Einstein Bros 2002 Annual Report Download - page 37

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
Warrant Purchase Agreement (the "Third Purchase Agreement"). Pursuant to the Third Purchase Agreement, Halpern Denny was paid a transaction
fee of $250,000 and Greenlight Capital was paid a transaction fee of $417,000.
Commencing in 2002, the holders of the Series F preferred stock are entitled to receive additional warrants. See Note 10 of Notes to
Consolidated Financial Statements included in this Form 10-K.
On January 17, 2001, we entered into a Bond Purchase Agreement with Greenlight Capital. Pursuant to the agreement, Greenlight formed a
limited liability Company, GNW, and contributed $10.0 million to GNW to purchase Einstein bonds. We are the exclusive manager of GNW. The
agreement provided Greenlight with a secure interest in GNW and a right to receive the return of its original contribution plus a guaranteed
accretion of 15% per year, increasing to 17% on January 17, 2002 and by an additional 2% each six months thereafter (the "Guaranteed Return").
In connection with the agreement, we issued Greenlight warrants to purchase an aggregate of 4,242,056 shares of our Common Stock at $0.01 per
share. On June 19, 2001, GNW, Greenlight and we entered into a letter agreement, pursuant to which, among other things, Greenlight consented to
the pledge of the Einstein bonds owned by GNW to secure the EnbcDeb Notes. We are required to apply all proceeds received with respect to the
Einstein bonds to repay the EnbcDeb Notes. To the extent that there are any excess proceeds, we are required to pay them to Greenlight. If
Greenlight does not receive a return equal to its Guaranteed Return, we are obligated to issue Greenlight Series F preferred stock with a face
amount equal to the deficiency and warrant coverage equal to 1.125% of our fully diluted Common Stock for each $1.0 million of deficiency.
BET, Brookwood, Halpern Denny, Greenlight, Special Situations and we entered into a Stockholders Agreement, which relates principally to
the composition of our board of directors. Pursuant to the terms of the Stockholders Agreement, as amended, the authorized number of directors
shall be ten members. BET and Brookwood are each entitled to designate one member to the board of directors until such time as its Series F
preferred stock, including any notes issued upon redemption thereof, have been redeemed and paid in full. Halpern Denny is entitled to designate
two members to the board of directors (and has designated one, Mr. Nimmo, as of this time) until such time as its Series F preferred stock,
including any notes issued upon redemption thereof, have been redeemed and paid in full, at which time it shall be allowed to designate one
director, which right will continue until such time as it owns less than 2% of our outstanding Common Stock. The Stockholders Agreement
provides that should Halpern Denny designate a second member to the board of directors, a majority of directors who are not designees of BET,
Brookwood or Halpern Denny may designate an additional member to the board of directors bringing the total membership of the board of
directors to ten persons. In addition, pursuant to the terms of the Certificate of Designation for the Series F preferred stock, in the event that any
dividends on the Series F preferred stock are in arrears, the holders of the Series F preferred stock will have the right to designate not less than 50%
of the members of the board of directors.
On May 30, 2002, we entered into a Loan and Security Agreement with BET, one of our principal stockholders, which provides for a
$7.5 million revolving loan facility. The facility is secured by substantially all of our assets. Borrowings under the facility bear interest at the rate of
11% per annum. In connection with obtaining the facility, we paid MYFM Capital LLC a fee of $75,000. As of December 31, 2002, $6.0 million
of the revolving credit facility was outstanding. The facility was to expire on March 31, 2003. In February 2003, we and BET executed an
amendment to the facility to extend the maturity of the facility to June 1, 2003. From February 1, 2003 to June 1, 2003, the facility will bear
interest at the rate of 13% per annum. BET or a designee of BET will receive an extension fee of $187,500 in connection with the amendment,
payable at maturity, and an additional fee of $112,500 if the facility is not paid in full by June 2, 2003. Leonard Tannenbaum, one of our directors,
is the Managing Director of MYFM Capital and is a partner at BET.
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In June 1999, we entered into a franchise agreement for a New World location with NW Coffee, Inc., pursuant to which NW Coffee, Inc. paid
us an initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5% of gross
sales, due and payable monthly. In connection with the franchise agreement we also entered into an asset purchase agreement with NW
Coffee, Inc., pursuant to which NW Coffee, Inc. purchased the assets of the New World location from us for $250,000. In connection with the asset
purchase agreement, NW Coffee, Inc. delivered to us a promissory note in the amount of $225,000, which bears interest at 8% and is payable in
installments commencing on June 30, 2002. The note is secured by the assets of NW Coffee, Inc. used in the operation of the franchise.
Mr. Kamfar's uncle owns NW Coffee, Inc. and Mr. Kamfar's parents are officers of NW Coffee, Inc. In periods prior to April 2001, we purchased
goods for the franchise and paid for all of the expenses of the franchise other than payroll (other than the salary of the general manager), which
generated receivables for us. From time to time, NW Coffee, Inc. and Mr. Kamfar made payments to us to reduce the outstanding receivables. As
of December 31, 2002, the outstanding receivable of NW Coffee, Inc. was $266,950. We have fully reserved this receivable in our allowance for
doubtful accounts. Until April 2002, we also provided payroll, accounting and other services to NW Coffee, Inc. for no charge. We terminated the
franchise agreement with NW Coffee, Inc. in June 2002 for breach by the franchisee.
In August 1997, we entered into a franchise for a New World location with 723 Food Corp., pursuant to which 723 Food Corp. paid us an
initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5% of gross sales, due
and payable monthly. In connection with the franchise agreement, 723 Food Corp. purchased the assets of the New World location from us for
$275,000. 723 Food Corp. delivered to us a promissory note in the amount of $125,000, which bears interest at 6% and is payable on August 30,