Einstein Bros 2002 Annual Report Download - page 71

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
Bonds to Jefferies & Co. to secure the Bridge Loan (see (b) above). The Company is required to apply
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all of the proceeds related to the Einstein Bonds to the repayment of the Bridge Loan. To the extent that there are net proceeds from
the Einstein Bonds, after payment of the Bridge Loan in full, the excess shall be payable to Greenlight. If the excess payment, if
any, is less than the original investment by Greenlight, the difference, plus a 15% per annum increment (increasing to 17% on
January 17, 2002 and by an additional 2% each six months thereafter), shall be payable in the Company's Series F preferred stock
(valued at $1,000 per share) and warrants in an amount equal to 1.125% of the fully diluted Common Stock for every $1 million of
the deficiency. The Company has classified the contingently issuable warrants as a derivative liability as discussed further in Note 3
—C. In connection with the Letter Agreement, Greenlight gave up its secured interest in the Einstein Bonds. The Company
concluded that the changes to the terms of the Bond Purchase Agreement represented a substantial modification, as defined in EITF
Issue 96-19, Debtor's Accounting for a Modification or Exchange of Debt Instruments, and therefore that the execution of the Letter
Agreement constituted an extinguishment of the Bond Purchase Agreement (Note 3-C).
The Company incurred approximately $834,000 of issuance costs, all of which have been expensed as a result of the extinguishment
discussed in the preceding paragraph.
d. The Senior Note requires interest-only payments for the first year of the Note Agreement with quarterly principal installments due
thereafter, through December 31, 2002. The Senior Note carries a variable rate of interest, permitting the Company to select an
interest rate based upon either the prime rate or the Eurodollar rate, adjusted by margin percentages defined in the credit agreement.
The interest rate at December 31, 2000 was 10.75%, based on the Eurodollar rate plus the defined margin. The Senior Notes was
secured by substantially all assets of the Company. In addition, the credit agreement between the lender and the Company requires
the Company to maintain certain financial ratios and places certain restrictions on the Company's ability to incur indebtedness,
dispose of assets or merge with another company without the consent of the lender. This note payable was repaid from the proceeds
of the $140 Million Facility discussed in note (a) above.
e. The Company secured a $3,000,000 revolving credit facility with a bank. At December 31, 2000, the entire credit facility was
outstanding. The credit facility is payable as interest only for its term, with all unpaid principal due on December 31, 2002. The
credit facility carries a variable rate of interest, permitting the Company to select an interest rate based upon either the prime rate or
the Eurodollar rate, adjusted by margin percentages defined in the credit agreement. The interest rate at December 31, 2000 was
10.75% on $1,500,000 of the credit facility for which the Company had selected a Eurodollar rate option and 12.00% on $1,500,000
of the credit facility for which the Company had selected a prime rate option. The note was secured by substantially all assets of the
Company. The revolving credit facility was repaid in full and terminated at the time of the issuance of the $140 Million Facility
discussed in note (a) above.
f. On May 30, 2002, the Company entered into a Loan and Security Agreement with BET, one of the Company's principal
stockholders, which provides for a $7,500,000 revolving loan facility. The facility is secured by substantially all of the Company's
assets. Borrowings under the facility bear interest at the rate of 11% per annum. The facility was to expire on March 31, 2003. At
the time that the Company entered into this facility the Company terminated its prior revolving loan facility. In February of 2003,
the Company 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
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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.
g. As a part of the acquisition of the assets of Chesapeake Bagel Bakery (Note 4), the Company entered into a note payable to the
seller. The note provides for quarterly payments of interest only at 10% with principal payments of $675,000 and $825,000 in 2003
and 2004, respectively. The note is due in full on August 31, 2004 and is secured by the related assets of Chesapeake Bagel Bakery.
h. In December 1998, Manhattan Bagel Company entered into a note payable of $2,800,000 with the New Jersey Economic
Development Authority at an interest rate of 9% per annum. The note has a 10-year maturity. Principal is paid annually and interest
is paid quarterly. The note is secured by substantially all of the Company's assets. The Company has violated the debt coverage ratio
associated with this loan for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, as a result of the restated
financial statements. The balances outstanding under this note have been classified as current within the December 31, 2002,