Einstein Bros 2003 Annual Report Download - page 60

http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
dividends are not accrued or paid unless the shares are not redeemed by the redemption date; and
•shares may be redeemed in whole or in part at an earlier date at our discretion.
The exchange of the Halpern Denny Interest for Series Z resulted in a reduction of the effective dividend rate relative to that required by the
Series F, and as a result of this and other factors, we accounted for this transaction as troubled debt restructuring as required by Statement of
Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("SFAS 15"). The Series Z is
recorded in the accompanying balance sheet at its full face value of $57.0 million, which represents the total required future cash payment due to
the fact that the Series Z does not require dividends. Since a portion of this exchange included the receipt of our common stock and warrants
previously held by Halpern Denny, we did not recognize a gain from troubled debt restructuring.
9. Stockholders' Equity and Series A and Mandatorily Redeemable Series F Preferred Stock
Series A Junior Participating Preferred Stock
On June 7, 1999, our board of directors authorized the issuance of a Series A junior participating preferred stock in the amount of 700,000
shares. This authorization was made in accordance with the Stockholders' Rights Plan discussed below. There are currently no issued shares.
Stockholders Rights Plan
On June 7, 1999, our Board declared a dividend distribution of one right on each outstanding share of common stock (a "Right"), as well as on
each share later issued. Each Right will allow stockholders to buy one one-hundredth of a share of Series A junior participating preferred stock at
an exercise price of $10.00. The Rights become exercisable if an individual or group acquires 15% or more of common stock, or if an individual or
group announces a tender offer for 15% or more of common stock. The Board can redeem the Rights at $0.001 per Right at any time before any
person acquires 15% or more of the outstanding common stock. In the event an individual (the "Acquiring Person") acquires 15% or more of the
outstanding common stock, each Right will entitle its holder to purchase, at the Right's exercise price, one one-hundredth of a share of Series A
junior participating preferred stock, which is convertible into common stock at one-half of the then value of the common stock, or to purchase such
common stock directly if there are a sufficient number of Shares of common stock authorized. Our Board has the ability to exclude any Acquiring
Person from the provision of the stockholders rights plan, resulting in such Acquiring Person's purchase of our common stock not
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triggering the plan. Rights held by the Acquiring Person are void and will not be exercisable to purchase shares at the bargain purchase price. If we
are acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right's then-current
exercise price, a number of the acquiring company's common shares having a market value at that time of twice the Right's exercise price.
Mandatorily Redeemable Series F Preferred Stock
The Series F Mandatorily Redeemable Preferred Stock had varying redemption scenarios based on the issuance agreements. All redemptions
are discussed below.
On January 18, 2001, we consummated a sale of 20,000 shares of our authorized but unissued Series F to Halpern Denny III, L.P. ("Halpern
Denny") in exchange for the sum of $20,000,000. In connection with the purchase, we issued Halpern Denny five-year warrants to purchase
140,925 shares of common stock at an exercise price of $0.60 per share. 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 1.5% of our fully diluted common stock (excepting certain options and warrants) on January 18, 2002 and on each succeeding
June 30 and December 31. The warrant agreement further provided that it would have been exercisable for additional shares under certain events,
as set forth in the agreement.
On January 18, 2001, BET and Brookwood entered into an Exchange Agreement with us, whereby they exchanged all of their outstanding
Mandatorily Redeemable Series D preferred stock, including accrued but unpaid dividends (all of which were retired) for a total of 16,398.33
shares of Series F. BET and Brookwood also exchanged the warrants received by them in August 2000 for warrants to purchase an aggregate of
108,406 shares of common stock at an exercise price of $0.60 per share. 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), BET and Brookwood were to receive
additional warrants equal to a semi-annual increase in aggregate of 1.154% of our fully diluted common stock (excepting certain options and
warrants). The Company applied EITF 96-19, Debtor's Accounting for a Modification or Exchange of Debt Instruments, by analogy, given the
mandatory redemption feature of the Series D preferred stock, which imbues the issuance with debt-like characteristics, and determined that the
exchange resulted in a substantial modification that requires accounting for the transaction as an extinguishment rather than a modification. As