lease.

33.5 HEADINGS. The headings and paragraph titles in this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part of this Lease.

33.6 TIME. Time is of the essence of this Lease and each and all of
its provisions.

33.7 DAYS. Unless otherwise expressly indicated herein, any reference
to "days" in this Lease shall be deemed to refer to calendar days.

<PAGE>

33.8 RENT. Each and every monetary obligation under this Lease shall
be deemed to be "Rent" under this Lease and for all other purposes under law.

33.9 APPLICABLE LAW. This Lease shall be governed by and construed
in accordance with the laws of the State, but not including its conflicts of
laws rules; thus the law that will apply is the law applicable to a
transaction solely within the State, including parties solely domiciled in the
State.

33.10 SUCCESSORS AND ASSIGNS. The covenants and conditions
contained in this Lease shall, subject to the provisions regarding assignment
(Article XXII), apply to and bind the heirs, successors, executors,
administrators, and assigns of Lessor and Lessee.

33.11 RECORDATION. Lessor and Lessee shall execute with
appropriate acknowledgments and record in the Official Records of the applicable
county, that certain Short Form Lease in the form and content of Exhibit "C"
attached hereto. Lessor and Lessee shall equally share the cost of recording
the Memorandum of Lease.

33.12 PRIOR AND FUTURE AGREEMENTS. This Lease contains all of the
agreements of Lessor and Lessee with respect to any matter covered or mentioned
in this Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may be
amended or supplemented except by an agreement in writing signed by both Lessor
and Lessee or their respective successors in interest. This Lease shall not be
effective or binding on any party until fully executed by both Lessor and
Lessee.

33.13 PARTIAL INVALIDITY. Any provision of this Lease which shall
be held by a court of competent jurisdiction to be invalid, void or illegal
shall in no way affect, impair or invalidate any other provision or term of this
Lease, and such other provision or terms shall remain in full force and effect.

33.14 ATTORNEYS' FEES. In the event of any action or proceeding
brought by one party against the other under this Lease, the prevailing party
shall be entitled to recover its attorneys' fees in such action or proceeding
from the other party, including all attorneys' fees incurred in connection with
any appeals, and any post-judgment attorneys' fees incurred in efforts to
collect on any judgment.

33.15 AUTHORITY OF LESSOR AND LESSEE. Lessor and Lessee each
hereby represent and warrant that the individuals signing on its behalf are duly
authorized to execute and deliver this Lease on behalf of the corporation, in
accordance with the bylaws of the corporation, and that this Lease is binding
upon the corporation.

33.16 RELATIONSHIP OF THE PARTIES. Nothing contained in this
Lease shall be deemed or construed by Lessor or Lessee, nor by any third party,
as creating the relationship of principal and agent or a partnership, or a joint
venture by Lessor or Lessee, it being understood and agreed that

<PAGE>

no provision contained in this Lease nor any acts of Lessor and Lessee shall
be deemed to create any relationship other than the relationship of landlord
and tenant.

33.17 COUNTERPARTS. This Lease may be executed in one or more
separate counterparts, each of which, once they are executed, shall be deemed to
be an original. Such counterparts shall be and constitute one and the same
instrument.

33.18 BROKERS. Lessor and Lessee each warrants that it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Lease and it knows of no real estate broker or agent who is entitled to
a commission in connection with this Lease. Lessor and Lessee hereby agree to
indemnify the other and to hold the other harmless from and against any and all
costs, expenses, claims, damages, suits, including attorneys' fees, in any way
resulting from claims or demands for commissions or other compensation from any
real estate brokers claiming through such party with respect to this Lease.

33.19 COMPUTER DISC. In order to facilitate the electronic filing
of this document with the United States Securities Exchange Commission and other
governmental agencies, Lessor shall provide or cause to be provided to Lessee a
computer disc containing all exhibits, schedules and ancillary documents related
to this Lease, formatted in WordPerfect 5.1 Times New Roman Font 12, upon
Lessee's one-time request for same.

WHEREFORE, each of the parties has accepted and agreed by affixing their
respective authorized signatures below as of the date first above written.

"LESSEE" NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation

By:
------------------------------------------
Robert J. Geresi, Chief Executive Officer

"LESSOR" COMMERCIAL EQUITY, INC.,
a Kansas corporation

By:
------------------------------------------
David L. Murfin, President

<PAGE>

EXHIBIT "A"

LEGAL DESCRIPTION
________________, ____________________

<PAGE>

EXHIBIT "B"

ENVIRONMENTAL REPORT

[attached hereto]

<PAGE>

EXHIBIT "C"

SHORT FORM LEASE

[attached hereto]

<PAGE>

SHORT FORM LEASE

THIS SHORT FORM LEASE is made as of ___________, 1997, by and between
_____________________, a __________ corporation ("Lessor") and New York Bagel
Enterprises, Inc., a Kansas corporation ("Lessee").

W I T N E S S E T H:

1. In consideration of the covenants of Lessee, Lessor leases to Lessee,
and Lessee leases from Lessor, all of Lessor's right, title and interest in and
to that certain real property and improvements thereon located in the City of
__________, __________ County, ____________________ ("Building"), as more
particularly described in Exhibit "A," attached hereto.

2. This is a short form lease relating to that certain Lease dated as of
___________, 1997 ("Lease"). The Lease has been executed by the parties and
each party has a full copy thereof.

3. The term of the Lease shall be for a period of time commencing on
December _____, 1997, and shall continue to and include the 31st day of
December, _____, unless the Lease is sooner terminated according to the terms of
the Lease or extended according to specific extension rights set forth in the
Lease.

4. The Lease provides, and Lessor and Lessee hereby confirm, that neither
Lessee nor anyone claiming by, through or under Lessee, including contractors,
subcontractors, materialmen, mechanics and laborers, shall have any mechanics',
materialmen's or construction liens of any sort whatsoever upon the interest of
Lessor in the Building, and, to the contrary, any such lien is specifically
prohibited. All parties with whom Lessee may deal are hereby put on notice that
Lessee has no power to subject the interest of Lessor in the Building to any
claim or lien of any kind or character, and all such persons dealing with Lessee
must look solely to Lessee for payment and not to Lessor's interest in the
Building or any other asset of Lessor.

5. The terms, conditions, provisions, covenants and agreements set forth
in the Lease shall be binding upon the Lessor and Lessee, their respective
heirs, legal representatives, successors and assigns, shall be deemed to be
covenants running with the Building, and the entire Lease is hereby incorporated
herein by this reference. In addition to those terms referred to herein, the
Lease contains numerous other terms, conditions and provisions. In the event of
any conflict between the provisions of this Short Form Lease and the Lease, the
provisions of the Lease shall govern, control and prevail.

6. This Short Form Lease may be executed in one or more separate
counterparts, each of which, once they are executed, shall be deemed to be an
original. Such counterparts shall be and constitute one and the same
instrument.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Short Form Lease to
be signed as of the date first above written.

"LESSEE" NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation

By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------

"LESSOR" COMMERCIAL EQUITY, INC.,
a Kansas corporation

By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------

ACKNOWLEDGMENT

STATE OF ___________)
) SS
COUNTY OF _________ )

This instrument was acknowledged before me on ______________, 1997 by
____________________ as ____________________ of New York Bagel Enterprises, Inc.

(Seal) By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

My Appointment expires____________________

<PAGE>

ACKNOWLEDGMENT

STATE OF KANSAS )
) SS
COUNTY OF SEDGWICK )

This instrument was acknowledged before me on ______________, 1997 by
____________________ as ____________________ of Commercial Equity, Inc.

(Seal) By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

My Appointment expires____________________

<PAGE>

Schedule 1

Lessor: Commercial Equity, Inc.
Lessee: New York Bagel Enterprises, Inc.
Date of Lease: November 1, 1997
Location: ____________________________

1.1 TITLE COMPANY. For purposes of the Lease, the title company is
_______________________.

2. STATE. For purposes of the Lease, the term "State" shall mean the State of
____________.

3.1 MINIMUM RENT DURING INITIAL TERM. The Minimum Rent during the Initial Term
shall be at the following annual rates and times:

Years 1-5 $__________
Years 6-10 $__________
Years 11-15 $__________

13.2 REPLACEMENT COST. $__________

18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent during each of the
following Extended Terms shall be at the following annual rates:

Years 16-20 $__________
Years 21-25 $__________

<PAGE>

Exhibit 10.4.1

Schedule of New York Bagel Enterprises, Inc. Sale/leaseback Real Property Leases

PURCHASER/LESSOR
1. Commercial Equity, Inc.
2. Commercial Equity, Inc.
3. Commercial Equity, Inc.

RESTAURANT LOCATION
1. 7239 Quaker Avenue, Lubbock, Texas
2. 414 North Perkins Road, Stillwater, Oklahoma
3. 2456 East Sunshine, Springfield, Missouri

LEASE DATE
1. November 1, 1997
2. November 1, 1997
3. November 1, 1997

"STATE" - DEFINED TERM
1. Texas
2. Oklahoma
3. Missouri

MINIMUM ANNUAL RENT DURING INITIAL TERM
1. Years 1-5 $49,800.00
6-10 $54,780.00
11-15 $60,258.00
2. Years 1-5 $43,200.00
6-10 $47,520.00
11-15 $52,272.00
3. Years 1-5 $52,800.00
6-10 $58,080.00
11-15 $63,888.00

REPLACEMENT COST
1. $333,667.00
2. $300,000.00
3. $300,000.00

MINIMUM ANNUAL RENT DURING EXTENDED TERMS
1. Years 16-20 $66,283.80

<PAGE>

21-25 $72,912.24
2. Years 16-20 $57,499.20
21-25 $63,249.12
3. Years 16-20 $70,276.80
21-25 $77,304.48

<PAGE>

Exhibit 18

November 11, 1997

New York Bagel Enterprises, Inc.
Wichita, Kansas

Gentlemen:

We have been furnished with a copy of Form 10-Q of New York Bagel
Enterprises, Inc. for the thirteen weeks ended September 28, 1997 and have
read the Company's statements contained in Note 3 to the condensed
consolidated financial statements included therein. As stated in Note 3, the
Company changed its method of accounting for restaurant pre-opening costs
from a method whereby such costs were initially capitalized and then
amortized over the initial twelve months of a restaurant's operations to a
method of expensing such costs as incurred and states that the newly adopted
accounting principle is preferable in the circumstances because the newly
adopted method provides a better matching of revenue and expenses. In
accordance with your request, we have reviewed and discussed with Company
officials the circumstances and business judgment and planning upon which the
decision to make this change in the method of accounting was based.

We have not audited any financial statements of New York Bagel Enterprises,
Inc. as of any date or for any period subsequent to December 29, 1996, nor
have we audited the information set forth in the aforementioned Note 3 to the
condensed consolidated financial statements; accordingly, we do not express
an opinion concerning the factual information contained therein.

With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes
of New York Bagel Enterprises, Inc.'s compliance with the requirements of the
Securities and Exchange Commission, we are furnishing this letter.

Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.

Very truly yours,

/s/KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 53,264
<SECURITIES> 0
<RECEIVABLES> 237,603
<ALLOWANCES> (20,000)
<INVENTORY> 342,430
<CURRENT-ASSETS> 1,348,506
<PP&E> 14,963,354
<DEPRECIATION> (4,325,092)
<TOTAL-ASSETS> 14,694,247
<CURRENT-LIABILITIES> 2,558,929
<BONDS> 57,500
0
0
<COMMON> 46,675
<OTHER-SE> 11,372,714
<TOTAL-LIABILITY-AND-EQUITY> 11,419,389
<SALES> 13,758,705
<TOTAL-REVENUES> 14,108,480
<CGS> 4,463,507
<TOTAL-COSTS> 17,369,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 162,411
<INTEREST-EXPENSE> (102,369)
<INCOME-PRETAX> (3,158,629)
<INCOME-TAX> (1,032,226)
<INCOME-CONTINUING> (2,126,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (129,041)
<NET-INCOME> (2,255,444)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)

</TABLE>