Einstein Bros 2003 Annual Report Download - page 56

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
(amounts in
thousands)
Original face value of $140 Million Facility $ 140,000
Issuance discount from face value (11,550)
Discount attributable to initial and future warrants (17,312)
Effective interest amortization of discount 26,946
$ 138,084
(c) In 2001, we entered into a $35 million asset-backed secured loan due June 15, 2002 (the "Bridge Loan") through EnbcDeb Corp., a wholly
owned subsidiary of ours. Pursuant to the terms of a Note Purchase and Security Agreement dated as of June 19, 2001 (the "Purchase and
Security Agreement"), EnbcDeb Corp. sold $35 million aggregate principal amount of secured increasing rate notes to third-parties. The
aggregate proceeds were $33,250,000. The notes were secured by EnbcDeb Corp.'s investment in $61.5 million aggregate principal amount
of the Einstein/Noah Bagel Corp. 7.25% Subordinated Convertible Debentures due June 2004 (the "Einstein Bonds"). Interest on the
$35 million of notes initially accrued at a rate of 14% per annum and increased by 0.35% on the fifteenth day of each month following
issuance. In 2002, we received distributions relating to our investment in the Einstein Bonds of $36,711,000, which were used to repay an
equivalent portion of the Bridge Loan. As a result of paid-in-kind interest on the Bridge Loan, $4,442,884 remained outstanding as of
December 31, 2002. Since the deficiency was less than $5.0 million, we issued Series F that was entitled to an annual cash dividend equal
to 17% per annum increasing 100 basis points per month until the Series F was redeemed, and we were required to issue warrants,
exercisable at $0.60 per share, to purchase 5% of the fully-diluted shares of our common stock. These contingently issuable warrants had
been classified as a derivative liability (Note 1—Derivative Instruments) on our balance sheet. In conjunction with the Equity Recap, we
were released from our obligation to issue these warrants. The Bridge Loan balance was retired in 2003, at the conclusion of the Einstein
bankruptcy estate, through the issuance of 4,337.481 shares of Series F.
F-25
We incurred approximately $1 million of issuance costs in connection with the Bridge Loan, which were amortized as interest expense
based on an effective interest rate over the estimated life of the financial instrument.
The proceeds from issuance of the Bridge Loan, net of an initial discount of $1,750,000, were allocated to the estimated number of
additional warrants that could have potentially been issued, representing an estimated fair value of $5,365,430, with the remaining balance
allocated to the debt instrument. We included the impact of increases in the interest rate on the Bridge Loan over its expected life and
amortized the discount over that same term, and marked the obligation to issue additional warrants to fair value to reflect changes in the
underlying common stock price.
The components of the Bridge Loan were zero at December 30, 2003 and were included in the accompanying 2002 balance sheet as
follows:
December 31, 2002
(amounts in thousands)
Original face value of Bridge Loan $ 35,000
Issuance discount from face value (1,750)
Discount attributable to future warrants (5,365)
Accrued PIK interest 6,153
Effective interest amortization of discount 7,116
Reductions in principal (36,711)
$ 4,443
(d) On January 17, 2001, we entered into a Bond Purchase Agreement (the "Bond Purchase Agreement") with Greenlight. Pursuant to the
Bond Purchase Agreement, Greenlight formed a limited liability company, GNW, and contributed $10,000,000 (the "Contribution
Amount") to be utilized for the purchase of Einstein Bonds. We were the sole manager of GNW. We consolidated GNW as debt given that
the Bond Purchase Agreement provided Greenlight with a secure interest in GNW's investment in Einstein Bonds, and a right for