Einstein Bros 2003 Annual Report Download - page 61

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
such, the Company recorded deemed dividends representing the difference between the fair value of the issued Series F preferred stock and the
carrying amount of the Series D preferred stock, plus the fair value of the incremental freestanding warrants issued in conjunction with the
exchange. Issuance costs paid to BET and Brookwood of $375,000 were also recorded as dividends in connection with the extinguishment. The
deemed dividend with respect to the extinguishment of the Series D preferred stock was $8,358,000 in 2001.
On March 29, 2001, we consummated a sale of 5,000 additional shares of our authorized, but unissued, Series F to Halpern Denny in
exchange for the sum of $5,000,000. Pursuant to the terms of the Second Series F Preferred Stock and Warrant Purchase Agreement with Halpern
Denny, we also sold Halpern Denny five-year warrants to purchase 35,231 shares of common stock at a price per share of $0.60 (subject to
adjustment as provided in the form of warrant). The Series F Preferred Stock Purchase Agreement provided that for so long as the Series F had not
been redeemed for cash (including payment of any notes issued thereon), Halpern Denny was to receive additional warrants equal to a semi-annual
increase in aggregate of 0.375% of our fully diluted common stock (excepting certain options and warrants).
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On June 7, 2001, we consummated the sale of 4,000 additional shares of our authorized, but unissued, Series F to Halpern Denny in exchange
for the sum of $4,000,000 pursuant to the terms of the Series F Preferred Stock and Warrant Purchase Agreement with Halpern Denny, dated
June 7, 2001. In connection with the agreement, we also sold Halpern Denny five-year warrants to purchase an aggregate of 56,220 shares of
common stock at a price per share of $0.60 (subject to adjustment as provided in the form of warrant). The Series F Preferred Stock Purchase
Agreement provided that for so long as the Series F had not been redeemed for cash (including payment of any notes issued thereon), Halpern
Denny was to receive additional warrants equal to a semi-annual increase in aggregate of 0.3% of our fully diluted common stock (excepting
certain options and warrants).
In addition, on June 19, 2001, we consummated the sale of 21,000 additional shares of our authorized, but unissued, Series F in exchange for
$21,000,000, pursuant to the terms of the Third Series F Stock and Warrant Purchase Agreement (the "Third Purchase Agreement") by and among
us, Halpern Denny, Greenlight and Special Situations Fund, L.P, Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund,
L.P. (collectively, "Special Situations"). In connection with the sale of the June 2001 Series F, we sold warrants to purchase 295,156 shares of
common stock at a price per share of $0.60 (subject to adjustment as provided in the warrant agreement) pursuant to the Third Purchase
Agreement. The warrants have a term of five years and further provided that they would be exercisable for additional shares under certain events,
as set forth in the agreement. The form of these warrants is substantially identical to the form of the warrants described above including the
provisions thereof relating to the increase of the warrant shares, except that the semi-annual increases were an aggregate of 1.575% of the fully
diluted common stock (excepting certain options and warrants).
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 and consented to the filing of the
Second Amended Certificate of Designation which increased the number of shares of Series F we were authorized to issue from 73,000 shares to
116,000 shares.
The Third Purchase Agreement provide that for so long as the Series F had not been redeemed for cash (including payment of the Senior
Notes, if any), Halpern Denny, Greenlight and Special Situations were to 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.
The holders of warrants issued in connection with Series F issued prior to March 31, 2001 were entitled to purchase additional shares of
common stock as the result of the warrants to purchase 137,200 shares of common stock issued in connection with the $140 Million Facility and
agreed that such $1.00 warrants would not be issuable if the Series F were redeemed for cash not later than June 19, 2002. We 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, for accounting purposes, of the Series F held by such holders. The deemed dividend was equal
to the fair value of the future warrant obligations that were initially included in the effective dividend rate, plus the remaining discount originally
attributed to this issuance. In connection with the modification, we determined that the obligation to issue warrants in the future should be
classified as a liability (Note 1—Derivative Instruments). Accordingly, the deemed dividend was increased by the fair value of the additional
warrants. The deemed dividend associated with the extinguishment was $23,884,000 in 2001.
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In connection with the issuance of the Series F, we incurred approximately $3.6 million of issuance costs, which were amortized as dividends
based on an effective dividend rate over the estimated life of the financial instrument.