Einstein Bros 2004 Annual Report Download - page 4

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reorganization charges, (5) cumulative change in fair value of derivatives, (6) gain/loss on the investment, sale, disposal or
exchange of assets, (7) impairment and other related charges and (8) other income).
Our progress toward some of these key performance indicators is discussed throughout Item 7, Management's Discussion and Analysis.
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History
In our early years, we operated and franchised specialty coffee cafés in the northeastern United States under the brand names of New World
Coffee (New World) and Willoughby's Coffee and Tea (Willoughby's). In addition to coffee, we also served fresh, high quality gourmet foods and
pastries. Our business strategy in those years was to be a franchisor and grow through acquisitions. With the acquisition of Manhattan Bagel
Company, Inc. (Manhattan) in 1998 and Chesapeake Bagel Bakery (Chesapeake) in 1999, we became a significant franchisor of bagel restaurants
and, to a lesser extent, of coffee cafés. In 2001, our strategy evolved to include company-operated restaurants as well as franchised and licensed
locations as we completed the acquisition of substantially all of the assets (the Einstein Acquisition) of Einstein/Noah Bagel Corp. (ENBC) and its
majority-owned subsidiary, Einstein/Noah Bagel Partners, L.P., which operated 2 brands: Einstein Bros. Bagels (Einstein Bros.) and Noah's New
York Bagels (Noah's).
The Einstein Acquisition in 2001 was accomplished by issuing a substantial amount of short-term debt and mandatorily redeemable preferred
equity, which have since been refinanced and restructured.
Financing Transactions
Debt Financing—On July 8, 2003, we issued $160 million in aggregate principal amount of 13% senior secured notes due in 2008 ($160
Million Notes) to replace our $140 million in aggregate principal amount of senior secured increasing rate notes due in 2003. On that same date,
we also entered into a three-year, $15 million senior secured revolving credit facility with AmSouth Bank (AmSouth Revolver).
Equity Recapitalization—In September 2003, we completed an equity recapitalization with our preferred stockholders, who held a substantial
portion of our common stock. Among other things, our Mandatorily Redeemable Series F Preferred Stock was eliminated. In exchange, we issued
57,000 shares of our Mandatorily Redeemable Series Z Preferred Stock to Halpern Denny Fund III, L.P. (Halpern Denny) and we issued 9,380,843
shares of our common stock to Greenlight Capital and affiliates (Greenlight).
Current Developments
Effective October 6, 2004, we completed the sale of the Willoughby's Coffee & Tea business in Connecticut. The business was sold to the
original founders for a total sale price of approximately $400,000, which was received in cash. In connection with the transaction, we also
executed a two-year supply agreement to purchase coffee for our New World Coffee cafés from the buyers of Willoughby's. The transaction
allowed us to place a non-core asset in the hands of experienced operators and, concurrently, assure a quality source of supply for our New World
Coffee cafés.
On October 13, 2004, we announced that E. Nelson Heumann was named Chairman of the Board of Directors. Paul Murphy, Chief Executive
Officer, who had been serving as Acting Chairman since October 2003, continues on the Board as a Director. Additionally, Michael W. Arthur was
elected as a Director expanding the board to seven members. Mr. Arthur also serves on the Audit Committee and has been designated as the audit
committee "financial expert." Other members of the Audit Committee are Directors Leonard Tannenbaum and Frank Meyer.
Also on October 13, 2004, we announced that Susan Daggett, who had been Chief Operating Officer since October 2003, was named to the
new position of Chief Strategy Officer. Mike Mrlik, formerly the Executive Vice President of Operations, was promoted to Chief Operating
Officer.
On October 14, 2004, we announced the introduction of our new test concept, Einstein Bros. Café (EB Café). In addition to our core bagel
offerings and expanded breakfast menu, the new concept offers an extensive lunch menu with a culinary focus on innovative items using fresh and
high quality
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