Einstein Bros 2002 Annual Report Download - page 75

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
issuance or sale, other than to a subsidiary of the Company, of any debt security of the Company that has been converted into equity interests of the
Company. In the event that the maturity date of the Refinancing Senior Notes is after January 18, 2004 or June 30, 2004, as the case may be, then
the Mandatory Redemption Date for such Series F Preferred Stock will be the maturity date of the Refinancing Senior Notes.
In connection with the execution and delivery of both the Second Purchase and Third Purchase Agreements, each of Halpern Denny and
Brookwood waived preemptive rights they may have had concerning the issuance of additional shares of Series F preferred stock and consented to
the filing of the Second Amended Certificate of Designation which increased the number of shares of Series F preferred stock the Company is
authorized to issue from 73,000 shares to 116,000 shares.
The Third Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of
the Senior Notes, if any), Halpern Denny, Greenlight and Special Situations shall receive additional warrants equal to a percentage (specified
therein) of the fully diluted Common Stock (excepting certain options and warrants) on June 19, 2002, and on each succeeding December 31 and
June 30. If the Company redeems all its issued and outstanding shares of Series F preferred stock on or prior to March 19, 2002, the number of
shares of Common Stock issuable upon the exercise of the warrants (the "Original Warrant Shares") which were issued pursuant to the Second
Purchase and Third Purchase Agreements shall be reduced by an amount equal to one-third (1/3) the number of Original Warrant Shares. If the
Company redeems all issued and outstanding shares of Series F preferred stock on or prior to June 19, 2002, the number of Original Warrant
Shares shall instead be reduced by an amount equal to one-fourth (1/4) of the number of Original Warrant Shares.
In connection with each of the Second Purchase and Third Purchase Agreements, the parties amended the form of the Senior Notes to be
issued to the holders of Series F preferred stock upon redemption of their shares to refer to their agreement with the Company's secured lender
concerning subordination of their interests to the secured lender's interests. As a consequence of the amendment to the Senior Notes, the Company
amended its January 2001 Exchange Agreement with BET and Brookwood and the January 2001 Purchase Agreement with Halpern Denny to
reflect the new form of Senior Notes. In addition, the Company, BET, Brookwood and Halpern Denny entered into amendments to each of the
Stockholders Agreement and Amended and Restated Registration Rights Agreement executed in connection with the January 2001 financing to
conform certain defined terms therein to include the additional securities issued pursuant to the Second and Third Purchase Agreements.
The holders of warrants issued in connection with Series F preferred stock issued prior to March 31, 2001 may be entitled to purchase
additional shares of Common Stock as the result of the warrants to purchase 13,720,000 shares of Common Stock issued in connection with the
$140 Million Facility and have agreed that such $0.01 warrants may not be issuable if such Series F preferred stock is redeemed for cash not later
than June 19, 2002. The Company has evaluated the terms of the obligation to issue additional warrants to such holders in the context of EITF
No. 96-19 and determined that the agreement to provide such additional warrants constituted an extinguishment (Note 3-C), for accounting
purposes, of the Series F preferred stock held by such holders. The contingently-issuable warrants are considered an embedded derivative (Note 3-
C).
F-43
In connection with the issuance of the Series F preferred stock, the Company incurred approximately $3.6 million of issuance costs.
Through March 26, 2003, the Company has issued 17,291,471 of additional $0.01 warrants and has obligations (issuance date has occurred,
but warrants have not yet been issued) to issue as additional 7,625,062.
Common Stock
At a special meeting of the Company's shareholders held on September 20, 2001, the Company's shareholders approved an increase in the
number of authorized shares of the Company's Common Stock to 150,000,000 shares. In a series of closings from April 18, 2000 through June 21,
2000, the Company completed a private placement consisting of 1,360,390 shares of Common Stock and 444,190 shares of convertible Series C
preferred stock. The proceeds from the offering, net of related offering expenses, were $4,144,305, exclusive of 169,902 shares of Common Stock
issued to the placement agent. Each share of Series C preferred stock was converted into three shares of Common Stock upon the effective date of
the registration of the Common Stock issued in connection with the offering (September 11, 2000). The Company accounted for the offering
pursuant to the rules under EITF 98-5. Pursuant to these rules, convertible securities with an embedded conversion right that is in the money when
the security is issued are considered to contain a beneficial conversion feature. The value of the beneficial conversion feature associated with the
Series C preferred stock issued was $623,449 (Note 3-B). This amount has been charged to accumulated deficit and was accounted for as an
increase in net loss available to common stockholders for the purpose of computing loss per share.
Stockholders Rights Plan
On June 7, 1999, the Board declared a dividend distribution of one right on each outstanding share of Common Stock (a "Right"), as well as on