Einstein Bros 2002 Annual Report Download - page 26

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
In June 2001, we issued 25,000 shares of Series F preferred stock and warrants to purchase Common Stock. The proceeds, net of related
offering expenses, were $22.7 million. The proceeds from this stock sale were utilized to fund, in part, the purchase price for the Einstein
Acquisition.
On June 19, 2001, we consummated a private placement of 140,000 units consisting of $140.0 million of Senior Increasing Rate Notes due
2003 with detachable warrants for the purchase of 13.7 million shares of our common stock, exercisable at $0.01 per share. The proceeds, net of
discount and related offering expenses, were $122.4 million. The proceeds were utilized to fund a portion of the purchase price for the Einstein
Acquisition, to repay our then-existing bank debt and for general working capital purposes. The Notes currently bear interest at 18.0% per annum.
In addition, since we have not completed a registered exchange offer for the Notes, we began paying additional interest on the Notes on
November 17, 2001 at the rate of 0.25% per annum increasing by 0.25% each 90 days
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that such default continues up to a maximum rate of additional interest of 1.0% per annum. The penalty interest of 1.0% per annum is currently
being charged on the Notes.
On June 19, 2001, we obtained a $35.0 million asset-backed secured loan to our wholly owned non-restricted subsidiary, EnbcDeb Corp. The
proceeds, net of discount and related offering expenses, were $32.2 million. The proceeds were utilized to fund a portion of the purchase price for
the Einstein Acquisition. The asset-backed loan, for which EnbcDeb Corp. issued increasing rate notes (the "EnbcDeb Notes"), is secured by
Einstein bonds owned by EnbcDeb Corp. Interest on the EnbcDeb Notes initially accrues at the rate of 14.0% per annum, increasing by 0.35% on
the fifteenth day of each month following issuance. Interest is payable on the fifteenth day of every month and may be paid in kind at our option.
The loan matured on June 15, 2002; however, as of December 31, 2002 the Einstein bankruptcy estate had not concluded distribution on the
Einstein bonds. As of December 31, 2002, the outstanding balance of the EnbcDeb Notes was $4.4 million. We must apply all proceeds relating to
the Einstein bonds to the repayment of the EnbcDeb Notes. To the extent that the proceeds received are insufficient to repay the EnbcDeb Notes in
full, the holders of the EnbcDeb Notes will have the option to require us to issue them preferred stock having a redemption value equal to the
deficiency. If the amount of such deficiency is less than $5.0 million, then the preferred stock will be entitled to an annual cash dividend equal to
17.0% per annum, increasing 100 basis points per month until the preferred stock is redeemed, and we will be required to issue warrants to
purchase 5% of our fully diluted Common Stock. If the amount of the deficiency is $5.0 million or greater, then the preferred stock will be entitled
to an annual cash dividend equal to 18.0% per annum, increasing 100 basis points per month until the preferred stock is redeemed, and we will be
required to issue warrants to purchase 10% of our fully diluted common stock.
On May 30, 2002, we entered into a Loan and Security Agreement with BET Associates, L.P. ("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 11.0% per annum. 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 13.0% per annum. 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.
At December 31, 2002, we had a working capital deficit of $164.8 million compared to a working capital deficit of $150.0 million at
January 1, 2002. The increase in the working capital deficit was primarily the result of the increase in loss from operations as well as working
capital contractions stemming from shorter payment terms related to the new distribution contracts. Of the $189.6 million and $217.7 million of
current liabilities as of December 31, 2002 and January 1, 2002, respectively, $138.1 million and $132.0 million represented the balance of the
Notes included in the consolidated balance sheets as of such dates. We had net cash used in operating activities of $6.7 million for the year ended
December 31, 2002 compared with net cash provided by operating activities of $7.8 million for the year ended January 1, 2002. The variance
between the cash used in and provided by operating activities in those years was attributable primarily to working capital items as a reduction in
accounts payable and accrued expenses was partially offset by a reduction in accounts receivable, principally comprised of the amount due from
the Einstein bankruptcy estate.
We had net cash provided by investing activities of $32.9 million for the year ended December 31, 2002 compared with net cash used in
investing activities of $190.2 million for the year ended January 1, 2002. The net cash provided by investing activities in fiscal 2002 was
attributable primarily to the receipt of $36.7 million in proceeds from the Einstein bankruptcy estate related to our investment in the Einstein
bonds. The net cash used in investing activities in fiscal 2001 related primarily to our investment in debt securities and the Einstein Acquisition.
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