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As filed with the Securities and Exchange Commission on September 19, 2003

Registration No. 333-107894

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
To
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

NEW WORLD RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	5812 (Primary Standard Industrial Classification Code Number)	13-3690261 (I.R.S. Employer Identification No.)
1687 Cole Boulevard Golden, Colorado 80401 (303) 568-8000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Anthony D. Wedo New World Restaurant Group, Inc. 1687 Cole Boulevard Golden, Colorado 80401 (303) 568-8000 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Julie M. Allen, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3000

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

        If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

TABLE OF ADDITIONAL REGISTRANTS

        Each of the following subsidiaries of New World Restaurant Group, Inc., and each other subsidiary that becomes a guarantor of the securities registered hereby, is hereby deemed to be a registrant.

Name	State of Incorporation or Organization	Primary Standard Industrial Classification Code Number	I.R.S. Employer Identification No.
Manhattan Bagel Company, Inc.	New Jersey	5812	22-2981539
Chesapeake Franchise Corp.	New Jersey	5812	22-3677845
Willoughby's Incorporated	Connecticut	5812	06-1136128
Einstein and Noah Corp.	Delaware	5812	22-3807874
Einstein/Noah Bagel Partners, Inc.	California	5812	94-3137875
I. & J. Bagel, Inc.	California	5812	95-2481915

The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants file a further amendment that specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement becomes effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), determines.

SUBJECT TO COMPLETION DATED SEPTEMBER 19, 2003

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange commission is effective. This preliminary prospectus is not an offer to sell these securities nor is it soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS

New World Restaurant Group, Inc.

Offer to Exchange

any and all of our $160,000,000 Principal Amount Outstanding
13% Senior Secured Notes due 2008
for
a like Principal Amount of
13% Senior Secured Notes due 2008
that have been registered under the Securities Act of 1933

THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON                        , 2003

        We are offering to exchange $160,000,000 aggregate principal amount of our 13% Senior Secured Notes due 2008 that have been registered under the Securities Act of 1933, which we refer to as the "exchange notes," for our existing 13% Senior Secured Notes due 2008, which we refer to as the "original notes." We refer to both the original notes and the exchange notes as the "notes." We are offering to issue the exchange notes to satisfy our obligations contained in a registration rights agreement entered into when the original notes were sold in transactions exempt from registration under the Securities Act of 1933 and therefore not registered with the Securities and Exchange Commission.

The Exchange Notes:

        The terms of the exchange notes are substantially identical to the original notes, except that some of the transfer restrictions and registration rights relating to the original notes will not apply to the exchange notes.

The Exchange Offer:

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The exchange offer will expire at 5:00 p.m., New York City time, on                        , 2003, unless extended.



•

The exchange offer is not subject to any conditions other than that it not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission, or the Commission.



•

Subject to the satisfaction or waiver of specified conditions, we will exchange the exchange notes for all original notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer.



•

Tenders of original notes may be withdrawn at any time before the expiration of the exchange offer.



•

Tenders of original notes may be made, in whole or in part, in integral multiples of $1,000 principal amount.



•

We will not receive any proceeds from the exchange offer.

You should carefully consider the risk factors beginning on page 11 of this prospectus.

WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

Neither the Securities and Exchange Commission nor any state securities commission has passed upon the accuracy or adequacy of this prospectus or the investment merits of the exchange notes. Any representation to the contrary is unlawful.

The date of this prospectus is                        , 2003.

        You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with any information or represent anything not contained in this prospectus, and, if given or made, any such other information or representation should not be relied upon as having been authorized by us. We are not making an offer to sell the exchange notes in any jurisdiction where an offer or sale is not permitted.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	11
The Exchange Offer	19
Use of Proceeds	27
Ratio of Earnings to Fixed Charges	27
Capitalization	28
Selected Financial Information	29
Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Business	50
Management	62
Principal Stockholders	73
Description of Capital Stock	75
Description of Certain Indebtedness	81
Description of Exchange Notes	82
United States Federal Income Tax Considerations	123
Plan of Distribution	127
Legal Matters	128
Experts	128
Where You Can Find More Information	128
Index to Consolidated Financial Statements	F-1

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FORWARD-LOOKING STATEMENTS

        This prospectus contains "forward-looking statements." Whenever you read a statement that is not solely a statement of historical fact (such as when we state that we "estimate," "believe," "expect," "anticipate," "intend" or "plan" that an event will occur, and other similar statements), you should understand that our expectations may not be correct, although we believe they are reasonable, and that our plans may change. We do not guarantee that the transactions and events described in this prospectus will happen as described or that any positive trends noted in this prospectus will continue. The forward-looking information contained in this prospectus is generally located under the headings "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," but may be found in other locations as well. These forward-looking statements generally relate to our strategies, plans and objectives for future operations and are based upon management's current plans and beliefs or estimates of future results or trends.

        Forward-looking statements regarding management's present plans or expectations for new product offerings, capital expenditures, sales-building, integration of New World and acquired businesses, cost-saving strategies, franchising, licensing and company-operated location growth involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with third parties, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding management's present expectations for operating results and cash flow involve risks and uncertainties relative to these and other factors, such as the ability to increase revenues and/or to achieve cost reductions (and other factors discussed under "Risk Factors" or elsewhere in this prospectus), which also would cause actual results to differ from present plans. Such differences could be material.

        You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. We will not update these forward-looking statements, even if our situation changes in the future.

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PROSPECTUS SUMMARY

This summary highlights information that we believe is especially important concerning our business and this exchange offer. It does not contain all of the information that may be important to you and to your investment decision. The following summary is qualified in its entirety by the more detailed information and the financial statements and notes thereto appearing elsewhere in this Prospectus. You should carefully read this entire Prospectus and should consider, among other things, the matters set forth under "Risk Factors" before deciding to participate in the exchange offer. In this Prospectus, unless indicated otherwise, "New World," the "Company," "we," "us" and "our" refer to New World Restaurant Group, Inc., the issuer of the Notes, and its subsidiaries. The "Einstein Acquisition" refers to our acquisition of substantially all of the assets of Einstein/Noah Bagel Corp. and its majority-owned subsidiary, Einstein/Noah Bagel Partners (collectively, "Einstein") in June 2001. "EBITDA" means net loss plus (i) provision for income taxes, (ii) permanent impairment in the value of investment in debt securities, (iii) other expense or less other income, (iv) loss from extinguishment of Greenlight obligation, (v) interest expense, (vi) impairment charge in connection with realization of assets held for sale, (vii) provision for integration and reorganization costs, (viii) depreciation and amortization, and (ix) cumulative change in the fair value of derivatives. "Adjusted EBITDA" means EBITDA excluding (A) certain legal, financing and advisory fees, (B) acquisition and integration expenses, (C) certain corporate expenses, (D) unauthorized bonuses, (E) certain compensation expense and (F) certain other charges. See Notes 1 and 2 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Selected Unaudited Pro Forma and Historical Financial Data." Neither EBITDA nor Adjusted EBITDA is intended to represent cash flow from operations in accordance with generally accepted accounting principles, and neither should be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity.

The term "original notes" refers to the unregistered 13% Senior Secured Notes due 2008 that were issued on July 8, 2003 in a private placement exempt from registration under the Securities Act of 1933, as amended, or the Securities Act. The term "exchange notes" refers to the registered 13% Senior Secured Notes due 2008 that are offered by this prospectus. The term "notes" refers to both the original notes and the exchange notes.

The Exchange Offer

        On July 8, 2003, we completed the private offering of an aggregate principal amount of $160,000,000 of original notes. We entered into a registration rights agreement with the initial purchaser of the original notes in which we agreed, among other things, to deliver to you this prospectus and to offer to exchange your original notes for exchange notes with substantially identical terms. If the registration statement of which this prospectus forms a part has not been declared effective by December 5, 2003, additional interest shall accrue on the notes. You should read the discussion under the heading "Description of Exchange Notes" for further information regarding the exchange notes.

        We believe the exchange notes issued in the exchange offer may be resold by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, subject to certain conditions. You should read the discussion under the heading "The Exchange Offer" for further information regarding the exchange offer and resale of the exchange notes.

The Company

Overview

        We are a leader in the quick casual segment of the restaurant industry. With 739 locations in 33 states as of July 1, 2003, we operate and license locations primarily under the Einstein Bros. and Noah's New York Bagels ("Noah's") brand names and franchise locations primarily under the Manhattan Bagel ("Manhattan") and Chesapeake Bagel Bakery ("Chesapeake") brand names. Our locations specialize in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-

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order sandwiches on a variety of breads and bagels, soups, salads, desserts, premium coffees and other café beverages, and offer a café experience with a neighborhood emphasis. As of July 1, 2003, our retail system consisted of 462 company-operated, 249 franchised and 28 licensed locations. We also operate dough production and coffee roasting facilities.

        We plan to leverage our leadership position, brand names and production facilities in the growing quick casual segment of the restaurant industry primarily through franchising and licensing, as well as developing select company-operated locations. We believe that our market leadership, strong brands and attractive and proven unit economics will enable us to attract experienced, well capitalized franchise and license partners. The benefits of franchising and licensing include the ability to develop new markets and build out existing markets with a minimal capital commitment by us, the creation of a built-in customer base for our manufacturing operations and the generation of initial franchise fees and a royalty income stream.

        On a combined pro forma basis excluding restructuring charges and certain other items, we have increased Adjusted EBITDA from $35.1 million in 2000 to $46.4 million in 2002, representing a 15% compounded annual growth rate ("CAGR"). This improvement is due primarily to increases in same store sales, increases in store level profits, expansion of dayparts, increased manufacturing profits and purchasing and manufacturing, general and administrative and distribution cost reductions achieved through the successful integration of acquisitions.

        As of July 1, 2003, on a pro forma basis as adjusted to reflect the issuance of the notes and the application of the net proceeds therefrom as described under "Use of Proceeds," we would have had $171.2 million of Net Debt (defined as total indebtedness of the Company and its restricted subsidiaries less cash). Calculated on the same basis, our Net Debt-to-Adjusted EBITDA ratio would have been 4.4x.

Industry

        The U.S. market for the daytime restaurant business is currently estimated at approximately $200 billion, according to industry research. This market is growing as the aging of the baby boomer population has led to an increase in the percentage of food eaten away from home from 25% in 1955 to 46% in 2002, which percentage is expected to grow to 53% by 2010. Industry sources estimate that the quick casual segment of the market is currently approximately $5.2 billion, and it is expected to grow to approximately $11 billion by 2006.

        We believe that quick casual is one of the most rapidly growing segments of the restaurant industry. We believe the growth in this segment is driven by the aging baby boomer population, which has resulted in a more sophisticated, more demanding customer base willing to pay for (i) higher quality, fresh, made-to-order foods, (ii) a pleasant environment serving as a neighborhood gathering place and (iii) higher quality, speedy service in a convenient location.

Business Strengths

        Proven Business Model.    Our emphasis on expansion of our dayparts and increasing the breadth of our menu offerings has resulted in attractive and improving unit economics. We have generated positive comparable store sales in our company-operated locations for thirteen of the past fourteen quarters ended December 31, 2002, including a 1.9% increase in 2002. We have increased average revenues per location for our Einstein Bros. brand, which is at the core of our growth strategy, from $717,000 in 1998 to $808,000 in 2002, representing a CAGR of 3%. At the same time, our emphasis on increased profitability and cost reductions has resulted in improved earnings. From 2000 through 2002, we have increased our Adjusted EBITDA on a combined pro forma basis from $35.1 million to $46.4 million, representing a CAGR of 15%.

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        Diversifed Product Offering and Multiple Dayparts.    Our brands have expanded dramatically beyond their initial core focus on breakfast items, and generate significant customer traffic throughout the day. Our 2002 daypart mix is approximately 39% breakfast, 27% lunch and 34% chill-out (the time between breakfast and lunch and after lunch when customers visit our locations to take a break from their daily activities). The growth of our after-breakfast dayparts is attributable in part to the expansion of our menu offerings, including sandwiches on a variety of breads, salads, sweets and premium coffees and other café beverages.

        Strong Brand Awareness and Consumer Loyalty.    We have developed strong brand awareness and consumer loyalty with limited advertising. According to an independent study commissioned by us, 93% of trade area consumers are aware of Einstein Bros., while only 48% are aware of our advertising. In this study, our consumers stated that we exceed their expectations in high-quality food offerings, menu variety and convenience. Our frequency numbers are high and increasing. Specifically, Einstein Bros.' frequency has increased from 5.8 visits per consumer per month in 1997 to 7.1 visits in 2001.

        Significant Licensing Partners.    We have an attractive platform for growth through licensing. We launched our Einstein Bros. and Noah's licensing program in April 2001 and have since signed Aramark and Sodexho to develop our brands on university and college campuses and in hospitals and corporate settings. We have also signed Concessions Intl., Inc. to develop our brand at airport locations. In addition to those large national license operators, we have added other regional operators to further increase our licensed location base. Our licensing partners on a combined basis service over 60,000 food service outlets. As of December 31, 2002, we had 26 locations open under our licensing program and nine locations in development.

        Large Franchise Infrastructure.    We have a substantial franchise base in our Manhattan and Chesapeake brands that generates a recurring revenue stream through fee and royalty payments. Our current franchise agreements typically provide for a ten-year term, a $25,000 initial franchise fee, a 5% royalty and a marketing fund contribution of 2.5%. Our franchise base provides us with the ability to grow our brands with a minimal capital commitment by us.

        Incremental Profits from Manufacturing.    We have production facilities that generate stable manufacturing income with solid margins, which makes our business model more profitable than competitors that rely on store income alone. Generally, our franchise locations are required by contract to purchase proprietary products (including dough and coffee) from us, generating a built-in customer base for our manufacturing operations. In addition, centralized production provides systemwide quality control and product consistency and the ability to efficiently introduce new products.

        Proven Management Team.    We have an experienced management team at the executive, regional and store levels, which we believe will lead to the successful execution of our business strategy. Our management has a track record of success in developing and operating substantial company-operated, franchised and licensed restaurant businesses, and in making acquisitions and integrating such acquired businesses to yield significant improvements in EBITDA.

        Substantial Equity Investment.    Institutional private equity firms have invested $75.0 million in our business. Our current sponsors include Halpern Denny Fund III, L.P. ("Halpern Denny") (a private equity firm formed by John Halpern, founder of Bain & Company, and George Denny, former director of Bain & Co.'s investment partnership, Bain Holdings) and Greenlight Capital, L.L.C. (together with Greenlight Capital, L.P., Greenlight Capital Qualified, L.P., and Greenlight Capital Offshore, Ltd., "Greenlight").

Business Strategy

        Increase Sales Through Daypart Expansion.    We intend to grow our business by continuing to focus on expanding our dayparts. We believe we have an attractive opportunity to grow our lunch daypart to

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take advantage of the largest segment of the restaurant industry. Specifically, in 2002, we launched product initiatives to expand our selection of gourmet sandwiches, introduce hot lunch offerings and broaden our selection of desserts and premium beverages. We also launched additional service initiatives to improve location-level through-put and speed of service. We are introducing marketing initiatives to increase frequency, build check average and enhance reach.

        Provide a Menu Offering of High-Quality, Flavorful Foods and Beverages.    Our research indicates that our customers are drawn to our Einstein Bros. brand due to its superior food quality and extensive selection of flavorful food and beverage items. We offer a broad menu of fresh baked goods, made-to-order sandwiches, crisp salads, flavorful soups and decadent desserts. Our beverage menu features a full line of premium coffee and café beverages. Our signature products are prepared in front of customers using fresh ingredients, which makes a significant quality statement to our guests. We maintain a pipeline of new menu offerings that are systematically introduced in order to keep our menu relevant to consumers in each daypart.

        Utilize Effective and Efficient Marketing.    We are developing new and enhanced advertising campaigns for each of our brands. In particular, a new marketing strategy designed to further enhance Einstein Bros.' lunch business was launched in mid-2002 and will be expanded in 2003. In three Einstein Bros. markets, we utilized television advertising featuring the concepts of superior food quality and quick casual positioning. Sales at Einstein Bros. locations in markets in which we utilized television advertising were approximately 5% to 10% higher than sales generated at locations in other markets. Based on these results, we intend to utilize television advertising in 2003 in several additional Einstein Bros. markets where there is sufficient unit concentration to justify the expense of television advertising.

        Pursue Disciplined Portfolio Growth.    We have a significant opportunity to add new company-operated Einstein Bros. locations both in existing markets to realize additional operating and marketing efficiencies, leverage existing brand awareness and enhance customer convenience, and in new markets, including the approximately 20 states in which the Einstein Bros. brand does not currently have a presence. We added five new Einstein Bros. company-operated locations during 2002 and intend to open an additional 10 locations in 2003. We have a strong platform for growth through franchising and licensing as a result of our strong unit economics and solid positioning within the quick casual restaurant segment. We filed a Uniform Franchise Offering Circular for our Einstein Bros. brand in 2002, and we anticipate attracting one or two large area development franchise partners during the second half of 2003. We grew our licensed locations to 26 at the end of 2002 and intend to open approximately 25 licensed locations in 2003. By growing our portfolio with experienced, well capitalized operators, we expect to continue to build our leadership position in the quick casual segment of the restaurant industry.

        Develop Alternative Retail Channels.    We believe we have substantial opportunities to develop multiple sales channels outside of our traditional locations. These alternative retail sales channels can generate incremental sales, enhance our brands' visibility and improve customer convenience. In particular, in-store bakeries are increasingly seeking to outsource production of bread and bagels. We have established a vendor partnership with Costco and recently entered into a similar arrangement with SuperTarget, pursuant to which we sell Einstein Bros. products through approximately 300 Costco and 100 SuperTarget stores, respectively. We expect to attract additional alternative retail customers based on Einstein Bros.' substantial brand equity and superior food quality and freshness.

        New World Restaurant Group, Inc. is a Delaware corporation organized in November 1992, and our principal executive offices are located at 100 Horizon Center Boulevard, Hamilton, New Jersey 08691 and 1687 Cole Boulevard, Golden, Colorado 80401. The telephone number of our principal executive offices is (303) 568-8000.

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Summary of the Exchange Offer

The summary below describes the principal terms of the exchange offer. Please read the section entitled "The Exchange Offer" in this prospectus which contains a more detailed description of the exchange offer.

The Exchange Offer	We are offering to exchange $1,000 principal amount of the exchange notes, which have been registered under the Securities Act, for each $1,000 principal of the original notes, which have not been registered under the Securities Act. We issued the original notes on July 8, 2003.
	In order to exchange your original notes, you must promptly tender them before the expiration date (as described herein). All original notes that are validly tendered and not validly withdrawn will be exchanged. We will issue the exchange notes on or promptly after the expiration date.
	You may tender your original notes for exchange in whole or in part in integral multiples of $1,000 principal amount.
Registration Rights Agreement	We sold the original notes on July 8, 2003 to Jefferies & Company, Inc., the Initial Purchaser. Simultaneously with that sale, we signed a Registration Rights Agreement with the Initial Purchaser relating to the original notes that requires us to conduct this exchange offer.
	You have the right under the Registration Rights Agreement to exchange your original notes for exchange notes. The exchange offer is intended to satisfy such right. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your original notes.
	For a description of the procedures for tendering original notes, see the section "The Exchange Offer" under the heading "Procedures for Tendering Original Notes."
Consequences of Failure to Exchange	If you do not exchange your original notes for exchange notes in the exchange offer, you will still have the restrictions on transfer provided in the original notes and in the indenture, or the Indenture, that governs both the original notes and the exchange notes. In general, the original notes may not be offered or sold unless registered or exempt from registration under the Securities Act, or in a transaction not subject to the Securities Act and applicable state securities laws. We do not plan to register the original notes under the Securities Act. See the section "Risk Factors" under the heading "Holders that do not exchange their original notes hold restricted securities."
Expiration Date	The exchange offer will expire at 5:00 p.m., New York City time, on            , 2003, unless we extend it. In that case, the expiration date will be the latest date and time to which we extend the exchange offer. See the section "The Exchange Offer" under the heading "Expiration Date; Extensions; Amendments."
Conditions to the Exchange Offer	The exchange offer is subject to conditions that we may waive in our sole discretion. The exchange offer is not conditioned upon any minimum principal amount of original notes being tendered for exchange. See the section "The Exchange Offer" under the heading "Conditions to the Exchange Offer."

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	We reserve the right in our sole discretion, subject to applicable law, at any time and from time to time:
	•    to delay the acceptance of the original notes;
	•    to terminate the exchange offer if specified conditions have not been satisfied;
	•    to extend the expiration date and retain all tendered original notes, subject to the right of tendering holders to withdraw their tender of original notes; and
	•    to waive any condition or otherwise amend the terms of the exchange offer in any respect. See the section "The Exchange Offer" under the heading "Expiration Date; Extensions; Amendments."
Procedures for Tendering Original Notes	If you wish to tender your original notes for exchange, you must:
	•    complete and sign a letter of transmittal according to the instructions contained in the letter of transmittal; and
	•    forward the letter of transmittal by mail, facsimile transmission or hand delivery, together with any other required documents, to the exchange agent, either with the original notes to be tendered or in compliance with the specified procedures for guaranteed delivery of the original notes. Specified brokers, dealers, commercial banks, trust companies and other nominees may also make tenders by book-entry transfer. Please do not send your letter of transmittal or your original notes to us. Those documents should only be sent to the exchange agent. Questions regarding how to tender and requests for information should be directed to the exchange agent. See the section "The Exchange Offer" under the heading "Exchange Agent."
Special Procedures for Beneficial Owners	If your original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, we urge you to contact such person promptly if you wish to tender your original notes. See the section "The Exchange Offer" under the heading "Procedures for Tendering Original Notes."
Withdrawal Rights	You may withdraw the tender of your original notes at any time before the expiration date. To do this, you should deliver a written notice of your withdrawal to the exchange agent according to the withdrawal procedures described in the section "The Exchange Offer" under the heading "Withdrawal Rights."
Resales of Exchange Notes	We believe that you will be able to offer for resale, resell or otherwise transfer the exchange notes issued in the exchange offer without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:
	•    you are acquiring the exchange notes in the ordinary course of your business;
	•    you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and
	•    you are not an affiliate of New World Restaurant Group, Inc.

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	Our belief is based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties unrelated to us. The staff of the Commission has not considered the exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the Commission would make a similar determination with respect to the exchange offer. If our belief is not accurate and you transfer an exchange note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from such requirements, you may incur liability under the Securities Act. We do not and will not assume, or indemnify you against, such liability. Each broker-dealer that receives exchange notes for its own account in exchange for original notes that such broker-dealer acquired as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale or other transfer of exchange notes. A broker-dealer may use this prospectus for an offer to sell, resell or otherwise transfer exchange notes. See the section "Plan of Distribution."
Exchange Agent	The exchange agent for the exchange offer is The Bank of New York. The address, telephone number and facsimile number of the exchange agent are provided in the section "The Exchange Offer" under the heading "Exchange Agent," as well as in the letter of transmittal.
Use of Proceeds	We will not receive any cash proceeds from the issuance of the exchange notes. See the section "Use of Proceeds."
United States Federal Income Tax Consequences	Your participation in the exchange offer will not be a taxable exchange for United States federal income tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of the exchange. See the section "United States Federal Income Tax Considerations."

Summary Description of the Exchange Notes

The summary below describes the principal terms of the exchange notes. The terms of the exchange notes are identical in all material respects to the terms of the original notes, except that the registration rights and related liquidated damages provisions and the transfer restrictions applicable to the original notes are not applicable to the exchange notes. The exchange notes will evidence the same debt as the original notes and will be governed by the same Indenture. Please read the section entitled "Description of Exchange Notes" in this prospectus, which contains a more detailed description of the terms and conditions of the exchange notes.

Issuer	New World Restaurant Group, Inc., a Delaware corporation.
Securities	$160.0 million aggregate principal amount of 13% senior secured notes.
Maturity	July 1, 2008.
Coupon	We will pay interest on the exchange notes at an annual rate of 13%. We will pay interest on the exchange notes semi-annually, on each January 1 and July 1, beginning January 1, 2004.

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Guarantees	All of our existing and future subsidiaries other than non-restricted subsidiaries will fully and unconditionally guarantee the exchange notes.
Ranking	The exchange notes and the guarantees will be our senior obligations, will rank senior in right of payment to all of our subordinated indebtedness and will rank pari passu in right of payment with all our existing and future senior indebtedness, including our senior revolving credit facility.
	As of September 15, 2003, other than the notes, we had no outstanding indebtedness other than (i) our senior revolving credit facility, of which $4.5 million has been drawn down as of the date of this prospectus, and (ii) $3.8 million of other existing indebtedness.
Security	The exchange notes and guarantees will be secured by substantially all our assets and the assets of our subsidiaries, other than non-restricted subsidiaries. Pursuant to the terms of an intercreditor agreement, the security interest securing the exchange notes and the guarantees made by our subsidiaries will be subordinated to a lien securing our senior revolving credit facility. Such security interest will also be subordinated to liens securing $1.6 million of other existing indebtedness.
Optional Redemption	On or after July 1, 2004, we will have the right to redeem some or all of the exchange notes at the following redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest, if redeemed during the 12-month period commencing July 1 of the year indicated below:

For the Period	Percentage
2004	104.000	%
2005	103.000	%
2006	102.000	%
2007	101.000	%
On July 1, 2008	100.000	%

	On or prior to July 1, 2004, we may also redeem up to 331/3% of the original principal amount of the exchange notes with certain proceeds realized by us from an equity offering at a redemption price of 113.000% of the principal amount, plus accrued and unpaid interest to the redemption date; provided that at least 662/3% of the aggregate principal amount of the exchange notes originally issued remains outstanding immediately after the occurrence of such redemption.
Asset Sale Offer	If we do not reinvest cash proceeds from asset sales in our business, we may have to use such proceeds to offer to buy a portion of the exchange notes at 100% of their principal amount, plus accrued and unpaid interest.
Change of Control Offer	If we experience a change of control as defined in the indenture governing the exchange notes (the "Indenture"), we must make an offer to repurchase the exchange notes at 101% of their principal amount, plus accrued and unpaid interest.

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Principal Covenants	The Indenture contains covenants that, among other things, limit our ability to:
	•    incur additional indebtedness;
	•    pay dividends or make other restricted payments;
	•    issue stock of subsidiaries;
	•    make certain investments;
	•    create liens;
	•    enter into transactions with affiliates;
	•    merge or consolidate; and
	•    transfer or sell assets.
	These covenants are subject to a number of important exceptions. See "Description of Exchange Notes—Certain Covenants."

        For more information about the exchange notes, see the "Description of Exchange Notes" section of this Prospectus.

Risk Factors

        You should consider carefully the information included in the "Risk Factors" section of this Prospectus, as well as all other information set forth in this Prospectus before deciding to participate in the exchange offer.

Recent Developments

        In October 2002, we engaged CIBC World Markets as our financial advisor to review strategic alternatives to rationalize our capital structure. In connection with that process, we engaged in discussions with several parties with respect to a potential acquisition or restructuring of our equity. Other than the Equity Recap described in the following paragraph, such discussions have not resulted in any agreements, arrangements or understandings as of the date of this Prospectus.

        Halpern Denny, Greenlight and we have entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure (the "Equity Recap"). Our Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F preferred stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. See "Description of Capital Stock—Equity Recapitalization." The Equity Recap is subject to stockholder approval and other customary conditions. The agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap. Assuming that such stockholder approval is received, following the closing of the Equity Recap, Greenlight will beneficially own approximately 92% of our outstanding common stock and the warrants issued to the holders of the $140 million senior secured increasing rate notes issued in June 2001 (the "Increasing Rate Notes") will represent approximately 4.3% of our common stock in the aggregate.

9

Summary Historical Financial and Operating Data

        The following table presents historical financial and operating data for the fiscal year ended December 27, 1998 ("1998 Fiscal Year"), the fiscal year ended December 26, 1999 ("1999 Fiscal Year"), the fiscal year ended December 31, 2000 ("2000 Fiscal Year"), the fiscal year ended January 1, 2002 ("2001 Fiscal Year") and the fiscal year ended December 31, 2002 ("2002 Fiscal Year"). The financial information for the 1998 Fiscal Year and the 1999 Fiscal Year is derived from our unaudited financial statements, which are not included in this Prospectus. The financial information for the 2000 Fiscal Year, the 2001 Fiscal Year and the 2002 Fiscal Year is derived from our audited financial statements appearing elsewhere in this Prospectus. The financial information for the six-month periods ended July 2, 2002 and July 1, 2003 is derived from our unaudited consolidated financial statements. The unaudited consolidated financial data reflect all normal recurring adjustments necessary for a fair presentation of these results. Our results of operations for the six-month period ended July 1, 2003 are not necessarily indicative of the results that may be expected for the full fiscal year 2003.

		Fiscal Year Ended														Six-Month Period Ended
		December 27, 1998			December 26, 1999		December 31, 2000			January 1, 2002			December 31, 2002			July 2, 2002			July 1, 2003
		(dollars in thousands)
Income Statement Data:
Total revenues		$	17,283		$	39,925	$	43,078		$	234,175		$	398,650		$	199,225		$	192,960
Gross profit			4,819			11,977		12,940			44,772			77,144			38,094			30,284
General and administrative			3,462			6,238		12,733			28,647			42,640			22,645			18,644
Depreciation and amortization			1,464			1,704		2,254			15,207			30,626			14,995			14,297
Provision for integration and reorganization costs			2,224			—		—			4,432			4,194			(552	)		—
Impairment charge in connection with realization of assets held for sale			4,235			—		1,076			3,259			—			—			—
(Loss) earnings from operations			(6,566	)		4,035		(3,123	)		(6,773	)		(316	)		1,006			(2,657	)
Net (loss) income available to common stockholders			(7,492	)		2,639		(7,911	)		(77,220	)		(68,067	)		(41,033	)		(35,281	)
Per Share Data:
Net (loss) earnings(1)		$	(1.09	)	$	0.26	$	(0.63	)	$	(2.09	)	$	(0.80	)	$	(0.53	)	$	(0.34	)
Book value			0.46			1.11		0.71			(1.55	)		(1.74	)		(3.60	)		(2.36	)
Cash dividends declared			—			—		—			—			—			—			—
Other Data:
Number of locations at end of period			335			377		814			770			747			747			739
	Franchised and licensed		308			362		312			287			287			287			277
	Company-operated		27			15		502			483			460			460			462
Increase in Einstein Bros. and Noah's same store sales(2)			N/A			N/A		4.6	%		2.5	%		1.9	%		0.7%			(2.2	)%

(1)

The net (loss) earnings per share data are presented as basic earnings per share. Basic earnings per share and diluted earnings per share are the same for all periods presented except the 1999 Fiscal Year. For the 1999 Fiscal Year, basic earnings per share was $0.26 and diluted earnings per share was $0.25.

(2)

Same store sales is calculated for Einstein Bros. and Noah's company-operated stores open as of the beginning of the previous fiscal period.

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RISK FACTORS

The following risk factors should be considered carefully, in addition to the other information in this Prospectus, before deciding to participate in the exchange offer.

Risks Related to the Exchange Offer

Holders that do not exchange their original notes hold restricted securities.

        If you do not exchange your original notes for exchange notes, your ability to sell your original notes will be restricted.

        If you do not exchange your original notes for exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer described in the legend on your original notes. The restrictions on transfer of your original notes arise because we issued the original notes in a transaction not subject to the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the original notes if they are registered under the Securities Act and applicable state securities laws or offered or sold pursuant to an exemption from those requirements. If you are still holding any original notes after the expiration date of the exchange offer and the exchange offer has been consummated, you will not be entitled to have those original notes registered under the Securities Act or to any similar rights under the registration rights agreement, subject to limited exceptions, if applicable. After the exchange offer is completed, we will not be required, and we do not intend, to register the original notes under the Securities Act. In addition, if you exchange your original notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent original notes are tendered and accepted in the exchange offer, the trading market, if any, for the original notes would be adversely affected.

Holders are responsible for compliance with exchange offer procedures.

        You are responsible for complying with all exchange offer procedures. If you do not comply with the exchange offer procedures, you will be unable to obtain the exchange notes.

        We will issue exchange notes in exchange for your original notes only after we have timely received your original notes, along with a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you want to tender your original notes in exchange for exchange notes, you should allow sufficient time to ensure timely delivery. Neither we nor the exchange agent has any duty to inform you of any defects or irregularities in the tender of your original notes for exchange. The exchange offer will expire at 5:00 p.m., New York City time, on                        , 2003, or on a later extended date and time as we may decide. See "The Exchange Offer—Procedures For Tendering Original Notes."

Requirements for transfer of exchange notes.

        Even the exchange notes, in your hands, may not be freely tradable.

        Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, we believe that you may offer for resale, resell and otherwise transfer the exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, subject to certain limitations. These limitations include that you are not an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, that you acquired your exchange notes in the ordinary course of your business and that you are not engaging in and do not intend to engage in, and have no arrangement or understanding with any person to participate in, the distribution of your exchange notes. However, we have not submitted a no-action letter to the Commission regarding this exchange offer and we cannot assure you that the Commission would make a similar determination with respect to this exchange offer. If you are an affiliate of ours, are engaged in or intend to engage in, or have any arrangement or understanding with

11

respect to, a distribution of the exchange notes to be acquired in the exchange offer, you will be subject to additional limitations. See "The Exchange Offer—Resale of the Exchange Notes."

Risk Factors Relating to the Notes

        We have a substantial amount of debt, which could impair our ability to make principal and interest payments on the Notes.

        We have a high level of debt and are highly leveraged. As of July 1, 2003, on a pro forma basis as adjusted to reflect the issuance of the Notes and the application of the net proceeds therefrom as described under "Use of Proceeds," our total Net Debt, including debt of our restricted subsidiaries, would have been $171.2 million, and we have the ability to incur additional debt under our senior revolving credit facility. We may, subject to certain restrictions in the Indenture and Intercreditor Agreement, be able to incur substantial additional indebtedness in the future.

        Our high level of debt could have important consequences to you, including the following:

•

making it difficult for us to satisfy our obligations under the Notes and our senior credit facility;



•

limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes;



•

increasing our vulnerability to downturns in our business or the economy generally;



•

limiting our ability to withstand competitive pressures from our less leveraged competitors; and



•

harming us if we fail to comply with the covenants in the Indenture or our senior credit facility, because a failure could result in an event of default that, if not cured or waived, could result in all of our indebtedness becoming immediately due and payable, which could render us insolvent.

        We urge you to consider the information under "Prospectus Summary-Summary Pro Forma Financial and Operating Data," "Capitalization" and "Description of Exchange Notes" for more information on these matters.

        We may not be able to generate sufficient cash flow to make interest payments under the Notes due to events that are beyond our control.

        Economic, financial, competitive, legislative and other factors beyond our control may affect our ability to generate cash flow from operations to make payments on the Notes and our other indebtedness and to fund necessary working capital. A significant reduction in operating cash flow would likely increase the need for alternative sources of liquidity. If we are unable to generate sufficient cash flow to make payments on the Notes or our other debt, we will have to pursue one or more alternatives, such as reducing or delaying capital expenditures, refinancing the Notes or other debt, selling assets or raising equity. We cannot assure you that any of these alternatives could be accomplished on satisfactory terms, if at all, or that they would yield sufficient funds to retire the Notes and our other debt.

        We urge you to consider the information under "Prospectus Summary-Summary Pro Forma Combined and Historical Financial and Operating Data," "Capitalization" and "Description of Exchange Notes" for more information on these matters.

        The collateral may not be sufficient to satisfy any amounts we owe under the Notes and the Indenture.

        The lien on the collateral securing the Notes is subordinated to a lien on the same collateral securing our senior credit facility. The collateral securing the Notes and our senior credit facility may not be sufficient to repay the principal or interest on, and premium, if any, on the Notes, and the indebtedness outstanding under our senior credit facility. After the payment in full of amounts due under our senior credit facility, any claim for the difference between the amount realized by holders of the Notes from the sale of the collateral securing the Notes and our obligations under the Notes will rank equally in right of payment with all of our other unsecured senior indebtedness and, in some cases, junior to the claims of any persons holding liens which are Permitted Liens (as defined in the

12

Indenture). The Indenture does not require that we maintain the current level of collateral or maintain a specific ratio of indebtedness to asset values. Any additional Notes issued pursuant to the Indenture will rank equal to the Notes and be entitled to the same rights and priority with respect to the collateral. Thus, the issuance of additional Notes pursuant to the Indenture may have the effect of significantly diluting your ability to recover payment in full from the then-existing pool of collateral. See "Description of Exchange Notes."

        New World Restaurant Group is a holding company and therefore its ability to make payments on the Notes and service its other debt obligations depends on cash flow from its subsidiaries.

        New World Restaurant Group is a holding company that conducts substantially all of its business operations through its subsidiaries, all of which other than EnbcDeb Corp. are subsidiary guarantors. Consequently, New World Restaurant Group will depend on distributions or other inter-company transfers from its subsidiaries to make payments on the Notes and service its other debt obligations. In addition, distributions and inter-company transfers to New World Restaurant Group from its subsidiaries will depend on:

•

their earnings;



•

covenants contained in our credit agreements (including the senior credit facility and the Notes);



•

covenants contained in other agreements to which we or our subsidiaries are or may become subject;



•

business and tax considerations; and



•

applicable law, including laws regarding the payment of dividends and distributions.

The Company's subsidiaries are separate and distinct legal entities apart from the Company. We cannot assure you that the operating results of our subsidiaries at any given time will be sufficient to make distributions or other payments to us or that any distribution and/or payments will be adequate to pay principal and interest, and any other amounts owing, on the Notes when due.

        The Indenture and our senior credit facility impose significant operating restrictions on us, which may prevent us from pursuing certain business opportunities and taking certain actions.

        The Indenture and our senior credit facility impose significant operating restrictions on us. The restrictions will limit or prohibit, among other things, our ability to:

•

incur additional indebtedness;



•

repay indebtedness (including the Notes) prior to stated maturities;



•

pay dividends on or redeem or repurchase our stock;



•

issue capital stock;



•

make investments;



•

create liens;



•

sell certain assets or merge with or into other companies;



•

enter into certain transactions with shareholders and affiliates;



•

make capital expenditures;



•

sell stock in our subsidiaries;



•

restrict dividends, distributions or other payments from our subsidiaries; or



•

otherwise conduct necessary corporate activities.

        These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. A breach of any of these covenants could result in a default in the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and

13

proceed against any collateral securing that indebtedness. Acceleration of our other indebtedness could result in a default under the terms of the Indenture and our assets may not be sufficient to satisfy our obligations under our indebtedness, including the Notes.

        A court could cancel the guarantees under fraudulent conveyance laws or certain other circumstances.

        Each of our subsidiaries (other than non-restricted subsidiaries) has guaranteed the Notes. If, however, a guarantor becomes a debtor in a case under the Bankruptcy Code or foreign bankruptcy or insolvency legislation or encounters other financial difficulty, under federal or state fraudulent conveyance laws or foreign legislation in relation to fraudulent conveyance, reviewable transactions or preferential payments, a court in the relevant jurisdiction might avoid or cancel its guarantee. The court might do so if it found that, when the guarantor entered into its guarantee or, in some states, when payments became due thereunder, it received less than reasonably equivalent value or fair consideration for the guarantee and either was or was rendered insolvent, was left with inadequate capital to conduct its business or believed or should have believed that it would incur debts beyond its ability to pay. The court might also avoid a guarantee, without regard to the above factors, if it found that the guarantor entered into its guarantee with actual or deemed intent to hinder, delay or defraud its creditors.

        In the United States, a court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited directly or indirectly from the issuance of the Notes. If a court avoided a guarantee, you would no longer have a claim against the guarantor. In addition, the court might direct you to repay any amounts already received from the guarantor. If the court were to avoid any guarantee, we cannot assure you that funds would be available to pay the Notes from another guarantor or from any other source.

        The Indenture states that the liability of each subsidiary guarantor on its guarantee is limited to the maximum amount that the subsidiary can incur without risk that the guarantee will be subject to avoidance as a fraudulent conveyance. This limitation may not protect the guarantees from a fraudulent conveyance attack or, if it does, that the guarantees will be in amounts sufficient, if necessary, to pay obligations under the Notes when due.

        We may experience a change in our equity structure or ownership that does not constitute a "Change of Control" within the meaning of the Indenture.

        We engaged CIBC World Markets in October 2002 as our financial advisor to review strategic alternatives to rationalize our capital structure. In connection with that process, we have engaged in discussions with several parties with respect to a potential acquisition or restructuring of our equity. Other than the Equity Recap, such discussions have not resulted in any agreements, arrangements or understandings as of the date of this Prospectus. Whether or not the Equity Recap is consummated, we may continue to review alternatives to restructure our equity, which may include a change of control transaction. We cannot assure you that no such transaction will occur in the future, including the near future. A "Change of Control" is defined in the Indenture governing the Notes to exclude a change of control transaction involving "Permitted Holders", which are defined to include Halpern Denny and Greenlight, present holders of our Series F Preferred Stock, Thomas Weisel Capital Partners, LP, Bruckmann, Rosser, Sherrill & Co. L.L.C., Triarc Companies, Inc. and their respective affiliates. Accordingly, in the event of a change of control transaction involving any of such persons or their affiliates, we would not be required to make a Change of Control offer to purchase the Notes.

        We may not have the financial resources to repurchase the Notes upon certain changes of control, even if we are legally required to do so.

        In the event of a "Change of Control" as defined under the Indenture, we will be required to offer to repurchase all outstanding Notes at a purchase price equal to 101% of their face amount, plus accrued and unpaid interest to the purchase date. In addition, in the event of a "Series Z Change of

14

Control Event" (as defined in "Description of Capital Stock—Equity Restructuring"), we would be required to redeem the Series Z Preferred Stock to the extent we are legally able to do so. It is possible that we will not have, have access to or be permitted to obtain sufficient funds at the time of any such Change of Control or such Series Z Change of Control to repurchase the Notes.

        If we are required to repurchase the Notes, we would probably require third-party financing. We cannot be sure that we would be able to obtain third-party financing on acceptable terms, or at all. A Change of Control could result in an event of default under our senior credit facility and may cause the acceleration of that debt, in which case we would have to repurchase the Notes as well as repay our senior credit facility in full. We urge you to read the "Description of Exchange Notes" for a discussion of our obligations under the Indenture to repurchase Notes in the event of a Change of Control.

        There is currently no public market for the Notes and there may never be a public market for the Notes.

        The exchange notes will be new securities for which there is currently no public market. We do not intend to list the exchange notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchaser has advised us that they currently intend to make a market in the Notes, but they are not obligated to do so and, if they do make a market in the Notes, they may cease doing so at any time. We will seek to have the exchange notes designated for trading in the PORTAL Market, which is the National Association of Securities Dealers' screen-based, automated market for trading of securities eligible for resale in compliance with Rule 144A. However, market liquidity may not develop. If an active trading market does not develop, the market, price and liquidity of the exchange notes may be adversely affected. If any of the exchange notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities and other factors, including general economic conditions and our financial condition and performance. Prospective investors in the exchange notes should be aware that they may be required to bear the financial risks of such investment for an indefinite period of time. See "Description of Exchange Notes."

        Two purchasers of the Notes purchased a significant portion of the Notes.

        Pursuant to the Note Purchase and Put Agreement, Greenlight and Farallon each purchased $35.0 million principal amount of the Notes. As a result, if Greenlight and Farallon should choose to vote the same way on matters requiring the consent of the holders of the Notes, they would be able, with the holders of an additional $10.1 million of Notes, to approve matters that require the consent of the holders of a majority of the Notes.

Risks Factors Relating to Our Business

        We face potential regulatory sanctions and civil and criminal penalties and claims for monetary damages and other relief.

        The Commission has initiated an investigation relating to the reasons for our delay in filing our Form 10-K for fiscal 2001, the resignation of our former Chairman, R. Ramin Kamfar, and the termination for cause of our former Chief Financial Officer, Jerold E. Novack. We are cooperating fully with the Commission's investigation. We are also cooperating fully with a Department of Justice inquiry relating to the above-referenced issues. See "Legal Proceedings." Given the early stage of these matters, we cannot predict their outcome, and we cannot assure you that we will not be subject to regulatory sanctions, civil penalties and/or claims for monetary damages and other relief that may have a material adverse effect on our business, prospects and financial condition.

        We are vulnerable to fluctuations in the cost, availability and quality of our ingredients.

        The cost, availability and quality of the ingredients we use to prepare our food are subject to a range of factors, many of which are beyond our control. Fluctuations in economic and political

15

conditions, weather and demand could adversely affect the cost of our ingredients. We have no control over fluctuations in the price of commodities, and no assurance can be given that we will be able to pass through any cost increases to our customers. We are dependent on frequent deliveries of fresh ingredients, thereby subjecting us to the risk of shortages or interruptions in supply. All of these factors could adversely affect our financial results.

        We heavily depend on our suppliers and distributors.

        We currently purchase our raw materials from various suppliers. Our reliance on our suppliers subjects us to a number of risks, including possible delays or interruptions in supplies, diminished control over quality and a potential lack of adequate raw material capacity. Any disruption in the supply of or degradation in the quality of the raw materials provided by our suppliers could have a material adverse effect on our business, operating results and financial condition. In addition, such disruptions in supply or degradations in quality could have a long-term detrimental impact on our efforts to develop a strong brand identity and a loyal consumer base.

        We depend on our distributors to distribute frozen dough and other materials to our locations. We recently replaced a single national distributor with six regional custom distributors. If any one or more of such distributors seeks to terminate our distribution agreement or fails to perform as anticipated, or if there is any disruption in any of our distribution relationships for any reason, it could have a material adverse effect on our business, financial condition and results of operations.

        We face the risk of increasing labor costs that could adversely affect our continued profitability.

        We are dependent upon an available labor pool of unskilled employees, many of whom are hourly employees whose wages may be impacted by an increase in the federal or state minimum wage. Numerous proposals have been made on state and federal levels to increase minimum wage levels. Although few, if any, of our employees are paid at the minimum wage level, an increase in the minimum wage may create pressure to increase the pay scale for our employees, which would increase our labor costs and those of our franchisees and licensees. A shortage in the labor pool or other general inflationary pressures or changes could also increase labor costs. An increase in labor costs could have a material adverse effect on our income from operations, and decrease our profitability and cash available to service our debt obligations if we are unable to recover these increases by raising the prices we charge our consumers.

        We are vulnerable to changes in consumer preferences and economic conditions that could harm our financial results.

        Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as traffic patterns, local demographics and the type, number and location of competing restaurants may adversely affect the performance of individual locations. In addition, inflation and increased food and energy costs may harm the restaurant industry in general and our locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing, which could harm our business, prospects, financial condition, operating results or cash flow. Our continued success will depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions.

        There is intense competition in the restaurant industry.

        Our industry is intensely competitive and there are many well-established competitors with substantially greater financial and other resources. In addition to current competitors, one or more new major competitors with substantially greater financial, marketing and operating resources could enter the market at any time and compete directly against us. In addition, in virtually every major metropolitan area in which we operate or expect to enter, local or regional competitors already exist.

16

        We face the risk of adverse publicity and litigation in connection with our operations.

        We are from time to time the subject of complaints or litigation from our consumers alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from these allegations may materially adversely affect us, regardless of whether the allegations are valid or whether we are liable. In addition, employee claims against us based on, among other things, discrimination, harassment or wrongful termination may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. We have been subject to claims from time to time, and although these claims have not historically had a material impact on our operations, a significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, prospects, financial condition, operating results or cash flows.

        We rely in part on our franchisees.

        We will rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business. Although we have developed criteria to evaluate and screen prospective franchisees, there can be no assurance that franchisees will have the business acumen or financial resources necessary to operate successful franchises in their franchise areas. The failure of franchisees to operate franchises successfully could have a material adverse effect on us, our reputation, our brands and our ability to attract prospective franchisees.

        We face risks associated with government regulation.

        Each of our locations is subject to licensing and regulation by the health, sanitation, safety, building and fire agencies of the respective states and municipalities in which it is located. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of facilities for an indeterminate period of time, or third-party litigation, any of which could have a material adverse effect on us and the results of our operations.

        In addition, our franchise operations are subject to regulation by the Federal Trade Commission. We and our franchisees must also comply with state franchising laws and a wide range of other state and local rules and regulations applicable to our business. The failure to comply with federal, state and local rules and regulations would have an adverse effect on our franchisees and us.

        Under various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Although we are not aware of any environmental conditions that require remediation by us under federal, state or local law at our properties, we have not conducted a comprehensive environmental review of our properties or operations and no assurance can be given that we have identified all of the potential environmental liabilities at our properties or that such liabilities would not have a material adverse effect on our financial condition.

        We may need additional financing in the future.

        We may seek additional financing in the future to expand our business. If we are unable to obtain sufficient financing on satisfactory terms and conditions, we may not be able to expand our business. Our ability to obtain additional financing will depend upon a number of factors, many of which are beyond our control. For example, we may not be able to obtain additional financing because we already have substantial debt and because we may not have sufficient cash flow to service or repay our existing or additional debt. In addition, any additional equity financing may not be available on satisfactory terms or at all.

17

        We may not be able to protect our trademarks and other proprietary rights.

        We believe that our trademarks and other proprietary rights are important to our success and our competitive position. Accordingly, we devote substantial resources to the establishment and protection of our trademarks and proprietary rights. However, the actions taken by us may be inadequate to prevent imitation of our products and concepts by others or to prevent others from claiming violations of their trademarks and proprietary rights by us. In addition, others may assert rights in our trademarks and other proprietary rights.

We are controlled by one or two stockholders.

        Halpern Denny and Greenlight currently beneficially own 50.7% and 37.1% of our Common Stock, respectively. In addition, because the Series F preferred stock has remained outstanding for more than one year, the holders of our Series F preferred stock are entitled to receive additional warrants. In addition, the holders of Series F preferred stock currently have the right to designate up to four members of our board of directors and, in the event that any dividends on the Series F preferred stock are in arrears, or if the Series F preferred stock is not redeemed in accordance with its terms, the holders of the Series F preferred stock will be entitled to designate at least 50% of the members of our board of directors. Pursuant to applicable law, we have been unable to pay the holders of the Series F preferred stock the dividends that were due to them on June 30, 2002, September 30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003. Such dividends are being accrued. This concentration of voting power could allow Halpern Denny and Greenlight to direct our affairs, and may also have the effect of delaying or preventing a change of control.

        If the Equity Recap is consummated, Greenlight will beneficially own approximately 92% of our outstanding common stock, which would allow Greenlight to direct our affairs and which may also have the effect of delaying or preventing a change of control.

There can be no assurance that the Equity Recapitalization will be consummated.

        Halpern Denny, Greenlight and we have entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure. Our Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F preferred stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. See "Description of Capital Stock—Equity Recapitalization." The Equity Recap is subject to stockholder approval and other customary conditions. Although the agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap, there can be no assurance that such stockholder approval will be obtained. If the Equity Recap is not consummated, for any reason, we will continue to be controlled by the holders of our Series F preferred stock and be bound by the terms and conditions contained in a stockholders agreement (the "Stockholders Agreement"), dated January 18, 2001, as amended March 29, 2001, June 19, 2001 and July 9, 2001, among the Company, BET Associates, L.P. ("BET"), Brookwood New World Investors, LLC ("Brookwood"), Halpern Denny, Greenlight and certain of its affiliates. See "Management—Certain Relationships and Related Transactions."

18

THE EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

        In connection with the sale of the original notes, we entered into a Registration Rights Agreement with the Initial Purchaser, pursuant to which we agreed to file and use our best efforts to cause to become effective with the Commission a registration statement with respect to the exchange of the original notes for the exchange notes. A copy of the Registration Rights Agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. Unless the context requires otherwise, the term "holder" means any person in whose name original notes are registered on the books of New World Restaurant Group, Inc. or any other person who has obtained a properly completed bond power from the registered holder, or any participant in The Depository Trust Company ("DTC") whose name appears on a security position listing as a holder of original notes (which, for purposes of the exchange offer, include beneficial interests in the original notes held by direct or indirect participants in DTC and original notes held in definitive form).

        By tendering original notes in exchange for exchange notes, each holder represents to us that:

•

any exchange notes to be received by such holder are being acquired in the ordinary course of such holder's business;



•

such holder has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of exchange notes;



•

such holder is not an "affiliate" of New World Restaurant Group, Inc. (within the meaning of Rule 405 under the Securities Act), or if such holder is an affiliate, that such holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable;



•

such holder has full power and authority to tender, exchange, sell, assign and transfer the tendered original notes;



•

we will acquire good, marketable and unencumbered title to the tendered original notes, free and clear of all liens, restrictions, charges and encumbrances; and



•

the original notes tendered for exchange are not subject to any adverse claims or proxies.

        Each tendering holder also warrants and agrees that it will, upon request, execute and deliver any additional documents deemed by us or the exchange agent to be necessary or desirable to complete the exchange, sale, assignment and transfer of the original notes tendered pursuant to the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for original notes pursuant to the exchange offer, where such original notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution."

        The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of original notes in any jurisdiction in which the exchange offer or the acceptance of the exchange notes would be in violation of the securities or blue sky laws of that jurisdiction.

Terms of the Exchange Offer

        We hereby offer, upon the terms and subject to the conditions described in this prospectus and in the accompanying letter of transmittal, to exchange $1,000 principal amount of exchange notes for each $1,000 principal amount of original notes, properly tendered before the expiration date and not properly withdrawn according to the procedures described below. Holders may tender their original notes in whole or in part in integral multiples of $1,000 principal amount.

19

        The form and terms of the exchange notes are the same as the form and terms of the original notes, except that:

•

the exchange notes have been registered under the Securities Act and therefore are not subject to the restrictions on transfer applicable to the original notes; and



•

holders of exchange notes will not be entitled to some of the rights of holders of the original notes under the Registration Rights Agreement.

        The exchange notes evidence the same indebtedness as and replace the original notes, and will be issued pursuant to, and entitled to the benefits of, the Indenture.

        The exchange offer is not conditioned upon any minimum principal amount of original notes being tendered for exchange. We reserve the right in our sole discretion to purchase or make offers for any original notes that remain outstanding after the expiration date or, as described under the heading "—Conditions to the Exchange Offer," to terminate the exchange offer and, to the extent permitted by applicable law, purchase original notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer. As of the date of this prospectus, $160.0 million principal amount of original notes is outstanding.

        Holders of original notes do not have any appraisal or dissenters' rights in connection with the exchange offer. Original notes that are not tendered for, or are tendered but not accepted in connection with, the exchange offer will remain outstanding. See the section "Risk Factors" under the heading "Holders are responsible for compliance with exchange offer procedures."

        If any tendered original notes are not accepted for exchange because of an invalid tender, the occurrence of particular other events described in this prospectus or otherwise, certificates for any such unaccepted original notes will be returned, without expense, to the tendering holder thereof promptly after the expiration date.

        Holders who tender original notes in connection with the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of the original notes in connection with the exchange offer. We will pay all charges and expenses, other than specified applicable taxes. See the heading "—Fees and Expenses."

        We make no recommendation to the holders of original notes as to whether to tender or refrain from tendering all or any portion of their original notes in the exchange offer. In addition, no one has been authorized to make any such recommendation. Holders of original notes must make their own decision as to whether to tender pursuant to the exchange offer, and, if so, the aggregate amount of original notes to tender, after reading this prospectus and the letter of transmittal and consulting with their advisors, if any, based on their financial positions and requirements.

Expiration Date; Extensions; Amendments

        The expiration date shall be 5:00 p.m., New York City time, on                        , 2003, unless we, in our sole discretion, extend the exchange offer, in which case the expiration date shall be the latest date and time to which the exchange offer is extended.

        In order to extend the exchange offer, we will notify the exchange agent of any extension by oral notice (confirmed in writing) or written notice and will make a public announcement thereof prior to 9:00 a.m., New York City time, on the next business day after each previously scheduled expiration date.

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        We reserve the right in our sole discretion, subject to applicable law, at any time and from time to time:

•

to delay the acceptance of the original notes for exchange;



•

to terminate the exchange offer (whether or not any original notes have already been accepted for exchange) if we determine, in our sole discretion, that any of the events or conditions referred to under the heading "—Conditions to the Exchange Offer" has occurred or exists or has not been satisfied;



•

to extend the expiration date and retain all original notes tendered pursuant to the exchange offer, subject, however, to the right of holders of the original notes to withdraw their tendered original notes as described under the heading "—Withdrawal Rights"; and



•

to waive any condition or otherwise amend the terms of the exchange offer in any respect.

        If we amend the exchange offer in a manner that we determine constitutes a material change, or if we waive a material condition of the exchange offer, we will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the affected original notes, and we will extend the exchange offer to the extent required by Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

        Any such delay in acceptance, termination, extension or amendment will be followed promptly by oral or written notice thereof to the exchange agent (any such oral notice to be promptly confirmed in writing) and by making a public announcement, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Without limiting the manner in which we may choose to make any public announcement, and subject to applicable laws, we will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency.

Acceptance for Exchange and Issuance of Exchange Notes

        Upon the terms and subject to the conditions of the exchange offer, we will exchange, and will issue to the exchange agent, exchange notes for original notes validly tendered and not withdrawn (pursuant to the withdrawal rights described under the heading "—Withdrawal Rights") promptly after the expiration date.

        In all cases, delivery of exchange notes in exchange for original notes tendered and accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of:

•

original notes or a book-entry confirmation of a book-entry transfer of original notes into the exchange agent's account at DTC;



•

the letter of transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees; and



•

any other documents required by the letter of transmittal.

        Accordingly, the delivery of exchange notes might not be made to all tendering holders at the same time, and will depend upon when original notes or book-entry confirmations with respect to original notes and other required documents are received by the exchange agent. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of original notes into the exchange agent's account at DTC.

21

        Subject to the terms and conditions of the exchange offer, we will be deemed to have accepted for exchange, and thereby exchanged, original notes validly tendered and not withdrawn as, if and when we give oral or written notice to the exchange agent (any such oral notice to be promptly confirmed in writing) of our acceptance of such original notes for exchange pursuant to the exchange offer. Our acceptance for exchange of original notes tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions of the exchange offer. The exchange agent will act as agent for us for the purpose of receiving tenders of original notes, letters of transmittal and related documents, and as agent for tendering holders for the purpose of receiving original notes, letters of transmittal and related documents and transmitting exchange notes to holders who validly tendered original notes. Such exchange will be made promptly after the expiration date of the exchange offer. If for any reason the acceptance for exchange or the exchange of any original notes tendered pursuant to the exchange offer is delayed (whether before or after our acceptance for exchange of original notes), or we extend the exchange offer or are unable to accept for exchange or exchange original notes tendered pursuant to the exchange offer, then, without prejudice to our rights set forth in this prospectus and in the letter of transmittal, the exchange agent may, nevertheless, on our behalf and subject to Rule 14e-1(c) under the Exchange Act, retain tendered original notes and such original notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under the heading "—Withdrawal Rights."

Procedures for Tendering Original Notes

Valid Tender

        Except as set forth below, in order for original notes to be validly tendered pursuant to the exchange offer, either:

•

a properly completed and duly executed letter of transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, must be received by the exchange agent at the address set forth under the heading "—Exchange Agent" prior to the expiration date, and tendered original notes must be received by the exchange agent, or such original notes must be tendered pursuant to the procedures for book-entry transfer set forth below and a book-entry confirmation must be received by the exchange agent, in each case prior to the expiration date; or



•

the guaranteed delivery procedures set forth below must be complied with.

        If less than all of the original notes are tendered, a tendering holder should fill in the amount of original notes being tendered in the appropriate box on the letter of transmittal. The entire amount of original notes delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated.

        If any letter of transmittal, endorsement, bond power, power of attorney or any other document required by the letter of transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing. Unless waived by us, evidence satisfactory to us of such person's authority to so act must also be submitted.

        Any beneficial owner of original notes that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian is urged to contact such entity promptly if such beneficial holder wishes to participate in the exchange offer.

        The method of delivery of original notes, the letter of transmittal and all other required documents is at the option and sole risk of the tendering holder. Delivery will be deemed made only when actually

22

received by the exchange agent. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery and proper insurance should be obtained. No letter of transmittal or original notes should be sent to New World Restaurant Group, Inc. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect these transactions for them.

Book-Entry Transfer

        The exchange agent will make a request to establish an account with respect to the applicable original notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC's book-entry transfer facility system may make a book-entry delivery of the original notes by causing DTC to transfer such original notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfers. However, although delivery of original notes may be effected by book-entry transfer into the exchange agent's account at DTC, the letter of transmittal (or facsimile thereof), properly completed and duly executed, any required signature guarantees and any other required documents must in any case be delivered to and received by the exchange agent at its address set forth under the heading "—Exchange Agent" prior to the expiration date, or the guaranteed delivery procedure set forth below must be complied with.

        Delivery of documents to DTC does not constitute delivery to the exchange agent.

Signature Guarantees

        Original notes need not be endorsed and signature guarantees on a letter of transmittal or a notice of withdrawal, as the case may be, are unnecessary unless: (1) the original notes are registered in a name other than that of the person surrendering the certificate; or (2) a registered holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the letter of transmittal.

        In the case of (1) or (2) above, original notes must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the letter of transmittal or the notice of withdrawal, as the case may be, guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (a) a bank, (b) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer, (c) a credit union, (d) a national securities exchange, registered securities association or clearing agency or (e) a savings association that is a participant in a Securities Transfer Association.

Guaranteed Delivery

        If a holder desires to tender original notes pursuant to the exchange offer and the certificates for such original notes are not immediately available or time will not permit all required documents to reach the exchange agent before the expiration date, or the procedures for book-entry transfer cannot be completed on a timely basis, such original notes may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with:

•

such tenders are made by or through an eligible guarantor institution;



•

prior to the expiration date, the exchange agent receives from such eligible guarantor institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form accompanying the letter of transmittal, setting forth the name and address of the holder of original notes and the amount of original notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the date

23

of execution of the notice of guaranteed delivery, all physically tendered original notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent. The notice of guaranteed delivery may be delivered by hand, or transmitted by facsimile or mail to the exchange agent and must include a guarantee by an eligible guarantor institution in the form set forth in the notice of guaranteed delivery; and

•

all tendered original notes (or book-entry confirmation), in proper form for transfer, together with a properly completed and duly executed letter of transmittal, with any required signature guarantees and any other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.

Determination of Validity

        All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered original notes will be determined by us, in our sole discretion, which determination will be final and binding on all parties. We reserve the right, in our sole discretion, to reject any and all tenders we determine not to be in proper form or the acceptance for exchange of which may, in the view of our counsel, be unlawful. We also reserve the right, subject to applicable law, to waive any of the conditions of the exchange offer as set forth under the heading "—Conditions to the Exchange Offer" or any defect or irregularity in any tender of original notes of any particular holder, whether or not similar defects or irregularities are waived in the case of other holders.

        Our interpretation of the terms and conditions of the exchange offer (including the letter of transmittal and its instructions) will be final and binding on all parties. No tender of original notes will be deemed to have been validly made until all defects or irregularities with respect to such tender have been cured or waived. None of New World Restaurant Group, Inc., any of our affiliates, the exchange agent or any other person will be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.

Resales of the Exchange Notes

        Based on interpretations by the staff of the Commission, as set forth in the no-action letters Exxon Capital Holding Corp. (available May 13, 1988), Morgan Stanley & Co. (available June 5, 1991) and Shearman & Sterling (available July 2, 1993), we believe that holders of original notes who exchange their original notes for exchange notes may offer for resale, resell and otherwise transfer such exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act. This would not apply, however, to any holder that is a broker-dealer that acquired original notes as a result of market-making activities or other trading activities or directly from us for resale under an available exemption under the Securities Act. Also, resale would only be permitted for exchange notes that (1) are acquired in the ordinary course of a holder's business, (2) where such holder has no arrangement or understanding with any person to participate in the distribution of such exchange notes and (3) such holder is not an "affiliate" of New World Restaurant Group, Inc. The staff of the Commission has not considered the exchange offer in the context of a no-action letter, and there can be no assurance that the staff of the Commission would make a similar determination with respect to the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for original notes under the exchange offer, where such original notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See the section "Plan of Distribution."

24

Withdrawal Rights

        Except as otherwise provided herein, tenders of original notes may be withdrawn at any time prior to the expiration date of the exchange offer. In order for a withdrawal to be effective, such withdrawal must be in writing and timely received by the exchange agent at its address set forth under the heading "—Exchange Agent" prior to the expiration date. Any such notice of withdrawal must specify the name of the person who tendered the original notes to be withdrawn, and (if such original notes have been tendered) the name of the registered holder of the original notes as set forth on the original notes, if different from that of the person who tendered such original notes. If certificates for original notes have been delivered or otherwise identified to the exchange agent, the notice of withdrawal must specify the serial numbers on the particular original notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an eligible guarantor institution, except in the case of original notes tendered for the account of an eligible guarantor institution. If original notes have been tendered pursuant to the procedures for book-entry transfer set forth under the heading "—Procedures for Tendering Original Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of original notes and must otherwise comply with the procedures of DTC. Withdrawals of tenders of original notes may not be rescinded. Original notes properly withdrawn will not be deemed validly tendered for purposes of the exchange offer, but may be retendered at any subsequent time prior to the expiration date of the exchange offer by following any of the procedures described above under the heading "—Procedures for Tendering Original Notes."

        All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by us, in our sole discretion, which determination will be final and binding on all parties. Neither New World Restaurant Group, Inc., any of our affiliates, the exchange agent or any other person will be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any original notes that have been tendered but that are withdrawn will be returned to the holder promptly after withdrawal.

Conditions to the Exchange Offer

        If any of the following conditions has occurred or exists or has not been satisfied, as the case may be, prior to the expiration date, we will not be required to accept for exchange any original notes and will not be required to issue exchange notes in exchange for any original notes:

•

a change in the current interpretation by the staff of the Commission that permits resale of exchange notes as described above under the heading "—Resales of the Exchange Notes;"



•

the institution or threat of an action or proceeding in any court or by or before any governmental agency or body with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer;



•

the adoption or enactment of any law, statute, rule or regulation that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer;



•

the issuance of a stop order by the Commission, any state securities authority or any gaming or racing authority suspending the effectiveness of the Registration Statement, or proceedings for that purpose;



•

failure to obtain any governmental approval that we consider necessary for the consummation of the exchange offer as contemplated hereby; or



•

any change or development involving a prospective change in our business or financial affairs that we think might materially impair our ability to proceed with the exchange offer.

25

        If we determine in our sole discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, as the case may be, at any time prior to the expiration date, we may, subject to applicable law, at any time and from time to time, terminate the exchange offer (whether or not any original notes have already been accepted for exchange) or waive any such condition or otherwise amend the terms of the exchange offer in any respect. If such waiver or amendment constitutes a material change to the exchange offer, we will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the registered holders of the original notes. In this case, we will extend the exchange offer to the extent required by Rule 14e-1 under the Exchange Act.

Exchange Agent

        The Bank of New York has been appointed as the exchange agent. Delivery of the letter of transmittal and any other required documents, questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:

By facsimile (for eligible guarantor institutions only):

        212-298-1915

Confirm by telephone:

        212-815-5076

By hand or overnight courier, or by registered or certified mail:

The Bank of New York
Reorganization Unit
101 Barclay Street — 7 East
New York, NY 10286
Attention:    Corporate Trust Operatons

        Delivery to other than the above address or facsimile number will not constitute a valid delivery.

Fees and Expenses

        We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail. Additional solicitation may be made personally or by telephone or other means by our officers, directors or employees.

        We have not retained any dealer-manager or similar agent in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We have agreed to pay the exchange agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus and related documents to the beneficial owners of original notes, and in handling or tendering for their customers.

        Holders who tender their original notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that if exchange notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the original notes tendered, or if a transfer tax is imposed for any reason other than the exchange of original notes in connection with the exchange offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such transfer tax or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer tax will be billed directly to such tendering holder.

26

USE OF PROCEEDS

        The exchange offer is intended to satisfy certain obligations of New World Restaurant Group, Inc. under the Registration Rights Agreement. We will not receive any proceeds from the issuance of the exchange notes or the closing of the exchange offer.

        In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange an equal number of original notes in like principal amount. The form and terms of the exchange notes are identical in all material respects to the form and terms of the original notes, except as otherwise described in the section "The Exchange Offer" under the heading "Terms of the Exchange Offer." The original notes surrendered in exchange for the exchange notes will be retired and canceled and cannot be reissued.

        The net proceeds of the offering of the original notes were used to refinance our Increasing Rate Notes, to pay accrued and unpaid interest, and to repay $9.2 million of other existing indebtedness.

RATIO OF EARNINGS TO FIXED CHARGES

        The following table shows our consolidated ratio of earnings to fixed charges for the fiscal years ended December 27, 1998, December 26, 1999, December 31, 2000, January 1, 2002 and December 31, 2002, and for the six-month periods ended July 2, 2002 and July 1, 2003.

	Fiscal Year Ended									Six-Month Period Ended
	December 27, 1998		December 26, 1999	December 31, 2000		January 1, 2002		December 31, 2002		July 2, 2002		July 1, 2003
	(In thousands)
Ratio of Earnings to Fixed Charges			1.96
Amount by which earnings were insufficient to cover fixed charges	$	7,492		$	7,911	$	77,053	$	67,701	$	40,881	$	34,851

        We have calculated the ratio of earnings to fixed charges according to a formula the Commission requires us to use. This formula defines earnings generally as our pre-tax earnings from operations before equity earnings from affiliates, less interest expense and defines fixed charges generally as all interest and interest-related payments and accruals.

27

CAPITALIZATION

        The following table sets forth (i) our historical cash and cash equivalents and capitalization as of July 1, 2003, (ii) our pro forma cash and cash equivalents and capitalization as of July 1, 2003 as adjusted to reflect the issuance of the Notes and the application of the net proceeds therefrom as described under "Use of Proceeds" and (iii) our pro forma cash and cash equivalents and capitalization as of July 1, 2003 adjusted to reflect the issuance of the Notes and the application of the net proceeds therefrom, as well as the closing of the Equity Recap. See "Description of Capital Stock—Equity Recapitalization." This table should be read in conjunction with our historical financial statements and the related notes thereto included elsewhere in this Prospectus. Our estimate of the impact of the Equity Recap, the reverse stock split and the issuance of the 13% senior secured notes due 2008 is an increase in net loss per share of $1.39 for the fiscal year ended December 31, 2002 (from a reported net loss per share of $0.80) and $1.09 for the six-month period ended July 1, 2003 (from a reported net loss per share of $0.34). The increases in net loss per share are attributable to the reduction in estimated weighted average shares outstanding resulting from the Equity Recap and reverse stock split partially offset by the reduction in net loss available to common stock resulting from the pro forma effect of the issuance of common stock in the Equity Recap and the issuance of the 13% senior secured notes due 2008.

		As of July 1, 2003
		Actual			Pro Forma for the Notes			Pro Forma for the Equity Recap and the Notes
		(dollars in thousands)
Cash and cash equivalents		$	9,367		$	5,165	(1)	$	5,165	(1)
Existing revolving credit facility		$	7,500		$	—			—
New revolving credit facility			—			—			—
Bridge loan			4,952			4,952			—
Greenlight obligation			10,000			10,000			—
Increasing Rate Notes			140,000			—			—
New Senior Secured Notes			—			160,000			160,000
Capital leases and other debt			3,050			1,370			1,370
	Total debt		165,502			176,322			161,370
Series F and Series Z preferred stock(2)			99,356			99,356			33,831
Stockholders' deficit			(120,585	)		(120,585	)		(35,312	)
	Total capitalization	$	144,273		$	155,093		$	159,889

(1)

Does not reflect cash used in operations since July 1, 2003.

(2)

Net of allocation of discount attributable to fees and initial and future warrants. Does not include the 4,337.481 shares of Series F preferred stock issued by us to the holders of the EnbcDeb Notes upon the consummation of the offering of the original notes. Effective with the third quarter of 2003, the balance of our outstanding preferred stock will move from the mezzanine section of our balance sheet to the long-term liability section due to the implementation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. See Note 19 of the Notes to our Audited Annual Financial Statements appearing elsewhere in this Prospectus.

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SELECTED FINANCIAL INFORMATION

        The following table sets forth our selected historical financial and operating data on a consolidated basis at December 27, 1998, December 26, 1999, December 31, 2000, January 1, 2002 and December 31, 2002 and for the fiscal years then ended. The income statement data and the balance sheet data as of and for the fiscal years ended December 31, 2000, January 1, 2002 and December 31, 2002 are derived from our consolidated financial statements appearing elsewhere in this Prospectus, which have been audited by Grant Thornton LLP, independent auditors. The income statement data and the balance sheet data as of and for the fiscal years ended December 27, 1998 and December 26, 1999 are derived from our unaudited consolidated financial statements, which are not included in this Prospectus. As previously disclosed, as a result of a review of our historical financial information, certain adjustments have been made to the previously reported financial information for the 1998 and 1999 fiscal years. The following table also sets forth our selected historical financial and operating data on a consolidated basis at July 1, 2003 and for the six-month periods ended July 2, 2002 and July 1, 2003, which are derived from our unaudited consolidated financial statements appearing elsewhere in this Prospectus. The unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary for the fair presentation of our consolidated financial position and the consolidated results of our operations for those periods. Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year. The data presented below should be read in conjunction with, and is qualified in its entirety by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus.

		Fiscal Year Ended															Six-Month Period Ended
		December 27, 1998			December 26, 1999			December 31, 2000			January 1, 2002			December 31, 2002
																	July 2, 2002			July 1, 2003
		(dollars in thousands, except per share data)
Income Statement Data:
Revenues		$	17,283		$	39,925		$	43,078		$	234,175		$	398,650		$	199,225		$	192,960
Cost of sales			12,464			27,948			30,138			189,403			321,506			161,131			162,676
General and administrative expenses			3,462			6,238			12,733			28,647			42,640			22,645			18,644
Depreciation and amortization			1,464			1,704			2,254			15,207			30,626			14,995			14,297
Provision for integration and reorganization costs			2,224			—			—			4,432			4,194			(552	)		—
Impairment charge in connection with realization of assets			4,235			—			1,076			3,259			—			—			—
	Operating income (loss)		(6,566	)		4,035			(3,123	)		(6,773	)		(316	)		1,006			(2,657	)
Interest expense(1)			(926	)		(1,636	)		(2,076	)		(47,104	)		(42,883	)		(24,604	)		(18,271	)
Cumulative change (expense) in the fair value of derivatives			—			—			—			57,680			233			(3,858	)		(70	)
Loss from extinguishment of Greenlight obligation			—			—			—			(16,641	)		—			—			—
Other income (expense)			—			—			(339	)		110			2,859			104			571
Permanent impairment in the value of investment in debt securities			—			—			—			(5,805	)		—			—			—
Income (loss) before income taxes			(7,492	)		2,399			(5,538	)		(18,533	)		(40,107	)		(27,352	)		(20,427	)
Provision for income taxes			—			—			—			(167	)		(366	)		152			430
Extraordinary gain from early debt retirement			—			240			—			—			—			—			—
	Net income (loss)		(7,492	)		2,639			(5,538	)		(18,700	)		(40,473	)		(27,504	)		(20,857	)
Dividends and accretion on preferred stock			—			—			(2,373	)		(58,520	)		(27,594	)		(13,529	)		(14,424	)
	Net income (loss) available to common stockholders	$	(7,492	)	$	2,639		$	(7,911	)	$	(77,220	)	$	(68,067	)	$	(41,033	)	$	(35,281	)
Net income (loss) per share—basic and diluted(2)		$	(1.09	)	$	0.26		$	(0.63	)	$	(2.09	)	$	(0.80	)	$	(0.53	)	$	(0.34	)

(1)

Interest expense is comprised of interest paid or payable in cash and noncash interest expense resulting from the amortization of debt discount, notes paid-in-kind, debt issuance costs and the amortization of warrants issued in connection with debt financings.

(2)

The net (loss) earnings per share data are presented as basic earnings per share. Basic earnings per share and diluted earnings per share are the same for all periods presented except the 1999 Fiscal Year. For the 1999 Fiscal Year, basic earnings per share was $0.26 and diluted earnings per share was $0.25.

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	Fiscal Year Ended												Six-Month Period Ended
	December 27, 1998		December 26, 1999		December 31, 2000		January 1, 2002			December 31, 2002
													July 2, 2002			July 1, 2003
	(dollars in thousands)
Other Financial Data:
Depreciation and amortization	$	1,464	$	1,704	$	2,254	$	15,207		$	30,626		$	14,995		$	14,297
Capital expenditures		—		—		335		3,757			5,172			2,653			3,494
Balance Sheet Data (at end of period):
Cash and cash equivalents		5,270		2,880	$	2,271	$	15,478		$	10,705		$	9,823		$	9,367
Property, plant and equipment, net		6,890		7,322		6,502		101,117			81,254			92,692			74,364
Total assets		35,250		39,275		49,220		283,256			210,648			237,872			204,804
Short-term debt and curent portion of long-term debt		1,634		2,841		16,240		168,394			150,872			151,938			154,246
Long-term debt		13,531		15,557		1,873		12,119			11,011			14,086			10,998
Total stockholders' equity (deficit)		8,943		12,587		10,967		(27,043	)		(88,672	)		(63,284	)		(120,585	)

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

General

        We are a leader in the quick casual segment of the restaurant industry. With 739 locations in 33 states as of July 1, 2003, we operate and license locations primarily under the Einstein Bros. and Noah's brand names and franchise locations primarily under the Manhattan and Chesapeake brand names. Our locations specialize in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on a variety of breads and bagels, soups, salads, desserts, premium coffees and other café beverages, and offer a café experience with a neighborhood emphasis. As of July 1, 2003, our retail system consisted of 462 company-operated, 249 franchised and 28 licensed locations. We also operate dough production and coffee roasting facilities.

        On June 19, 2001, we purchased substantially all of the assets of Einstein. Einstein was the largest bagel bakery chain in the United States, with 458 stores, nearly all of which are company-operated. The Einstein Acquisition was made pursuant to an asset purchase agreement entered into by us as the successful bidder at an auction conducted by the United States Bankruptcy Court, District of Arizona, on June 1, 2001, in the Einstein bankruptcy case. The purchase price was $160.0 million in cash plus the assumption of certain liabilities, subject to adjustment in the event that assumed current liabilities (as defined under the asset purchase agreement) exceed $30.0 million. The acquisition was accounted for using the purchase method of accounting.

        In January and March 2001, we issued Series F preferred stock and warrants to purchase our Common Stock and equity in a newly formed affiliate, Greenlight New World, L.L.C. ("GNW"). The aggregate net proceeds of those financings of approximately $23.7 million were used to purchase Einstein bonds and pay related costs. In January 2001, we issued additional Series F preferred stock and warrants to purchase our Common Stock in exchange for Series D preferred stock and warrants that we had issued in August 2000. In June 2001, we issued additional Series F preferred stock and warrants to purchase our common stock for aggregate net proceeds of $22.7 million, which were used to fund a portion of the purchase price of the Einstein Acquisition. In June 2001, we issued the Increasing Rate Notes and warrants to purchase our common stock. The net proceeds of approximately $122.4 million were used to fund a portion of the purchase price of the Einstein Acquisition, to repay our then-outstanding bank debt and for general working capital purposes. Also in June 2001, we obtained a $35.0 million asset- backed loan to a non-restricted subsidiary, New World EnbcDeb Corp. ("EnbcDeb Corp."), for net proceeds of $32.2 million, which were used to fund a portion of the purchase price of the Einstein Acquisition.

        As a result of the Einstein Acquisition and the related financing transactions, management believes that period-to-period comparisons of our operating results are not necessarily indicative of, and should not be relied upon as an indication of, future performance.

Significant Accounting Policies

        Our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this Prospectus contain information that is pertinent to management's discussion and analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities.

        We believe the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining the related asset and liability amounts.

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Revenue Recognition.    Manufacturing revenues are recognized upon shipment to customers. Retail sales are recognized when payment is tendered at the point of sale. Pursuant to our franchise agreements, franchisees are generally required to pay an initial franchise fee and a monthly royalty payment equal to a percentage of the franchisees' gross sales. Initial franchise fees are recognized as revenue when we perform substantially all of our initial services as required by the franchise agreement. Royalty fees from franchisees are accrued each month pursuant to the franchise agreements. Royalty income and initial franchise fees are included in franchise revenues.

Accounts Receivable.    The majority of our accounts receivable are due from our franchisees. Accounts receivable are due within 15 to 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer's current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Deferred Tax Assets.    We recorded a valuation allowance to reduce our deferred tax assets related to net operating loss carryforwards. We limited the amount of tax benefits recognizable based on an evaluation of the benefits that are expected to be ultimately realized. An adjustment to income could be required if we determine we could realize these deferred tax assets in excess of the net recorded amount.

Investment in Debt Securities.    Investment in debt securities includes the 7.25% Convertible Debentures due 2004 of Einstein/Noah Bagel Corp., which are classified as available for sale securities and are recorded at fair value. Fair value is based on the most recent quoted market prices or, beginning in 2001 due to developments in the bankruptcy auction pursuant to Section 363 of the U.S. Bankruptcy Code of Einstein, the estimated value of such debt securities realizable from the proceeds of the bankruptcy estate of Einstein.

Goodwill, Trademarks and Other Intangibles.    We adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective January 2, 2002. SFAS 142 provides that goodwill and other indefinite-lived intangibles should not be amortized, but be subject to an annual assessment for impairment, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to their carrying amount. The two-step approach to assess our goodwill impairment requires that we first compare the estimated fair value of each reporting unit that houses goodwill to the carrying amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying amount, then the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine the current implied fair value of the unit's goodwill.

        In conducting our impairment analyses, we utilized independent valuation experts to perform the analyses and tests of our indefinite-lived assets with respect to our reporting units. The test methods employed involved assumptions concerning useful lives of intangible assets, interest and discount rates, growth projections and other assumptions of future business conditions. The assumptions employed were based on management's judgment using internal and external data. We also utilized independent valuation experts to assist us in determining useful lives for our intangibles other than goodwill, including the assessment that our Einstein trademarks have indefinite useful lives. Our determination that this trademark, as well as our other trademarks, have indefinite useful lives is based on the fact that there are no legal, regulatory, competitive or other factors that limit their useful lives.

        The transitional and annual impairment analyses of goodwill conducted by us indicated that the fair value of the Manhattan Bagel Company reporting unit (the only reporting unit with goodwill) as of December 31, 2002 and January 1, 2002 exceeded its carrying value. Thus, the associated goodwill on

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our consolidated balance sheets as of December 31, 2002 and January 1, 2002 was not impaired, and the second step of the impairment tests was not required. Additionally, the transitional and annual impairment analyses for our indefinite-lived intangibles (trademarks) indicated that, in each instance, their respective fair values exceeded their carrying values as of December 31, 2002 and January 1, 2002.

        Derivative Instruments.    Effective January 1, 2000, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair value. Changes in the fair values of derivatives that do not qualify for hedge accounting under SFAS 133 are recognized through earnings. In conjunction with certain debt and preferred stock issuances in 2000 and 2001, we issued freestanding warrants and rights to receive additional warrants based either on the passage of time or upon the occurrence or non-occurrence of certain contingent future events ("contingently-issuable warrants"). We determined that certain of these freestanding warrants, for a period of time in 2001, and contingently-issuable warrants could not be classified within stockholders' equity based on the application of the criteria in EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, and accordingly have classified those warrants as a liability in the balance sheet. Further, those warrants classified as a liability are subject to the provisions of SFAS 133, including the requirement to adjust the recorded amount of the warrants to fair value at each balance sheet date, with changes in fair value being recognized in earnings. To the extent that the number of freestanding warrants and the maximum number of additional warrants that could potentially be issued in the future exceed the maximum number of authorized shares (the "Share Cap") at the time the debt or preferred stock instrument is issued, we determine the classification of, and accounting for, the freestanding and additional warrants as follows: (1) freestanding warrants (those that are immediately exercisable) are considered first for equity treatment, to the extent of the maximum number of authorized shares; (2) among various outstanding instruments, those with the earlier issuance dates are considered first for equity treatment; and (3) contractual priorities are considered where applicable.

        Issued $0.01 warrants classified as liabilities, if any, are recognized in the balance sheet at their fair value, as determined periodically based on quoted market prices of the underlying Common Stock. As of December 31, 2002, January 1, 2002, and December 31, 2000, there were no issued warrants classified as liabilities. Contingently-issuable $0.01 warrants classified as liabilities are also recorded at fair value based on quoted market prices of the underlying Common Stock and considering the probability of issuance, our assessments of the probability of refinancing our debt and other pertinent factors. Changes in the fair value of derivative liabilities are recorded within the statement of operations. If reclassification from liability to permanent equity is required under EITF 00-19, prior to reclassification, the liability is adjusted to fair value with the change recorded in cumulative change in derivative fair value within the statement of operations. In the event of reclassification from permanent equity to liability, the related warrants are adjusted to fair value with the change recorded in additional paid-in-capital.

        Interest and Dividends.    Interest expense and dividends on our Increasing Rate Notes and Series F preferred stock, respectively, are determined, in part, by assumptions related to expected maturity of such instruments. These assumptions are reviewed and adjusted as our circumstances change.

Results of Operations

Six-Month Period Ended July 1, 2003 Compared to Six-Month Period Ended July 2, 2002

        Revenues.    Total revenues decreased to $193.0 million for the six-month period ended July 1, 2003 from $199.2 million for the comparable 2002 period. Retail sales decreased to $179.3 million or 92.9% of total revenues for the 2003 period from $184.6 million or 92.6% of total revenues for the comparable 2002 period. The decrease in revenues was primarily attributable to a 2.2% decrease in

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same store sales in Einstein Bros. and Noah's company-owned units. Manufacturing revenues decreased to $11.2 million or 5.8% of total revenues for the six-month period ended July 1, 2003 from $12.0 million or 6.0% of total revenues for the comparable 2002 period. The decrease in manufacturing revenues results primarily from the decline in manufacturing volume and the decline in average price per unit. Franchise related revenues decreased 7.3% to $2.5 million or 1.3% of total revenues for the six-month period ended July 1, 2003 from $2.6 million or 1.3% of total revenues for the comparable 2002 period.

        Costs and Expenses.    Total cost of sales increased $1.5 million to $162.7 for the six-month period ended July 1, 2003 from $161.1 million for the comparable 2002 period. Cost of sales as a percentage of related manufacturing and retail sales increased to 85.4% for the six-month period ended July 1, 2003 from 82.0% for the comparable 2002 period. The increase primarily resulted from a decline in operating leverage due to a sales decrease in addition to an increase in costs associated with a transition in menu item mix and controllable expenses from the retail business and declines in margins due to a price decrease for the manufacturing business.

        General and administrative expenses decreased to $18.6 million or 9.7% of total revenues for the six-month period ended July 1, 2003 from $22.6 million or 11.4% of total revenues, for the comparable 2002 period. General and administrative expenses in the 2002 period included approximately $2.5 million (inclusive of related payroll tax expenses) in connection with the unauthorized bonus payments to former officers and employees of the Company. Such unauthorized bonuses were offset against payments to be made in connection with the separation of certain officers and employees of the Company. General and administrative expenses in the 2002 period also includes legal expenses of approximately $1.7 million incurred in connection with the Company's voluntary internal investigation of the unauthorized bonus payments.

        Depreciation and amortization expenses decreased to $14.3 million or 7.4% of total revenues for the 2003 period from $14.9 million or 7.5% of total revenues for the comparable 2002 period. The 2002 comparable period included depreciation expense related to recording the final asset valuation for the Einstein acquisition being allocated to the individual assets within the Company's asset management system.

        Loss from Operations.    Loss from operations for the six-month period ended July 1, 2003 was $2.7 million compared to income from operations of $1.0 million for the six-month period ended July 2, 2002. The change in loss from operations resulted from the reasons cited in the preceding paragraphs.

        Interest expense, net for the six-month period ended July 1, 2003 decreased to $18.3 million from $24.6 million for the comparable 2002 period. The decrease was primarily the result of assumptions regarding the expected maturity of the $140 Million Facility. The Company originally anticipated a refinancing would occur during 2002, which compressed the time period over which the related effective interest was recognized.

        The cumulative change in the fair value of derivatives was a charge of $70,000 for the six-month period ended July 1, 2003 compared to a charge of $3.9 million for the comparable 2002 period. The change is due to the change in the fair value of warrants classified as a derivative liability based on the underlying fair value of Common Stock to which they are indexed and, for contingently-issuable warrants classified as a derivative liability, the estimated probability of issuance and other pertinent factors.

        Provision for income taxes increased to $0.4 million for the six-month period ended July 1, 2003 from $0.2 million for the comparable 2002 period.

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        Net Loss.    Net loss for the six-month period ended July 1, 2003 was $20.9 million compared to a net loss of $27.5 million for the comparable 2002 period. The lower loss in 2003 resulted from the reasons cited in the preceding paragraphs.

Year Ended December 31, 2002 (fiscal 2002) Compared to Year Ended January 1, 2002 (fiscal 2001)

        Revenues.    Total revenues increased to $398.7 million for fiscal 2002 from $234.2 million for fiscal 2001. The increase in revenues was primarily attributable to additional retail sales from the Einstein Bros. and Noah's brands acquired in June 2001. Retail sales increased to $369.4 million or 92.7% of total revenues for fiscal 2002 from $206.2 million or 88.0% of total revenues for fiscal 2001. The increase was attributable to the addition of 458 company-operated stores that were acquired as the result of the Einstein Acquisition in June 2001. Manufacturing revenues increased 6.5% to $23.7 million or 6% of total revenues for fiscal 2002 from $22.3 million or 9.5% of total revenues for fiscal 2001. The increase represented the addition of manufacturing sales associated with the Einstein Acquisition, partially offset by the lower New World brand store base and the exit from the distribution and manufacturing activity at the Eatontown facility. Franchise related revenues decreased 2.4% to $5.6 million or 1.4% of total revenues for fiscal 2002 from $5.7 million or 2.4% of total revenues for fiscal 2001. The decrease reflects a lower average franchise store base in fiscal 2002, in part resulting from management's decision to terminate certain franchisees whose operations did not comply with our policies.

        Costs and Expenses.    Cost of sales is comprised of all store-level and manufacturing operating expenses other than depreciation, amortization and taxes. Cost of sales as a percentage of related manufacturing and retail sales decreased to 81.8% for fiscal 2002 from 82.9% for fiscal 2001. The decrease primarily resulted from a shift in sales mix towards retail store revenues and the implementation of supply chain cost reduction initiatives related to the integration of Einstein.

        General and administrative expenses increased to $42.6 million for fiscal 2002 from $28.6 million for fiscal 2001. The increase was primarily the result of the assumption of certain costs resulting from the Einstein Acquisition. General and administrative expenses expressed as a percentage of total revenues decreased to 10.7% of total revenues for fiscal 2002 from 12.2% of total revenues for fiscal 2001. The decrease, in general, reflects the operating leverage generated in the Einstein Acquisition, which allows us to spread fixed administrative costs over a larger revenue base. However, in both years we incurred general and administrative costs not directly related to the ongoing operations, such as the recording of unauthorized bonuses, consulting and other costs related to the Einstein Acquisition, as well as higher legal costs associated with the internal investigation and various refinancing attempts and integration costs associated with the Einstein Acquisition. Offsetting those charges in fiscal 2002 was a reduction in general and administrative expenses of approximately $2.8 million related to the termination of our distribution contract with our former national distributor.

        Depreciation and amortization expenses increased to $30.6 million or 7.7% of total revenues for fiscal 2002 from $15.2 million or 6.5% of total revenues for fiscal 2001. The increase was primarily attributable to depreciation on assets acquired in the Einstein Acquisition.

        Provision for integration and reorganization costs was $4.2 million for fiscal 2002. In fiscal 2001, the provision for integration and reorganization costs was $4.4 million. The charge in fiscal 2002 reflects the costs associated with exiting the Eatontown, NJ facility and corporate consolidation. The charge in fiscal 2001 reflects expenses related to the reorganization and integration of existing facilities and operations with those acquired in the Einstein Acquisition.

        In fiscal 2002, there was no impairment charge in connection with the realization of assets. The impairment charge in connection with the realization of assets was $3.3 million or 1.4% of total revenues for fiscal 2001. The charge resulted from management's evaluation of long-lived assets, in particular assets held for resale, in accordance with SFAS No. 121. Management considered factors

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such as operating performance and our ability to sell company-owned stores to prospective franchisees, as well as the shift in brand focus after the Einstein Acquisition.

        Loss from Operations.    The loss from operations for fiscal 2002 was $300,000 compared to the loss from operations of $6.8 million for fiscal 2001. The decrease in net loss from operations is primarily a result of higher gross profit contribution from store operations as a result of the full year impact of the Einstein Acquisition and the lack of impairment charge in 2002, which savings were partially offset by higher general and administrative expenses and depreciation and amortization expenses.

        Interest expense, net for fiscal 2002 decreased to $42.9 million, or 10.8% of total revenues, from $47.1 million, or 20.1% of total revenues, for fiscal 2001. The decrease was primarily the result of assumptions employed in effective interest calculations, which included a shorter expected life of the Increasing Rate Notes in 2001 than the life assumed in 2002, due to assumptions regarding our intent and ability to refinance the Increasing Rate Notes at various periods in 2001 and 2002, partially offset by the full year impact of instruments used to finance the Einstein Acquisition. Interest expense for fiscal 2002 was comprised of approximately $24.9 million of interest paid or payable in cash and non-cash interest expense of approximately $18.0 million resulting from the amortization of debt discount, debt issuance costs and the amortization of warrants issued in connection with debt financings.

        Cumulative change in the fair value of derivatives decreased from $57.7 million in fiscal 2001 to $0.2 million in 2002, due primarily to the dynamics of the calculation of the fair value of derivative liabilities, including the smaller decrease in underlying stock price and the classification of derivatives as liabilities in fiscal 2002 versus fiscal 2001. As discussed in Note 1—Nature of Business Organization and Significant Accounting Policies—Derivative Instruments to our consolidated financial statements included elsewhere in this Prospectus, this represents the change in the fair value of warrants classified as liabilities as determined periodically based on quoted market prices of the underlying Common Stock, among other factors. As of December 31, 2002 and January 1, 2002, the closing price of the Common Stock was $0.09 per share and $0.26 per share, respectively.

        In fiscal 2001, we recorded a loss from extinguishment of the Greenlight obligation of $16.6 million, as a result of the execution of a certain Letter Agreement dated June 19, 2001 with Greenlight that resulted in an extinguishment of the Bond Purchase Agreement dated January 17, 2001 pursuant to EITF 96-19. There was no such charge in fiscal 2002.

        Other income of $2.9 million in fiscal 2002, which consisted primarily of a gain on the sale of debt securities of $2.5 million regarding our investment in the 7.25% Convertible Debentures due 2004 of Einstein/Noah Bagel Corp., increased by $2.8 million as compared to fiscal 2001. In fiscal 2001, we recorded a permanent impairment in the value of investments of $5.8 million to adjust the carrying value of such investment based on our estimate of the proceeds we would receive from the bankruptcy estate of Einstein relating to our investment in the 7.25% Convertible Debentures due 2004 of Einstein. There was no such charge in 2002.

        Provision for income taxes increased to $0.4 million for fiscal 2002 from a provision for income taxes of $0.2 million for fiscal 2001. The increase in tax expense was immaterial.

        Net Loss.    Net loss for fiscal 2002 was $40.5 million compared to net loss of $18.7 million for fiscal 2001. The increase in net loss is primarily a result of the lower cumulative change in the fair value of derivatives, offset by the lack of extinguishment and impairment charges as well as a lower loss from operations and higher other income in 2002.

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Year Ended January 1, 2002 (fiscal 2001) Compared to Year Ended December 31, 2000 (fiscal 2000)

        Revenues.    Total revenues increased to $234.2 million for fiscal 2001 from $43.1 million for fiscal 2000. The increase in revenues was primarily attributable to additional retail sales from the Einstein Bros. and Noah's brands acquired in June 2001. Retail sales increased to $206.2 million or 88.0% of total revenues for fiscal 2001 from $12 million or 27.8% of total revenues for fiscal 2000. The increase was primarily attributable to the addition of 458 company-operated stores that were acquired as the result of the Einstein Acquisition in June 2001. Manufacturing revenues decreased 10.1% to $22.3 million or 9.5% of total revenues for fiscal 2001 from $24.8 million or 57.5% of total revenues for fiscal 2000. The decrease in manufacturing revenues was primarily the result of our decision to outsource our distribution business related to the New World brands, which had been included in manufacturing revenues in fiscal 2000. Manufacturing revenue related to the Einstein Bros. and Noah's brands partially offset this decrease. Franchise related revenues decreased 9.5% to $5.7 million or 2.4% of total revenues for fiscal 2001 from $6.3 million or 14.6% of total revenues for fiscal 2000. The decrease reflects a lower average franchise store base in fiscal 2001, in part, resulting from management's decision to terminate certain franchisees whose operations did not comply with our policies.

        Costs and Expenses.    Cost of sales as a percentage of related manufacturing and retail sales increased to 82.9% for fiscal 2001 from 82.0% for fiscal 2000. The increase primarily resulted from the impact of the Einstein margins on our cost structure as a result of the acquisition.

        General and administrative expenses increased to $28.6 million for fiscal 2001 from $12.7 million for fiscal 2000. The increase was primarily the result of the addition of general and administrative costs resulting from the Einstein Acquisition. General and administrative expenses expressed as a percentage of total revenues declined to 12.2% of total revenues for fiscal 2001 from 29.6% of total revenues for fiscal 2000. The decline is the result of the higher revenue base during fiscal 2001 as well as certain general and administrative expenses incurred by New World in 2000 related to its effort to acquire Einstein, which were higher as a percentage of revenues than similar costs incurred in fiscal 2001.

        Depreciation and amortization expenses increased to $15.2 million or 6.5% of total revenues for fiscal 2001 from $2.3 million or 5.2% of total revenues for fiscal 2000. The increase was primarily attributable to depreciation on assets acquired in the Einstein Acquisition.

        Provision for integration and reorganization costs was $4.4 million for fiscal 2001. There was no such charge for fiscal 2000. The charge in 2001 reflects expenses related to the reorganization and integration of existing facilities and operations with those acquired in the Einstein Acquisition.

        Impairment charge in connection with the realization of assets held for sale was $3.3 million or 1.4% of total revenues for fiscal 2001. The comparable charge in fiscal 2000 was $1.1 million or 2.5% of total revenues. The charge resulted from management's evaluation of long-lived assets, primarily assets held for resale, in accordance with SFAS 121. Key considerations in such assessment included the operating performance of the stores held for sale and our ability to sell them to prospective franchisees.

        Loss from Operations.    The loss from operations for fiscal 2001 was $6.8 million compared to the loss from operations of $3.1 million for fiscal 2000. The increase in the loss from operations is primarily a result of the provision for integration and reorganization costs and the impairment charge in connection with the realization of assets as well as higher depreciation expense stemming from the Einstein assets, which charges were offset, in part, by operating income derived from the Einstein operations, which were included in our results since the date of the Einstein Acquisition, June 19, 2001.

        Interest expense, net for fiscal 2001 increased to $47.1 million, or 20.1% of total revenues, from $2.1 million or 4.8% of total revenues for fiscal 2000. The increase stemmed primarily from the

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incurrence of debt in fiscal 2001 to fund the Einstein Acquisition. Interest expense for fiscal 2001 was comprised of approximately $11.2 million of interest paid or payable in cash and non cash interest expense of approximately $35.9 million resulting from the amortization of the initial debt discount, debt issuance costs and the amortization of the discount associated with the warrants issued in connection with debt financings.

        Cumulative change in the fair value of derivatives resulted in $57.7 million of income in fiscal 2001. As discussed in Note 1—Nature of Business Organization and Significant Accounting Policies—Derivative Instruments to our consolidated financial statements included elsewhere in this Prospectus, this represents the change in the fair value of warrants classified as liabilities as determined periodically based on quoted market prices of the underlying common stock, among other factors. As of January 1, 2002 and December 31, 2000, the closing price of the Common Stock was $0.26 per share and $1.125 per share, respectively. There was no comparable line item in fiscal 2000.

        In fiscal 2001, we recorded a loss from extinguishment of the Greenlight obligation of $16.6 million, as a result of the execution of a certain Letter Agreement dated June 19, 2001 with Greenlight that resulted in an extinguishment of the Bond Purchase Agreement dated January 17, 2001 pursuant to EITF 96-19. There was no such charge in fiscal 2000.

        Other income of $100,000 in fiscal 2001 compared to $300,000 in other expense in fiscal 2000, in each year representing miscellaneous items of income and expense. In fiscal 2001, we recorded a permanent impairment in the value of investments of $5.8 million, or 2.5% of total revenues to adjust the carrying value of such investment based on our estimate of the proceeds we would receive from the bankruptcy estate of Einstein relating to our investment in certain Einstein bonds. There was no such charge in fiscal 2000.

        Provision for income taxes was $200,000 for fiscal 2001. There was no provision for income taxes in fiscal 2000.

        Net Loss.    Net loss for fiscal 2001 was $18.7 million compared to net loss of $5.5 million for fiscal 2000. The increase in net loss is primarily a result of higher interest expense and loss from extinguishment of the Greenlight obligation, the permanent impairment in the value of investment in debt securities as well as the higher loss from operations in fiscal 2001, which factors were partially offset by the benefit from the cumulative change in the fair value of derivatives.

Income Taxes

        We account for income taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Realization of deferred taxes is dependent on future events and earnings, if any, the timing and extent of which are uncertain. At December 31, 2002, we had net operating loss carryforwards of approximately $88.4 million available to offset future taxable income. These net operating loss carryforwards expire on various dates through 2021. As a result of ownership changes, which resulted from the issuance of warrants in connection with the sale of Series F preferred stock and the acquisition of Manhattan Bagel Company, our ability to utilize the loss carryforwards is subject to limitations as defined in Section 382 of the Internal Revenue Code, as amended.

        At December 31, 2002, January 1, 2002 and December 31, 2000, we have recorded full valuation allowances against our deferred tax assets. The valuation allowances are based upon management's current assessment of our ability to realize the related tax benefits considering the limitations imposed by Section 382 of the Internal Revenue Code, the status of our integration of the operations of Einstein, and our history of operating losses.

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SELECTED UNAUDITED PRO FORMA AND HISTORICAL FINANCIAL DATA

        The following unaudited pro forma and historical financial data have been derived by the application of adjustments to our historical consolidated financial statements included elsewhere in this Prospectus. The unaudited pro forma and historical financial data presented below should be read in conjunction with, and is qualified in its entirety by reference to, "Selected Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus.

        The pro forma combined statements of operations data for the 2000 Fiscal Year and the 2001 Fiscal Year give effect to the Einstein Acquisition as if it had occurred as of the beginning of each period reported. The pro forma combined statements of operations data give effect to purchase accounting adjustments and the financings necessary to complete the acquisition. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place as of the beginning of each period reported, and may not be indicative of future operating results.

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2000 FISCAL YEAR
CONSOLIDATED PRO FORMA RESULTS
(amounts in thousands)

			NWRGI Fiscal 2000 Audited Results			ENBC Fiscal 2000 Audited Results			Pro Forma Adjustments (a)			Consolidated Pro Forma Fiscal 2000 Results
Revenues:
	Manufacturing revenues		$	24,775		$	3,351		$	—		$	28,126
	Franchise related revenues			6,306			—			—			6,306
	Retail sales			11,997			372,352			—			384,349
		Total revenues	$	43,078		$	375,703		$	—		$	418,781
Cost of sales(b)				30,138			316,281			(1,032	)		345,387
General and administrative expenses				12,733			34,370			—			47,103
EBITDA			$	207		$	25,052			(1,032	)	$	26,291
Depreciation and amortization(b)				2,254			29,972			(927	)		31,299
Provision for integration and reorganization costs				—			18,340			—			18,340
Noncash charge in connection with realization assets				1,076			—			—			1,076
(Loss) income from operations			$	(3,123	)	$	(23,260	)	$	1,959			(24,424	)
Interest expense, net(c)				(2,076	)		(7,368	)		(45,997	)		(55,441	)
Change in the fair value of derivatives(d)				—			—			45,179			45,179
Other income (expense)				(339	)		37			—			(302	)
Permanent impairment in the value of investments				—			—			—			—
(Loss) income before income taxes, minority interest			$	(5,538	)	$	(30,591	)	$	1,141		$	(34,988	)
Provision (benefit) for income taxes				—			104			—			104
Minority interest(e)				—			(2,465	)		2,465			—
Net (loss) income			$	(5,538	)	$	(28,230	)	$	(1,324	)	$	(35,092	)

[See notes on next page.]

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2001 FISCAL YEAR
CONSOLIDATED PRO FORMA RESULTS
(amounts in thousands)

			NWRGI Fiscal 2001 Audited Results			ENBC January to June of Fiscal 2001 Unaudited Results			Pro Forma Adjustments (a)			Final Consolidated Pro Forma NWRGI 2001 Results
Revenues:
	Manufacturing revenues		$	22,285		$	2,170		$	—		$	24,455
	Franchise related revenues			5,704			80			—			5,784
	Retail sales			206,186			167,352			—			373,538
		Total revenues	$	234,175		$	169,602		$	—		$	403,777
Cost of sales(b)				189,403			144,215			(488	)		333,130
General and administrative expenses				28,647			14,262			—			42,909
EBITDA			$	16,125		$	11,125		$	488		$	27,738
Depreciation and amortization(b)				15,207			13,703			(40	)		28,870
Provision for integration and reorganization costs				4,432			5,859			—			10,291
Noncash charge in connection with realization of assets				3,259			—			—			3,259
(Loss income from operations			$	(6,773	)	$	(8,437	)	$	528		$	(14,682	)
Interest expense, net(c)				(47,104	)		(2,127	)		(6,210	)		(55,441	)
Change in the fair value of derivatives(d)				57,680			—			(12,501	)		45,179
Net loss from early extinguishment of debt				(16,641	)		—			—			(16,641	)
Other income (expense)				110			1			—			111
Permanent impairment in the value of investments				(5,805	)		—			—			(5,805	)
(Loss) income before income taxes & minority interest			$	(18,533	)	$	(10,563	)	$	(18,183	)	$	(47,279	)
Provision (benefit) for income taxes				167			51			—			218
Minority interest(e)				—			(757	)		757			—
Net (loss) income			$	(18,700	)	$	(9,857	)	$	(18,940	)	$	(47,497	)

(a)

The pro forma adjustments consist of the eliminations of EnbcDeb Corp. interest, minority interest, depreciation and amortization, offset by new entries to book interest expense, depreciation, amortization, taxes and dividends as though the combination occurred at the beginning of the year presented.

(b)

Includes a reclassification to adjust to current presentation and a pro forma adjustment to eliminate amortization of the EnbcDeb Notes and re-book amortization based on the final purchase valuation.

(c)

Pro forma adjustment to eliminate EnbcDeb Notes interest expense and re-book interest expense as if the financing had occurred on the first day of the year.

(d)

Pro forma adjustment records the financing as if it had occurred on the first day of the year.

(e)

Pro forma adjustment eliminates EnbcDeb Corp. minority interest.

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        The summary pro forma balance sheet data for the Offering and for the Equity Recap and the Offering as of July 1, 2003 give effect to the Offering and to the Equity Recap as if they had been completed as of July 1, 2003. The pro forma financial and balance sheet data are provided solely for informational purposes and are not indicative of future results or what our results of operations would have been had these events occurred at the beginning of the periods presented, and may not be indicative of future operating results. The data presented below should be read in conjunction with, and is qualified in its entirety by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the notes thereto appearing elsewhere in this Prospectus.

	As of July 1, 2003
	Actual			Pro Forma for the Notes			Pro Forma for the Equity Recap and the Notes
	(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents(1)	$	9,367		$	5,165		$	5,165
Property, plant and equipment, net		74,364			74,364			74,364
Total assets		204,804			206,652			206,652
Total debt(2)		165,502			176,322			161,370
Total stockholders' (deficit)(3)		(120,585	)		(120,585	)		(35,312	)

(1)

The pro forma adjustment reflects the use of the Company's cash to pay fees associated with the transaction.

(2)

Effective with the third quarter of 2003, the total debt amount will change to include the balance of our outstanding preferred stock due to the implementation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. See Note 19 of the Notes to our Audited Annual Financial Statements appearing elsewhere in this Prospectus. The pro forma adjustment reflects the payment of existing debt and the incurrence of the Notes.

(3)

The pro forma adjustment for the Equity Recap reflects the proposed changes to our equity capitalization as if they had occurred on July 1, 2003.

        EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations in accordance with generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. EBITDA and Adjusted EBITDA are bases upon which we assess our financial performance and the covenants in the Indenture governing the Notes require us to maintain minimum levels of Adjusted EBITDA. While EBITDA and Adjusted EBITDA are frequently used as measures of operations and

42

the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled measures of other companies due to the potential inconsistencies in the method of calculation.

	Fiscal Year Ended			Six-month Period Ended
	Pro Forma Combined December 31, 2000	Pro Forma Combined January 1, 2002	December 31, 2002	July 2, 2002	July 1, 2003
	(dollars in thousands)
EBITDA(1)	26,291	27,738	34,504	15,449	11,640
Adjusted EBITDA(2)	35,065	34,657	46,446	24,570	16,870
				Twelve Months Ended July 1, 2003
Net debt/Adjusted EBITDA(3)					4.0	x
Adjusted EBITDA/Cash interest expense(4)					1.0	x

(1)

EBITDA is defined as net loss plus (i) provision for income taxes, (ii) permanent impairment in the value of investment in debt securities, (iii) other expense or less other income, (iv) loss from extinguishment of Greenlight obligation, (v) interest expense, (vi) impairment charge in connection with realization of assets held for sale, (vii) provision for integration and reorganization costs, (viii) depreciation and amortization, and (ix) cumulative change in the fair value of derivatives if such item is an expense item. If cumulative change in the fair value of derivatives is an income item, instead of being added to net loss, it is deducted therefrom. The following table reconciles net loss to EBITDA:

			Fiscal Year Ended									Six-month Period Ended
			Pro Forma Combined December 31, 2000			Pro Forma Combined January 1, 2002			December 31, 2002			July 2, 2002			July 2, 2003
			(dollars in thousands)
Net loss			$	(35,092	)	$	(47,497	)	$	(40,473	)	$	(27,504	)	$	(20,857	)
Plus:
	Provision for income taxes			104			218			366			152			430
	Permanent impairment in the value of investment in debt securities			—			5,805			—			—			—
	Other expense (income)			302			(111	)		(2,859	)		(104	)		(571	)
	Loss from extinguishment of Greenlight obligation			—			16,641			—			—			—
	Cumulative change in the fair value of derivatives			(45,179	)		(45,179	)		(233	)		3,858			70
	Interest expense			55,441			55,441			42,883			24,604			18,271
	Impairment charge in connection with realization of assets held for sale			1,076			3,259			—			—			—
	Provision for integration and reorganization costs			18,340			10,291			4,194			(552	)		—
	Depreciation and amortization			31,299			28,870			30,626			14,995			14,297
		EBITDA	$	26,291		$	27,738		$	34,504		$	15,449		$	11,640

(2)

Adjusted EBITDA means EBITDA excluding (i) certain legal, financing and advisory fees, (ii) acquisition and integration expenses, (iii) certain corporate expenses, (iv) unauthorized

43

bonuses, (v) certain compensation expense and (vi) certain other charges. The table below reconciles EBITDA to Adjusted EBITDA:

			Fiscal Year Ended						Six-month Period Ended
			Pro Forma Combined December 31, 2000		Pro Forma Combined January 1, 2002		December 31, 2002		July 2, 2002		July 1, 2003
			(dollars in thousands)
EBITDA			$	26,291	$	27,738	$	34,504	$	15,449	$	11,640
Plus:
	Certain legal, financing and advisory fees(a)			664		1,736		3,902		2,302		1,827
	Acquisition and integration expenses(b)			3,472		18		160		1,766		431
	Certain corporate expenses(c)			1,399		1,470		2,270		904		769
	Unauthorized bonuses(d)			—		1,300		2,618		2,618		—
	Certain compensation expense(e)			2,464		1,391		984		868		—
	Certain other charges(f)			775		1,004		2,008		663		2,203
		Adjusted EBITDA	$	35,065	$	34,657	$	46,446	$	24,570	$	16,870

(a)

Includes consulting and legal fees related to raising capital for the Einstein Acquisition of $0.7 million for fiscal 2000. Includes legal fees and settlements of litigation with franchisees in the amount of $1.4 million and $0.3 million of consulting and legal fees related to raising capital for the Einstein Acquisition in fiscal 2001. Fiscal 2002 includes $2.4 million of legal fees primarily related to an internal investigation and various refinancing efforts, $1.2 million of investment banking fees and expenses, and $0.3 million of other financing-related expenses. The six-month period ended July 2, 2002 includes $1.6 million of legal fees primarily related to an internal investigation and various refinancing efforts and $0.7 million of investment banking fees and expenses. The six-month period ended July 1, 2003 included $1.8 million of legal fees related to various refinancing efforts, the prior year re-audits and other legal matters.



(b)

Includes capital restructuring expenses relating to Einstein of $3.1 million, and severance and territory acquisition expenses of $0.4 million in fiscal 2000 and $18,000 of severance expenses in fiscal 2001. Includes a gain on a contract settlement with Marriott Distribution Services of $2.7 million, legal fees in connection with the Einstein bankruptcy of $0.4 million, severance costs of $0.4 million and integration-related expenses of $2.1 million in fiscal 2002. The six-month period ended July 2, 2002 and the six-month period ended July 1, 2003 include $1.8 million and $0.4 million, respectively, of integration related expenses.



(c)

Includes certain group insurance expenses of $0.5 million and consulting fees related to raising capital for the Einstein Acquisition of $1.0 million during fiscal 2000. In fiscal 2001, this amount includes Florida sales tax audit expense of $0.4 million, point-of-sale training expenses of $0.5 million and consulting and legal fees relating to raising capital for the Einstein Acquisition of $0.8 million. Fiscal 2002 includes distribution transition and related expenses of $1.1 million and $0.8 million of expenses related to store closures. Fiscal 2002 also includes $0.2 million in payments to store level assistant managers expensed in 2002 for services performed in 2001 as a result of a self-audit, and tax preparation fees for taxes in fiscal 2000 and 2001 that were expensed in 2002 of $0.1 million, which expenses have been deducted from the corresponding adjustments in 2000 and 2001. The six-month period ended July 2, 2002 and

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the six-month period ended July 1, 2003 include $0.9 million and $0.8 million, respectively, of expenses related to store closures and distribution transition.

(d)

Includes unauthorized bonuses and payroll taxes related thereto of $1.1 million and $2.6 million for fiscal 2001 and 2002, respectively, and an unauthorized payment to a former officer of $0.2 million in fiscal 2001. The six-month period ended July 2, 2002 includes the $2.6 million unauthorized bonus.



(e)

Includes executive retention bonuses and related expenses of $1.4 million related to Einstein and Manhattan Bagel Company acquisition-related and stock bonus expenses of $1.1 million in fiscal 2000. Fiscal 2001 includes net bonuses related to an acquisition previously capitalized in 2001 of $0.7 million, stock issued for compensation of $0.5 million and $0.3 million of executive retention bonuses related to Einstein. Fiscal 2002 includes $0.9 million of duplicate salaries, bonuses and other expenses paid to our Chairman/CEO and a former executive officer. Fiscal 2002 also includes $0.1 million of 2001 board of directors fees that were expensed in 2002, which fees have been deducted from the corresponding adjustment in 2001. The six-month period ended July 2, 2002 includes $0.8 million of duplicative expenses paid to our Chairman and Chief Executive Officer and a former executive officer.



(f)

Includes assets held for resale expense of $0.7 million and reconciliation expense for accrued liabilities of $0.1 million for fiscal 2000. Fiscal 2001 includes reconciliation expense for accrued liabilities of $0.2 million and lease settlements for store closures of $0.8 million. Fiscal 2002 includes 2001 and 2000 re-audit related fees of $0.8 million, $0.5 million write-off relating to change in credit card processors and additional fees related to the internal investigation of $0.6 million. The six-month period ended July 2, 2002 includes $0.6 million of fees related to the internal investigation. The six-month period ended July 1, 2003 includes $0.7 million of professional fees related to the prior year re-audits, $0.7 million cost related to the refinancing, $0.5 prior year cost in current year and $0.3 one-time training and integration expenses.

(3)

Net debt is defined as total debt, less cash and cash equivalents.

(4)

Cash interest expense excludes approximately $1.2 million relating to amortization of fees and expenses capitalized in connection with the offering of the original notes.

Liquidity and Capital Resources

        We have recorded a loss from operations for the fiscal years ending December 31, 2002, January 1, 2002 and December 31, 2000 of approximately $300,000, $6.8 million and $3.1 million, respectively. We have also recorded net cash flow used in operating activities of approximately $6.7 million in 2002 as a result of the operating loss as well as working capital contraction related primarily to shorter payment terms associated with our new distribution contracts. We have initiated cost reduction programs that stem primarily from the integration of Einstein, including supply chain efficiencies and reductions in overhead as a result of the elimination of duplicative functions and the streamlining of various functional areas. While most of these initiatives commenced in fiscal 2002, the full year effect is not expected to be realized until 2003 and beyond. In addition, we incurred substantial expenses in 2002 related to (1) the payment of unauthorized bonuses to certain members of former management, as well as the internal investigation that ensued, and (2) legal and advisory fees related to various efforts to refinance the Increasing Rate Notes and our revolving line of credit, which are not anticipated to recur at similar levels in 2003.

        In January and March 2001, we issued 25,000 shares of newly authorized Series F preferred stock and warrants to purchase Common Stock as well as equity in a newly formed affiliate, GNW. The

45

proceeds, net of related offering expenses, were $23.7 million. The proceeds from these equity sales were utilized to purchase Einstein bonds and pay related costs.

        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 net proceeds of the offering of the original notes was used, among other things, to repay the Increasing Rate 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. Upon consummation of the offering of the original notes, we issued 4,337.481 shares of our Series F preferred stock to the holders of the EnbcDeb Notes in full payment thereof. If the Equity Recap is consummated, such shares of Series F preferred stock will be converted into common stock. See "Description of Capital Stock—Equity Recapitalization."

        On May 30, 2002, we entered into a Loan and Security Agreement with BET, which provides for a $7.5 million revolving loan facility. The facility is secured by substantially all of our assets. The interest rate for borrowings under the facility was originally 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 interest rate for borrowings under the facility was 13.0% per annum. BET and an affiliate received an extension fee of $187,500 in connection with the amendment, paid at maturity, and an additional fee of $112,500 since the facility was not paid in full by June 2, 2003. After June 1, 2003, the interest rate for borrowings under the facility is 15.0% per annum, and an affiliate of BET received a $25,000 fee for entering into the standstill agreement described in "Management—Certain Relationships and Related Transactions." A portion of the net proceeds of the offering of the original notes was used to repay all outstanding borrowings under this facility.

        We have a $15.0 million senior revolving credit facility. See "Description of Certain Indebtedness."

        At July 1, 2003, the Company had a working capital deficit of $173.2 million compared to a working capital deficit at December 31, 2002 of $164.8 million. The working capital deficit is due primarily to the classification of the $140 Million Facility as a current liability. The $140 Million Facility matured on June 15, 2003 and was repaid with the proceeds of the $160 Million Facility as previously discussed.

        The increase in the working capital deficit of $8.8 million is primarily due to cash used in operating activities and the increase in certain current liabilities during the quarter ended July 1, 2003.

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        The Company had net cash provided by operating activities of $1.2 million for the year to date period ended July 1, 2003 compared with net cash used in operating activities of $3.8 million for the year to date period ended July 2, 2002. The increase in cash provided by operating activities was primarily attributable to the increase in accrued interest related to the final interest payment on the increasing rate notes which was paid in the third quarter of 2003.

        The Company had net cash used in investing activities of $3.5 million for the year to date period ended July 1, 2003 compared with net cash provided by investing activities of $22.8 million for the year to date period ended July 2, 2002. The cash used in investing activities represented the purchase of property, plant and equipment.

        The Company had $0.9 million net cash provided by financing activities for the year to date period ended July 1, 2003 compared with net cash used in financing activities of $24.7 million for the fiscal quarter ended July 2, 2002. The cash provided by financing activities was due to a draw on its revolving loan facility offset by repayments of debt.

        We plan to satisfy our capital requirements for the next twelve months primarily through cash flow from operations and through drawings on our new $15.0 million senior revolving credit facility. We continually assess our ongoing capital needs and may consider the issuance of additional equity or debt securities in order to raise capital should business conditions dictate that such is necessary.

Contractual Obligations

        As of December 31, 2002, our contractual obligations were:

	Payments Due By Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(dollars in thousands)
Debt	$	161,883	$	150,872	$	955	$	56	$	10,000
Capital Lease Obligations		553		295		225		33		—
Operating Leases		113,841		27,485		50,931		27,065		8,360
Other Long-Term Obligations		10,560		—		2,027		1,117		7,416
Total	$	286,837	$	178,652	$	54,138	$	28,271	$	25,776

Off-Balance Sheet Transactions

        We do not engage in material off-balance sheet transactions.

Recent Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. We are currently assessing the impact of the adoption of this new standard, although we do not expect it to affect our consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections, which is effective for fiscal years beginning after May 15, 2002, with early application encouraged. This statement rescinds SFAS 4, Reporting Gains and Losses from Extinguishments of Debt, and includes other modifications to existing statements, that are not applicable to us. SFAS 4 required the reporting of gains or losses associated with the extinguishments of debt be classified as an extraordinary item on the income statement. SFAS 145 rescinds that classification unless the extinguishment is deemed both unusual and infrequent in nature as defined in APB 30. We have adopted the provisions of SFAS 145 in these financial

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statements and determined that the loss from the extinguishment of the Greenlight Capital obligation did not meet the APB 30 criteria to be considered an extraordinary item.

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. This statement requires a liability for a cost associated with an exit or disposal activity to be recognized at fair value in the period in which the liability is incurred, except for liabilities for one-time termination benefits requiring future employee service, which is to be recognized ratably over the remaining service period. We early-implemented SFAS No. 146 upon its issuance in fiscal 2002.

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. This statement requires all entities with stock-based employee compensation arrangements to provide additional disclosures in their summary of significant accounting policies note. For entities that use the intrinsic value method of APB 25, to account for employee stock compensation, their accounting policies note should include a tabular presentation of pro forma net income and earnings per share using the fair value method. This statement also permits entities changing to the fair value method of accounting for employee stock compensation to choose from one of three transition methods—the prospective method, the modified prospective method, or the retroactive restatement method. The main provisions of this statement are effective for fiscal years ending after December 15, 2002. We currently have no intention to change to the fair value method to account for employee stock-based compensation; however, the disclosure provisions have been implemented within our consolidated financial statements.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities presentation, and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. This statement is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this new standard will impact our financial statements by moving the preferred stock from the mezzanine section to the long-term liability section. After adoption of SFAS 150, all dividends and accretion of discount or amortization of premiums will be recognized as interest expense. If this standard had been in effect as of December 31, 2002, $84.9 million would have migrated from the mezzanine section to the long-term liability section.

        We have considered all other recently issued accounting pronouncements and do not believe that the adoption of such pronouncements will have a material impact on its financial statements.

General Economic Trends and Seasonality

        We anticipate that our business will be affected by general economic trends that affect retailers in general. While we have not operated during a period of high inflation, we believe based on industry experience that we would generally be able to pass on increased costs resulting from inflation to our consumers. Our business may be affected by other factors, including increases in the commodity prices of green coffee and/or flour, acquisitions by us of existing stores, existing and additional competition, marketing programs, weather and variations in the number of location openings. Although few, if any, employees are paid at the minimum wage, an increase in the minimum wage may create pressure to increase the pay scale for our employees, which would increase our labor costs and those of our franchisees. Our business is subject to seasonal trends. Generally, our revenues in the first fiscal quarter are somewhat lower than in the other three fiscal quarters.

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Quantitative and Qualitative Disclosures about Market Risk

        Our debt at December 31, 2002 was principally comprised of the Increasing Rate Notes, the revolving loan facility and the EnbcDeb Notes. A 100 basis point increase in market interest rates would have no effect on our borrowing costs, as interest is paid at rates defined under the respective agreements. However, an increase in prevailing market interest rates could negatively affect the market value of our Notes.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        On July 29, 2002, we dismissed Arthur Andersen LLP as our independent auditors and engaged the accounting firm of Grant Thornton LLP as our new independent auditors. The decision to change auditors was recommended by the Audit Committee of the Board of Directors and unanimously approved by the Board of Directors. The decision to engage Grant Thornton LLP followed our evaluation of proposals from several accounting firms.

        During the fiscal years ended January 1, 2002 and December 31, 2000, and the subsequent interim period through July 29, 2002, there were no disagreements between Arthur Andersen and us on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to make reference to the subject matter of such disagreement in its reports on our consolidated financial statements for such years, and there occurred no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

        The audit reports of Arthur Andersen on our original consolidated financial statements for the fiscal years ended January 1, 2002 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

        Pursuant to Item 304(a)(3) of Regulation S-K, we requested that Arthur Andersen furnish a letter addressed to the Securities and Exchange Commission stating whether they agree with the above statements. A representative of Arthur Andersen advised us that Arthur Andersen is no longer in a position to provide letters relating to its termination as a former audit client's independent auditor, and that Arthur Andersen's inability to provide such letters has been discussed with the staff at the Securities and Exchange Commission.

        During the fiscal years ended January 1, 2002 and December 31, 2000, and the subsequent interim period through July 29, 2002, we did not consult Grant Thornton LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any of the matters or reportable events set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

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BUSINESS

Overview

        We are a leader in the quick casual segment of the restaurant industry. With 739 locations in 33 states as of July 1, 2003, we operate and license locations primarily under the Einstein Bros. and Noah's brand names and franchise locations primarily under the Manhattan and Chesapeake brand names. Our locations specialize in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on a variety of breads and bagels, soups, salads, desserts, premium coffees and other café beverages, and offer a café experience with a neighborhood emphasis. As of July 1, 2003, our retail system consisted of 462 company-operated, 249 franchised and 28 licensed locations. We also operate dough production and coffee roasting facilities.

        We plan to leverage our leadership position, brand names and production facilities in the growing quick casual segment of the restaurant industry primarily through franchising and licensing, as well as developing select company-operated locations. We believe that our market leadership, strong brands and attractive and proven unit economics will enable us to attract experienced, well capitalized franchise and license partners. The benefits of franchising and licensing include the ability to develop new markets and build out existing markets with a minimal capital commitment by us, the creation of a built-in customer base for our manufacturing operations and the generation of initial franchise fees and a royalty income stream.

        On a combined pro forma basis excluding restructuring charges and certain other items, we have consistently increased Adjusted EBITDA from $35.1 million in 2000 to $46.4 million in 2002, representing a 15% CAGR. This improvement is due primarily to increases in same store sales, increases in store level profits expansion of dayparts, increased manufacturing profits and purchasing and manufacturing, general and administrative and distribution cost reductions achieved through the successful integration of acquisitions.

        As of July 1, 2003, on a pro forma basis as adjusted to reflect the issuance of the Notes and the application of the net proceeds therefrom as described under "Use of Proceeds," we would have had $171.2 million of Net Debt. Calculated on the same basis, our Net Debt-to-Adjusted EBITDA ratio would have been 4.4x.

Industry

        The U.S. market for the daytime restaurant business is currently estimated at approximately $200 billion at the end of 2001, according to industry research. This market is growing as the aging of the baby boomer population has led to an increase in the percentage of food eaten away from home from 25% in 1955 to 46% in 2002, which percentage is expected to grow to 53% by 2010. Industry sources estimate that the quick casual segment of the market is currently $5.2 billion, and it is expected to grow to approximately $11 billion by 2006.

        We believe that quick casual is one of the most rapidly growing segments of the restaurant industry. We believe the growth in this segment is driven by the aging baby boomer population, which has resulted in the creation of a more sophisticated, more demanding customer base willing to pay for (i) higher quality, fresh, made-to-order foods, (ii) a pleasant environment serving as a neighborhood gathering place and (iii) higher quality, speedy service in a convenient location.

Business Strengths

        Proven Business Model.    Our emphasis on expansion of our dayparts and increasing the breadth of our menu offerings has resulted in attractive and improving unit economics. We have generated positive comparable store sales in our company-operated locations for thirteen of the past fourteen quarters ended December 31, 2002, including a 1.9% increase in 2002. We have increased average revenues per

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location for our Einstein Bros. brand, which is at the core of our growth strategy, from $717,000 in 1998 to $808,000 in 2002, representing a CAGR of 3%. At the same time, our emphasis on increased profitability and cost reductions has resulted in improved earnings. From 2000 through 2002, we have increased our pro forma adjusted EBITDA on a combined basis from $35.1 million to $46.4 million, representing a CAGR of 15%.

        Diversifed Product Offering, Multiple Dayparts.    Our brands have expanded dramatically beyond their initial core focus on breakfast items, and generate significant customer traffic throughout the day. Our 2002 daypart mix is approximately 39% breakfast, 27% lunch and 34% chill-out (the time between breakfast and lunch and after lunch when customers visit our locations to take a break from their daily activities). The growth of our after-breakfast dayparts is attibutable in part to the expansion of our menu offerings, including sandwiches on a variety of breads, salads, sweets and premium coffees and other café beverages.

        Strong Brand Awareness and Consumer Loyalty.    We have developed strong brand awareness and consumer loyalty with limited advertising. According to an independent study commissioned by us, 93% of trade area consumers are aware of Einstein Bros., while only 48% are aware of our advertising. In this study, our consumers stated that we exceed their expectations in high-quality food offerings, menu variety and convenience. Our frequency numbers are high and increasing. Specifically, Einstein Bros.' frequency has increased from 5.8 visits per customer per month in 1997 to 7.1 visits in 2001.

        Significant Licensing Partners.    We have an attractive platform for growth through licensing. We launched our Einstein Bros. and Noah's licensing program in April 2001 and have since signed Aramark and Sodexho to develop our brands on university and college campuses and in hospitals and corporate settings. We have also signed Concessions Intl., Inc. to develop our brand at airport locations. In addition to those large national license operators, we have added other regional operators to further increase our licensed locations base. Our licensing partners on a combined basis service over 60,000 food service outlets. As of December 31, 2002, we had 26 locations open under our licensing program and nine locations in development.

        Large Franchise Infrastructure.    We have a substantial franchise base in our Manhattan and Chesapeake brands that generates a recurring revenue stream through fee and royalty payments. Our current franchise agreements typically provide for a ten-year term, a $25,000 initial franchise fee, a 5% royalty and a marketing fund contribution of 2.5%. Our franchise base provides us with the ability to grow our brands with a minimal capital commitment by us.

        Incremental Profits from Manufacturing.    We have production facilities that generate stable manufacturing income with solid margins, which makes our business model more profitable than competitors that rely on store income alone. Generally, our franchise locations are required by contract to purchase proprietary products (including dough and coffee) from us, generating a built-in customer base for our manufacturing operations. In addition, centralized production provides systemwide quality control and product consistency and the ability to efficiently introduce new products.

        Proven Management Team.    We have an experienced management team at the executive, regional and store levels, which we believe will lead to the successful execution of our business strategy. Our management has a track record of success in developing and operating substantial company-operated, franchised and licensed restaurant businesses, and in making acquisitions and integrating such acquired businesses to yield significant improvements in EBITDA.

Substantial Equity Investment.    Institutional private equity firms have invested $75.0 million in our business. Our current sponsors include Halpern Denny and Greenlight.

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Business Strategy

        Increase Sales Through Daypart Expansion.    We intend to grow our business by continuing to focus on expanding our dayparts. We believe we have an attractive opportunity to grow our lunch daypart to take advantage of the largest segment of the restaurant industry. Specifically, in 2002, we launched product initiatives to expand our selection of gourmet sandwiches, introduce hot lunch offerings and broaden our selection of desserts and premium beverages. We also launched additional service initiatives to improve location-level through-put and speed of service. We are introducing marketing initiatives to increase frequency, build check average and enhance reach.

        Provide a Menu Offering of High-Quality, Flavorful Foods and Beverages.    Our research indicates that our customers are drawn to our Einstein Bros. brand due to its superior food quality and extensive selection of flavorful food and beverage items. We offer a broad menu of fresh baked goods, made-to-order sandwiches, crisp salads, flavorful soups and decadent desserts. Our beverage menu features a full line of premium coffee and café beverages. Our signature products are prepared in front of customers using fresh ingredients, which makes a significant quality statement to our guests. We maintain a pipeline of new menu offerings that are systematically introduced in order to keep our menu relevant to consumers in each daypart.

        Utilize Effective and Efficient Marketing.    We are developing new and enhanced advertising campaigns for each of our brands. In particular, a new marketing strategy designed to further enhance Einstein Bros.' lunch business was launched in mid-2002 and will be expanded in 2003. In three Einstein Bros. markets, we utilized television advertising featuring the concepts of superior food quality and quick casual positioning. Sales at Einstein Bros. locations in markets in which we utilized television advertising were approximately 5% to 10% higher than sales generated at locations in other markets. Based on these results, we intend to utilize television advertising in 2003 in several additional Einstein Bros. markets where there is sufficient unit concentration to justify the expense of television advertising.

        Pursue Disciplined Portfolio Growth.    We have a significant opportunity to add new company-operated Einstein Bros. locations in both existing markets to realize additional operating and marketing efficiencies, leverage existing brand awareness and enhance customer convenience, and in new markets, including the approximately 20 states in which the Einstein Bros. concept does not currently have a presence. We added three new Einstein Bros. company-operated locations during the first quarter of 2003 and intend to open an additional 10 locations throughout 2003. We have a strong platform for growth through franchising and licensing as a result of our strong unit economics and solid positioning within the quick casual restaurant segment. We expect to launch our Einstein Bros. franchising effort in the second half of 2003. We grew our licensed locations to 27 at the end of the first quarter of 2003 and intend to open approximately 25 licensed locations in 2003. By growing our portfolio with experienced, well capitalized operators, we expect to continue to build our leadership position in the quick casual segment of the restaurant industry.

        Develop Alternative Retail Channels.    We believe we have substantial opportunities to develop multiple sales channels outside of our traditional locations. These alternative retail sales channels can generate incremental sales, enhance our brands' visibility and improve customer convenience. In particular, in-store bakeries are increasingly seeking to outsource production of bread and bagels. We have established a vendor partnership with Costco and recently entered into a similar arrangement with SuperTarget, pursuant to which we sell Einstein Bros. products through approximately 300 Costco and 100 SuperTarget stores, respectively. We expect to attract additional alternative retail customers based on Einstein Bros.' substantial brand equity and superior food quality and freshness.

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Restaurant Operations

        We operate, franchise or license 739 locations as of July 1, 2003 under our Einstein Bros., Noah's, Manhattan, Chesapeake, New World Coffee and Willoughby's Coffee & Tea brands. We expect to grow our restaurant operations primarily through our Einstein Bros. brand.

        Einstein Bros.    As of July 1, 2003, there were 371 company-operated and 24 licensed Einstein Bros. locations in 42 Designated Marketing Areas ("DMAs") nationwide. The average Einstein Bros.' location is approximately 2,200 square feet in size with approximately 40 seats and is located in a neighborhood or regional shopping center. We use sophisticated fixtures and materials in the brand's design to create a store environment that is consumer friendly, inviting and reflective of the brand's personality and strong neighborhood identity, and which visually reinforces the distinctive difference between the brand's quick casual positioning and that of quick service restaurants. Einstein Bros.' menu specializes in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on breads such as challah, hearty soups, innovative salads, desserts, five fresh-brewed premium coffees daily and other café beverages. The Einstein Bros. brand generated approximately 78% of our 2002 revenues.

        Noah's New York Bagels.    As of July 1, 2003, there were 83 company-operated and three licensed Noah's locations in six DMAs on the West Coast. The average Noah's location is approximately 1,800 square feet in size with approximately 12 seats, and is located in urban neighborhoods or regional shopping centers. We use elaborate tile work and wood accents in the brand's design to create an environment whimsically reminiscent of a Lower East Side New York deli, which reinforces the brand's urban focus with an emphasis on the authenticity of a New York deli experience. Noah's menu specializes in high-quality foods for breakfast and lunch, including fresh baked goods, made to order deli style sandwiches, including such favorites as pastrami, corned beef and roast beef piled high on fresh breads baked on location daily, hearty soups, innovative salads, desserts, five fresh-brewed premium coffees daily and other café beverages. The Noah's brand generated approximately 16% of our 2002 revenues.

        Manhattan Bagel/Chesapeake Bagel Bakery.    As of July 1, 2003, there were 192 franchised Manhattan locations in 37 DMAs nationwide and 46 franchised Chesapeake locations, most of which are in five DMAs on the East Coast. The average Manhattan and Chesapeake location is approximately 1,400 to 2,400 square feet with 24 to 50 seats and is primarily located in urban neighborhoods or regional shopping centers. Manhattan and Chesapeake stores are designed to combine the authentic atmosphere of a bagel bakery with the comfortable setting of a neighborhood meeting place. The locations offer over 20 varieties of fresh baked bagels, as well as bagel sticks and bialys and up to 15 flavors of cream cheese, an extensive variety of breakfast and lunch sandwiches, salads, soups, coffees and café beverages, soft drinks and desserts. The Manhattan and Chesapeake brands generated approximately 4% of our 2002 revenues. Manhattan and Chesapeake revenues are comprised of manufacturing revenues (primarily sales of dough and coffee to franchisees), royalty payments and fees.

        New World Coffee/Willoughby's Coffee & Tea.    As of July 1, 2003, there were eight company-operated and 11 franchised New World Coffee and Willoughby's Coffee & Tea locations in five DMAs in the northeastern United States. The locations are designed using natural materials and warm lighting to create the comfortable atmosphere of an inviting neighborhood café. The locations offer up to 30 varieties and blends of fresh roasted coffee, in brewed and whole bean format, a broad range of Italian-style beverages, such as espresso, cappuccino, café latte, café mocha and espresso machiato, along with an extensive variety of primarily breakfast and dessert items meant to complement the beverage offerings. The New World Coffee/Willoughby's brands generated approximately 2% of our 2002 revenues. New World Coffee/Willoughby's revenues are primarily comprised of company-operated location sales, manufacturing revenues, royalty payments and fees.

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Sourcing, Manufacturing & Distribution

        We believe that controlling the manufacture and distribution of our key products are important elements in ensuring both quality and profitability. To support this strategy, we have developed proprietary formulations, invested in processing technology and manufacturing capacity, and aligned ourselves with strategic suppliers.

        Dough Production.    We have significant know-how and technical expertise for manufacturing and freezing mass quantities of raw dough to produce a high-quality product more commonly associated with smaller bakeries. We believe this system enables locations to provide consumers with a variety of consistent, superior products. We currently operate a dough manufacturing facility in Whittier, CA and have a supply contract with Harlan Bakery in Avon, IN that produces dough to our specifications for part of the Einstein Bros. brand. We have recently increased the production of our Whittier facility and now supply our Fort Worth and Denver hubs, which were previously supplied by Harlan. We also expanded the Whittier facility, which enables us to supply our West Coast Manhattan locations. We recently closed our duplicative Los Angeles facility and consolidated our Eatontown production into Harlan.

        Coffee Production.    We purchase only the highest quality grades of Arabica coffee available from the best crops and make purchase commitments on the basis of quality, taste and availability. We have long-standing relationships with coffee brokers, allowing us access to the world's best green coffees. Our roasting processes vary based upon the variety, origin and physical characteristics of the coffee and are designed to develop the optimal flavor and aromatics of each coffee.

        Distribution.    We currently utilize a network of large regional custom distributors to distribute frozen dough and other materials to our locations. By contracting with distributors, we are able to eliminate investment in distribution systems and to focus our managerial and financial resources on cost savings, quality control and production efficiencies. The distributors pick up frozen dough throughout the week from the plants and deliver to our locations. Virtually all other supplies for retail operations, including cream cheese, paper goods and meats are contracted for by us and delivered by the vendors to our distributors for delivery to the locations. The individual locations order directly from the distributors one to three times per week.

Site Selection

        We have completed a detailed site selection and trade area analysis of the entire United States. Our extensive site selection process focuses on identifying markets, trade areas and specific sites based on several factors, including visibility, ready accessibility (particularly for morning and lunch time traffic), parking, signage and adaptability of any current structures. We then determine the availability of the site and the related costs. Our site and selection strategy emphasizes co-tenant out parcel, end-cap and in-line locations in neighborhood shopping centers and power centers with easy access from high-traffic roads.

Marketing

        Our marketing programs generally target specific markets and regions, making extensive use of local promotional media. Local marketing efforts may include print advertising and radio and television promotions. In mid-2002, we conducted a marketing test utilizing television advertising in three Einstein Bros. markets, which produced dramatic results in driving traffic and, more importantly, in customer retention (measured by sales trends post-advertising). The television advertising led to a 9.1% average sales increase during the advertising period, significantly higher than the 1.7% average sales increase trend pre-advertising. In addition, the test markets experienced a 9.0% sales increase for a four-month period following the conclusion of the advertising campaign in mid-August. Based on these

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strong results, we implemented television advertising programs in six additional Einstein Bros. markets in September 2002. These markets also experienced sales increases, averaging approximately 7% to 8% during the advertising period. As a result of these successful tests, we intend to shift a higher proportion of Einstein Bros.' marketing resources to television advertising in 2003.

        Company-operated and franchised locations are generally required to purchase local advertising and to contribute to the respective brand's marketing fund, which provides the locations with marketing support, including in-store point of purchase and promotional materials. Print and other mass media advertising is utilized to increase consumer interest and build sales.

Franchise and Licensing Programs

        We began our licensing program for our Einstein Bros. brand in April 2001. We have since entered into licensing agreements with Aramark and Sodexho to develop university and college campus locations and other locations. As of December 31, 2002, we had 26 licensed locations open and expect to add 25 licensed locations by the end of 2003. We have also entered into a license agreement with Concessions Intl., Inc. to develop our brand at airport locations. Our first location under such agreement opened at Detroit Metro Airport in the first quarter of 2002. The licensing program typically requires the payment of an upfront license fee of $12,500 and continuing royalties of 7.5% of sales from each location. The licensees are required to buy all their proprietary products from sources approved by us.

        We have a substantial franchise base primarily in our Manhattan and Chesapeake brands that generates a recurring revenue stream through fee and royalty payments. Our franchise base provides us with the ability to grow our brands with a minimal commitment of capital by us, and creates a built-in customer base for our manufacturing operations. We expect to launch our Einstein Bros. franchising effort in the second half of 2003. Our strategy is to seek a limited number of experienced, well-capitalized franchise partners who would pay a non-refundable fee and commit to developing a substantial number of locations on an agreed upon development schedule, which would allow for growth in a controlled and disciplined manner. In the event the development schedule is not adhered to, the franchise partner will lose development exclusivity in the territory. We may, from time to time, sell company-operated locations to franchisees to seed franchise territories.

Management Information Systems

        Each company-operated location has computerized cash registers to collect point-of-sale transaction data, which is used to generate pertinent marketing information, including product mix and average check. All product prices are programmed into the system from our corporate office.

        Our in-store personal computer-based management support system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data and to reduce store managers' administrative time. The system supplies sales, bank deposit and variance data to our accounting department on a daily basis. We use this data to generate daily sales information and weekly consolidated reports regarding sales and other key measures, as well as preliminary weekly detailed profit and loss statements for each location with final reports following the end of each fiscal period.

Trademarks and Service Marks

        Our rights in our trademarks and service marks ("Marks") are a significant part of our business. We are the owners of the federal registration of the "Einstein Bros.", "Noah's New York Bagels", "Manhattan Bagel", "Chesapeake Bagel Bakery" and "New World Coffee" Marks. Some of our Marks are also registered in several foreign countries. We are aware of a number of companies that use various combinations of words in our Marks, some of which may have senior rights to ours for such

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use, but none of which, either individually or in the aggregate, are considered to materially impair the use of our Marks. It is our policy to defend our Marks and the associated goodwill from encroachment by others. The Marks listed above represent the brands of the retail outlets that we own. We also own numerous other Marks related to our business.

Competition

        The restaurant industry is intensely competitive, and there are many well-established competitors with substantially greater financial and other resources. We currently compete in the quick casual segment with Panera Bread Company, and to a lesser extent with smaller regional chains such as Corner Bakery, Cosi and Potbelly Sandwich Works. We also compete within each market with other national and regional chains as well as locally-owned restaurants, not only for consumers, but also for management and hourly personnel, suitable real estate sites and qualified franchisees. In addition to our current competitors, one or more new major competitors with substantially greater financial, marketing and operating resources could enter the markets in which we currently operate or intend to expand at any time and compete directly against us. We believe that our consumers choose among restaurants primarily on the basis of product quality, service, location, environment and convenience and, to a lesser extent, on price.

Government Regulation

        Each of our locations is subject to licensing and regulation by a number of governmental authorities, which include health, safety, sanitation, building and fire agencies in the state or municipality in which the store is located. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of locations for an indeterminate period of time or third-party litigation. Our manufacturing, commissary and distribution facilities are licensed and subject to regulation by either federal, state or local health and fire codes, and the operation of our trucks are subject to Department of Transportation regulations. We are also subject to federal and state environmental regulations.

        Our franchise operations are subject to Federal Trade Commission regulation and various state laws, which regulate the offer and sale of franchises. Several state laws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires us to furnish to prospective franchisees a franchise offering circular containing prescribed information. A number of states in which we might consider franchising also regulate the sale of franchises and require registration of the franchise offering circular with state authorities.

Properties

        As of July 1, 2003, we and our franchisees and licensees operated 739 locations as follows:

State	Company-Operated	Franchised/Licensed	Total
Alabama	—	2	2
Arizona	22	2	24
California	90	20	110
Colorado	28	2	30
Connecticut	5	4	9
Delaware	2	4	6
District of Columbia	1	6	7
Florida	48	26	74
Georgia	13	8	21
Illinois	35	2	37
Indiana	11	1	12
Kansas	11	—	11
Maryland	12	10	22
Massachusetts	4	2	6
Michigan	18	3	21

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Minnesota		10	2	12
Missouri		16	1	17
Nevada		9	2	11
New Hampshire		1	—	1
New Jersey		5	50	55
New Mexico		5	—	5
New York		5	26	31
North Carolina		2	13	15
Ohio		13	2	15
Oregon		6	1	7
Pennsylvania		15	47	62
South Carolina		—	4	4
Texas		24	5	29
Utah		20	—	20
Virginia		14	29	43
Washington		5	—	5
West Virginia		—	1	1
Wisconsin		12	2	14
	Total	462	277	739

        Information with respect to our headquarters, training and production facilities is presented below:

Location	Facility	Size
Golden, CO(1)	Headquarters, Support Center, Test Bakery	46,800 sq. ft.
Hamilton, NJ(2)	Headquarters, Support/Training Center	13,300 sq. ft.
Eatontown, NJ(3)	Former Headquarters, Support/Training Center, Production Facility	101,000 sq. ft.
Whittier, CA(4)	Production Facility	54,640 sq. ft.
Los Angeles, CA(5)	Production Facility	24,000 sq. ft.
Branford, CT(6)	Office, Retail and Production, Storage	8,100 sq. ft.
Walnut Creek, CA(7)	Administrative Office—Noah's	3,300 sq. ft.

(1)

This facility is leased through May 31, 2007.

(2)

This facility is leased through October 31, 2005.

(3)

This facility is leased. Lease term ends January 31, 2005. This facility is not currently in operation.

(4)

This facility is leased with an initial lease term through November 30, 2005 with two five-year extension options.

(5)

This facility is leased, with an initial lease term through April 30, 2007 and two five-year extension options.

(6)

This facility is leased through December 31, 2003.

(7)

This facility is leased through February 28, 2005.

Employees

        At July 1, 2003, we had 7,780 employees, of whom 7,491 were store personnel, 84 were plant and support services personnel, and 205 were corporate personnel. Most store personnel work part-time and are paid on an hourly basis. We have never experienced a work stoppage and our employees are not represented by a labor organization. We believe that our employee relations are good.

Legal Proceedings

        We are subject to claims and legal actions in the ordinary course of our business, including claims by our franchisees. We do not believe that an adverse outcome in any currently pending or threatened matter, other than described below, would have a material adverse effect on our business, results of operations or financial condition.

        On April 3, 2002, we were notified by the Securities and Exchange Commission that the Commission is conducting an investigation into the resignation of our former Chairman, R. Ramin Kamfar, the termination for cause of our former Chief Financial Officer, Jerold Novack, and the delay in filing our Form 10-K for 2001. We are cooperating fully with the investigation. We are also

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cooperating fully with a recent Department of Justice inquiry relating to these issues. Further, several of our former and present officers and directors have requested that we advance reasonable legal expenses on their respective behalves to the extent any of them is or has been requested to provide information to the Commission in connection with its investigation. We are fulfilling our obligations as required by applicable law and our By-Laws.

        On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a purported class action complaint against Einstein in the Superior Court for the State of California, County of San Francisco. The plaintiffs allege that Noah's failed to pay overtime wages to managers and assistant managers of its California stores, whom it is alleged were improperly designated as exempt employees in violation of California and Business Profession Code Section 17200. As a result of subsequent communications regarding the circumstances under which we purchased Einstein out of bankruptcy, the plaintiffs filed a first amended complaint disclaiming back wages for the period prior to June 19, 2001. However, the first amended complaint added as defendants certain former directors and officers of Einstein. The first amended complaint also added a second cause of action seeking to invalidate releases obtained from Noah's assistant managers pursuant to the settlement of a Department of Labor investigation. We filed a demurrer to the first amended complaint, which the plaintiffs opposed. Subsequent to the filing of that demurrer, we procured a dismissal without prejudice of the claims brought against Paul Murphy, the only individual defendant we employed subsequent to our acquisition of Einstein. The plaintiffs subsequently stipulated to the severance of the claims against us and those against the remaining individual defendants. The stipulation provides that the plaintiffs will file separate second amended complaints against us and against the remaining individual defendants. As a result, the demurrer was taken off the calendar. On or about July 2, 2003, plaintiffs filed a second amended complaint. The second amended complaint contains the same claims as the first amended complaint, but only as to Einstein and Noah Corporation. We timely filed a demurrer, which is set for hearing on October 1, 2003. The plaintiffs have propounded written discovery to us, to which we have provided responses and objections. A case management conference is currently set for October 31, 2003.

        On March 31, 2003, Jerold E. Novack, our former Chief Financial Officer, Secretary, and shareholder, filed a complaint in the United States District Court for the District of New Jersey against us, Anthony D. Wedo, our Chairman and Chief Executive Officer, and William J. Nimmo, a former member of our Board of Directors. The complaint purports to state claims for breach of plaintiff's employment contract with us, breach of our fiduciary duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee Protection Act, and in addition seeks a declaration that our termination of plaintiff "for cause" was invalid. As a basis for his purported claims, the plaintiff alleges that we wrongfully contended certain bonuses he received were unauthorized and that he was wrongfully terminated for cause in order to deny him certain other benefits allegedly owed under his employment agreement. Furthermore, the plaintiff asserts that he was defamed by certain of defendants' public statements regarding his dismissal and also that his termination was in retaliation for certain actions he believes were protected by the New Jersey Conscientious Employee Protection Act. We intend to vigorously oppose plaintiff's purported claims. We were served with the complaint on May 2, 2003. On June 23, 2003, we filed our answer and counterclaims as well as a motion to dismiss certain of the claims against us. That motion remains pending with the court.

        On June 4, 2003, Ramin Kamfar, our former Chairman of the Board and Chief Executive Officer, filed an action in the United States District Court for the Southern District of New York against us and Anthony Wedo, our current Chief Executive Officer, alleging causes of action for breach of contract, defamation, declaratory relief and punitive damages. In this action, Mr. Kamfar alleges that we breached confidentiality and non-disparagement provisions in his separation agreement with us by disclosing certain financial and other terms contained therein. Mr. Kamfar is seeking damages of at least $7.0 million. On September 9, 2003, we and Mr. Wedo answered Mr. Kamfar's complaint and

58

asserted affirmative defenses, and we filed various counterclaims against Mr. Kamfar, including claims for breach of fiduciary duty, fraud and breach of contract. We believe that the claims of Mr. Kamfar are without merit, and we intend to vigorously defend ourself and Mr. Wedo in this matter.

        In July 2002, the New Jersey Division of Taxation entered judgment in the amount of $5,744,902, plus costs, against Manhattan Bagel Construction Company, a wholly owned subsidiary of Manhattan Bagel Company. This judgment represents amounts for corporate income taxes for the period from 1996 to 2000 and sales and use taxes for the period from 1995 to 1997. At that same time, the New Jersey Division of Taxation provided Manhattan Bagel Construction Company with a Notice and Demand for Payment of Tax in the additional amount of $130,200 for corporate income taxes and sales and use taxes for the period from October 2001 through June 2002. Manhattan Bagel Construction Company ceased operations in or about early 1997 and has existed since that time only as a non-operating entity with no assets. Therefore, we are currently working with the New Jersey Division of Taxation to have all tax assessments for the period after Manhattan Bagel Construction Company ceased operations removed and that portion of the judgment deemed satisfied. With regard to taxes imposed for the period prior to early 1997, we believe those amounts are barred from being asserted against Manhattan Bagel Company, to the extent they otherwise could have been, because they were not asserted in Manhattan Bagel Company's November 1997 bankruptcy proceeding.

        On February 23, 2000, New World Coffee of Forest Hills, Inc., one of our franchisees, filed a demand for arbitration with the American Arbitration Association (American Arbitration Association, New York, New York, Case No. 13-114-237-00) against us alleging fraudulent inducement and violations of New York General Business Law Article 33. The franchisee seeks damages in the amount of $750,000. We have asserted a counterclaim in the arbitration seeking amounts owed under the franchisee's franchise agreement and monies owed for goods purchased by the franchisee in the amount of $200,000. An arbitrator has been selected and document exchange is complete. Hearings were scheduled for June 2002 but have been postponed by order of the arbitrator. No new hearing dates have been set.

        On October 28, 2002, Sansim Patel, Inc., a subfranchisee of Manhattan Bagel Company, filed suit against Manhattan Bagel Company, the master franchisee, and others in Orange County (Orlando, Florida). The plaintiff alleges claims of civil conspiracy and unjust enrichment against Manhattan Bagel Company and seeks rescission of its franchise agreement with Manhattan Bagel Company. The plaintiff also seeks damages in an unspecified amount. In December 2002, we filed a motion to dismiss all of the claims asserted against us by the plaintiff, based in part on a general release the plaintiff had previously executed in favor of Manhattan Bagel Company. That motion remains pending with the Court. However, on March 18, 2003, default judgments were obtained against the other named defendants.

        On March 17, 2003, Jason and Andrew Gennusa, former employees of the Company and founders of Manhattan Bagel Company filed suit against us in the Superior Court of New Jersey, Monmouth County. As the founders of Manhattan Bagel Company, the plaintiffs claim to be reproducing the "original formula" Manhattan bagel dough and selling it to franchisees at a competitive price. Their complaint seeks a judgment declaring that their production and sale of this bagel dough to franchisees does not violate various non-competition covenants and confidentiality agreements they previously entered into with us. Furthermore, the plaintiffs seek a declaration that the "original recipe" bagel dough they manufacture is not a trade secret of the Company, and that their manufacture and sale of the dough is not in violation of intellectual property law. We answered plaintiff's complaint on May 14, 2003, and filed counterclaims and a motion for preliminary injunction on June 2, 2003. On July 22, 2003, we announced that this lawsuit had been settled. As part of the settlement, the plaintiffs acknowledged that Manhattan Bagel franchisees are obligated under their franchise agreements to purchase frozen bagel dough only from suppliers approved by Manhattan Bagel Corp. and New World

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and withdrew their request for an injunction that would have allowed such franchisees to purchase frozen dough from unapproved outside suppliers.

        On June 2, 2003, a group of four Manhattan Bagel franchisees filed a lawsuit captioned Kaufman et. al. v. New World Restaurant Group, Inc. in the Superior Court of New Jersey, Chancery Division, Monmouth County. In their complaint, plaintiffs allege that since we closed our Eatontown, New Jersey baking facility and began contracting with Harlan Bakeries, the quality of its bagels has suffered. As a result of this alleged decline in bagel quality, plaintiffs claim that they will lose bagel sales and customer goodwill if they continue to purchase their bagels from Harlan Bakeries in accordance with the terms of their franchise agreements. Alleging claims for breach of contract, consumer fraud, contructive termination of the franchise agreement, and violation of the New Jersey Franchise Practices Act, plaintiffs seek a judgment permitting their purchase of "New York style" bagels from any third-party supplier, enjoining our termination of their franchise agreements because of their purchase of such non-approved bagels, and awarding to plaintiffs damages in an unspecified amount. In July 2003, the plaintiffs voluntarily withdrew their claims with prejudice. Settlement agreements are awaiting execution.

        On April 7, 2003, General Electric Capital Corp. filed an action in the Supreme Court for the State of New York, County of New York, against us and our franchisee, captioned General Electric Capital Corp. v. New World Coffee/Manhattan Bagels, Inc. et al. In its complaint, plaintiff asserts that it entered into certain equipment lease agreements with us on April 18, 2001 and with the franchisee on February 26, 2001, upon which we subsequently defaulted. As a result of those alleged defaults, plaintiff purports to state claims against us and our franchise for breach of contract, conversion, unjust enrichment, foreclosure of security interest, and replevin, and demands damages from us, jointly and severally, in the total specified amount of $118,555.49, plus late charges, taxes, interest, costs and attorneys' fees. We served an answer to plaintiff's complaint on May 14, 2003. The plaintiff has since dismissed all claims against us.

        On December 28, 2001, Robert Higgs, one of our franchisees, filed a complaint against us and our officers and agents in New Jersey (Superior Court of New Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and business opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a new complaint against us and our officers and agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and business opportunities, and violations of New Jersey's franchise law. The franchisee seeks damages in an unspecified amount, punitive damages, costs and attorneys' fees. We moved to dismiss all of the claims in the new complaint. The court dismissed the breach of fiduciary duty claims and one of the breach of contract claims. The matter has since been settled with our payment of $40,000, and on August 10, 2003, a stipulation of settlement was filed with the Court.

        On August 7, 2003, we received a subpoena for documents from the Office of the Attorney General of the State of New York. The subpoena primarily requests information bearing upon whether a net worth exemption from franchise registration, which was granted to us in April 2000 pursuant to the New York Franchise Act, Article 33 of New York's General Business Law, remains valid. We are cooperating fully with the Attorney General's requests under the subpoena, and have made an initial production of many of the documents requested. We anticipate producing additional responsive documents in the near future.

        Given the early stage of these matters, we cannot predict their outcome, and we cannot assure you that we will not be subject to regulatory sanctions, civil penalties and/or claims for monetary damages and other relief that may have a material adverse effect on our business, prospects and financial condition.

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        Special Situations Fund, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, "Special Situations"), holders of our Series F preferred stock, had notified us that they believe that material misrepresentations were made to them in June 2001 in connection with their purchase of our stock. Special Situations filed a complaint in the United States District Court for the Southern District of New York regarding this claim. Special Situations alleged various contractual and tort claims against us, as well as Ramin Kamfar, the former Chairman of the Board of Directors, Jerold Novack, the former Chief Financial Officer, and Greenlight Capital, another holder of our Series F preferred stock. Special Situations sought, among other relief, damages in the amount of at least $5,166,000 and the equitable remedy of rescission of its purchase of stock. Prior to responding to Special Situations' complaint, we and Special Situations entered into a settlement agreement and release on April 29, 2003, pursuant to which we agreed to settle Special Situations' claims against us and our present and former officers, directors, agents and other representatives and Special Situations agreed to release those entities and individuals, in exchange for our payment to Special Situations of $176,000. A Notice of Voluntary Withdrawal was filed by Special Situations with the United States District Court for the Southern District of New York on May 5, 2003.

        On February 28, 2003, our former insurance broker of record filed suit in the Superior Court of the State of California, County of Orange, against us and our subsidiaries, alleging wrongful termination of our brokerage contract with plaintiff, Pension & Benefit Insurance Services, Inc. ("PBIS"), which deprived PBIS of brokerage commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services, intentional interference with prospective advantage and negligent interference with prospective advantage. Plaintiff seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, we entered into a settlement agreement with PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, we agreed to list PBIS as our insurance broker of record until at least the end of 2003. A Request for Dismissal of the suit was filed by PBIS with the Superior Court of the State of California, County of Orange on April 9, 2003.

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MANAGEMENT

Executive Officers, Directors and Key Employees

        Set forth below is certain information with respect to our executive officers, key employees and directors:

Name	Age	Position
Anthony D. Wedo(1)(2)(3)	44	Chairman, Chief Executive Officer and Director
Paul J.B. Murphy III	48	Chief Operating Officer
Susan E. Daggett	42	Chief Supply Officer
Charles Gibson	40	Chief Development Officer
Richard R. Lovely	43	Chief Personnel Officer
Edward McPherson	48	Chief Marketing Officer
Josh Clark(2)(4)(5)	30	Director
Leonard Tannenbaum(3)(4)(5)	31	Director

(1)

Member of Executive Officer Search Committee.

(2)

Member of Independent Director Search Committee.

(3)

Member of the Investigative Committee.

(4)

Member of Audit Committee.

(5)

Member of Compensation Committee.

        Anthony D. Wedo.    Mr. Wedo joined us as Chief Executive Officer in July 2001 and was appointed a director in August 2001. Mr. Wedo was appointed Chairman in April 2002. From 1998 to July 2001, Mr. Wedo served as the Chief Executive Officer and Managing Partner of Atlantic Restaurant Group, a venture group focused on acquiring high-growth restaurant concepts. From 1994 through 1997, he served as President and Chief Executive Officer of Mid-Atlantic Restaurant Systems, a Boston Market franchisee. From 1987 through 1993, Mr. Wedo was employed by Pepsico Inc.'s KFC division, most recently as a Divisional Vice President in charge of a 1,200 store territory. Mr. Wedo has a B.S. degree in Marketing and Finance from Pennsylvania State University.

        Paul J.B. Murphy III.    Mr. Murphy joined us in December 1997 as Senior Vice President—Operations and had served as Executive Vice President—Operations since March 1998. Mr. Murphy was appointed our Chief Operating Officer in June 2002. From July 1996 until December 1997, Mr. Murphy was Chief Operating Officer of one of our former area developers. From August 1992 until July 1996, Mr. Murphy was Director of Operations of R&A Foods, L.L.C., an area developer of Boston Chicken. Mr. Murphy has a B.A. degree from Washington and Lee University.

        Susan E. Daggett.    Ms. Daggett joined us in 1995 as Director, Operations Finance, and was subsequently promoted to V.P., Operations Finance, then to V.P. and Controller. In May 1998, she moved into our purchasing and distribution areas, serving as V.P., Purchasing and later as V.P., Supply Chain, before becoming our Chief Supply Officer in May 2002. Prior to joining us, Ms. Daggett served as Director, Financial Planning and Reporting at Arby's Inc., and as Director, Financial Planning and Analysis with Burger King. A Certified Public Accountant, Ms. Daggett began her career at Ernst & Whinney. She has a B.A. degree in Business Administration from the University of Northern Iowa.

        Charles Gibson.    Mr. Gibson joined us in September 2000, as Chief Development Officer. From August 1997 to September 2000, Mr. Gibson served as Vice President Real Estate/Market Planning for CSK Auto, Inc., an after-market auto parts dealer. From 1988 through 1997, Mr. Gibson was with PepsiCo Inc., most recently as Senior Director of Development supporting Pizza Hut, Inc. in real estate and construction management. Mr. Gibson received his undergraduate degree in Accounting from Eastern Kentucky University and has an M.B.A. from the University of North Texas.

        Richard R. Lovely.    Mr. Lovely joined us as Chief Personnel Officer in June 2002. From July 1995 through October 2001, Mr. Lovely was a Senior Vice President in Bank One Corporation's First USA

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Credit Card unit. He held the position of Senior Vice President, Partnership Marketing from August 2000 until October 2001. From July 1995 though August 2000, Mr. Lovely held senior human resources positions for First USA in Dallas, TX, Wilmington, DE, and the United Kingdom. Mr. Lovely has a J.D. degree from Georgetown University and a B.S. degree in Industrial and Labor Relations from Cornell University.

        Edward McPherson.    Mr. McPherson joined us as Chief Marketing Officer in September 2001. From September 2000 until September 2001, Mr. McPherson was President of iDd Media, a media and distribution company. From February 2000 until September 2000, Mr. McPherson was Senior Vice President and Chief Marketing Officer of Tacticity.com, a start-up retail/e-commerce technology firm. From September 1998 until February 2000, Mr. McPherson was Vice President—Marketing of Gateway, a computer company. From March 1989 until September 1998, Mr. McPherson held various positions with Pepsico Inc.'s KFC division, later Tri-Con Global's KFC division, a restaurant service company, most recently as a Vice President—Marketing. Mr. McPherson has a B.S. degree and an M.B.A. degree from Old Dominion University.

        Josh Clark.    Mr. Clark has served as our director since July 2003. Mr. Clark is an analyst at Greenlight Capital, Inc., an investment management firm and an affiliate of one of our principal stockholders. From April 1997 until August 2000, Mr. Clark ran GameSouth, a specialty vending company headquartered in Atlanta, which was founded by Mr. Clark. Prior to 1997, Mr. Clark spent one year at Prometheus Partners, a private equity firm, and one year at PricewaterhouseCoopers LLP. Mr. Clark received his undergraduate degree from the University of North Carolina at Chapel Hill and received an M.B.A. with distinction from Harvard Business School.

        Leonard Tannenbaum.    Mr. Tannenbaum, C.F.A., has served as our director since March 1999 and is the Managing Partner at MYFM Capital LLC, a boutique investment banking firm, and a partner at BET, a capital fund. From 1997 until 1999, Mr. Tannenbaum was a partner at LAR Management, a hedge fund. From 1996 until 1997, Mr. Tannenbaum was an assistant portfolio manager at Pilgrim Baxter and Co. From 1994 until 1996, Mr. Tannenbaum was an Assistant Vice President in the small company group of Merrill Lynch. Mr. Tannenbaum currently serves on the board of directors of Assisted Living Concepts, Inc., a company that owns and operates assisted living residences. Mr. Tannenbaum has an M.B.A in Finance and Bachelors of Science in Management from the Wharton School at the University of Pennsylvania.

        Our by-laws provide that our board of directors is divided into three classes, designated Class I, Class II and Class III. Class I and Class II are presently vacant. Anthony D. Wedo and Leonard Tannenbaum are Class III directors. Josh Clark is a Class I director.

        We are a party to the Stockholders Agreement among us, BET, Brookwood, Halpern Denny, Greenlight and certain of its affiliates. Pursuant to the terms of the Stockholders Agreement, BET and Brookwood were each entitled to designate one member to our board of directors, and Halpern Denny is entitled to designate two members to our board of directors. See "—Certain Relationships and Related Transactions." Halpern Denny has not designated any directors at this time. Pursuant to the Stockholders Agreement, Leonard Tannenbaum was designated as a director. Mr. Tannenbaum was also elected to our board of directors by our stockholders. Upon the closing of the Equity Recap described in "Description of Capital Stock—Equity Recapitalization," the Stockholders Agreement will terminate.

Employment Agreements

        Anthony Wedo.    In July 2001, we entered into an employment agreement with Mr. Wedo, our Chief Executive Officer. Effective as of January 1, 2002, we entered into an amended and restated employment agreement with Mr. Wedo. The agreement expires on December 31, 2004, but is automatically renewed for additional one-year periods commencing each January 1, unless either party

63

gives written notice of its desire not to renew such term at least 90 days prior to the end of the term or any such renewal term. The agreement provides for a base salary of $565,000 per year. At the beginning of each year during the term of the employment agreement, Mr. Wedo's base salary will be subject to an annual review by our board of directors at the recommendation of the compensation committee. Mr. Wedo is entitled to an annual performance bonus of up to 150% of his base salary for such year. The amount of the bonus will be determined by the board of directors after review by the Compensation Committee and is based upon the achievement of predetermined individual and company goals during such period. For the period July 16, 2001 to July 31, 2002, the contract provides that Mr. Wedo will receive a guaranteed bonus of $187,500 payable in the amount of $46,875 on each of October 31, 2001, January 31, 2002, April 30, 2002 and July 31, 2002, which is considered a prepayment of the annual performance bonus described above. In addition, Mr. Wedo is entitled to a one-time bonus of $250,000 upon the consummation of an equity offering by the Company generating at least $25.0 million or $500,000 if the equity offering generates at least $50.0 million.

        In connection with entering into the amended and restated employment agreement, Mr. Wedo was granted options to purchase 6% of our outstanding Common Stock (including the Common Stock issuable upon exercise of outstanding options and warrants with an exercise price of $3.00 per share or less) as of December 6, 2002 for $0.26 per share. The options were granted subject to the approval of the stockholders of any necessary increase in the number of shares reserved for issuance pursuant to the 1994 Stock Plan. The options vest in one-third increments on each of December 31, 2002, December 31, 2003 and December 31, 2004.

        In the event that we terminate Mr. Wedo's employment other than for cause, he will be paid severance compensation equal to one times his annual base salary.

        Mr. Wedo has agreed that from the date of the employment agreement until the first anniversary of the termination of the employment agreement, he will not directly or indirectly, without our prior written consent, engage anywhere in the United States (whether as an employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in (except for ownership of 10% or less of any outstanding entity whose securities are listed on a national securities exchange), or participate in the financing, operation, management or control of any firm, corporation or business (other than us) that engages in the marketing or sale of specialty coffee, bagels and/or fast casual sandwiches as one of its principal businesses. In addition, Mr. Wedo has agreed that from the date of the employment agreement until the second anniversary of the termination of the employment agreement, he will not directly or indirectly, without our prior written consent, solicit the services, or cause to be employed, any person who was an employee of the Company at the date of such termination, or within six months prior to such time.

Executive Compensation

Summary Compensation Table

        The following table sets forth the total compensation awarded to, earned by or paid during our last three fiscal years to (i) our Chief Executive Officer, (ii) our other current executive officer, and (iii) one former executive officer during the year ended December 31, 2002 ("Named Executive Officers").

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SUMMARY COMPENSATION TABLE

		Annual Compensation								Long-Term Compensation
Name and Principal Position		Year	Salary ($)		Bonus ($)		Other Annual Compensation ($)			Restricted Stock Awards($)	Securities Underlying Options/SARs(#)
Anthony D. Wedo(1)		2002	$	560,154	$	234,391	$	18,000	(2)	—	5,040,242
	Chairman and Chief Executive Officer	2001	$	183,077	$	187,516	$	8,308	(2)	—	—	(3)
Paul J.B. Murphy III(4)		2002	$	320,192	$	150,000	$	—		—	—
	Chief Operating Officer	2001	$	161,538	$	187,516	$	—		—	—
R. Ramin Kamfar(5)		2002	$	92,308	$	300,000	$	58,270	(6)	—	—
	Former Chairman	2001	$	300,000	$	300,000	$	24,000	(2)(7)	—	—
		2000	$	300,000	$	305,000	$	24,000	(2)(7)	250,000	250,000

⁽¹⁾

We hired Mr. Wedo in July 2001.

⁽²⁾

Represents a car allowance for the respective individuals.

⁽³⁾

We were obligated to issue 3,077,035 options to Mr. Wedo under his original employment agreement. These options were never granted and in connection with his entering into an amended and restated employment agreement with us effective January 1, 2002, Mr. Wedo was granted options as of December 6, 2002 to purchase 5,040,242 shares of Common Stock under the amended and restated employment agreement.

⁽⁴⁾

Mr. Murphy became an officer in June 2001 connection with the Einstein Acquisition.

⁽⁵⁾

Effective April 1, 2002, Mr. Kamfar resigned as an officer and director. In connection with his departure from us, we permitted Mr. Kamfar to retain $1,445,000 previously paid to him, which amount is not included in the amounts set forth in the table. In addition, one-half of Mr. Kamfar's options were cancelled when his employment with us ended and the remainder terminated 90 days thereafter pursuant to their terms.

⁽⁶⁾

Represents payment for accrued vacation.

⁽⁷⁾

In addition to Mr. Kamfar's car allowance, he had the use of a car paid for by us (in 2001, beginning in August, Mr. Kamfar had the use of a second car paid for by us, the cost of which was reimbursed by us in 2002) and we reimbursed Mr. Kamfar for his garage expenses, tolls and car repairs. The cost of the cars and such reimbursed expenses are not included in the amounts set forth in the table.

Stock Option Grants in Last Fiscal Year

        Set forth below is information on grants of stock options for the Named Executive Officers for the year ended December 31, 2002. In addition, as required by Securities and Exchange Commission rules, the table sets forth hypothetical gains that would exist for the shares subject to such options based on assumed annual compounded rates of stock price appreciation during the option term.

OPTION GRANTS IN FISCAL 2002

							Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation for Option Term(1)
	Number of Securities Underlying Option Granted	Percentage of Total Options Granted to Employees in Fiscal Year
				Exercise Price ($ per Share)
						Expiration Date	5%(2)		10%(3)
Anthony D. Wedo	5,040,242	100	%	$	0.26	January 1, 2012	$	824,143	$	2,088,540
Paul J.B. Murphy III	—	—			—	—		—		—
R. Ramin Kamfar	—	—			—	—		—		—

⁽¹⁾

The potential realizable value illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their terms, assuming the specified compounded rates of appreciation of the market price per share from the date of grant to the end of the option term. Actual gains, if any, on stock option exercise are dependent upon a number of factors, including the future performance of the Common Stock and

65

the timing of option exercises, as well as the optionee's continued employment through the vesting period. The gains shown are net of the option exercise price, but do not include deductions for taxes and other expenses payable upon exercise of the option or for the sale of underlying shares of Common Stock. There can be no assurance that the amounts reflected in this table will be achieved.

⁽²⁾

Assumes 5% compounded rate of appreciation in the market price per share from the date of grant to the end of the option term.

⁽³⁾

Assumes 10% compounded rate of appreciation in the market price per share from the date of grant to the end of the option term.

Fiscal Year End Option Values

        During the fiscal year ended December 31, 2002, none of the Named Executive Officers exercised any stock options. Set forth below is information on the number of stock options held by the Named Executive Officers as of December 31, 2002. None of such stock options were in-the-money as of December 31, 2002.

FISCAL YEAR END OPTION VALUES

	Number of Securities Underlying Unexercised Options at Fiscal Year End (#)
	Exercisable	Unexercisable
Anthony D. Wedo	1,680,080	3,360,162
Paul J.B. Murphy	0	0
R. Ramin Kamfar(1)	0	0

⁽¹⁾

Effective April 1, 2002, Mr. Kamfar resigned as an officer and director. In connection with his departure from our Company, one-half of Mr. Kamfar's options were cancelled. The remainder of his options terminated 90 days thereafter pursuant to their terms.

Directors' Compensation

        Until June 20, 2002, each of our non-employee directors was paid $2,000 for each quarterly board meeting of each calendar year, $1,000 for each additional board meeting held in the same calendar year and $500 for each committee meeting. Such payments were made in shares of our Common Stock. Effective June 20, 2002, each of our non-employee directors receives a $15,000 annual retainer to be paid on January 1 of each year for services relating to the prior year, plus $2,000 for each quarterly board meeting, $1,000 for each additional board meeting held in the same calendar year and $500 for each committee meeting. Any director not attending at least 75% of all committee and board meetings held during the year shall not receive the annual retainer. In addition, Len Tannenbaum, as chairman of the Audit Committee and Compensation Committee will receive a fee of $25,000 per month from August 2003 through October 2003 for service in such capacities. Employee directors are not compensated for service provided as directors. Additionally, each non-employee director receives stock options to purchase 30,000 shares of our Common Stock on the date on which such person first becomes a director, and on October 1 of each year if, on such date, he or she shall have served on our board of directors for at least six months. The exercise price of such options is equal to the market value of the shares of Common Stock on the date of grant. All directors are reimbursed for out-of-pocket expenses incurred by them in connection with attendance of board meetings and committee meetings.

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Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of our Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such forms received by us, we believe that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners have been complied with for the fiscal year ended December 31, 2002, except for each of our executive officers and non-employee directors who failed to file a report on Form 5 to report exempt grants of stock and options.

Board of Directors and Committees

        The board of directors held twenty-three meetings during fiscal 2002 and took action by written consent on ten occasions. During fiscal 2002, no director then in office attended fewer than 75% of the aggregate total number of meetings of the board of directors held during the period in which he or she was a director and of the total number of meetings held by all of the committees of the board of directors on which he or she served. The five standing committees of the board of directors are an executive officer search committee, an independent director search committee, an investigative committee, an audit committee and a compensation committee.

Executive Officer Search Committee

        Anthony Wedo is the sole member of the executive officer search committee. This committee is responsible for the selection of potential executive officers, including a chief financial officer and general counsel. This committee was formed in August 2003.

Independent Director Search Committee

        Anthony Wedo (chairman) and Josh Clark are the members of the independent director search committee. This committee is responsible for the selection of candidates for the board of directors. This committee was formed in August 2003. The independent director search committee will consider nominees recommended by stockholders.

Investigative Committee

        Anthony Wedo and Leonard Tannenbaum are the members of the investigative committee. This committee was formed in March 2002 to oversee the internal investigation regarding certain bonuses paid to former executive officers and employees. There were five meetings of the investigative committee during fiscal 2002 and the investigative committee acted by written consent on one occasion.

Audit Committee

        Leonard Tannenbaum (chairman) and Josh Clark are the members of the audit committee. This committee is primarily concerned with monitoring (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence and performance of our auditors. The audit committee's responsibilities are set forth in its charter. There were five meetings of the audit committee during fiscal 2002.

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Compensation Committee

        Leonard Tannenbaum (chairman) and Josh Clark are the members of the compensation committee. This committee is primarily concerned with determining the compensation of our employees generally and recommending for the board's approval compensation for our executive officers. There were eight meetings of the compensation committee during fiscal 2002 and the compensation committee acted by written consent on one occasion.

Advisory Committee

        On August 5, 2003, the Board of Directors formed an Advisory Committee to conduct a comprehensive analysis and evaluation of the financial condition of the Company, work with management to evaluate the business plan for the Company and develop: (i) a strategic plan for stability and future growth of the Company; (ii) a compensation plan, (iii) an audit plan, and (iv) a legal plan. Anthony Wedo and Josh Clark are members of the newly formed Advisory Committee with Herbert Buchwald, a consultant to us, acting as Chairman. See "—Consulting Agreement with Herbert Buchwald."

Consulting Agreement with Herbert Buchwald

        On August 5, 2003, we entered into a consulting agreement with Herbert Buchwald, P.A., a Florida Professional Association, effective as of July 16, 2003. The agreement expires on August 5, 2006, but is subject to earlier termination as provided in the agreement.

        Pursuant to the agreement, the consultant shall provide legal, consulting and advisory services, including: serving as Chairman of the Advisory Committee of the board of directors; conducting a comprehensive analysis and evaluation of our financial condition; and developing a business plan for approval by the board of directors covering a strategic plan for our stability and future growth, a compensation plan, an audit plan and a legal plan. The consultant is required to spend a minimum of 160 hours per calendar month on average during the term of the agreement providing us with consulting services. The consultant is subject to a confidentiality clause in the agreement.

        The agreement provides that we will pay the consultant a consulting fee as follows: $100,000 within two days of the execution of the agreement; $100,000 on or before August 16, 2003; $100,000 on or before September 16, 2003; $50,000 on or before October 16, 2003; $50,000 on or before November 16, 2003; $50,000 on or before December 16, 2003; and $25,000 on or before the sixteenth of each month thereafter until the expiration or termination of the agreement. Additionally, if we conclude a transaction that results in the sale of 51% or more of our aggregate outstanding securities or of substantially all our assets, the consultant will be entitled to a transaction fee equal to the sum of (A) 3.75% of the first $65 million of gross proceeds received by the holders of our common stock from the transaction and (B) 1% of the gross proceeds received by holders of our common stock from the transaction. Under certain circumstances, the transaction fee shall be reduced by the amount of previously paid consulting fees. In the event that we terminate the agreement with the consultant for any reason, the consultant will not be entitled to a transaction fee unless the sale of 51% or more of our aggregate outstanding securities or of substantially all our assets was considered by the board of directors during the consultant's tenure and is consummated within six months of the termination of the agreement.

        After serving six months as a consultant, the consultant is entitled to receive a ten-year option to purchase 5% of our common stock for a strike price initially based on a valuation of our common stock at $65 million and increasing at a rate of LIBOR plus 2% compounded monthly. The option is not exercisable so long as entities affiliated with Greenlight hold 10% or more of our outstanding equity securities.

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        The consultant is also entitled to the reimbursement of reasonable and necessary out-of-pocket expenses incurred at our request or with our approval, including the reimbursement for the consultant's use of the consultant's aircraft for company-related travel at a rate of $650 per flight hour.

Certain Relationships and Related Transactions

        Leonard Tannenbaum, a director, is a limited partner and 10% owner in BET. On August 11, 2000, BET purchased approximately 8,108 shares of our Series D preferred stock for a sum of $7.5 million. In a related transaction on August 18, 2000, Brookwood purchased approximately 8,108 shares of our Series D preferred stock for a sum of $7.5 million (collectively, the "Series D Financing"). Each of BET and Brookwood received a warrant to purchase 1,196,909 shares of our common stock at a price of $0.01 per share. In connection with the Series D Financing, MYFM Capital LLC, of which Mr. Tannenbaum is the Managing Director, received a fee of $225,000 and a warrant to purchase 70,000 shares of our common stock at its closing price on August 18, 2000. In addition, Mr. Tannenbaum was designated by BET as a director to serve for the period specified in the Stockholders Agreement.

        On January 22, 2001, we consummated a sale of 20,000 shares of our authorized but unissued Series F preferred stock to Halpern Denny in exchange for the sum of $20.0 million. At such time we entered into a Series F Preferred Stock and Warrant Purchase Agreement with Halpern Denny. Pursuant to the Series F Preferred Stock and Warrant Purchase Agreement, Halpern Denny was paid a transaction fee of $500,000. In connection with the Series F Preferred Stock and Warrant Purchase Agreement, we issued Halpern Denny a warrant to purchase 8,484,112 shares of our common stock at an exercise price of $0.01 per share.

        BET and Brookwood had invested the sum of $15 million for substantially the same purpose as that contemplated by the Series F Preferred Stock and Warrant Purchase Agreement, which investment was made in August 2000, and BET and Brookwood were then holding Series D preferred stock, which had a right to approve the creation of the Series F preferred stock. Therefore, we considered it appropriate to restructure the investment documents relating to the August 2000 investment by BET and Brookwood. Accordingly, we, BET and Brookwood entered into an Exchange Agreement on January 22, 2001, whereby we exchanged all of our outstanding 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 preferred stock. BET and Brookwood also exchanged the warrants received by them in August 2000 for warrants to purchase an aggregate of 6,526,356 shares of our common stock. On May 30, 2001, we issued 25,000 shares of common stock to Mr. Tannenbaum in connection with the exchange of all of the outstanding shares of Series D preferred stock for shares of Series F preferred stock. In connection with the January 2001 Series F preferred stock financing, Bruce Toll, an affiliate of BET, was issued 200,000 shares of common stock. On June 6, 2003, each of BET and Brookwood sold their Series F preferred stock and related warrants to Greenlight for $8.3 million.

        On March 29, 2001, we consummated a sale of 5,000 additional shares of our Series F preferred stock 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 (the "Second Purchase Agreement") with Halpern Denny, we also sold Halpern Denny warrants to purchase 2,121,028 shares of our common stock at a price per share of $.01 (subject to adjustment as provided in the form of warrant). Pursuant to the Second Purchase Agreement, Halpern Denny was paid a transaction fee of $200,000.

        In connection with the Einstein Acquisition, on June 7 and June 19, 2001, Halpern Denny purchased an additional 7,500 shares of Series F preferred stock for the sum of $7.5 million and warrants to purchase 2,961,551 shares of our common stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant) pursuant to the Series F Preferred Stock Purchase Agreement. In addition, on June 19, 2001, Greenlight and certain of its affiliates purchased 12,500

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shares of Series F preferred stock and warrants to purchase 10,576,967 shares of our common stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant) pursuant to the Third Series F Preferred Stock and Warrant Purchase Agreement (the "Third Purchase Agreement"). Pursuant to the Third Purchase Agreement, Halpern Denny was paid a transaction fee of $250,000 and Greenlight was paid a transaction fee of $417,000.

        Commencing in 2002, the holders of the Series F preferred stock are entitled to receive additional warrants. See Note 10 of Notes to our Audited Annual Consolidated Financial Statements included elsewhere in this Prospectus.

        On January 17, 2001, we entered into a Bond Purchase Agreement with Greenlight. Pursuant to the agreement, Greenlight formed GNW, and contributed $10 million to GNW to purchase Einstein bonds. We are the exclusive manager of GNW. The agreement provided Greenlight with a secure interest in GNW and a right to receive the return of its original contribution plus a guaranteed accretion of 15% per year, increasing to 17% on January 17, 2002 and by an additional 2% each six months thereafter (the "Guaranteed Return"). In connection with the agreement, we issued Greenlight warrants to purchase an aggregate of 4,242,056 shares of our common stock at $0.01 per share. On June 19, 2001, we, GNW and Greenlight entered into a letter agreement, pursuant to which, among other things, Greenlight consented to the pledge of the Einstein bonds owned by GNW to secure the EnbcDeb Notes. We are required to apply all proceeds received with respect to the Einstein bonds to repay the EnbcDeb Notes. To the extent that there are any excess proceeds, we are required to pay them to Greenlight. If Greenlight does not receive a return equal to its Guaranteed Return, we are obligated to issue Greenlight Series F preferred stock with a face amount equal to the deficiency and warrant coverage equal to 1.125% of our fully diluted common stock for each $1.0 million of deficiency.

        BET, Brookwood, Halpern Denny, Greenlight, Special Situations and we entered into a Stockholders Agreement, which relates principally to the composition of our Board of Directors. Pursuant to the terms of the Stockholders Agreement, as amended, the authorized number of directors shall be ten members. BET and Brookwood are each entitled to designate one member of the Board of Directors until such time as its Series F preferred stock, including any notes issued upon redemption thereof, have been redeemed and paid in full. Halpern Denny is entitled to designate two members to the Board of Directors until such time as its Series F preferred stock, including any notes issued upon redemption thereof, have been redeemed and paid in full, at which time it shall be allowed to designate one director, which right will continue until such time as it owns less than 2% of our outstanding common stock. The Stockholders Agreement provides that should Halpern Denny designate a second member to the board of directors, a majority of directors who are not designees of BET, Brookwood or Halpern Denny may designate an additional member to the board of directors bringing the total membership of the board of directors to ten persons. In addition, pursuant to the terms of the Certificate of Designation for the Series F preferred stock, in the event that any dividends on the Series F preferred stock are in arrears, the holders of the Series F preferred stock will have the right to designate not less than 50% of the members of the board of directors. Upon the closing of the Equity Recap described in "Description of Capital Stock—Equity Recapitalization," the Stockholders Agreement will terminate.

        On May 30, 2002, we entered into a Loan and Security Agreement with BET, which provides for a $7.5 million revolving loan facility. The facility is secured by substantially all of our assets. The interest rate for borrowings under the facility was originally 11% per annum. In connection with obtaining the facility, we paid MYFM Capital LLC a fee of $75,000. 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 interest rate for borrowings under the facility was 13% per annum. BET and MYFM Capital LLC received an extension fee of $187,500

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in connection with the amendment, paid at maturity, and an additional fee of $112,500 since the facility was not paid in full by June 2, 2003. After June 1, 2003, the interest rate for borrowings under the facility is 15.0% per annum, and MYFM Capital LLC received a $25,000 fee for entering into the standstill agreement described below. As of April 1, 2003, $7.5 million of the revolving credit facility was outstanding. A portion of the net proceeds of the offering of the original notes was used to repay all outstanding borrowings under this facility. Leonard Tannenbaum, one of our directors, is the Managing Director of MYFM Capital and is a partner at BET.

        In June 1999, we entered into a franchise agreement for a New World location with NW Coffee, Inc., pursuant to which NW Coffee, Inc. paid us an initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5% of gross sales, due and payable monthly. In connection with the franchise agreement we also entered into an asset purchase agreement with NW Coffee, Inc. pursuant to which NW Coffee, Inc. purchased the assets of the New World location from us for $250,000. In connection with the asset purchase agreement, NW Coffee, Inc. delivered to us a promissory note in the amount of $225,000, which bears interest at 8% and is payable in installments commencing on June 30, 2002. The note is secured by the assets of NW Coffee, Inc. used in the operation of the franchise. Mr. Kamfar's uncle owns NW Coffee, Inc. and Mr. Kamfar's parents are officers of NW Coffee, Inc. In periods prior to April 2001, we purchased goods for the franchise and paid for all of the expenses of the franchise other than payroll (other than the salary of the general manager), which generated receivables for us. From time to time, NW Coffee, Inc. and Mr. Kamfar made payments to us to reduce the outstanding receivables. As of December 31, 2002 and April 1, 2003, the outstanding receivable of NW Coffee, Inc. was $266,950 and $13,385, respectively. We have fully reserved this receivable in our allowance for doubtful accounts. Until April 2002, we also provided payroll, accounting and other services to NW Coffee, Inc. for no charge. We terminated the franchise agreement with NW Coffee, Inc. in June 2002 for breach by the franchisee.

        In August 1997, we entered into a franchise for a New World location with 723 Food Corp., pursuant to which 723 Food Corp. paid us an initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5% of gross sales, due and payable monthly. In connection with the franchise agreement, 723 Food Corp. purchased the assets of the New World location from us for $275,000. 723 Food Corp. delivered to us a promissory note in the amount of $125,000, which bears interest at 6% and is payable on August 30, 2002 and a promissory note in the amount of $100,000 which bears interest at 6% and is payable on November 30, 2002. The notes are secured by the assets of 723 Food Corp. and 200,000 shares of our Common Stock. In addition, Mr. Novack guaranteed the obligations of 723 Food Corp. The guarantee is no longer in effect. Until August 17, 2000, Mr. Novack owned 50% of the capital stock of 723 Food Corp. and was an officer and director of 723 Food Corp. As of December 31, 2002 and April 1, 2003, the outstanding receivable of 723 Food Corp. was $266,950 and $13,385, respectively. We have fully reserved this receivable in our allowance for doubtful accounts.

        An affiliate of the Initial Purchaser owns certain of the EnbcDeb Notes issued by EnbcDeb Corp., a non-restricted subsidiary of ours, and has agreed to purchase all of the EnbcDeb Notes not currently held by it. Concurrently with the closing of the offering of the original notes, Greenlight purchased all of the outstanding EnbcDeb Notes from such affiliate of the Initial Purchaser, and we issued 4,337.481 shares of our Series F preferred stock to Greenlight in full payment of the outstanding EnbcDeb Notes. Upon the closing of the Equity Recap (see "Description of Capital Stock—Equity Recapitalization"), such shares of Series F preferred stock will be converted into common stock.

        On June 17, 2003, we entered into a 30-day standstill agreement with the holders of more than 80% of the Increasing Rate Notes, including Farallon. Under the agreement, Farallon received warrants to purchase an aggregate of 7,872,242 shares of common stock and we agreed to reimburse Farallon for legal fees and disbursements incurred up to $50,000.

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        On June 25, 2003, Halpern Denny, Greenlight and we entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure. Our Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F preferred stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. See "Description of Capital Stock—Equity Recapitalization." The Equity Recap is subject to stockholder approval and other customary conditions. The agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap. Assuming that such stockholder approval is received, following the closing of the Equity Recap, Greenlight will beneficially own approximately 92% of our outstanding common stock and the warrants issued to the holders of the Increasing Rate Notes will represent approximately 4.3% of our common stock in the aggregate. We have agreed to reimburse Greenlight, Halpern Denny and Farallon for legal fees and disbursements they incurred in connection with their investment in the company and the Equity Recap, up to a maximum of $500,000, $125,000, and $75,000, respectively.

        Josh Clark, a director, is an analyst at Greenlight Capital, Inc., an affiliate of Greenlight.

        Greenlight purchased $35.0 million of the Notes.

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PRINCIPAL STOCKHOLDERS

        As of July 31, 2003, we had 51,016,857 shares of Common Stock, which are our only outstanding voting securities. The following table sets forth certain information regarding beneficial ownership of our Common Stock as of July 31, 2003 (i) by each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of our Common Stock, (ii) by each of our executive officers, (iii) by each of our directors, and (iv) by all directors and executive officers as a group. If the Equity Recap is consummated, Greenlight will beneficially own approximately 92% of our outstanding common stock. See "Description of Capital Stock—Equity Recapitalization."

Beneficial Owner**	Amount and Nature of Beneficial Ownership		Percentage
Greenlight Capital, L.L.C. 420 Lexington Avenue, Suite 1740 New York, NY 10107	44,126,555	(1)	51.9	%
Halpern Denny Fund III, L.P. 500 Boylston Street, Suite 1880 Boston, MA 02116	28,561,925	(2)	50.7	%
Farallon Capital Management, L.L.C. and its affiliated parties One Maritime Plaza, Suite 1325 San Francisco, CA 94111	15,112,230	(3)	22.9	%
Anthony D. Wedo	1,683,769	(4)	3.2	%
Paul J.B. Murphy III	0		*
Josh Clark	30,000	(5)	*
Leonard Tannenbaum	202,729	(6)	*
All directors and executive officers as a group (3 persons)	1,918,498	(7)	3.6	%

*

Less than one percent (1%).

**

Address for each officer and director is our office located at 1687 Cole Blvd., Golden, Colorado 80401.

(1)

Based upon an amendment to a Schedule 13D filed with the Securities and Exchange Commission dated July 16, 2003. Consists of Common Stock and warrants to purchase Common Stock held by affiliates of Greenlight Capital, L.L.C. Includes 34,065,204 shares of Common Stock that may be purchased upon the exercise of warrants. The Schedule 13D was filed by Greenlight Capital, L.L.C., Greenlight Capital, L.P. (of which Greenlight Capital, L.L.C. is the general partner), Greenlight Capital Offshore, Ltd. (for whom Greenlight Capital, Inc., an affiliate of Greenlight Capital, L.L.C., acts as investment adviser), Greenlight Capital Qualified, L.P. (of which Greenlight Capital, L.L.C. is the general partner) and David Einhorn, principal of Greenlight Capital, L.L.C.

(2)

Based upon an amendment to a Schedule 13D filed with the Securities and Exchange Commission on May 15, 2003. Includes 5,297,818 shares of Common Stock that may be purchased upon the exercise of warrants. Does not include certain step-up warrants issuable to Halpern Denny on December 31, 2002 and certain anti-dilution warrants issuable to Halpern Denny after October 15, 2002.

(3)

Based upon a Schedule 13D filed with the Securities and Exchange Commission on July 16, 2003. Includes 105,000 shares of Common Stock owned and 15,007,230 shares of Common Stock that may be purchased upon exercise of warrants. Does not include certain additional warrants issuable on or after June 15, 2002. The percentage reported assumes the exercise of warrants by Farallon (as defined below) only and excludes the effect of exercise of warrants or any other currently convertible instruments held by any other person or entities. The Schedule 13D was filed by Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P.

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(together, the "Partnerships"), Farallon Capital Management, L.L.C. (the "Management Company"), Farallon Partners, L.L.C., the general partner of the Partnerships (the "General Partner"), and the individual managing members of the Management Company and the General Partner (all such persons and entities together being "Farallon"). The Management Company, the General Partner and each of their individual managing members disclaim any beneficial ownership of such securities. All of the above-mentioned entities and persons disclaim group attribution.

(4)

Includes 1,680,080 shares of Common Stock, which may be acquired upon the exercise of presently exercisable options. Does not include options to purchase 3,360,162 shares of Common Stock which are not exercisable within 60 days.

(5)

Includes 30,000 shares of Common Stock, which may be acquired upon the exercise of presently exercisable options. Does not include 44,126,555 shares of Common Stock beneficially owned by Greenlight. Mr. Clark is an analyst at Greenlight Capital, Inc. Mr. Clark disclaims beneficial ownership of the Common Stock beneficially owned by Greenlight.

(6)

Includes 50,000 shares of Common Stock, which may be acquired upon the exercise of presently exercisable options. Also includes 70,000 shares of Common Stock, which may be acquired upon the exercise of presently exercisable warrants.

(7)

Includes 1,760,080 shares of Common Stock, which may be acquired upon the exercise of presently exercisable options and 70,000 shares of Common Stock, which may be acquired upon the exercise of presently exercisable warrants.

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DESCRIPTION OF CAPITAL STOCK

        Our authorized capital stock consists of 150,000,000 shares of common stock, $0.001 par value, and 2,000,000 shares of preferred stock, $0.001 par value. As of July 31, 2003, 51,016,857 shares of common stock and 94,349 shares of Series F preferred stock were outstanding. The outstanding shares of common stock and preferred stock have been duly authorized and are fully paid and non-assessable.

        Upon the closing of the Equity Recap, our capital structure will change. See "—Equity Recapitalization" below.

Common Stock

        The holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders and are entitled to receive such dividends, if any, as may be declared from time to time by the board of directors from funds legally available therefor, subject to the dividend preferences of the preferred stock, if any. We have a classified board of directors and approximately one-third of the members of our board of directors stand for election at each annual meeting of our stockholders, except for directors elected as representatives of the holders of our Series F preferred stock. Upon our liquidation or dissolution, the holders of common stock are entitled to share ratably in all assets available for distribution after payment of liabilities and liquidation preferences of the preferred stock, if any. Holders of common stock have no preemptive rights, no cumulative voting rights and no rights to convert their common stock into any other securities. Any action taken by holders of common stock must be taken at an annual or special meeting and may not be taken by written consent.

Preferred Stock

        Pursuant to our certificate of incorporation, the board of directors is authorized (subject to any limitations prescribed by law, our certificate of incorporation and the rules of any stock exchange on which our common stock may then be listed) to issue preferred stock from time to time in one or more series, which preferred stock shall have such designations, preferences, rights, qualifications, limitations and restrictions as shall be determined by the board of directors. The issuance of any additional shares of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could have an adverse effect on the holders of our common stock, depending upon the rights of such preferred stock, by delaying or preventing a change in control, making removal of present management more difficult or resulting in restrictions upon the payment of dividends or other distributions to holders of common stock.

Series F Preferred Stock

        The board of directors authorized a series of preferred stock, which was designated Series F preferred stock. Set forth below is a summary of the material terms of the Series F preferred stock.

        Dividends.    The Series F preferred stock accrues dividends payable each quarter in shares of Series F preferred stock at the rate of 16% per annum (the "Dividend Percentage Rate") of the Liquidation Preference (as defined below); provided, however, that the Dividend Percentage Rate shall be increased by an additional 2% per semi-annum on each January 18 and July 18, commencing on (i) January 18, 2002, with respect to any shares of Series F preferred stock issued on or prior to March 31, 2001 and (ii) June 30, 2002 with respect to any shares of Series F preferred stock issued after March 31, 2001, which rate increases semi-annually thereafter at the rate of 2% per annum. No dividends or other distributions of any kind shall be declared or paid on, nor shall we redeem, repurchase or acquire any shares of common stock other than stock dividends and distributions of the right to purchase common stock and repurchases of any such right in accordance with the Rights Agreement dated June 7, 1999, unless all dividends on the Series F preferred stock accrued for all past dividends shall have been paid.

        Liquidation Preference.    In the event of our liquidation or winding up, the holders of the Series F preferred stock shall be entitled to receive, on a pro rata basis, such amount, paid prior and in

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preference to any distribution of any of our assets or surplus funds to holders of the common stock by reason of their ownership thereof, an amount equal to $1,000 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) of Series F preferred stock then outstanding, plus all accrued and unpaid dividends for each share of Series F preferred stock held by them.

        Redemption.    All outstanding shares of Series F preferred stock, including accrued dividends, (i) issued on or prior to March 31, 2001 shall be redeemed in whole on January 18, 2004 and (ii) issued after March 31, 2001 shall be redeemed in whole on June 30, 2004, for an amount equal to 100% of the purchase price, plus all accrued and unpaid dividends. Upon the closing of the offering of the original notes, the holders of the Series F preferred stock have agreed, notwithstanding the foregoing, that the Series F preferred stock will not be redeemable until 30 days after the maturity of the Notes. In the event that we fail to redeem the Series F preferred stock on the mandatory redemption date, the redemption price for the Series F preferred stock will be paid by the issuance of senior subordinated notes. The purchase price for the Series F preferred stock shall be $1,000 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares).

        Protective Provisions.    For so long as any shares of Series F preferred stock remain outstanding, we may not, without the vote or written consent by the holders of at least 67% of the then outstanding shares of Series F preferred stock, voting together as a single class:

        (i) amend or repeal any provision of our certificate of incorporation or by-laws in a manner which materially and adversely affects the rights and preferences of the holders of Series F preferred stock;

        (ii) authorize or issue shares of any class of stock having any preference or priority as to dividends or assets superior to or on a parity with the Series F preferred stock, without the vote or written consent of holders of at least 70% of the then outstanding shares of Series F preferred stock;

        (iii) pay or declare any dividend on any other type or class of securities, other than a dividend payable in common stock or rights;

        (iv) repurchase or redeem any shares of our capital stock other than the redemption of the Series F preferred stock;

        (v) authorize (i) a sale of any of our or our subsidiaries material assets of a value in excess of $1.0 million, (ii) a sale of any substantial portion of our or our subsidiaries assets (other than sales of company-operated stores) or (iii) a recapitalization or reorganization of us or any of our subsidiaries (other than stock splits, combinations and/or dividends);

        (vi) take any action that results in us or any of our subsidiaries incurring or assuming more than $1.0 million of funded indebtedness (other than the Increasing Rate Notes, the EnbcDeb Notes, a $25.0 million senior revolving credit facility and up to $4.7 million of indebtedness outstanding as of June 15, 2001);

        (vii) effect any Change of Control Event (as defined therein);

        (viii) effect (i) an acquisition of another corporation or other entity, or a unit or business group of another corporation or entity, by merger or otherwise, or (ii) the purchase of all or substantially all of the capital stock, other equity interests or assets of any other entity or person, except as contemplated in agreements with the holders of the Series F preferred stock;

        (ix) increase the number of directors of the board of directors except as contemplated in agreements with the holders of the Series F preferred stock;

        (x) effect or allow a fundamental change in the nature of our business; or

        (xi) otherwise materially affect the rights, privileges and preferences of the holders of the Series F preferred stock.

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        Voting Rights.    The holders of Series F preferred stock, except as otherwise required under the laws of Delaware or as set forth in the Certificate of Designation, are not entitled or permitted to vote on any matter required or permitted to be voted upon by our stockholders. The holders of the Series F preferred stock currently have the right to designate up to four members of the board of directors; provided, however, that in the event dividends on the Series F preferred stock are in arrears, or that the Series F preferred stock is not redeemed in accordance with its terms, the holders of the Series F preferred stock will be entitled to designate a majority of the members of the board of directors until the default is cured. The holders of the Series F preferred stock are parties to an agreement with us under which they can designate four directors, which agreement also provides for an additional six directors, three of whom are chosen from management and the other three of whom are independents chosen by non-investor directors. Upon the closing of the Equity Recap, this agreement will terminate. See "Management—Executive Officers, Directors and Key Employees."

Preferred Stock Issuable in Connection with EnbcDeb Corp.

        In connection with the financing of the purchase of the Einstein assets, EnbcDeb Corp., a non-restricted subsidiary, issued $35 million aggregate principal amount of the increasing rate notes. Interest on the EnbcDeb Notes accrues at the rate of 14% per annum, increasing by 35 basis points per month, plus 2% per annum penalty interest on overdue amounts. Interest on the EnbcDeb Notes may, at the option of EnbcDeb Corp., be paid in additional EnbcDeb Notes. The EnbcDeb Notes matured on June 15, 2002. As of December 31, 2002 and April 1, 2003, the outstanding balance of the EnbcDeb Notes was $4.4 million and $4.7 million, respectively. Upon the closing of the offering of the original notes, we issued 4,337.481 shares of our Series F preferred stock to the holders of the EnbcDeb Notes in full payment thereof. See "Management—Certain Relationships and Related Transactions."

Stockholders' Rights Plan

        On June 7, 1999, the Board declared a dividend distribution of one right on each outstanding share of our common stock, 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 announces a tender offer for 15% or more of our common stock. Our Board can redeem the rights at $0.001 per right at any time before or after any person acquires 15% or more of our outstanding common stock. In the event an individual (the "Acquiring Person") acquires 15% or more of our outstanding common stock, each right will entitle its holder to purchase, at the right's exercise price, on one-hundredth of a share of 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. 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 enable 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.

Warrants

        As of December 31, 2002, the Company had 41,244,218 warrants outstanding, all of which were exercisable. These warrants have exercise prices ranging from $0.01–$11.00 per share, of which 40,357,065 are exercisable at $0.01 per share, and have terms ranging from three to ten years. Such warrants were issued in connection with financings and certain other services. In the third and fourth quarter of 2002, certain holders of warrants exercised warrants to purchase 39,635,976 shares, using a cashless exercise option, and were issued 33,325,458 of common stock.

        From January 1, 2003 through June 15, 2003, the Company issued an additional 16,939,566 warrants to certain Series F holders and to the holders of the Increasing Rate Notes, all of which were exercisable. These warrants have an exercise price of $0.01 per share, and have terms that expire on

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June 20, 2006. Since January 1, 2003, warrants to purchase 50,000 shares of common stock have expired. In addition, existing agreements require us to issue (i) $.01 warrants semi-annually to the holders of our Series F preferred stock until such Series F preferred stock has been redeemed (this obligation will cease if and when the Equity Recap is consummated) and (ii) $.01 warrants to Greenlight at the rate of 1.125% of our fully diluted common stock for each $1.0 million of deficiency if Greenlight does not receive a return on its investment in GNW equal to its Guaranteed Return (if the Equity Recap is consummated, this obligation ceases on June 30, 2003 and no additional warrants will accrue after that date).

        In connection with a standstill agreement that we entered into with certain holders of the Increasing Rate Notes, we agreed to issue to the holders of the Increasing Rate Notes additional warrants to purchase an aggregate of up to 11,309,994 shares of our common stock.

Equity Recapitalization

        Halpern Denny, Greenlight and we have entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure. Our Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F preferred stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. The Equity Recap is subject to stockholder approval and other customary conditions. The agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap. Assuming that such stockholder approval is received, following the closing of the Equity Recap, Greenlight will beneficially own approximately 92% of our outstanding common stock and the warrants issued to the holders of the Increasing Rate Notes will represent approximately 4.3% of our common stock in the aggregate.

Series Z Preferred Stock

        Upon the closing of the Equity Recap, Halpern Denny shall deliver, assign and transfer to the Company, all shares of Series F Preferred Stock, all shares of Common Stock and all warrants to purchase shares of Common Stock then owned by Halpern Denny, and the Company shall issue to Halpern Denny in exchange therefore 57,000 shares of Series Z preferred stock, par value $0.001 per share (the "Series Z Preferred Stock"), which shall have the rights and preferences set forth in a Certificate of Designation, Preferences and Rights of Series Z Preferred Stock. Those rights and preferences are summarized below.

        Dividends.    The Series Z preferred stock shall not be entitled to receive any dividends except as provided in "Redemption" below.

        Liquidation Preference.    In the event of our liquidation or winding up, the holders of the Series Z preferred stock shall be entitled to receive, on a pro rata basis, such amount, paid prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the Common Stock or any other class of stock, an amount equal to $1,000 per share of Series Z Preferred Stock then outstanding (as adjusted for any stock dividends, combinations or splits with respect to such shares the "Liquidation Preference") plus any accrued but unpaid dividends.

        Redemption.    All outstanding shares of Series Z Preferred Stock shall be redeemed (subject to the legal availability of funds therefor) in whole on the earlier of June 30, 2009 or the effective time of any "Series Z Merger" or any "Series Z Change of Control" (each as hereinafter defined), at 100% of the Liquidation Preference (the "Redemption Price"), in each case, payable in cash. In the event all outstanding shares of Series Z Preferred Stock are not redeemed in accordance with the redemption obligation set forth above, the shares of Series Z Preferred Stock not so redeemed will, from and after such date, accrue a dividend at a rate per annum of the Liquidation Preference for such shares equal to 250 basis points higher than the then highest rate paid by the Company on its funded indebtedness,

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payable quarterly in cash (provided such dividends may accrue to the extent there are not funds legally available to pay such dividends) until the date such shares are ultimately redeemed by New World (and, in such event, the Redemption Price will be increased by the amount of such accrued and unpaid dividends). A "Series Z Merger" shall mean a consolidation or merger of the Company or any direct or indirect subsidiary of the Company with or into any other entity, other than a merger (i) in which the Company is the surviving Company, (ii) which will not result in more than 50% of the capital stock of the Company being owned of record or beneficially by persons other than the holders of such capital stock immediately prior to such merger and (iii) in which each share of Series Z Preferred Stock outstanding immediately prior to such merger will be an identical outstanding share of Series Z Preferred Stock of the Company after such merger. A "Series Z Change of Control" means any transaction or event occurring on or after the date hereof as a direct or indirect result of which (a) any person or any group (other than a Permitted Holder) shall (1) beneficially own (directly or indirectly) in the aggregate equity interests of the Company having 50% or more of the aggregate voting power of all equity interests of the Company at the time outstanding or (2) have the right or power to appoint a majority of the board of directors of the Company; (b) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Company (together with any new directors (i) whose election by such board of directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved and (ii) appointed to the board of directors of the Company within eighteen months after the date hereof) cease for any reason to constitute at least a majority of the board of directors of the Company then in office; (c) any event or circumstance constituting a "change of control" under any documentation evidencing or governing any indebtedness of the Company in a principal amount in excess of $10.0 million shall occur which results in an obligation of the Company to prepay (by acceleration or otherwise), purchase, offer to purchase, redeem or defease all or a portion of such indebtedness; or (d) involves the sale of all or substantially all of the Company's assets or the assets of its subsidiaries.

        Protective Provisions.    For so long as any shares of Series Z Preferred Stock remain outstanding, the Company shall not, and shall not permit any of its direct or indirect subsidiaries, in each case, without the vote or written consent by the holders of the Series Z Preferred Stock (such consent, in the case of clause (b) only, not to be unreasonably withheld):

(a)

amend, alter or repeal any provision of, or add any provision to, the Certificate of Designation, Preferences and Rights of the Series Z Preferred Stock, whether by merger, consolidation or otherwise; provided, however, that no vote or written consent of the holders of the Series Z Preferred Stock will be required by this paragraph (a) or otherwise in the event of a Series Z Merger or Series Z Change of Control that results in the full redemption of the Series Z Preferred Stock at the Redemption Price, in cash, at the effective time of such Series Z Merger or Series Z Change of Control;



(b)

subject to clause (a) above, amend, alter or repeal any provision of, or add any provision to, the Company's Certificate of Incorporation or bylaws, whether by merger, consolidation or otherwise, except as may be required to authorize a Certificate of Designation for Junior Stock or to increase the authorized amount of any Junior Stock, including Junior Stock issued to management or employees under equity incentive plans; provided, however, that no vote or written consent of the holders of the Series Z Preferred Stock will be required by this paragraph (b) or otherwise in the event of a Series Z Merger or Series Z Change of Control that results in the redemption of the Series Z Preferred Stock at the Redemption Price, in cash, at the effective time of such Series Z Merger or Series Z Change of Control;



(c)

authorize or issue shares of any class of stock having any preference or priority as to dividends, assets or payments in liquidation superior to or on a parity with the Series Z Preferred Stock, including, without limitation, the Series Z Preferred Stock, whether by

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merger, consolidation or otherwise; provided, however, that no vote or written consent of the holders of the Series Z Preferred Stock will be required by this paragraph (c) or otherwise in the event of a Series Z Merger or Series Z Change of Control that results in the full redemption of the Series Z Preferred Stock at the Redemption Price, in cash, at the effective time of such Series Z Merger or Series Z Change of Control;

(d)

take any action that results in New World or any direct or indirect subsidiary or subsidiaries of New World incurring or assuming indebtedness (including the guaranty of any indebtedness) in excess of the greater of (i) $185 million and (ii) 3.75 × EBITDA for the trailing 12-month period prior to such date;



(e)

consummate any Series Z Merger or Series Z Change of Control that does not result in the redemption of the Series Z Preferred Stock at the Redemption Price, payable in cash, at the effective time of the Series Z Merger or Series Z Change of Control transaction;



(f)

make any Restricted Payment in violation of the Restricted Payments covenant in the Indenture (as in effect or the initial execution date of the Indenture); and



(g)

enter into any agreement to do any of the foregoing items set forth in items (a) through (f) above.

        Voting Rights.    The holders of Series Z Preferred Stock, except as otherwise required under the laws of the State of Delaware or as set forth herein, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation.

Termination of Stockholders Agreement

        Upon the closing of the Equity Recap, the Company, Halpern Denny and Greenlight shall cause the Stockholders Agreement to be terminated.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

Senior Credit Facility

        Concurrently with the closing of the offering of the original notes, we entered into a three-year, $15.0 million senior secured revolving credit facility with AmSouth Bank, as agent (the "Senior Credit Facility").

        The Senior Credit Facility will be secured by a first and senior lien and security interest in and on all existing and hereafter acquired assets and property of the Company and the guarantors, subject to standard exceptions for permitted liens, and a pledge of all non-public shares of capital stock or other equity interests of any of our present and future active subsidiaries.

        The initial interest rate will be AmSouth Bank's "prime rate" (the "Base Rate") plus 1.00%, and the initial fee for letters of credit issued pursuant to the Senior Credit Facility will be the Base Rate plus 2.50%. From and after the date of receipt of our audited fiscal year December 31, 2003 financial statements, the Senior Credit Facility will be subject to the following pricing grid based on our consolidated Fixed Charge Coverage (as defined below):

Tier	Fixed Charge Coverage	Base Rate +		L/C Fee
I	X < 1.00x	2.50	%	4.50	%
II	1.20x > X ³ 1.00x	1.00	%	2.50	%
III	X ³ 1.20x	0.50	%	2.00	%

        Fixed Charge Coverage will be defined as EBITDA divided by the sum of (i) cash interest expense, (ii) taxes paid or payable in cash (unless such taxes are being contested in good faith, proper reserves have been established and no liens have resulted), (iii) scheduled principal payments on all indebtedness, and (iv) cash capital expenditures.

        An underwriting fee of $187,500 will be payable to AmSouth Bank at the closing of the Senior Credit Facility. Monthly administration fees of $7,500 per month (reduced to $5,000 per month while principal outstanding under the Senior Credit Facility is at least $7,500,000) will also be payable to AmSouth Bank. In addition, an unused commitment fee of 0.50% per annum on the average unused amount of the Senior Credit Facility will be payable monthly in arrears.

        We may terminate the Senior Credit Facility prior to the expiration of the three-year term by paying a prepayment penalty of $450,000 (for termination in the first year), $300,000 (for termination in the second year) or $150,000 (for termination in the third year prior to six months before the scheduled termination date).

        Under the Senior Credit Facility, we will be required to maintain customary financial covenants. In addition, the Company and the guarantors will be subject to other typical drawing conditions and covenants. The Senior Credit Facility contains customary events of default and remedy provisions, including that a change of control (as defined in the Senior Credit Facility) constitutes an event of default thereunder.

Intercreditor Agreement

        An Intercreditor Agreement will set forth the relative rights to our collateral of the collateral agent that will act on behalf of the lenders under the senior secured revolving credit facility and the Collateral Agent. Proceeds from the sale of Collateral will be used first to satisfy obligations under the senior secured revolving credit facility and, thereafter, the Notes. See "Description of Exchange Notes—Intercreditor Agreement."

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DESCRIPTION OF EXCHANGE NOTES

General

        The original notes were issued, and we will issue the exchange notes, pursuant to an Indenture (the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee"). The Indenture provides for the issuance of up to $160,000,000 of Notes thereunder (the "Offered Notes"), and provides for the issuance of additional Notes under the Indenture in the future, provided that any issuance of additional Notes would be subject to the covenant described under "—Certain Covenants—Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock." As used herein the term "Notes" means, collectively, the Offered Notes and any additional Notes issued in the future. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes and the Registration Rights Agreement are subject to all such terms, and holders of the Notes are referred to the Indenture, the Registration Rights Agreement and the Trust Indenture Act for a statement thereof.

        The following summary of the material provisions of the Indenture and the Registration Rights Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the Indenture and the Registration Rights Agreement, including the definitions contained therein. Copies of the proposed forms of Indenture and Registration Rights Agreement are available from the Company upon request. In this summary, the Company refers only to New World Restaurant Group, Inc., and not its Subsidiaries. The definitions of certain terms used in the following summary are set forth below under "Certain Definitions."

        The Notes are senior secured indebtedness of the Company and rank senior in right of payment to all present and future subordinated indebtedness of the Company and pari passu in right of payment with all present and future senior indebtedness of the Company (subject to a prior lien in assets securing the Senior Credit Facility). After giving pro forma effect to the Notes, as of December 31, 2002, the Company and its Restricted Subsidiaries would have had $162.1 million of indebtedness outstanding.

        Principal of, premium, if any, and interest on the Notes will be payable at the office or agency of the Company in the Borough of Manhattan, the City of New York (which initially will be the corporate trust office of the Trustee); provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the holder of the Notes as such address appears in the security register.

        The Notes will be issued only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof.

Security

        Pursuant to the terms of the Collateral Agreements (as defined), all of the obligations under the Notes and the Indenture will be secured initially by a first priority lien and security interest in substantially all assets of the Company and its Subsidiaries (except real estate leaseholds existing on the Issue Date and certain real property, fixtures and leasehold improvements) and by a pledge of the Capital Stock or other equity interests of all present and future Subsidiaries. The Company will also be required under the Indenture to deliver Mortgages (as hereinafter defined), in form and substance satisfactory to the Trustee and its counsel, for purposes of securing a first priority mortgage lien in certain real property and leasehold interests of the Company acquired after the Issue Date.

        However, pursuant to the terms of the Intercreditor Agreement, the security interest securing the Notes will be subordinated to a lien securing the Senior Credit Facility. See "—Intercreditor Agreement." Such security interest will also be subordinated to liens securing $1.6 million of other existing indebtedness.

        Upon an Event of Default, the proceeds from the sale of collateral securing the Notes will likely be insufficient to satisfy the Company's obligations under the Notes. No appraisals of any of the

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collateral were prepared in connection with the offering of the original notes. Moreover, the amount to be received upon such a sale would be dependent upon numerous factors, including the condition, age and useful life of the collateral at the time of such sale, as well as the timing and manner of such sale. By its nature, all or some of the collateral will be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the collateral, if saleable, can be sold in a short period of time.

        A significant portion of the Company's assets consist of leasehold improvements, and most of the Company's assets are located on leaseholds. Because leasehold improvements may be deemed to be a part of either the real property covered by the lease (which real property is not owned by the Company) or the Company's real estate leasehold interests (which interests are not included in the collateral available for the Notes), there can be no assurances as to whether or to what extent such assets would be available as collateral security for the Notes. Moreover, the ability of the Collateral Agent to obtain possession of collateral located on leaseholds may be subject to conflicting claims of landlords and the rights of the Senior Lender pursuant to the Intercreditor Agreement. The Company believes, however, that the realizable value of such leasehold interests upon a liquidation of the Company would not be material.

        To the extent third parties hold Permitted Liens (as defined herein), such third parties may have rights and remedies with respect to the property subject to such Liens that, if exercised, could adversely affect the value of the collateral. Given the intangible nature of certain of the collateral, any such sale of such collateral separately from the Company as a whole may not be feasible. Additionally, the inclusion of the Company's fixtures in the collateral securing the Notes will be limited by the extent to which such fixtures (a) are deemed not to be personal property, and (b) any applicable state laws would, for purposes of perfecting security interests with respect thereto, require that the Collateral Agent effectuate certain filings in applicable real estate land records. The ability of the Company to grant a first priority security interest in certain collateral may be limited by legal or other logistical considerations. The ability of the holders of Notes to realize upon the collateral is also limited by the terms of the Intercreditor Agreement relating to the Senior Credit Facility and is subject to certain bankruptcy law limitations in the event of a bankruptcy. See "—Certain Bankruptcy Limitations."

        The Company is permitted to form new Subsidiaries and to transfer all or a portion of the collateral to one or more of its Subsidiaries; provided each of the Company's Subsidiaries will be required to execute a guarantee of the Company's obligations under the Notes and the Indenture and a security agreement granting to the Collateral Agent a security interest in substantially all of the assets (subject to the limitations set forth above and in the Intercreditor Agreement) of such Subsidiary. See "—Certain Covenants—Subsidiary Guarantees."

        Subject to the restrictions on incurring Indebtedness and Liens set forth herein, the Company and its Subsidiaries will have the right to grant (and suffer to exist) Purchase Money Liens against fixed assets of the Company or such Subsidiaries and to acquire any such assets subject to Purchase Money Liens. The Collateral Agent's Liens are intended to be, and shall be, at all times automatically subordinate in priority to all such Purchase Money Liens.

        The collateral release provisions of the Indenture permit the release of collateral without substitution of collateral of equal value under certain circumstances, including assets sales made in compliance with the Indenture.

        Neither the Company nor any of its Subsidiaries will be permitted to encumber any asset or property of the Company or such Subsidiaries or suffer to exist any Lien thereon, other than as expressly described herein.

        So long as no Event of Default shall have occurred and be continuing, and subject to certain terms and conditions in the Indenture, the Senior Credit Facility, the Collateral Agreements and the Intercreditor Agreement, the Company will be entitled to receive all cash dividends, interest and other payments made upon or with respect to the Capital Stock of any Subsidiary and to exercise any voting,

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consensual rights and other rights pertaining to such collateral pledged by it. Upon the occurrence and during the continuance of an Event of Default, (a) all rights of the Company to exercise such voting, consensual rights, or other rights shall cease upon notice from the Trustee, and all such rights shall become vested in the Collateral Agent, which, to the extent permitted by law, shall have the sole right to exercise such voting, consensual rights or other rights, (b) all rights of the Company to receive all cash dividends, interest and other payments made upon or with respect to the collateral shall cease, and such cash dividends, interest and other payments shall be paid to the Collateral Agent and (c) the Collateral Agent may sell the collateral or any part thereof in accordance with and subject to the terms of the Collateral Agreements; provided, however, that while Indebtedness is outstanding under the Senior Credit Facility, rights of the holders of the Notes and the Collateral Agent in the Collateral will be subordinate to the Liens and other rights of the Senior Credit Facility and subject to the terms of the Intercreditor Agreement. All funds distributed under the Collateral Agreements and received by the Collateral Agent for the ratable benefit of the holders of the Notes shall be distributed by the Collateral Agent in accordance with the provisions of the Indenture.

        Upon the full and final payment and performance of all obligations of the Company under the Indenture and the Notes, the Collateral Agreements shall terminate and the pledged collateral shall be released.

Intercreditor Agreement

        The Intercreditor Agreement provides, among other things, that (i) the Lenders' collateral agent's security interest in the assets of the Company and its Subsidiaries shall be senior to the Collateral Agent's security interest in such assets, (ii) during any insolvency proceedings, the Lenders' collateral agent and the Collateral Agent will coordinate their efforts to give effect to the relative priority of their security interests in such properties and assets and (iii) following an Event of Default, all decisions with respect to such properties and assets, including the time and method of any disposition thereof, will be made in accordance with the terms of such Intercreditor Agreement. The Intercreditor Agreement also provides that the Trustee and the Lenders will provide notices to each other with respect to acceleration of the Notes or the Indebtedness outstanding under the Senior Credit Facility, as the case may be.

        If the Notes become due and payable prior to the stated maturity thereof for any reason or are not paid in full at the stated maturity thereof at a time during which Indebtedness is outstanding under the Senior Credit Facility, the Collateral Agent will give notice of such event to the Lenders' collateral agent and for a period of 30 days after delivery of such notice, the Collateral Agent may not foreclose upon the collateral that is subject to the Senior Credit Facility. Thereafter, if the Lenders' collateral agent has not foreclosed upon such collateral or has commenced an enforcement action but thereafter has discontinued such enforcement action, the Collateral Agent has the right to foreclose upon such collateral, which may be in the manner set forth in instructions from the holders of a majority of the principal amount of Notes then outstanding or, in the absence of such instructions, in such manner as the Collateral Agent deems appropriate in its sole and absolute discretion. Proceeds from the sale of collateral that is subject to the Senior Credit Facility will first be applied to repay Obligations outstanding under the Senior Credit Facility, if any, and thereafter paid to the Trustee. The proceeds received by the Trustee will be applied by the Trustee first to pay the expenses of any foreclosure and fees and other amounts then payable to the Trustee under the Indenture and, thereafter, to pay all amounts owing to the holders of the Notes (with any remaining proceeds to be payable to the Company or as may otherwise be required by law).

Guarantee

        The full and prompt payment of the Company's payment obligations under the Notes and the Indenture will be guaranteed, jointly and severally, by all present and all future Subsidiaries of the Company other than the Non-Restricted Subsidiaries (collectively, the "Subsidiary Guarantors"). Each Subsidiary Guarantor will fully and unconditionally guarantee on a senior secured basis (secured by

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substantially all of such Subsidiary Guarantor's assets (including real property, fixtures, cash, accounts receivable, inventory, equipment, general intangibles, intellectual property rights and certain other fixed assets) (the "Subsidiary Guarantee"), jointly and severally, to each Holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Notes, including the payment of principal of and interest on the Notes. The Subsidiary Guarantee of each Subsidiary Guarantor will rank pari passu in right of payment to all existing and future Senior Indebtedness of such Subsidiary Guarantor. The obligations of each Subsidiary Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. The net worth of any Subsidiary Guarantor for such purpose shall include any claim of such Subsidiary Guarantor against the Company for reimbursement and any claim against any other Subsidiary Guarantor for contribution. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. See "—Certain Covenants—Mergers, Consolidations and Sale of Assets" and "—Asset Sales."

Maturity and Interest

        The Notes will mature on July 1, 2008. Interest will be payable on the Notes in cash at the rate of 13.0% per annum on each July 1 and January 1, commencing on January 1, 2004, to holders of record on the immediately preceding June 15 and December 15. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Upon a Default or an Event of Default, the applicable rate of interest in effect at such time with respect to the Notes will be increased by 2.0% per annum. In the event that such default interest becomes applicable, the Company shall be required to pay a minimum amount of default interest equal to 1/6th of 1.0% of the principal amount of the Notes (regardless of how long the Default or Event of Default actually lasts). Interest on the Notes will also increase if the Company fails to fulfill its obligations under the Registration Rights Agreement. See "—Exchange Offer; Registration Rights." The Notes will be payable both as to principal and interest at the office or agency of the Company, or, at the option of the Company, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes. Until otherwise designated by the Company, the Company's office or agency will be the office of the Trustee maintained for such purpose.

Redemption

Optional Redemption.

        The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2004, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon to the date of redemption:

Year	Percentage
2004	104.000	%
2005	103.000	%
2006	102.000	%
2007	101.000	%
On July 1, 2008	100.000	%

        Notwithstanding the foregoing, at any time on or prior to July 1, 2004, the Company may redeem up to 33¹/3% of the aggregate principal amount of the Notes originally issued at a redemption price of

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113.000% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date, with the net proceeds of any Equity Offering; provided that at least 66²/3% of the aggregate principal amount of the Notes originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption occurs within 90 days of the date of the closing of such Equity Offering.

        If fewer than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee deems to be fair and appropriate; provided that Notes of $1,000 or less may not be redeemed in part. Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each holder to be redeemed at such holder's registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the date of redemption, interest will cease to accrue on the Notes or portions of Notes called for redemption.

Repurchase upon Change of Control

        Upon the occurrence of a Change of Control, the Company will be required (1) to notify the Trustee in writing thereof and to offer to repurchase all or any part (equal to $1,000 of principal at maturity or an integral multiple thereof) of each holder's Notes pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof on the date of purchase, plus accrued interest thereon, if any, through the date of purchase (the "Change of Control Payment") and (2) immediately deposit with the Payment Agent an amount equal to 101% of the aggregate principal amount of Notes outstanding on such date plus accrued interest thereon through the Change of Control Payment Date. Within 30 days following any Change of Control, the Company shall mail a notice to each holder stating:

        (1) that the Change of Control Offer is being made pursuant to the covenant entitled "Limitation on Change of Control" in the Indenture and that all Notes tendered will be accepted for payment;

        (2) the purchase price and the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date");

        (3) that any Note not tendered will continue to accrue interest;

        (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date;

        (5) that holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

        (6) that holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Notes delivered for purchase and a statement that such holder is withdrawing his election to have such Notes purchased; and

        (7) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or an integral multiple

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thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes in connection with a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the "Limitation on Change of Control" covenant of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Limitation on Change of Control" covenant of the Indenture by virtue thereof.

        On or before the the Change of Control Payment Date, the Company will, to the extent lawful:

        (1) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer,

        (2) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the amount of the Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of the Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Trustee shall promptly authenticate and mail to each holder a new Note equal in principal amount to the unpurchased portion of the Notes surrendered, if any, to the Change of Control Payment Date; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date, and

        (3) in the event that the Change of Control Payment is less than the amount deposited with the Paying Agent, the Paying Agent (as soon as practicable after the Change of Control Payment Date) shall release to the Company such excess amount.

        There can be no assurance that sufficient funds will be available at the time of any Change of Control Offer to make required repurchases. The Company's failure to comply with the covenant described above, including failure to pay the repurchase price, will be an Event of Default under the Indenture.

Certain Bankruptcy Limitations

        The right of the Collateral Agent to repossess and dispose of the collateral upon the occurrence of an Event of Default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against the Company or any of its Subsidiaries prior to the Collateral Agent having repossessed and disposed of the collateral. Under the Bankruptcy Code, a secured creditor such as the Collateral Agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the Notes could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the collateral or whether or to what extent holders of the Notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of "adequate protection."

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Certain Covenants

        Restricted Payments.    The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly:

        (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Capital Stock) of the Company or dividends or distributions payable to the Company or any Wholly-Owned Subsidiary of the Company);

        (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly-Owned Subsidiary of the Company and other than any such purchase, redemption or acquisition constituting a Permitted Investment);

        (iii) voluntarily purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes; or

        (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments") unless, at the time of such Restricted Payment:

        (a)   no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;

        (b)   immediately after giving effect to such transaction, on a pro forma basis as if such transaction had occurred at the beginning of the applicable four-quarter period, the Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant entitled "Incurrence of Additional Indebtedness and Issuance of Preferred Stock" below; and

        (c)   the amount of such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the Issue Date, is less than the sum of (x) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale of Equity Interests of the Company (other than Equity Interests sold to a Subsidiary of the Company and other than Disqualified Capital Stock) since the Issue Date, plus (z) 100% of the Net Cash Proceeds received by the Company from the issuance or sale, other than to a Subsidiary of the Company, of any debt security of the Company that has been converted into Equity Interests of the Company (other than Disqualified Capital Stock) since the Issue Date. For purposes of this clause (c) the amount of any Restricted Payment paid in property other than cash shall be the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company.

        If no Default or Event of Default shall have occurred and be continuing, the foregoing provisions will not prohibit:

        (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture;

        (ii) the redemption, repurchase, retirement or other acquisition of any Indebtedness or Equity Interests of the Company in exchange for, or solely out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Capital Stock);

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        (iii) the redemption, repurchase or payoff of Purchase Money Obligations;

        (iv) the redemption, repurchase or payoff of any Indebtedness (including Existing Indebtedness) with proceeds of any Refinancing Indebtedness permitted to be incurred under "Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock";

        (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any officer or employee of the Company or its Subsidiaries; provided, however, that the aggregate amount of all such repurchases, redemptions and other acquisitions and retirements under this clause (v) on or after the Issue Date shall not exceed $1 million;

        (vi) the purchase or other acquisition of Warrants required by the terms of the Warrant Agreement;

        (vii) payments or distributions to dissenting stockholders required by applicable law pursuant to or in connection with a consolidation, merger or Asset Sale that complies with all applicable provisions of the Indenture;

        (viii) application of the proceeds from the issuance of the Notes on the Issue Date as described under "Use of Proceeds"; and

        (ix) the repurchase, redemption or other repayment of the Series Z Preferred Stock to be issued upon the closing of the Equity Restructuring in the event of a Change of Control in accordance with the mandatory redemption provision of the Series Z Certificate of Designations contemplated by the Equity Restructuring Agreement; provided that, in accordance with the provisions of "Repurchase Upon a Change of Control," prior to such repurchase, redemption or other repayment the Paying Agent has received a deposit of an amount equal to 101% of the aggregate principal amount of the Notes outstanding on the date of the Change of Control, plus accrued interest thereon through the Change of Control Payment Date (as evidenced by an acknowledgment of receipt of such deposit by the Paying Agent) prior to such repurchase, redemption or other repayment.

        The Board of Directors may designate any Subsidiary to be a Non-Restricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greatest of (i) the net book value of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if the Subsidiary so designated otherwise meets the definition of an Non-Restricted Subsidiary.

        Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the "Restricted Payments" covenant were computed, which calculations may be based upon the Company's latest available quarterly financial statements.

        Incurrence of Additional Indebtedness and Issuance of Disqualified Capital Stock.    The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to (collectively, "incur") any Indebtedness (other than Permitted Indebtedness), and the Company will not issue any Disqualified Capital Stock; provided, however, that the Company may (A) issue shares of Disqualified Capital Stock pursuant to a Qualified Recapitalization and (B) incur Indebtedness or issue shares of Disqualified Capital Stock, if (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and (ii) the Fixed Charge Coverage Ratio for the Company's most

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recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Capital Stock is issued would have been at least equal to 2:25:1.00, determined on a pro forma basis as if the additional Indebtedness had been incurred, or the Disqualified Capital Stock had been issued, as the case may be, at the beginning of such four-quarter period.

        Asset Sales.    In addition to any restrictions imposed with respect to the sale of assets constituting Collateral, the Company will not, and will not permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company or the Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors of the Company set forth in an Officers' Certificate delivered to the Trustee) of the assets or Properties issued or sold or otherwise disposed of and (ii) at least 85% of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are Subordinated Indebtedness or otherwise by their terms subordinated to the Notes or the Subsidiary Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability and (y) any notes or other obligations received by the Company or any such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash within 180 days of closing such Asset Sale (to the extent of the cash received) shall be deemed to be cash for purposes of this provision.

        Within 180 days after the receipt of any Net Cash Proceeds from any Asset Sale, the Company may (i) apply all or any of the Net Cash Proceeds therefrom to permanently repay (and, in the case of revolving borrowings, to correspondingly reduce commitments with respect thereto) Indebtedness under the Senior Credit Facility or other Indebtedness having a Lien on the property that was the subject of such Asset Sale (but only to the extent such Lien was a Permitted Lien), or (ii) invest all or any part of the Net Cash Proceeds thereof in properties and other assets that replace the properties or other assets that were the subject of such Asset Sale or in other properties or other assets that will be used in the business of the Company or its Subsidiaries as existing on the Issue Date. Pending the final application of any such Net Cash Proceeds, the Company may temporarily reduce borrowings under any revolving credit facility or otherwise invest such Net Cash Proceeds in any manner that is not prohibited by the Indenture. Any Net Cash Proceeds from an Asset Sale that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Available Proceeds Amount." When the aggregate Available Proceeds Amount exceeds $2 million, the Company shall make an offer to purchase, from all Holders of the Notes and any then outstanding Pari Passu Indebtedness required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Notes and any such Pari Passu Indebtedness equal to such Available Proceeds Amount as follows:

          (i)  (A) The Company shall make an offer to purchase (an "Asset Proceeds Offer") from all Holders of the Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1,000) of Notes that may be purchased out of an amount (the "Payment Amount") equal to the product of such Available Proceeds Amount multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and such Pari Passu Indebtedness, if any (subject to proration in the event such amount is less than the aggregate Offered Price (as defined in clause (ii) below) of all Notes tendered), and (B) to the extent required by any such Pari Passu Indebtedness and provided there is a permanent reduction in the principal amount of such Pari Passu Indebtedness, the Company shall make an offer to purchase such Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu

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Indebtedness Amount") equal to the excess of the Available Proceeds Amount over the Payment Amount.

         (ii)  The offer price for the Notes shall be payable in cash in an amount equal to 100% of the principal amount of the Notes tendered pursuant to an Asset Proceeds Offer, plus accrued and unpaid interest, if any, to the date such Asset Proceeds Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offered Price of the Notes tendered pursuant to an Asset Proceeds Offer is less than the Payment Amount relating thereto or the aggregate amount of the Pari Passu Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall constituting an "Asset Proceeds Deficiency"), the Company may use such Asset Proceeds Deficiency, or a portion thereof, for general corporate purposes, subject to the limitations of the "Limitation on Restricted Payments" covenant.

        (iii)  If the aggregate Offered Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the Payment Amount, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Net Proceeds Offer and Pari Passu Offer, the Available Proceeds Amount shall be reset to zero.

        The Payment Amount may be reduced by the principal amount of Notes acquired by the Company through purchase or redemption (other than pursuant to a Change of Control Offer) subsequent to the date of the Asset Sale and surrendered to the Trustee for cancellation.

        The Company will not permit any Subsidiary to enter into or suffer to exist any agreement (excluding Permitted Liens) that would place any restriction of any kind (other than pursuant to law or regulation) on the ability of the Company to make an Asset Proceeds Offer following any Asset Sale. The Company will comply with Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder, if applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above.

        Limitations on Issuances and Sales of Capital Stock of Subsidiaries.    The Company will not cause or permit any of its Subsidiaries to issue or sell any Capital Stock (other than director's qualifying shares and other than to the Company or to a Wholly-Owned Subsidiary of the Company) or permit any Person (other than the Company or a Wholly-Owned Subsidiary of the Company) to own or hold any Capital Stock of any Subsidiary of the Company or any Lien or security interest therein other than the sale of Qualified Capital Stock of Einstein pursuant to an underwritten Primary Offering so long as it remains a Subsidiary Guarantor of the Company.

        Limitation on Liens.    The Indenture provides that neither the Company nor any of its Subsidiaries may, directly or indirectly, incur any Lien, except Permitted Liens, against or upon any property or assets now owned or hereafter acquired by the Company or any of its Subsidiaries, or any income or profits therefrom, or assign or convey any right to receive income or profits therefrom.

        Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries.    The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrances or restrictions on the ability of any such Subsidiary to:

        (i) pay dividends or make any other distributions to the Company or any of its Subsidiaries (A) on such Subsidiary's Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any of its Subsidiaries; or

        (ii) make loans or advances to the Company or any of its Subsidiaries; or

        (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (1) applicable law; (2) the Indenture,

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the Notes and Senior Credit Facility and any related documents; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Subsidiary of the Company; (4) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; or (5) an agreement governing Indebtedness incurred to refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2) or (4) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in its reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2) or (4).

        Merger, Consolidation or Sale of Assets.    The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets to, another corporation, Person or entity unless:

        (i) the Company is the surviving corporation, or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia;

        (ii) the entity or person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made assumes all the obligations of the Company under the Collateral Agreements, the Registration Rights Agreement, the Intercreditor Agreement and all obligations of the Company under the Notes and the Indenture, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee;

        (iii) immediately after such transaction (including giving effect to any Indebtedness and Acquired Debt incurred or expected to be incurred in connection with or in respect of such transaction and to any assumption required by clause (ii) above) no Default or Event of Default exists;

        (iv) the Company or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease conveyance or other disposition will have been made (A) will have Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Indenture and will have a Fixed Charge Coverage Ratio, determined on a pro forma basis, greater than or equal to the Fixed Charge Coverage Ratio of the Company immediately prior to the transaction; and

        (v) the Company or the entity or Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and any supplemental indenture required in connection with such transaction comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied.

        For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the

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properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.

        The Indenture provides that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes, the Collateral Agreements, the Registration Rights Agreement and the Intercreditor Agreement with the same effect as if such surviving entity had been named as such.

        Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Subsidiary Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction made in compliance with the provisions of "—Asset Sales") will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets, other than the Company or any other Subsidiary Guarantors unless:

        (i) the entity formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor), or to which such disposition shall have been made, is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia;

        (ii) such entity assumes by supplemental indenture all of the obligations of the Subsidiary Guarantor on the Subsidiary Guarantee;

        (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and

        (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (iv) of the first paragraph of this covenant. Any merger or consolidation of a Subsidiary Guarantor with and into the Company (with the Company being the surviving entity) or another Subsidiary Guarantor need only comply with clause (iv) of the first paragraph of this covenant.

        Limitations on Transactions with Affiliates.    The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any services) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the next succeeding paragraph and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2 million shall be approved by a majority of the disinterested members of the Board of Directors of the Company, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any such Subsidiary enters into an Affiliate Transaction (or a series of related Affiliate Transactions which are similar or part of a common plan) that involves an aggregate fair market value of more than $5 million, the Company or such subsidiary, as the case may be shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company from a financial point of view from an Independent Financial Advisor and deliver such opinion to the Trustee.

        The restrictions set forth in the preceding paragraph shall not apply to: (i) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or

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consultants of the Company or any Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (ii) transactions exclusively between or among the Company and any of its Wholly-Owned Subsidiaries or exclusively between or among such Wholly-Owned Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; (iii) Restricted Payments not prohibited by the Indenture; and (iv) the transactions contemplated by the Equity Restructuring Agreement.

        Subsidiary Guarantees.    If the Company or any of its Subsidiaries shall organize or acquire any Person that becomes a Subsidiary, then such Subsidiary shall:

        (i) execute and deliver to the Trustee a supplemental indenture in a form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee on a senior secured basis all of the Company's obligations under the Notes, the Indenture and the Senior Credit Facility;

        (ii) promptly, (A) execute and deliver to the Collateral Agent and the Trustee such amendments to the Collateral Agreements as the Collateral Agent deems necessary or advisable in order to grant to the Collateral Agent, for the benefit of the Holders and the Lenders, a perfected first priority security interest in the Equity Interests and debt securities of such new Subsidiary which are owned by the Company or any Subsidiary and required to be pledged pursuant to the Security Agreement, (B) deliver to Collateral Agent the certificates representing such Equity Interests (to the extent such Equity Interests are certificated) and debt securities, together with (1) in the case of such certificated Equity Interests, undated stock powers endorsed in blank, and (2) in the case of such debt securities, endorsed in blank, in each case executed and delivered by a Officer of the Company or such Subsidiary, as the case may be, and (C) cause such new Subsidiary to take such actions necessary or advisable to grant to the Collateral Agent for the benefit of the Holders a perfected first priority security interest in the collateral described in the Pledge and Security Agreement with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Pledge and Security Agreement or by law or as may be reasonably requested by the Collateral Agent;

        (iii) deliver to the Trustee and the Collateral Agent an opinion of counsel that such supplemental indenture and any other documents required to comply with clause (ii) above have been duly authorized, executed and delivered by such new Subsidiary, and the supplemental indenture and each such other document constitutes a legal, valid binding and enforceable obligation of such new Subsidiary; and

        (iv) take such further action and execute and deliver such other documents specified in the Indenture or otherwise reasonably requested by the Trustee or the Collateral Agent to effectuate the foregoing. The Company may transfer, in any one transaction or a series of related transactions, any collateral to any Subsidiary Guarantor if such transferee Subsidiary Guarantor shall have complied with the requirements of clauses (i) through (iv) above; provided that the guarantee referred to in clause (i) above shall be secured by, in addition to any collateral existing in such Subsidiary Guarantor, the collateral so transferred.

        Impairment of Security Interest.    Subject to the Intercreditor Agreement, and except as otherwise provided in the Indenture, neither the Company nor any of its Subsidiaries will take or omit to take any action which would adversely affect or impair the Security Interests in favor of the Collateral Agent, on behalf of itself, the Trustee and the holders of the Notes, with respect to the Collateral. Neither the Company nor any of its Subsidiaries shall grant to any Person, or permit any Person to retain (other than the Trustee), any interest whatsoever in the Collateral other than Liens on the Collateral securing the Senior Credit Facility and Permitted Liens. Neither the Company nor any of its Subsidiaries will enter into any agreement that requires the proceeds received from any sale of Collateral to be applied to repay, redeem, defease or otherwise acquire or retire any Indebtedness of any Person, other than as permitted or required by the Indenture, the Notes, the Senior Credit Facility,

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the Intercreditor Agreement and the Collateral Agreements. The Company shall, and shall cause each Guarantor to, at their sole cost and expense, execute and deliver all such agreements and instruments as the Collateral Agent or the Trustee shall reasonably request to more fully or accurately describe the property intended to be Collateral or the obligations intended to be secured by the Collateral Agreements. The Company shall, and shall cause each Subsidiary to, at their sole cost and expense, file any such notice filings or other agreements or instruments as may be reasonably necessary or desirable under applicable law to perfect the Liens created by the Collateral Agreements at such times and at such places as the Collateral Agent or the Trustee may reasonably request.

        Reports to Holders.    The Indenture provides that, whether or not required by the rules and regulations of the Securities and Exchange Commission, so long as any Notes are outstanding, the Company will furnish the holders of Notes:

        (1)   all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants; and

        (2)   all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations.

        In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing). In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

        Real Estate Mortgages and Filings.    With respect to any real property (individually and collectively, the "Premises") (i) acquired by the Company or a Subsidiary Guarantor after the Issue Date for a purchase price of greater than $1,000,000 or (ii) owned by the Company or a Subsidiary Guarantor on the Issue Date:

        (a)   the Company shall deliver to the Collateral Agent, as mortgagee, fully executed counterparts of Mortgages, each dated as of the date of acquisition of such property, duly executed by the Company or the applicable Subsidiary Guarantor, together with (i) evidence of the completion (or satisfactory arrangements for the completion), of all recordings and filings of such Mortgage as may be necessary or, in the reasonable opinion of the Collateral Agent desirable, to create a valid, perfected Lien, subject to Permitted Liens, against the properties purported to be covered thereby;

        (b)   the Collateral Agent shall have received mortgagee's title insurance policies in favor of the Collateral Agent, as mortgagee for the ratable benefit of the Collateral Agent, the Trustee and the Holders in amounts and in form and substance and issued by insurers, reasonably satisfactory to the Initial Purchaser, with respect to the property purported to be covered by such Mortgage, insuring that title to such property is marketable and that the interests created by the Mortgage constitute valid first Liens thereon free and clear of all defects and encumbrances other than Permitted Liens, and such policies shall also include, to the extent available, a revolving credit

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endorsement and such other endorsements as the Initial Purchaser shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon; and

        (c)   the Company shall deliver to the Collateral Agent, with respect to each of the covered Premises, filings, surveys, local counsel opinions and fixture filings, in each case in form and substance reasonably acceptable to the Initial Purchaser and its counsel, along with such other documents, instruments, certificates and agreements as the Initial Purchaser and its counsel shall reasonably request.

        None of the Company or any Subsidiary shall execute and deliver any Mortgage in respect of any such property in favor of the holders of the Notes unless and until a Mortgage is delivered to the Senior Lender pursuant to the Senior Credit Facility with respect to such property.

        Leasehold Mortgages and Filings.    The Company and each of its Subsidiaries shall (i) use its commercially reasonable efforts to deliver Mortgages with respect to the Company's leasehold interests in the premises (the "Leased Premises") occupied by the Company pursuant to leases of store properties entered into prior to the Issue Date (collectively, the "Existing Leases") and (ii) deliver Mortgages with respect to leases of new store properties occupied by the Company pursuant to leases entered into after the Issue Date; provided, that if after using its commercially reasonable efforts, the Company is unable to obtain Mortgages on any or all Leased Premises occupied pursuant to Existing Leases or Leased Premises having an aggregate value not in excess of 15% of all of the Company's leasehold interests with respect to new store properties occupied by the Company pursuant to leases entered into after the Issue Date, such failure will not be a breach of the covenant (together with the Existing Leases, the "Leases").

        Prior to the effective date of any Lease, the Company and such Subsidiaries shall use their commercially reasonable efforts to provide to the Trustee all of the items described in clauses (b) and (c) of "Real Estate Mortgages and Filings" above and in addition shall provide an agreement executed by the lessor of the Lease, whereby the lessor consents to the Mortgage and waives or subordinates its landlord Lien (whether granted by the instrument creating the leasehold estate or by applicable law) and which shall be entered into by the Trustee, as "Mortgagee" thereunder.

        Limitation on Capital Expenditure.    The aggregate amount of Capital Expenditures made by the Company and its Subsidiaries in any twelve-month period shall not exceed $20.0 million.

        Minimum Consolidated Adjusted EBITDA.    The Company will not permit Adjusted EBITDA during any twelve-month period ending as of the last day of each fiscal quarter to be less than $33,000,000.

        Use of Proceeds.    The Company will use the proceeds of the Offering to repay (i) the $140,000,000 aggregate principal amount of the Company's Senior Secured Increasing Rate Notes due 2003 and (ii) all other Indebtedness of the Company existing on the date hereof (other than Existing Indebtedness).

Payments for Consent

        Neither the Company nor any of the Company's Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for, or as inducement to, any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all holders of Notes then outstanding that consent, waive or agree to amend any of such terms or provisions in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

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Events of Default and Remedies

        The Indenture provides that each of the following constitutes an Event of Default: (i) the Company fails to pay interest on any Notes when the same become due and payable and such default continues for a period of 10 days; (ii) default by the Company in payment of principal (or premium, if any) on any Notes at maturity, upon redemption, by acceleration or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer); (iii) failure by the Company or any of its Subsidiaries to comply with any of its other agreements or covenants in, or provisions of, the Indenture, the Notes or any of the Collateral Agreements, which default continues for a period of 30 days after the Company has received written notice specifying the default; (iv) default under (after giving effect to any applicable grace periods or any extension of any maturity date) any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Subsidiaries whether such Indebtedness now exists, or is created after the date of the Indenture (but in no case including any default under the Senior Credit Facility triggered by the occurrence of a Change of Control or similar event unless the Lenders under the Senior Credit Facility have accelerated the Indebtedness thereunder as a result of such default), if (a) either (1) such default results from the failure to pay principal of or interest on such Indebtedness or (2) as a result of such default the maturity of such Indebtedness may be accelerated, and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which a default (after the expiration of any applicable grace period or any extension of the maturity date) has occurred, or the maturity of which may be so accelerated, exceeds $2 million in the aggregate; (v) failure by the Company or any of its Subsidiaries to pay final judgments (other than any judgment as to which a reputable insurance company has accepted full liability in writing or any judgment disclosed in the "Business—Legal Proceedings" section of this Prospectus) aggregating in excess of $2 million which judgments are not stayed or dismissed within 60 days after their entry; (vi) certain events of bankruptcy or insolvency with respect to the Company, any Subsidiary Guarantor or any of the Company's Subsidiaries; and (vii) any Subsidiary Guarantee for any reason ceases to be in full force and effect or becomes or is declared to be null and void, unenforceable or invalid or any Subsidiary Guarantor denies its obligations under its Subsidiary Guarantee.

        If any Event of Default (other than an Event of Default set forth in clause (vi) of the preceding paragraph) occurs and is continuing and has not been waived, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may by written notice declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become immediately due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trustee power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest.

        The holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Trustee, may on behalf of the holders of all the Notes (a) waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes, or (b) rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived.

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No Personal Liability of Directors, Officers, Employees and Stockholders

        No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Notes, the Indenture, the Registration Rights Agreement or any Collateral Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creations. Each holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive certain liabilities under the federal securities laws, and it is the view of the Commission that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

        The Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.

        In order to exercise either Legal Defeasance or Covenant Defeasance (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders, cash in U.S. dollars, noncallable U.S. government obligations or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes at the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91^st day after the date of deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Notes concurrently with such incurrence); (v) such deposit and Legal

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Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party to or by which the Company or any of its Subsidiaries is a party or by which it or any of their property or assets is bound; (vi) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91^st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain customary conditions precedent are satisfied.

Satisfaction and Discharge

        The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (1) have become due and payable, (2) will become due and payable at their stated maturity within one year or (3) are called for redemption within one year under an arrangement satisfactory to the Trustee, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.

Possession, Use and Release of Collateral

        Unless an Event of Default shall have occurred and be continuing, the Company shall have the right to remain in possession and retain exclusive control of the collateral securing the Notes (other than as set forth in the Collateral Agreements), to freely operate the collateral and to collect, invest and dispose of any income therefrom.

        Release of Collateral.    Upon compliance by the Company with the conditions set forth below in respect of any release of items of collateral, and upon delivery by the Company to the Collateral Agent of an opinion of counsel to the effect that such conditions have been met, the Collateral Agent will release the Released Interests from the Lien of the Collateral Agreements and reconvey the Released Interests to the Company; provided, however, that the Company is not required to comply with such conditions with respect to any release or withdrawal of inventory, receivables and cash from the Company's deposit accounts in the ordinary course of the Company's business.

        Asset Sale Release.    The Company has the right to obtain a release of items of collateral (the "Released Interests") subject to an Asset Sale permitted hereunder upon compliance with the condition that the Company deliver to the Collateral Agent the following:

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        (a)   a notice from the Company requesting the release of Released Interests: (i) describing the proposed Released Interests; (ii) specifying the value of such Released Interests on a date within 60 days of such notice (the "Valuation Date"); (iii) stating that the purchase price received is at least equal to the fair market value of the Released Interests; (iv) stating that the release of such Released Interests would not be expected to interfere with the Collateral Agent's ability to realize the value of the remaining collateral and will not impair the maintenance and operation of the remaining collateral; and (v) certifying that such Asset Sale complies with the terms and conditions of the Indenture with respect thereto; and

        (b)   an Officers' Certificate of the Company stating that: (i) such Asset Sale covers only the Released Interests and complies with the terms and conditions of the Indenture with respect to Asset Sales; (ii) there is no Default or Event of Default in effect or continuing on the date thereof, the Valuation Date or the date of such Asset Sale; (iii) the release of the collateral will not result in a Default or Event of Default under the Indenture; and (iv) all conditions precedent in the Indenture relating to the release in question have been or will be complied with.

        (c)   in connection with release of Collateral resulting from an Asset Sale under "—Certain Covenants—Assets Sales," the Net Cash Proceeds and other non-cash consideration from the Asset Sale required to be delivered to the Collateral Agent pursuant to the Indenture;

        (d)   to the extent required by the Trust Indenture Act, an Officers' Certificate of the Company and an opinion of counsel certifying that all conditions precedent to the release of the released interests have been met and that such release complies with the terms and conditions of the Indenture, the applicable Collateral Agreements and to the extent applicable, the Intercreditor Agreement; and

        (e)   all applicable certificates, opinions and other documentation required by the Trust Indenture Act or the Indenture, if any. Upon compliance by the Company with the conditions precedent set forth above, the Trustee shall cause to be released and reconveyed, without recourse and without representation or warranty of any kind, to the Company, the released interests.

Transfer and Exchange

        A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption in whole or in part pursuant to the Indenture, except the unredeemed portion of any Note being redeemed in part. Also, the Company is not required to transfer or exchange any Note commencing at the opening of business 15 days before the day of any selection of Notes to be redeemed and ending at the close of business on such day of selection. The registered holder of a Note will be treated as the owner of such Note for all purposes.

Amendment, Supplement and Waiver

        Except as provided in the next succeeding paragraph, the Indenture or the Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes) and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then-outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes).

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        Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder of the Notes): (i) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of, or the premium on, or change the fixed maturity of, any Note or alter the provisions with respect to the redemption of the Notes or alter the provisions with respect to repurchases or redemptions of the Notes upon a Change of Control; (iii) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (iv) waive a continuing Default or Event of Default in the payment of principal of or premium, if any, or interest on any Note (other than a Default in the payment of an amount due as a result of an acceleration, where such acceleration is rescinded pursuant to the Indenture); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of or interest on the Notes; (vii) waive a redemption payment with respect to any Note; (viii) modify or change any provision of the Indenture affecting the ranking of the Notes in a manner which adversely affects the holders of Notes; or (ix) release all or substantially all of the Collateral.

        Notwithstanding the foregoing, without the consent of any holder of the Notes, the Company may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency (provided that such amendment or supplement does not adversely affect the rights of any holders), to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the holders of the Notes or that does not adversely affect the legal right under the Indenture of any such holder or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.

Concerning the Trustee

        The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.

        The holders of a majority in principal amount of the then-outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of the Notes, unless such holder shall have offered to the Trustee an indemnity satisfactory to it against any loss, liability or expense.

Additional Information

        Anyone who receives this Prospectus may obtain a copy of the Indenture without charge by writing to New World Restaurant Group, Inc., 1687 Cole Boulevard, Golden, Colorado 80401, Attn: Chief Executive Officer.

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Certain Definitions

        Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person, excluding Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

"Adjusted EBITDA" means with respect to any fiscal period of the Company and its Subsidiaries, the net income of the Company and its consolidated Subsidiaries after provision for income taxes for such fiscal period, as determined in accordance with GAAP on a consolidated basis and reported on the financial statements for such period, excluding the effect of any and all of the following included in the calculation of such net income: (a) gain or loss arising from the sale or other disposal of any capital assets; (b) gain or loss arising from any write-up in the book value of any asset; (c) earnings or losses of any corporation or other Person, substantially all the assets of which have been acquired by the Company or any of its consolidated Subsidiaries in any manner, to the extent realized by such other corporation or Person prior to the date of acquisition; (d) earnings or losses of any business entity (other than the Company's consolidated Subsidiaries) in which the Company or any of its consolidated Subsidiaries has an ownership interest to the extent such earnings or losses are not actually received or paid for by the Company or any of its consolidated Subsidiaries in the form of cash; (e) earnings or losses of any Person to which assets of the Company or any of its consolidated Subsidiaries shall have been sold, transferred or disposed of, or into which the Company or any of its consolidated Subsidiaries shall have been merged, or which has been a party with the Company or any of its consolidated Subsidiaries to any consolidation or other form of reorganization, prior to the date of such transaction; (f) gain or loss arising from the acquisition of debt or equity securities of the Company or any of its consolidated Subsidiaries or from cancellation or forgiveness of Indebtedness; (g) gain and non-cash losses arising from extraordinary items, as determined in accordance with GAAP; (h) legal, accounting, financing, consulting, advisory and other out-of-pocket fees and expenses incurred in connection with debt financings, equity financings, acquisitions and/or divestitures (including without limitation, the Offering and the Equity Restructuring), whether or not such transactions are consummated; (i) fees and expenses related to store closures; (j) legal fees related to the pending Commission and Department of Justice investigations and other litigation pending as of the Issue Date and litigation related to the subject matter thereof or related thereto commenced after the Issue Date; (k) expenses relating to the cumulative change in the fair value of derivatives, estinguishments of debt or equity (including, without limitation, in connection with the Equity Restructuring), impairments, other income/expense, and reorganization costs, expenses or provisions; (l) any other non-recurring expenses; (m) the sum of the provisions for income tax, interest expense, depreciation and amortization expense, in each case, to the extent deducted in determining net income for such period; and (n) any other noncash charge or expense to the extent such charge or expense does not relate to a future cash payment obligation, including, without limitation, noncash compensation expense. Net income for any period will be determined by expensing (and not capitalizing) all costs associated with the opening of new retail locations other than Capital Expenditures consisting of fixtures, furniture, leasehold and improvements and equipment.

"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any specified Person, shall mean the

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possession, directly or indirectly, of the power to direct or cause the direction of the management of policies of such specified Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the aggregate voting power of the voting securities of a Person shall be deemed to be control.

"Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly-Owned Subsidiary of the Company of (a) any Capital Stock of any Subsidiary of the Company; or (b) any other property or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business and other than franchising of company-operated stores in the ordinary course of business (excluding sales of franchise rights and royalties); provided, however, that Asset Sales shall not include a transaction or series of related transactions for which the Company or its Subsidiaries receive aggregate consideration of less than $1.0 million.

"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors.

"Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.

"Board Resolution" means, with respect to any Person, a copy of a resolution delivered to the Trustee and certified by the secretary or an assistant secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification.

"Capital Expenditures" shall mean, for any period any direct or indirect (by way of acquisition of securities of a Person or the expenditure of cash or the transfer of Property or the incurrence of Indebtedness) expenditures in respect of the purchase or other acquisition of fixed or capital assets determined in conformity with GAAP, excluding (i) normal replacement and maintenance programs properly charged to current operations, and (ii) the purchase price of equipment to the extent that the consideration therefor consists of used or surplus equipment being traded in at such time or the proceeds of a concurrent sale of such used or surplus equipment, net of proceeds from franchising of company-operated stores during such period.

"Capital Lease Obligation" means, as to any Person, the obligations of such Person under a lease that is required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP.

"Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock and any and all warrants, options and rights with respect thereto, including, without limitation, each class of common stock and preferred stock, partnership interests and other indicia of ownership of such Person.

"Cash Equivalents" means: (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America; (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof; (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase agreements that are secured by a perfected security interest in an

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obligation described in clause (i) and are with any bank described in clause (iii); (v) money market accounts with any bank having capital surplus and undivided profits aggregating at least $500 million; (vi) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group; and (vii) money market funds investing only in U.S. Government Obligations.

"Change of Control" means any transaction or event occurring on or after the date hereof as a direct or indirect result of which (a) any Person or any group (other than the Permitted Holders) shall (A) beneficially own (directly or indirectly) in the aggregate Equity Interests of the Company having more than 50% of the aggregate voting power of all Equity Interests of the Company at the time outstanding or (B) have the right or power to appoint a majority of the board of directors of the Company; (b) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of the Company (together with any new directors whose election by such board of directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the board of directors of the Company then in office; or (c) any event or circumstance constituting a "change of control" under any documentation evidencing or governing any Indebtedness of any Company in a principal amount in excess of $10.0 million (other than under the Indenture) shall occur which results in an obligation of any Company to prepay (by acceleration or otherwise), purchase, offer to purchase, redeem or defease all or a portion of such Indebtedness.

        The terms "beneficially own," "beneficial owner" and "Group" shall have the meanings ascribed to such terms in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that, for the purposes of this definition of "Change of Control" only, any Person or Group other than the Permitted Holders shall be deemed to be the current beneficial owner of any shares of Voting Stock of the Company, or any interests or participations in, or measured by the profits of, the Company, that are issuable upon the exercise of any option, warrant or similar right, or upon the conversion any convertible security, in either case owned by such Person or Group without regard to whether such option, warrant or convertible security is currently exercisable or convertible or will become convertible or exercisable within 60 days if the exercise or conversion price thereof at the time of grant was lower than the fair market value of the underlying security at the time of grant.

"Collateral" shall mean Collateral as such term is defined in the Pledge and Security Agreement, all property mortgaged under the Mortgages and any other property, whether now owned or hereafter acquired, upon which a Lien securing the Obligations is granted or purported to be granted under any Collateral Agreement.

"Collateral Agent" shall mean the Bank of New York, as collateral agent for the Holders under the Pledge and Security Agreement, each Mortgage and the Intercreditor Agreement.

"Collateral Agreements" means, collectively, the Pledge and Security Agreement and each Mortgage, in each case, as the same may be in force from time to time.

"Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation all series and classes of such common stock.

"Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (without duplication) (a) provision for taxes based on

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income or profits to the extent such provision for taxes was included in computing Consolidated Net Income, (b) consolidated interest expense of such Person for such period, whether paid or accrued (including deferred financing costs, non-cash interest payments and the interest component of Capital Lease Obligations), to the extent such expense was deducted in computing Consolidated Net Income, (c) depreciation and amortization (including amortization of intangibles) for such period to the extent such depreciation or amortization were deducted in computing Consolidated Net Income, and (d) all other non-cash charges (excluding any non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case, on a consolidated basis and determined in accordance with GAAP.

"Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly-Owned Subsidiary thereof; (ii) the Net Income of any Person that is a Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock having ordinary voting power for the election of directors or other governing body of such Subsidiary is owned by the referent Person directly or indirectly through one or more Subsidiaries) shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly-Owned Subsidiary thereof; and (iii) the cumulative effect of a change in accounting principles shall be excluded.

"Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person.

"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

"Depository" means The Depository Trust Company, its nominees and successors.

"Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date.

"Equity Interests" means Capital Stock or warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

"Equity Offering" means any sale of Qualified Capital Stock of the Company or any capital contribution to the equity of the Company.

"Equity Restructuring" means the equity restructuring contemplated by the Equity Restructuring Agreement.

"Equity Restructuring Agreement" means the Equity Restructuring Agreement dated as of June 26, 2003, among the Company, Halpern Denny and Greenlight.

"Exchange Offer" means the offer that may be made by the Company, pursuant to the Registration Rights Agreement, to exchange for any and all of the Offered Notes a like aggregate principal amount of Exchange Notes.

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"Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries set forth on Schedule I of the Indenture.

"Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Unless otherwise provided herein, fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee.

"Fixed Charge Coverage Ratio" means, with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio (both the numerator and the denominator therein) shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable period; provided that pro forma effect shall be given to repayments, repurchases or redemptions of Indebtedness or Preferred Stock only to the extent such Indebtedness or Preferred Stock is permanently retired (and, in the case of the Notes, surrendered to the Trustee for cancellation). For purposes of making the computation referred to above, in the event that acquisitions, divestitures, mergers or consolidations have been made by the Company or any of its Subsidiaries subsequent to the commencement of the four-quarter period over which the Fixed Charge Coverage Ratio is being calculated, but prior to the event for which the calculation of the Fixed Charge Ratio is being made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such acquisitions, divestitures, mergers and consolidations as if such transactions had occurred at the beginning of the applicable period. In addition, for purposes of making the computation referred to above during the first four fiscal quarters after the issuance of the Initial Notes, the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to the issuance of the Initial Notes and the use of proceeds therefrom as if it had occurred at the beginning of the applicable four-quarter period.

"Fixed Charges" means, with respect to any Person for any period, the sum of (a) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of non-cash interest payments and the interest component of capital leases but excluding amortization of deferred financing fees and non-cash accretion on securities convertible into Series F Preferred Stock) and (b) the product of (i) all dividend payments, whether paid in cash, assets, securities or otherwise, in the case of a Person that is a Subsidiary of the Company, on any series of preferred stock of such Subsidiary, and all dividend payments in respect of any series of preferred stock of the Company, whether paid in cash, assets, securities or otherwise (other than dividends payable in additional shares of the preferred stock on which such dividends are paid), times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in

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such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture.

"Holder" or "holder" means the Person in whose name a Note is registered on the Registrar's books.

"Inactive Subsidiary" means each of MBC Genesee, LLC, Paragon Bakeries, Inc., Manhattan Bagel Construction Corp., Bay Area Bagel, Inc., DAB Industries, Inc., CR Bagel Leases, Inc., MBC Tonawanda, LLC, MBC North Buffalo, LLC, MBC Northtown, LLC, MBC Cheekotowaga, LLC, MBC Elmwood LLC, MBC Main Place, LLC, MBC Maple, LLC, MBC Orchard Park, LLC, MBC Amherst, LLC, MBC Snyder, LLC, MBC Transit, LLC, and MBC East Aurora, LLC until such time as the Company is in compliance with the corporate existence covenant contained in the Indenture with respect to such entity.

"Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases) or representing any Interest Swap Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing Indebtedness (other than Interest Swap Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, by such Person in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any of the items which would be included within this definition.

"Independent Financial Advisor" means a nationally recognized accounting, appraisal or investment banking firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company or any of its Subsidiaries, (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged and (iii) which has not provided services as a financial advisor, placement agent or underwriter for the Company within three years of the event or transaction which requires the Company to employ an Independent Financial Advisor.

"Intercreditor Agreement" means the intercreditor agreement among the Senior Lender, the Trustee, the Collateral Agent, the Company and the Subsidiary Guarantors, dated as of the Issue Date, as the same may be amended, supplemented or modified from time to time.

"Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreement.

"Investments" means, with respect to any Person, (i) all investments by such Person in other Persons (including Affiliates) in the form of loans (including direct or indirect guarantees), advances or capital contributions (excluding compensation, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP and (ii) the purchase, redemption or other acquisition for value of such Person's Equity Interests.

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"Issue Date" means the date of original issuance of the Offered Notes under the Indenture.

"Lender" means a Person that is not an Affiliate of the Company and is a lender in the Senior Credit Facility.

"Lien" means, with respect to any asset, mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction, excluding true lease and consignment filings).

"Maturity Date" means July 1, 2008.

"Mortgages" means the mortgages, deeds of trust, deeds to secure debt or other similar documents securing liens on the Premises and/or the Leased Premises, as well as the other collateral secured by and described in the mortgages, deeds of trust, deeds to secure debt or other similar documents.

"Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, any extraordinary gain (but not loss), together with any related provisions for taxes on such extraordinary gain (but not loss) plus, to the extent deducted in calculating net income, the amortization of goodwill.

"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes) of the Company or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Subsidiaries.

"Non-Restricted Subsidiaries" means (i) until such time as they may be designated as a Subsidiary in the manner provided below, New World EnbcDeb Corp. and the Inactive Subsidiaries, and (ii) any Subsidiary that is designated by the Board of Directors as a Non-Restricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results, and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "Certain Covenants—Restricted Payments." If, at any time, any Non-Restricted Subsidiary would fail to meet the foregoing requirements as a Non-Restricted Subsidiary, it shall thereafter cease to be an Non-Restricted Subsidiary for purposes of the Indenture and any Indebtedness of such Person shall be deemed to be

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incurred by a Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Incurrence of Additional Indebtedness and Issuance of Preferred Stock," the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Non-Restricted Subsidiary to be a Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of any outstanding Indebtedness of such Non-Restricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "Certain Covenants—Incurrence of Additional Indebtedness and Issuance of Preferred Stock" calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation.

"Non-U.S. Person" means a Person who is not a U.S. Person, as defined in Regulation S.

"Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

"Officer" means, with respect to any Person, the chief executive officer, the president, any vice president, the chief financial officer, the treasurer, the controller, or the secretary of such Person, or any other officer designated by the Board of Directors to serve in a similar capacity.

"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the Notes.

"Permitted Holders" means each of Halpern Denny & Co., NWCI Holdings, LLC, Brookwood New World Investors, LLC, Greenlight Capital, L.P., Greenlight Capital Qualified, L.P., Greenlight Capital Offshore, Ltd., Thomas Weisel Capital Partners, LP, Bruckmann, Rosser, Sherrill & Co. L.L.C., Inc., Triarc Companies, Inc. and their respective Affiliates.

"Permitted Indebtedness" means each of the following:

        (a)   Indebtedness incurred by the Company and its Subsidiaries under the Senior Credit Facility in an aggregate principal amount not to exceed, together with the aggregate principal amount outstanding pursuant to clause (j) below, $20 million at any one time outstanding plus the interest, premiums, penalties (including, without limitation, attorney's fees), costs, expenses and charges incurred under the Senior Credit Facility, reduced by any permanent repayment or permanent reduction of the Senior Credit Facility after the Issue Date which is accompanied by a corresponding permanent commitment reduction pursuant to the "Asset Sales" covenant;

        (b)   Indebtedness of the Company represented by the Offered Notes (whether incurred on the Issue Date or in connection with the Exchange Offer) and any Subsidiary Guarantees thereof;

        (c)   Existing Indebtedness;

        (d)   Indebtedness incurred by the Company or its Subsidiaries in connection with or arising out of Capital Lease Obligations or Purchase Money Obligations; provided that the aggregate principal amount at any one time outstanding of all such Capital Lease Obligations and Purchase Money Obligations does not exceed $5 million;

        (e)   Indebtedness owed by the Company to any of its Subsidiary Guarantors for so long as such Indebtedness is held by a Subsidiary Guarantor of the Company, in each case subject to no Lien (other than a pledge of such Indebtedness to the Lenders under the Senior Credit Facility); provided that (i) any such Indebtedness of the Company is subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Notes and (ii) if as of any

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date any Person other than a Subsidiary Guarantor of the Company owns or holds any such Indebtedness or any such Person holds a Lien in respect of such Indebtedness, such date shall be deemed the date of incurrence of Indebtedness not constituting Permitted Indebtedness of the Company;

        (f)    Indebtedness of a Wholly-Owned Subsidiary of the Company to the Company or to a Wholly-Owned Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly-Owned Subsidiary of the Company and, if such Indebtedness exceeds $500,000 in aggregate principal amount, evidenced by a written promissory note or other instrument in form and substance reasonably satisfactory to the Trustee, in each case subject to no Lien (other than a pledge of such Indebtedness to the Lenders under the Senior Credit Facility); provided that if, as of any date any Person (other than the Lenders under the Senior Credit Facility) owns or holds such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the date of incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness;

        (g)   the incurrence by the Company and its Subsidiaries of Indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund (collectively, "Refinance") Permitted Indebtedness referred to in clauses (b) and (c) above (the "Refinancing Indebtedness"); provided, however, that (i) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness so refinanced (plus accrued interest and the amount of reasonable expenses incurred in connection therewith); (ii) if the Indebtedness being refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinated to the Notes; (iii) if the Indebtedness being refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company; (iv) such Refinancing Indebtedness shall have a Weighted Average Life no less than, and a stated maturity which is no earlier than, that of the Indebtedness being refinanced (without limiting the generality of the foregoing subsection, such Refinancing Indebtedness shall not provide for any payments of principal or interest beyond commercially reasonable interest of such Refinancing Indebtedness prior to the payment in full of all Obligations under the Notes); and (v) the Indebtedness so refinanced is permanently retired (and, in case of the Notes, surrendered to the Trustee for cancellation);

        (h)   Interest Swap Obligations of the Company covering Indebtedness of the Company or any of its Subsidiaries and Interest Swap Obligations of any Subsidiary covering Indebtedness of such Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates;

        (i)    Indebtedness in respect of bid, performance or surety bonds issued for the account of the Company or any Subsidiary thereof in the ordinary course of business, including guarantees or obligations of the Company or any Subsidiary thereof with respect to letters of credit supporting such bid, performance or surety obligations (in each case other than for an obligation for money borrowed);

        (j)    Indebtedness of the Company represented by additional Notes and any Subsidiary Guarantees thereof in an aggregate principal amount not to exceed, together with the aggregate principal amount outstanding pursuant to clause (a) above, $20 million at any one time outstanding, reduced by any permanent repayment or permanent reduction of the Senior Credit Facility after the Issue Date which is accompanied by a corresponding permanent commitment reduction pursuant to the "Asset Sales" covenant; and

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        (k)   other Indebtedness of the Company and its Subsidiaries in an aggregate amount not to exceed at any one time outstanding, the excess, if any, of (A) $5 million over (B) the excess, if any, of (I) the aggregate amount of Indebtedness outstanding under clauses (a) and (j) above, over (II) $15 million.

"Permitted Investments" means: (i) Investments by the Company or any of its Subsidiaries in any Person that is or will become immediately after such Investment a Wholly-Owned Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly-Owned Subsidiary of the Company; (ii) Investments in the Company by any Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture; (iii) investments in cash and Cash Equivalents; (iv) Interest Swap Obligations entered into in the ordinary course of the Company's or its Subsidiaries' businesses and otherwise in compliance with the Indenture; (v) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers solely in exchange for a claim against any such trade creditor or customer; (vi) Investments in the Notes; and (vii) other Investments if the aggregate amount of such Investment, together with all other Investments made pursuant to this clause (vii) does not to exceed $6.0 million.

"Permitted Liens" means the following types of Liens:

        (a)   Liens for taxes, assessments or governmental charges or claims either (i) not delinquent or (ii) contested in good faith by appropriate proceedings and as to which the Company or its Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP;

        (b)   statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;

        (c)   Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);

        (d)   judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired;

        (e)   easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries;

        (f)    any interest or title of a lessor under any Capital Lease Obligation; provided that such Liens do not extend to any property or assets which are not leased property subject to such Capital Lease Obligation;

        (g)   Purchase Money Liens of the Company or any Subsidiary of the Company; provided, however, that (i) the related Purchase Money Obligation shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Subsidiary of the Company other than the property and assets so acquired and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition;

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        (h)   Liens securing reimbursement obligations with respect to commercial letters of credit, which encumbered documents and other property relating to such letters of credit and products and proceeds thereof;

        (i)    Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Subsidiaries, including rights of offset and set-off;

        (j)    Liens securing Interest Swap Obligations, which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture;

        (k)   Liens securing Acquired Debt incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; provided that (i) such Liens secured such Acquired Debt at the time of and prior to the incurrence of such Acquired Debt by the Company or a Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Indebtedness by the Company or a Subsidiary of the Company and (ii) such Liens do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Debt prior to the time such Indebtedness became Acquired Debt of the Company or a Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Debt prior to the incurrence of such Acquired Debt by the Company or a Subsidiary of the Company;

        (l)    Liens existing on the Issue Date but only to the extent such Liens are in effect on the Issue Date;

        (m)  Liens securing Indebtedness and all other Obligations of the Company and its Subsidiaries under the Senior Credit Facility;

        (n)   Liens in favor of the Company or a Wholly-Owned Subsidiary of the Company on assets of any Subsidiary of the Company;

        (o)   Liens securing Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens (i) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being refinanced and (ii) do not extend to or cover any property or assets of the Company or any of its Subsidiaries not securing the Indebtedness so refinanced; and

        (p)   Liens securing obligations under the Indenture.

"Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

"Pledge and Security Agreement" means the Pledge and Security Agreement, dated as of the Issue Date, made by the Company and the Subsidiary Guarantors in favor of the Collateral Agent, as amended or supplemented from time to time in accordance with its terms.

"Preferred Stock" means, with respect to any Person, any Capital Stock of such Person or its Subsidiaries in respect of which a holder thereof is entitled to receive payment upon dissolution or otherwise before any payment may be made with respect to any other Capital Stock of such Person or its Subsidiaries.

"Primary Offering" means an underwritten public offering of Qualified Capital Stock of the Company or of Einstein/Noah Bagel Corp. pursuant to a registration statement filed with and declared

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effective by the Commission pursuant to the Securities Act (other than a registration statement on Form S-8 or otherwise relating to equity securities under any employee benefit plans) or pursuant to an exemption from the registration requirements thereof.

"pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article Eleven of Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company in consultation with its independent public accountants.

"Purchase Agreement" means the Purchase Agreement relating to the purchase and sale of the Offered Notes, entered into among the Company and the Initial Purchaser.

"Purchase Money Liens" means (i) Liens to secure or securing Purchase Money Obligations permitted to be incurred under the Indenture and (ii) Liens to secure Refinancing Indebtedness incurred solely to refinance Purchase Money Obligations, provided that such Refinancing Indebtedness is incurred no later than six (6) months after the satisfaction of such Purchase Money Obligations and such Lien extends to or covers only the asset or property securing the Purchase Money Obligations being refinanced.

"Purchase Money Obligations" means Indebtedness representing, or incurred to finance, the cost of acquiring any assets (including Purchase Money Obligations of any other Person at the time such other Person is merged with or into or is otherwise acquired by the Company or any of its Wholly-Owned Subsidiaries); provided that (i) the principal amount of such Indebtedness does not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does not extend to or cover any other asset or property other than the asset or property being so acquired and (iii) such Indebtedness is incurred, and any Liens with respect thereto are granted, within 90 days of the acquisition of such property or asset.

"Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock.

"Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act.

"Qualified Recapitalization" means the conversion of all of the shares of Series F preferred stock, par value $0.001 per share of the Company, Common Stock of the Company and warrants to purchase Common Stock of the Company held by Halpern Denny III, L.P. into shares of newly issued non-interest bearing preferred stock of the Company having a face amount of $57.0 million, which is mandatorily redeemable by the Company on June 30, 2009.

"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Issue Date, among the Company, the Subsidiary Guarantors and the Initial Purchaser, as the same may be amended or modified from time to time in accordance with the terms thereof.

"Regulation S" means Regulation S under the Securities Act, as such regulation may be amended from time to time.

"Restricted Investment" means an Investment other than a Permitted Investment.

"Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security.

"Rule 144A" means Rule 144A under the Securities Act.

"Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party providing for the leasing to the Company or a Subsidiary of the

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Company of any property, whether owned by the Company or any Subsidiary of the Company at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such property.

"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

"Security Interests" means the Liens on the Collateral created by the Indenture and the Collateral Agreements in favor of the Collateral Agent for the benefit of the Collateral Agent and the Holders.

"Senior Credit Facility" means any credit agreement to which the Company is party from time to time, including without limitation the Loan and Security Agreement dated as of the date of the Indenture by and among the Company, as borrower, the subsidiary guarantors thereto, the Senior Lender, as agent, and the lenders party thereto from time to time, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement exchanging, extending the maturity of, refinancing, renewing, replacing, substituting or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the covenant described under "—Certain Covenants—Incurrence of Additional of Indebtedness and Issuance of Preferred Stock") or adding Subsidiaries as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.

"Senior Lender" means the AmSouth Bank.

"Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article One, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.

"Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof. The term "Subsidiary" does not include any Non-Restricted Subsidiaries.

"Subsidiary Guarantees" means, individually, the guarantee and, collectively, the guarantees given by the Subsidiary Guarantors pursuant hereto or pursuant to supplemental indentures executed by Subsidiaries formed after the Issue Date pursuant to which such Subsidiaries agree to be bound by the terms of the Indenture.

"Subsidiary Guarantor" means each Subsidiary of the Company and all future Subsidiaries of the Company other than any Non-Restricted Subsidiary.

"U.S. Government Obligations" means non-callable direct obligations of, and non-callable obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged.

"U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.

"Voting Stock" means, with respect to any Person, one or more classes of the Capital Stock of such Person having general voting power under ordinary circumstances to elect at least a majority of the

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Board of Directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

"Warrant Agreement" means the Warrant Agreement, dated as of June 19, 2001, between the Company and The Bank of New York, as successor in interest to the corporate trust business of the United States Trust Company of New York, as Warrant Agent, pursuant to which the Warrants were issued.

"Warrants" means the warrants to purchase shares of the Company's common stock, par value $0.01 per share, issued by the Company pursuant to the terms and conditions of the Warrant Agreement.

"Weighted Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such principal payment by (ii) the sum of all such principal payments.

"Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person of which all the voting Capital Stock (other than directors' qualifying shares) is owned by such Person or any Wholly-Owned Subsidiary of such Person.

Same-Day Settlement and Payment

        Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the Notes are expected to be eligible to trade in the PORTAL Market and to trade in the Depository's Same-Day Funds Settlement System, and any permitted secondary market trading activity in the Notes will therefore be required by the Depository to be settled in immediately available funds. No assurance can be given as to the effect, if any, of such settlement arrangements on trading activity in the Notes.

Exchange Offer; Registration Rights

        The Company and the Initial Purchaser entered into the Registration Rights Agreement pursuant to which the Company agreed to file with the Commission promptly (but in any event within 90 days) after the Issue Date, a registration statement on the appropriate form (the "Exchange Offer Registration Statement"), relating to a registered exchange offer (the "Exchange Offer") for the Notes under the Securities Act. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of Notes who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Notes for exchange notes that will be substantially identical to the original notes. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer provided for above, or, in the case of any holder of the Notes that participates in the Exchange Offer, such holder does not receive freely tradable exchange notes on the date of the exchange for tendered Notes, or if for some reason the Exchange Offer is not consummated within 30 business days after the Effectiveness Target Date (as defined below), the Company will, at its cost, file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf Registration Statement. A holder that sells such Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling security-holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations).

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The Company will use its best efforts to cause the applicable registration statement to be declared effective by the Commission as promptly as practicable after the date of filing.

        Based on interpretation of the staff of the Commission set forth in several no-action letters to third parties, the Company believes that the exchange notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the exchange notes (i) will not be able to rely on the interpretation of the staff of the Commission set forth in the above referenced no-action letters, (ii) will not be able to tender its Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements.

        The Registration Rights Agreement provides that (i) the Company will file an Exchange Offer Registration Statement (or, if applicable, a Shelf Registration Statement) with the Commission on or prior to 90 days after the Issue Date (the "Filing Date"), (ii) the Company will use its best efforts to have such Exchange Offer Registration Statement (or, if applicable, a Shelf Registration Statement) declared effective by the Commission on or prior to 150 days after the Issue Date (the "Effectiveness Target Date"), and (iii) unless the Exchange Offer would not be permitted by a policy of the Commission, the Company will have commenced the Exchange Offer and will use its best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission exchange notes in exchange for all original notes tendered prior thereto in the Exchange Offer.

        Although the Company intends to file one of the registration statements described above, there can be no assurance that such registration statement will be filed or, if filed, that it will become effective. If the Company fails to comply with the above provisions or if such registration statement fails to become effective, then, as liquidated damages, additional interest (the "Additional Interest") shall become payable in respect of the Notes as follows:

        (a)   if the Exchange Offer Registration Statement or Shelf Registration Statement is not filed within 90 days following the Issue Date, Additional Interest shall accrue on the Notes over and above the stated interest rate at a rate of 0.25% per annum for the first 90 days commencing on the 91^st day after the Issue Date, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period;

        (b)   if an Exchange Offer Registration Statement or Shelf Registration Statement is not declared effective prior to the date that is 150 days after the Issue Date, then, commencing on the 151^st day after the Issue Date, Additional Interest shall accrue on the Notes over and above the stated interest at a rate of 0.25% per annum for the first 90 days commencing on the 151^st day after the Issue Date, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or

        (c)   if either (i) the Company has not exchanged the Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 30 business days after the Effectiveness Target Date or (ii) the Exchange Offer Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated or (iii) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the third anniversary of its effective date and is not declared effective again within five business days, or (iv) pending the announcement of a material corporate transaction, the Company issues a notice that a Shelf Registration Statement or an Exchange Offer Registration Statement is unusable, and the aggregate number of days in any 365-day period for which all such notices issued, or required to

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be issued, have been, or were required to be in effect, exceeds 120 days in the aggregate or 30 days consecutively, in the case of a Shelf Registration Statement, or 15 days in the aggregate, in the case of an Exchange Offer Registration Statement, then Additional Interest shall accrue on the Notes (over and above any interest otherwise payable on the Notes) at a rate of 0.25% per annum commencing on the 31^st business day after the Effectiveness Target Date, in the case of clause (i) above, or (y) the date the Exchange Offer Registration Statement ceases to be effective without being declared effective again within five business days, in the case of clause (ii) above, or (z) the day the Shelf Registration Statement ceased to be effective, in the case of clause (iii) above, or usable in the case of clause (iv) above, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period (each of the foregoing, a "Registration Default"); provided that the Additional Interest shall only accrue with respect to one Registration Default at a time and the maximum increase in the interest rate on the Notes may not exceed 1% per annum in the aggregate; and provided, further, that as soon as all Registration Defaults have been cured Additional Interest on the Notes shall cease to accrue.

        Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) above will be payable in cash on scheduled interest payment dates for the Notes, commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months) and the denominator of which is 360.

        The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Company.

        Holders will be required to make certain representations to the Company (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages set forth in the preceding sentence. For so long as the Notes are outstanding, the Company will continue to provide to holders of Notes and to prospective purchasers of the Notes the information required by Rule 144A(d)(4). The Company will provide a copy of the Registration Rights Agreement to prospective investors upon request.

Book-Entry, Delivery and Form

        The Notes are being offered and sold to qualified institutional buyers in reliance on Rule 144A ("Rule 144A Securities"). Notes also may be offered and sold in offshore transactions in reliance on Regulation S ("Regulation S Securities"). Except as set forth below, Notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. Notes were issued at the closing of the offering of the original notes (the "Closing") only against payment in immediately available funds.

        Notes that are originally issued to or transferred to "Institutional Accredited Investors" who are not Qualified Institutional Buyers ("QIBs") or to any other persons who are not QIBs (the "Non-Global Purchasers") will be issued in registered form (the "Certificated Securities"). Upon the transfer to a QIB of Certificated Securities initially issued to a Non-Global Purchaser, such Certificated Securities will, unless the applicable Global Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global Note representing the principal amount of Notes

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being transferred. For a description of the restrictions on the transfer of Certificated Securities, see "Notice to Investors."

        Rule 144A Securities initially will be represented by one 144A global note (the "144A Global Note"). Regulation S Securities initially will be represented by one Regulation S global note (the "Regulation S Global Note"). The Rule 144A Global Note and the Regulation S Global Note are collectively referred to herein as the "Global Notes." The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Through and including the 40th day after the later of the commencement of the offering of the original notes and the original issue date of the Notes (such period, the "Applicable Restricted Period"), beneficial interests in the Regulation S Global Notes may be held only through the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as indirect participants in DTC), unless transferred to a person that takes delivery through a Rule 144A Global Note in accordance with the certification requirements described below. Beneficial interests in the Rule 144A Global Notes may not be exchanged for beneficial interests in the Regulation S Global Notes at any time except in the limited circumstances described below. See "Exchanges between Regulation S Securities and Rule 144A Securities."

        Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See "Exchange of Book-Entry Securities for Certificated Securities." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Certificated Securities.

        Rule 144A Securities (including beneficial interests in the Rule 144A Global Notes) will be subject to certain restrictions on transfer and will bear a restrictive legend as described under "Notice to Investors." Regulation S Securities (including beneficial interests in the Regulation S Global Notes) will also bear the legend as described under "Notice to Investors." In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Cedel), which may change from time to time. Initially, the Trustee will act as Paying Agent and Registrar with respect to the Notes. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar.

Depository Procedures

        The following description of the operations and procedures of DTC, Euroclear and Cedel are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. The Company takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.

        DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchaser), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect

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Participants. The ownership interests in, and transfers of ownership interests in, each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

        DTC has also advised the Company that, pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchaser with portions of the principal amount of the Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).

        Investors in the Rule 144A Global Notes may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and Cedel) which are Participants in such system. Investors in the Regulation S Global Notes must initially hold their interests therein through Euroclear or Cedel, if they are participants in such systems, or indirectly through organizations that are participants in such systems. After the expiration of the Applicable Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Notes through Participants that are in the DTC system other than Euroclear and Cedel. Euroclear and Cedel will hold interests in the Regulation S Global Notes on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel. The depositaries, in turn, will hold such interests in the Regulation S Global Notes in customers' securities accounts in the depositaries' names on the books of DTC. All interests in a Global Note, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Notes, see "Exchange of Book-Entry Securities for Certificated Securities," "Exchange of Certificated Securities for Book-Entry Securities" and "Exchanges Between Regulation S Securities and Rule 144A Securities."

Except as described below, owners of interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or "Holders" thereof under the Indenture for any purpose.

        Payments in respect of the principal of, premium, if any, and interest on any Notes, and registered in the name of DTC or its nominee will be payable by the Trustee to DTC in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice,

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upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

        Except for trades involving only Euroclear and Cedel participants, interest in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. See "Same Day Settlement and Payment." Subject to the transfer restrictions set forth under "Notice to Investors," transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same day funds, and transfers between participants in Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures.

        Subject to compliance with the transfer restrictions applicable to the Notes described herein, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositories for Euroclear or Cedel.

        DTC has advised the Company that it will take any action permitted to be taken by a Holder of Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute such Notes to its Participants.

        Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Notes and in the Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee, nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Book-Entry Securities for Certificated Securities

        A Global Note is exchangeable for definitive Notes in registered certificated form if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Note

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and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Securities or (iii) there shall have occurred and be continuing a Default or Event of Default with respect to the Notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Securities upon request but only upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Securities delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend referred to in "Notice to Investors," unless the Company determines otherwise in compliance with applicable law.

Exchange of Certificated Securities for Book-Entry Securities

        Notes issued in certificated form may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes, as described under "Notice to Investors." In the case of any such exchange for an interest in the Regulation S Global Note, such transfer must occur pursuant to Regulation S or Rule 144 (if available).

Exchanges Between Regulation S Securities and Rule 144A Securities

        Prior to the expiration of the Applicable Restricted Period, beneficial interests in the Regulation S Global Notes may be exchanged for beneficial interests in the Rule 144A Global Notes only if such exchange occurs in connection with a transfer of the Notes pursuant to Rule 144A and the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that the Notes are being transferred to a person who the transferor reasonably believes to be a qualified institutional buyer within the meaning of Rule 144A, purchasing for its own account or the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A and in accordance with all applicable securities laws of the states of the United States and other jurisdictions. Beneficial interests in a Rule 144A Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Applicable Restricted Period, only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Applicable Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or Cedel.

        Transfers involving an exchange of a beneficial interest in the Regulation S Global Note for a beneficial interest in a Rule 144A Global Note or vice versa will be effected in DTC by means of an instruction originated by the Trustee through the DTC Deposit/Withdraw at Custodian system. Accordingly, in connection with any such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note or vice versa, as applicable. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Notes will, upon transfer, cease to be an interest in such Global Note and will become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for so long as it remains such an interest. The policies and practices of DTC may prohibit transfers of beneficial interests in the Regulation S Global Note prior to the expiration of the Applicable Restricted Period.

121

Same-Day Settlement and Payment

        The Indenture requires that payments in respect of the Notes represented by the applicable Global Notes (including principal, premium, if any, and interest) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to Notes in certificated form, the Company will make all payments of principal, premium, if any, and interest, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Notes represented by the Global Notes are expected to be eligible to trade in the PORTAL market and to trade in the Depositary's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by the Depositary to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.

        Because of time zone differences, the securities account of a Euroclear or Cedel participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day (which must be a business day for Euroclear and Cedel) immediately following the settlement date of DTC. DTC has advised the Company that cash received in Euroclear or Cedel as a result of sales of interests in a Global Note by or through a Euroclear or Cedel participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following DTC's settlement date.

122

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is the opinion of Proskauer Rose LLP, counsel to New World, summarizing the material United States federal income tax consequences to the United States holders described below relevant to the exchange of the original notes for the exchange notes, and the ownership and disposition of the exchange notes. The discussion is based upon the Internal Revenue Code of 1986, as amended, (the "Code"), United States Treasury Regulations issued thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and judicial decisions all as in effect on the date hereof and all of which are subject to change at any time. Any such change may be applied retroactively in a manner that could adversely affect a holder of the notes. This discussion does not address all of the United States federal income tax consequences that may be relevant to a holder in light of such holder's particular circumstances or to holders subject to special rules, such as certain financial institutions, United States expatriates, insurance companies, dealers or traders in securities or currencies, holders whose functional currency is not the United States dollar, tax-exempt organizations and persons holding the notes as part of a constructive sale or "straddle," "hedge," "conversion" or other integrated transaction. In addition, this discussion is limited to persons who purchased the original notes for cash at original issue and at their "issue price" within the meaning of Section 1273 of the Code. Moreover, the effect of any other United States federal tax laws or any applicable state, local or foreign tax laws is not discussed. The discussion deals only with notes held as "capital assets" within the meaning of Section 1221 of the Code.

        As used herein, "United States Holder" means a beneficial owner of the notes who or that is:

•

a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the "substantial presence" test under Section 7701(b) of the Code;



•

a corporation, partnership or other entity taxable as a corporation for United States federal income tax purposes created or organized in or under the laws of the United States or any political subdivision thereof;



•

an estate, the income of which is subject to United States federal income tax regardless of its source; or



•

a trust, if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial trust decisions, or if the trust was in existence on August 20, 1996, and has validly elected to continue to be treated as a United States person.

        We have not sought and will not seek any rulings from the IRS with respect to the matters discussed herein. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the notes or that any such position would not be sustained.

Prospective investors should consult their own tax advisors with regard to the application of the tax consequences discussed below, as well as the application of any state, local, foreign or other United States federal tax laws, including gift and estate tax laws, to their particular situations.

United States Federal Income Tax Consequences to United States Holders

Exchange Offer

        The exchange of the original notes for the exchange notes will not constitute a taxable exchange. See "Description of Exchange Notes." As a result, a United States Holder will not recognize a taxable gain or loss as a result of so exchanging such holder's original notes. The holding period of the exchange notes received will include the holding period of the original notes exchanged therefor; and

123

the adjusted tax basis of the exchange notes received will be the same as the adjusted tax basis of the original notes exchanged therefor immediately before such exchange.

Interest

        Payments of stated interest on the notes will be taxable to a United States Holder as ordinary income at the time that such payments are received or accrued, in accordance with such United States Holder's method of accounting for United States federal income tax purposes.

Sale or Other Taxable Disposition of the Notes

        A United States Holder will recognize gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a note; such gain or loss will be equal to the difference between the amount realized upon the disposition (less the amount allocable to any accrued and unpaid interest, which will be taxable as ordinary income) and the United States Holder's adjusted tax basis in the note. A United States Holder's adjusted tax basis in a note will be the United States Holder's cost therefor, less any principal payments received by such holder. This gain or loss will be a capital gain or loss, and will be a long-term capital gain or loss if the United States Holder has held the note for more than one year. Otherwise, such gain or loss will be a short-term capital gain or loss. Gain on the sale, exchange, redemption or retirement of notes by a United States Holder will be United States source income for United States foreign tax credit purposes.

Backup Withholding

        A United States Holder may be subject to information reporting and backup withholding at a rate of up to 31% with respect to interest and principal payments on the notes and proceeds from the sale or other disposition of the notes. Certain holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to backup withholding. A United States Holder will be subject to backup withholding if such holder is not otherwise exempt and such holder:

•

fails to furnish such holder's United States taxpayer identification number ("TIN") which, for an individual, is ordinarily his or her social security number;



•

furnishes an incorrect TIN;



•

is notified by the IRS that such holder has failed to properly report payments of interest or dividends; or



•

fails to certify, under penalties of perjury, that such holder has furnished a correct TIN and that the IRS has not notified the holder that such holder is subject to backup withholding.

        United States Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. Backup withholding is not an additional tax and amounts withheld will be allowed as a refund or credit against a United States Holder's United States federal income tax liability provided that such holder provides certain information to the IRS.

United States Federal Income Tax Consequences to Non-United States Holders

Definition of Non-United States Holders; Interest Payments and Gains from Dispositions

        A "non-United States holder" is a beneficial owner of the notes who is not a United States Holder.

124

        Interest paid to a non-United States holder will be subject to United States federal withholding tax at a rate of 30% (or, if applicable, a lower treaty rate) unless:

•

such holder does not, directly or indirectly, actually or constructively, own 10% or more of our voting equity;



•

such holder is not a "controlled foreign corporation" (within the meaning of the Code) that is related to us through stock ownership;



•

such holder is not a bank whose holding of the notes constitutes an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business; and



•

either (1) the non-United States holder certifies to us or our paying agent, under penalties of perjury and on the appropriate form, that it is not a "United States person" within the meaning of the Code and provides its name or address, or (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and holds the notes on behalf of the non-United States holder certifies to us or our paying agent under penalties of perjury that it, or the financial institution acting as agent for the non-United States holder, has received from the non-United States holder a statement, under penalties of perjury, that it is not a "United States person" and provides us or our paying agent with a copy of such statement.

        The certification requirement described above may require a non-United States holder that provides an IRS form, or that claims the benefit of an income tax treaty, to also provide its TIN. The applicable regulations also require, in the case of a note held by a foreign partnership, that:

•

the certification described above be provided by the partners; and



•

the partnership provide certain information, including its TIN.

        Further, a look-through rule will apply in the case of tiered partnerships. Prospective investors should consult their tax advisors regarding the certification requirements for non-United States holders.

        A non-United States holder will not be subject to United States federal income tax (including withholding tax) on gain recognized on the sale, exchange, redemption, retirement or other disposition of a note. However, a non-United States holder may be subject to tax on such gain if such holder is an individual who was present in the United States for 183 days or more in the taxable year of the disposition, in which case such holder may be subject to United States federal income tax at a rate of 30% (or, if applicable, a lower treaty rate) on such gain.

        If interest on a note or gain from a disposition of a note is effectively connected with a non-United States holder's conduct of a United States trade or business, or if an income tax treaty applies and the non-United States holder maintains a United States "permanent establishment" to which the interest or gain is attributable, the non-United States holder will be subject to United States federal income tax on the interest or gain on a net basis in the same manner as if it were a United States holder. If interest on a note is taxable on a net basis, the 30% withholding tax described above will not apply (assuming an appropriate certification is provided). A foreign corporation that is a holder of a note also may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to certain adjustments, unless it qualifies for a lower rate under an applicable income tax treaty. For this purpose, interest on a note or gain recognized on the disposition of a note will be included in earnings and profits if the interest or gain is effectively connected with the conduct by the foreign corporation of a trade or business in the United States.

Backup Withholding and Information Reporting

        Backup withholding and information reporting will not apply to payments made by us or our paying agents, in their capacities as such, to a non-United States holder of a note if the holder has

125

provided the required certification that it is not a United States person as described above, provided that neither we nor our paying agent has actual knowledge that the holder is a United States person. Payments of the proceeds from a disposition by a non-United States holder of a note made to or through a foreign office of a broker will likely not be subject to information reporting or backup withholding unless the broker is:

•

a United States person;



•

a "controlled foreign corporation" (within the meaning of the Code);



•

a foreign person, 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period; or



•

a foreign partnership, if at any time during its tax year, one or more of its partners are United States persons, as defined in Treasury Regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, the foreign partnership is engaged in a United States trade or business.

        Payment of the proceeds from a disposition by a non-United States holder of a note made to or through the United States office of a broker is likely subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its TIN or otherwise establishes an exemption from information reporting and backup withholding.

        Non-United States holders should consult their own tax advisors regarding application of information reporting and backup withholding in their particular circumstances and the availability of and procedure for obtaining an exemption from backup withholding under current Treasury Regulations. Any amounts withheld under the backup withholding rules from a payment to a non-United States holder will be allowed as a refund or a credit against the holder's United States federal income tax liability, provided certain information is furnished to the IRS.

126

PLAN OF DISTRIBUTION

        Each broker-dealer that receives exchange notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. A broker-dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of exchange notes received in exchange for original notes where the original notes were acquired as a result of market-making activities or other trading activities. We have agreed that we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any resale for such period of time as such persons must comply with such requirements in order to resell exchange notes, provided that such period will not exceed the period specified in the Registration Rights Agreement.

        We will not receive any proceeds from any sale of exchange notes by any broker-dealer. Exchange notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of the methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from the broker-dealer that resells exchange notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of exchange notes and any commissions or concessions received by those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        For the period of time specified in the Registration Rights Agreement, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests the documents in the letter of transmittal. We have agreed to pay all expenses incident to our performance of, or compliance with, the Registration Rights Agreement and all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the original notes, but excluding commissions or concessions of any brokers or dealers, and will indemnify all holders of notes, including any broker-dealers, and certain parties related to the holders against certain liabilities, including liabilities under the Securities Act.

        We have not entered into any arrangements or understanding with any person to distribute the exchange notes to be received in the exchange offer.

127

LEGAL MATTERS

        Certain legal matters in connection with the exchange offer will be passed upon for us by Proskauer Rose LLP, New York, New York.

EXPERTS

        The consolidated financial statements of the Company as of December 31, 2002, January 1, 2002 and December 31, 2000, and for each of the three years in the period ended December 31, 2002 included in this registration statement and Prospectus have been audited by Grant Thornton LLP, independent certified public accountants, as stated in their report appearing herein.

WHERE YOU CAN FIND MORE INFORMATION

        We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 and also at its locations in New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. Our Commission filings are also available to the public at the Commission's web site at http://www.sec.gov.

        We have filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement") with respect to the exchange notes and related subsidiary guarantees. This prospectus, which is a part of the Registration Statement, omits certain information included in the Registration Statement. Statements made in this prospectus as to the contents of any contract, agreement or other document are only summaries and are not complete. We refer you to these exhibits for a more complete description of the matter involved. Each statement regarding the exhibits is qualified by the actual documents.

        We are "incorporating by reference" all documents that we file with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the termination of this offering, which means we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus.

        You may request a copy of those filings, at no cost, by writing or telephoning us at the following:

New World Restaurant Group, Inc.
1687 Cole Boulevard
Golden, Colorado 80401
Attn: Chief Executive Officer
Telephone: (303) 568-8000

To obtain timely delivery of those materials, you must request the information no later than five business days before the expiration of the exchange offer. The date by which you must request the information is            , 2003.

        Information that we file later with the Commission and that is incorporated by reference in this prospectus will automatically update and supersede information contained in this prospectus as if that information were included in this prospectus.

        You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with any information or represent anything not contained in this prospectus, and, if given or made, any such other information or representation should not be relied upon as having been authorized by us. We are not making an offer to sell these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.

128

NEW WORLD RESTAURANT GROUP, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Audited Annual Financial Statements
	Report of Independent Certified Public Accountants	F-2
	Consolidated Balance Sheets as of December 31, 2002, January 1, 2002 and December 31, 2000	F-3
	Consolidated Statements of Operations for the Years Ended December 31, 2002, January 1, 2002 and December 31, 2000	F-4
	Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31, 2002, January 1, 2002 and December 31, 2000	F-5
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, January 1, 2002 and December 31, 2000	F-6
	Notes to Consolidated Financial Statements	F-8
Unaudited Interim Financial Statements
	Consolidated Balance Sheets as of July 1, 2003 and December 31, 2002	F-54
	Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended July 1, 2003 and July 2, 2002	F-55
	Consolidated Statements of Cash Flows for the Six-Month Periods Ended July 1, 2003 and July 2, 2002	F-56
	Notes to Consolidated Financial Statements	F-57

F-1

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
New World Restaurant Group, Inc.

        We have audited the accompanying consolidated balance sheets of New World Restaurant Group, Inc. and Subsidiaries as of December 31, 2002, January 1, 2002, and December 31, 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of New World Restaurant Group, Inc. and Subsidiaries as of December 31, 2002, January 1, 2002, and December 31, 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 1—Goodwill, Trademarks and Other Intangibles, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangibles on January 2, 2002.

        We have also audited Schedule II for each of the three years in the period ended December 31, 2002. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information therein.

/s/ GRANT THORNTON LLP

Denver, Colorado
March 26, 2003 (except for Note 18, as to which the
date is July 8, 2003)

F-2

NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000
(in thousands, except share and per share information)

		December 31, 2002			January 1, 2002			December 31, 2000
ASSETS
Current Assets:
	Cash and cash equivalents	$	10,705		$	15,478		$	2,271
	Franchise and other receivables, net		5,775			5,520			2,257
	Due from bankruptcy estate		—			3,918			—
	Current maturities of notes receivable		194			234			231
	Inventories		5,005			5,206			1,436
	Prepaid expenses and other current assets		3,180			1,812			459
	Investment in debt securities		—			34,174			9,146
	Assets held for resale		—			1,397			5,196
Total current assets			24,859			67,739			20,996
Property, plant and equipment, net			81,254			101,117			6,502
Notes receivable, net			—			330			1,313
Trademarks and other intangibles, net			98,134			105,958			13,516
Goodwill, net			4,875			4,875			5,249
Debt issuance costs and other assets			1,526			3,237			1,644
Total Assets		$	210,648		$	283,256		$	49,220
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
	Accounts payable	$	7,650		$	19,684		$	2,708
	Accrued expenses		30,988			29,481			2,950
	Short-term debt and current portion of long-term debt		150,872			168,394			16,240
	Current portion of obligations under capital leases		100			152			200
Total current liabilities			189,610			217,711			22,098
Senior notes and other long-term debt			11,011			12,119			1,873
Obligations under capital leases			360			538			363
Derivative liability			2,847			9,402			—
Other liabilities			10,560			13,191			1,279
Total Liabilities			214,388			252,961			25,613
Series D preferred stock, $.001 par value, $1,000 per share liquidation value; 25,000 shares authorized; 0, 0 and 16,216 shares issued and outstanding			—			—			12,640
Series F preferred stock, $.001 par value, $1,000 per share liquidation value; 116,000 shares authorized; 89,698, 75,103 and 0 shares issued and outstanding			84,932			57,338			—
Stockholders' equity (deficit):
	Common stock, $.001 par value; 150,000,000 shares authorized; 51,016,857, 17,481,394 and 15,404,828 shares issued and outstanding		51			17			15
	Additional paid-in capital		86,607			80,203			45,737
	Unrealized loss in fair value of investment in debt securities		—			—			(4,742	)
	Accumulated deficit		(175,330	)		(107,263	)		(30,043	)
Total stockholders' equity (deficit)			(88,672	)		(27,043	)		10,967
Total liabilities and stockholders' equity (deficit)		$	210,648		$	283,256		$	49,220

        The accompanying notes are an integral part of these consolidated financial statements.

F-3

NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000
(in thousands, except share and per share information)

		December 31, 2002			January 1, 2002			December 31, 2000
Revenues:
Retail sales		$	369,351		$	206,186		$	11,997
Manufacturing revenues			23,734			22,285			24,775
Franchise related revenues			5,565			5,704			6,306
	Total revenues		398,650			234,175			43,078
Cost of sales			321,506			189,403			30,138
General and administrative expenses			42,640			28,647			12,733
Depreciation and amortization			30,626			15,207			2,254
Provision for integration and reorganization costs.			4,194			4,432			—
Impairment charge in connection with realization of assets held for sale			—			3,259			1,076
	Loss from operations.		(316	)		(6,773	)		(3,123	)
Interest expense			(42,883	)		(47,104	)		(2,076	)
Cumulative change in the fair value of derivatives			233			57,680			—
Loss from extinguishment of Greenlight obligation			—			(16,641	)		—
Other income (expense)			2,859			110			(339	)
Permanent impairment in the value of investment in debt securities			—			(5,805	)		—
Loss before income taxes			(40,107	)		(18,533	)		(5,538	)
Provision for income taxes			(366	)		(167	)		—
Net loss			(40,473	)		(18,700	)		(5,538	)
Dividends and accretion on preferred stock			(27,594	)		(58,520	)		(2,373	)
Net loss available to common stockholders		$	(68,067	)	$	(77,220	)	$	(7,911	)
Net loss per common share—basic and diluted:
Net loss per share		$	(.80	)	$	(2.09	)	$	(.63	)
Weighted average number of common shares outstanding:
Basic and diluted			85,583,383			36,890,047			12,564,734

        The accompanying notes are an integral part of these consolidated financial statements.

F-4

NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000
(in thousands, except share and per share information)

	Series C Preferred Stock														Accumulated Other Comprehensive Income (Loss)
						Common Stock
									Additional Paid In Capital			Accumulated Deficit						Total Stockholders' Equity (Deficit)
	Shares		Amount			Shares	Amount
Balance, December 26, 1999	—		$	—		11,313,508	$	11	$	34,707		$	(22,132	)	$	—		$	12,586
Net loss													(5,538	)					(5,538	)
Net unrealized loss on available-for-sale securities																(4,742	)		(4,742	)
Comprehensive loss																			(10,280	)
Issuance of common stock, net of offering expenses						1,398,360		2		2,692									2,694
Private placement of securities consisting of Common and Series C preferred stock, net of offering expenses	444,190			444		1,360,390		1		4,765									5,210
Conversion of Series C preferred stock	(444,190	)		(444	)	1,332,570		1											(443	)
Issuance of warrants in connection with issuance of Series D preferred stock										3,573									3,573
Dividends and accretion													(2,373	)					(2,373	)
Balance, December 31, 2000	—		$	—		15,404,828	$	15	$	45,737		$	(30,043	)	$	(4,742	)	$	10,967
Net loss													(18,700	)					(18,700	)
Net unrealized gain on available-for-sale securities																4,742			4,742
Comprehensive loss																			(13,958	)
Issuance of common stock						2,076,566		2		2,634									2,636
Issuance of warrants in connection with Series F preferred stock										14,376									14,376
Issuance of warrants in connection with Senior Notes										16,605									16,605
Issuance of warrants in connection with Greenlight obligation										3,022									3,022
Net change due to classification of derivative instruments from permanent equity to liabilities										(2,171	)								(2,171	)
Dividends and accretion on preferred stock													(58,520	)					(58,520	)
Balance, January 1, 2002	—		$	—		17,481,394	$	17	$	80,203		$	(107,263	)	$	—		$	(27,043	)
Net loss													(40,473	)					(40,473	)
Comprehensive loss																			(40,473	)
Issuance of common stock						33,535,463		34		83									117
Issuance of warrants in connection with Series F preferred stock—reclassification from derivative liability										5,524									5,524
Issuance of warrants in connection with Senior Notes—reclassification from derivative liability										797									797
Dividends and accretion on preferred stock													(27,594	)					(27,594	)
Balance, December 31, 2002	—		$	—		51,016,857	$	51	$	86,607		$	(175,330	)	$	—		$	(88,672	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000
(in thousands)

		December 31, 2002			January 1, 2002			December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(40,473	)	$	(18,700	)	$	(5,538	)
Adjustments to reconcile loss to net cash provided by (used in) operating activities:
Depreciation and amortization			30,626			15,207			2,254
Provision for integration and reorganization			4,194			4,432			—
Permanent impairment in value of investment in debt securities			—			5,805			—
Cumulative change in fair value of derivatives			(233	)		(57,680	)		—
Loss from extinguishment of Greenlight obligation			—			16,641			—
Amortization of debt issuance costs			1,723			5,014			—
Amortization of debt discount			8,882			25,300			—
Notes issued as paid in kind for interest on Bridge Loan			3,526			2,627			—
Stock issued for compensation and consulting			117			2,636			2,694
Gain on sale of fixed assets			—			(59	)		(325	)
Gain on sale of debt securities			(2,537	)		(241	)		339
Impairment charge in connection with the realization of assets			—			3,259			1,076
Changes in operating assets and liabilities:
Accounts receivable and notes receivable			4,033			(4,354	)		63
Accounts payable and accrued expenses			(12,488	)		5,851			491
Other assets and liabilities			(4,040	)		2,017			(1,883	)
	Net cash provided by (used in) operating activities		(6,670	)		7,755			(829	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(5,172	)		(3,757	)		(335	)
Proceeds from the sale of assets held for resale			1,397			880			467
Net cash paid for acquisitions			—			(161,491	)		(3,076	)
Deferred acquisition costs			—			—			(701	)
Investment in debt securities			—			(29,734	)		(17,412	)
Proceeds from the sale of debt securities			36,711			3,885			3,184
	Net cash provided by (used in) investing activities		32,936			(190,217	)		(17,873	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net			—			—			4,144
Proceeds from issuance of debt			6,000			171,700			—
Debt issuance costs			—			(7,965	)		—
Proceeds from issuance of Series D preferred stock, net of fees			—			—			14,462
Proceeds from issuance of Series F preferred stock, net of fees			—			46,370			—
Proceeds from long-term borrowings			—			—			1,500
Repayment of notes payable			(37,039	)		(14,436	)		(2,013	)
	Net cash provided by (used in) financing activities		(31,039	)		195,669			18,093
Net increase (decrease) in cash			(4,773	)		13,207			(609	)
Cash and cash equivalents, beginning of period			15,478			2,271			2,880
Cash and cash equivalents, end of period		$	10,705		$	15,478		$	2,271

The accompanying notes are an integral part of these consolidated financial statements.

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	December 31, 2002		January 1, 2002			December 31, 2000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	24,874	$	11,180		$	1,965
Non-cash investing and financing activities:
Non-cash dividends and accretion on preferred stock	$	27,594	$	58,520		$	2,373
Temporary increase (decrease) in fair value of investment in debt securities	$	—	$	4,742		$	(4,742	)
Conversion of Series D preferred stock to Series F preferred stock	$	—	$	16,398		$	—
DETAILS OF ACQUISITION:
Tangible assets acquired	$	—	$	111,907		$	4,326
Intangible assets acquired		—		97,784			—
Notes receivable extinguished		—		—			(1,250	)
Estimated accruals and liabilities assumed		—		(46,354	)		—
Cash paid for acquisition		—		163,337			3,076
Less cash acquired		—		1,846			—
Net cash paid for acquisition	$		$	161,491		$	3,076

The accompanying notes are an integral part of these consolidated financial statements.

F-7

NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business, Organization and Significant Accounting Policies

Nature of Business and Organization

        New World Restaurant Group, Inc. (the Company) is a leader in the quick casual segment of the restaurant industry. With 747 locations in 32 states as of December 31, 2002, the Company operates and licenses locations primarily under the Einstein Bros. and Noah's brand names and franchises locations primarily under the Manhattan and Chesapeake brand names. The Company's locations specialize in high-quality foods for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on a variety of breads and bagels, soups, salads, desserts, premium coffees and other café beverages, and offer a café experience with a neighborhood emphasis. As of December 31, 2002, the Company's retail system consisted of 460 company-operated locations and 287 franchised and licensed locations. The Company also operates one dough production facility in California and one coffee roasting facility in Connecticut. The Company's manufactured products are sold to franchised, licensed and company-operated stores as well as to wholesale, supermarket and non-traditional outlets. In the last week of December 2002, the Company vacated its eastern headquarters in Eatontown, NJ and relocated to a new facility at 100 Horizon Center Boulevard in Hamilton, NJ, which serves as the eastern executive headquarters and franchise support center.

        During 2001, the Company changed its name from New World Coffee—Manhattan Bagel, Inc. to New World Restaurant Group, Inc.

Principles of Consolidation

        The consolidated financial statements herein include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated.

Fiscal Year

        Effective for the quarter ended July 3, 2001 and as a result of the Einstein Acquisition (see Note 3), the Company elected to change its fiscal year end to the Tuesday closest to December 31. The Company's annual accounting period had previously ended on the Sunday closest to December 31. The fiscal year-end dates for 2002, 2001 and 2000 are December 31, 2002, January 1, 2002 and December 31, 2000, respectively, resulting in years containing 52, 52 and 53 weeks, respectively.

Cash and Cash Equivalents

        The Company considers cash on hand and on deposit and short-term, highly liquid instruments purchased with maturities of three months or less to be cash equivalents.

        The Company acts as custodian for certain funds paid by its franchisees that are earmarked as advertising fund contributions. Cash and cash equivalents includes $769,619, $478,131 and $1,032,593 as of December 31, 2002, January 1, 2002 and December 31, 2000, respectively, which the Company holds in such advertising fund.

Accounts Receivable

        The majority of the Company's accounts receivable are due from the Company's franchisees. Credit is extended based on evaluation of a potential customer's financial condition and, generally, collateral is not required. Accounts receivable are due within 15-30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the

F-8

contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company's previous loss history, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

        Receivables consist of the following:

	December 31, 2002			January 1, 2002			December 31, 2000
	(amounts in thousands)
Franchisee receivables	$	4,318		$	3,457		$	3,619
Wholesale receivables		1,029			1,142			—
House accounts receivable		291			376			—
Other receivables		2,092			2,165			519
		7,730			7,140			4,138
Less allowance for doubtful accounts		(1,955	)		(1,620	)		(1,881	)
	$	5,775		$	5,520		$	2,257

        Changes in the Company's allowance for doubtful accounts are as follows:

	December 31, 2002			January 1, 2002			December 31, 2000
	(amounts in thousands)
Beginning balance	$	(1,620	)	$	(1,881	)	$	(1,318	)
Bad debt expense		(505	)		(1,171	)		(1,318	)
Accounts written off		170			1,432			755
Recoveries		—			—			—
Ending balance	$	(1,955	)	$	(1,620	)	$	(1,881	)

Inventories

        Inventories are stated at the lower of cost or market, with cost being determined by the first-in, first-out method. Inventories consist of the following:

	December 31, 2002		January 1, 2002		December 31, 2000
	(amounts in thousands)
Finished goods	$	4,554	$	4,899	$	1,085
Work in progress		—		2		148
Raw materials		451		305		203
	$	5,005	$	5,206	$	1,436

F-9

Investment in Debt Securities

        Investment in debt securities includes 7.25% Convertible Debentures due 2004 of Einstein/Noah Bagel Corp., which are classified as available for sale securities. Accordingly, as of January 1, 2002, these securities are recorded at fair value with temporary fluctuations in fair value excluded from earnings and reported as a separate component of stockholders' equity. The December 31, 2000 financial statements reflect a temporary decline in the fair value of the investment. Fair value at December 31, 2000 is based on the most recent traded market price. Due to the developments in the bankruptcy of Einstein in 2001, including the auction pursuant to Section 363 of the U.S. Bankruptcy Code, fair value at January 1, 2002 is based on the estimated value of such debentures realizable from the proceeds of the bankruptcy estate. As a result, during the year ended January 1, 2002, the Company determined that a permanent decline of $5,805,000 in the fair value of its investment had occurred. Accordingly, the Company recorded such amount as investment impairment with a comparable charge in the accompanying statement of operations.

        During the year ended December 31, 2002, the Company received proceeds of $36,711,000 for the debentures from the bankruptcy court (Note 7). As the amount received exceeded the carrying value of the asset, the Company recorded a gain on sale of debt securities of $2,537,497 in 2002, recorded in other income within the consolidated statement of operations.

Property, Plant and Equipment

        Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Leasehold improvements are amortized over the shorter of their useful lives or the term of the related leases by use of the straight-line method. Depreciation is provided using the straight-line method over the following estimated useful lives:

Leasehold improvements	5 to 15 years
Store equipment	3 to  7 years
Furniture and fixtures	5 to  8 years
Office and computer equipment	3 to  5 years

Goodwill, Trademarks and Other Intangibles

        The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective January 2, 2002. SFAS 142 provides that goodwill and other indefinite-lived intangibles should not be amortized, but be subject to an annual assessment for impairment, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. The two-step approach to assess its goodwill impairment requires that the Company first compare the estimated fair value of each reporting unit that houses goodwill to the carrying amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying amount, then the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine the current implied fair value of the unit's goodwill.

        The Company completed step one of both the transitional and annual impairment tests for its only reporting unit with goodwill and has completed the transitional and annual impairment tests on

F-10

indefinite-lived intangibles. The Company engaged an independent valuation expert to perform these analyses. The transitional and annual impairment analyses of goodwill indicated that the fair value of the Manhattan Bagel Company reporting unit as of December 31, 2002 and January 2, 2002 exceeded its carrying value. Thus, the associated goodwill as of December 31, 2002 and January 2, 2002 was not impaired, and the second step of the impairment tests were not required. Additionally, the transitional and annual impairment analyses for the Company's indefinite-lived intangibles (trademarks) indicated that, in each instance, their respective fair values exceeded their carrying values as of December 31, 2002 and January 2, 2002.

        Goodwill represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan Bagel Company.

        In 2002, goodwill and indefinite-lived trademarks are not amortized in accordance with SFAS 142 and other intangibles are being amortized on a straight-line basis consistent with the associated estimated future cash flows, as follows:

Trade secrets	5 years
Patents—manufacturing process	5 years

        In 2001 and 2000 trademarks and other intangibles are being amortized on a straight-line basis as follows:

Goodwill	25 years
Trademarks	30 years
Trade secrets	5 years
Patents—manufacturing process	5 years

		December 31, 2002			January 1, 2002			December 31, 2000
		(amounts in thousands)
Non-amortizing intangibles:
	Trademarks, net of amortization of $0, $1,984, and $555	$	70,746		$	70,746		$	13,516
Amortizing intangibles:
	Trade secrets		5,385			5,385			—
	Patents—manufacturing process		33,741			33,741			—
			39,126			39,126			—
	Less accumulated amortization		(11,738	)		(3,914	)		—
Total amortizing intangibles			27,388			35,212			—
Total intangibles		$	98,134		$	105,958		$	13,516

        Intangible amortization expense totaled approximately $7,818,000, $5,260,000 and $365,000 for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, respectively. Amortization expense for the fiscal years of 2003, 2004 and 2005 is anticipated to be $7,824,000 annually. Amortization expense for fiscal 2006 is anticipated to be the remaining $3,915,000.

F-11

        Goodwill amortization expense totaled approximately $0, $379,000 and $372,000 for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, respectively. Accumulated amortization related to goodwill was $0, $1,400,000 and $1,021,000 as of December 31, 2002, January 1, 2002 and December 31, 2000, respectively.

        A reconciliation of net loss available to common stockholders and related net loss per share for goodwill and trademarks no longer subject to amortization following SFAS 142 adoption is as follows:

		December 31, 2002			January 1, 2002			December 31, 2000
		(amounts in thousands, except for per share amounts)
Net loss available to common stockholders, as reported		$	(68,067	)	$	(77,220	)	$	(7,911	)
Add back: Goodwill amortization expense			—			379			372
Add back: Trademark amortization expense			—			1,430			471
Adjusted Net loss		$	(68,067	)	$	(75,411	)	$	(7,068	)
Basic and diluted net loss available to common stockholders Per common share:
	As reported	$	(.80	)	$	(2.09	)	$	(.63	)
	As adjusted	$	N/A		$	(2.04	)	$	(.56	)

Long-Lived Assets

        The Company's policy is to record long-lived assets at cost, amortizing these costs over the expected useful lives of the related assets. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, these assets are reviewed on a periodic basis for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be realizable. Furthermore, assets held and used in operations are evaluated for continuing value and proper useful lives by comparison to expected undiscounted future cash flows. If impairment has occurred, it is calculated based on the difference between the asset's carrying value and the underlying discounted future cash flows it is expected to generate. Assets held for resale are evaluated by comparison to estimated selling prices, less associated costs to sell such assets.

        Prior to the adoption of SFAS 142, all intangible assets were evaluated for impairment using the methods described in the preceding paragraph. After the adoption of SFAS 142, amortizable intangible assets continue to use these methods.

F-12

Revenue Recognition

        Manufacturing revenues are recognized upon shipment to customers.

        Retail sales are recognized when payment is tendered at the point of sale.

        Pursuant to the franchise agreements, franchisees are generally required to pay an initial franchise fee and a monthly royalty payment equal to a percentage of the franchisees' gross sales. Initial franchise fees are recognized as revenue when the Company performs substantially all of its initial services as required by the franchise agreement. Royalty fees from franchisees are accrued each month pursuant to the franchise agreements. Royalty income and initial franchise fees are included in franchise revenues.

Advertising Costs

        The Company expenses advertising costs as incurred. The Company expensed approximately $13,983,000, $6,592,000 and $349,000 in advertising costs for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, respectively.

Deferred Rent

        Certain of the Company's lease agreements provide for scheduled rent increases during the lease term or for rental payments commencing at a date other than initial occupancy. Provision has been made for the excess of operating lease rental expense, computed on a straight-line basis over the lease term, over cash rentals paid.

Shipping and Handling Costs

        The Company classifies shipping and handling expenses related to product sales as a cost of goods sold.

Fair Value of Financial Instruments

        The fair value of franchise notes receivable (Note 5) is estimated to approximate their carrying value based on comparisons of the terms of these receivables to those that would be offered to similar borrowers with similar credit ratings. Investment in debt securities are carried at fair value, as discussed previously in Note 1. The fair value of debt and notes payable outstanding, which is estimated to approximate their carrying value, is estimated by comparing the terms of existing instruments to the terms offered by lenders for similar borrowings with similar credit ratings. The carrying amounts of franchise and other receivables and accounts payable approximate their fair value, due to their short-term maturities. Warrants classified as a derivative liability, if any, are carried at fair value based upon the underlying fair value of the common stock to which they are indexed and, for contingently—issuable warrants classified as a derivative liability, the estimated probability of issuance and other pertinent factors.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investment in debt securities and notes and accounts receivable. The Company maintains cash and cash equivalents with various major financial institutions. The

F-13

Company believes that concentrations of credit risk with respect to notes and franchisee accounts receivable are limited due to the large number and geographic dispersion of franchisees comprising the Company's franchise base. The Company performs ongoing credit evaluations of its franchisees and maintains allowances for potential losses, as discussed previously in Note 1.

Earnings Per Share

        In accordance with SFAS No. 128, Earnings Per Share, basic earnings per common share amounts ("basic EPS") are computed by dividing net earnings by the weighted average number of common shares outstanding (which include warrants exercisable for a nominal price of $0.01 per share—See —Derivative Instruments) and exclude any potential dilution. The company has included both issued and obligations to issue $0.01 warrants in the calculation described above. Diluted earnings per common share amounts assuming dilution ("diluted EPS") are computed by reflecting potential dilution of the Company's common stock equivalents. Common stock equivalents are not reflected in diluted EPS if their effect would be anti-dilutive. The following table summarizes the weighted average shares used in the basic and diluted EPS computations:

	For the Years Ended
	December 31, 2002	January 1, 2002	December 31, 2000
	(amounts in thousands)
Weighted average shares outstanding	22,360,221	16,327,988	12,074,356
Weighted average warrants exercisable for $0.01	63,223,162	20,562,059	490,378
	85,583,383	36,890,047	12,564,734

        All stock options and warrants outstanding (excluding those exercisable for $0.01) in 2002, 2001 and 2000 were excluded from the computation because of their anti-dilutive effect. The total number of stock options and warrants that were excluded from the calculation was 2,718,434, 2,558,082 and 2,435,882, respectively.

Segment Disclosure

        The Company follows the provisions of SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. SFAS 131 requires the reporting of certain information about operating segments in annual financial statements. The Company operates and manages its business as one segment.

Income Taxes

        The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their tax bases, as well as net operating losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in the period in which

F-14

the tax change occurs. A valuation allowance is provided to reduce the deferred tax assets to a level, that more likely than not, will be realized.

Stock-Based Compensation

        As of December 31, 2002, January 1, 2002, and December 31, 2000 the Company has two stock-based employee compensation plans, which are described more fully in Note 9. SFAS No. 123, Accounting for Stock-Based Compensation, establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS 123 encourages entities to adopt a fair-value-based method of accounting for stock compensation plans. However, SFAS 123 also permits entities to continue to measure compensation costs under APB Opinion No. 25, Accounting for Stock Issued to Employees, with the requirement that pro forma disclosures of net income and earnings per share be included in the notes to financial statements. The Company has elected to continue accounting for stock-based compensation arrangements using the intrinsic value method specified in APB 25 and to provide pro forma disclosures of what its net loss and loss per share would have been if the Company had elected to recognize compensation expense under the fair value method specified in SFAS 123.

        Had compensation cost for these plans been recognized under the fair value method specified in SFAS 123, the Company's net loss and loss per share would have been increased to the following pro forma amounts:

	December 31, 2002			January 1, 2002			December 31, 2000
	(amounts in thousands, except for per share amounts)
Net loss available to common stockholders:
As reported	$	(68,067	)	$	(77,220	)	$	(7,911	)
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(196	)		(184	)		(937	)
Pro forma	$	(68,263	)	$	(77,404	)	$	(8,848	)
Basic and diluted net loss available to common stockholders per common share:
As reported	$	(.80	)	$	(2.09	)	$	(.63	)
Pro forma	$	(.80	)	$	(2.10	)	$	(.70	)

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-15

Reclassifications

        Certain amounts set forth in the accompanying consolidated financial statements for the prior years have been reclassified to conform to the presentation for the current fiscal year. These reclassifications had no effect on previously reported net income or loss.

Recent Pronouncements

        In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of the adoption of this new standard, although it does not expect it to affect its consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections, which is effective for fiscal years beginning after May 15, 2002, with early application encouraged. This Statement rescinds SFAS 4, Reporting Gains and Losses from Extinguishments of Debt, and includes other modifications to existing statements, that are not applicable to the Company. SFAS 4 required the reporting of gains or losses associated with the extinguishments of debt be classified as an extraordinary item on the income statement. SFAS 145 rescinds that classification unless the extinguishment is deemed both unusual and infrequent in nature as defined in APB 30. The Company has adopted the provisions of SFAS 145 in these financial statements and determined that the loss from the extinguishment of the Greenlight Capital obligation did not meet the APB 30 criteria to be considered an extraordinary item.

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. This statement requires a liability for a cost associated with an exit or disposal activity to be recognized at fair value in the period in which the liability is incurred, except for liabilities for one-time termination benefits requiring future employee service, which is to be recognized ratably over the remaining service period. The Company early-implemented SFAS No. 146 upon its issuance in fiscal 2002. See further discussion in Note 14—Reorganization and Integration.

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. This statement requires all entities with stock-based employee compensation arrangements to provide additional disclosures in their summary of significant accounting policies note. For entities that use the intrinsic value method of APB 25 to account for employee stock compensation, their accounting policies note should include a tabular presentation of pro forma net income and earnings per share using the fair value method. This statement also permits entities changing to the fair value method of accounting for employee stock compensation to choose from one of three transition methods—the prospective method, the modified prospective method, or the retroactive restatement method. The main provisions of this statement are effective for fiscal years ending after December 15, 2002. The Company currently has no intention to change to the fair value method to account for employee stock-based compensation; however, the disclosure provisions have been implemented within these financial statements.

        The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on its financial statements.

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Derivative Instruments

        Effective January 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair value. Changes in the fair values of derivatives that do not qualify for hedge accounting under SFAS 133 are recognized through earnings. In conjunction with certain debt and preferred stock issuances in 2000 and 2001, the Company issued freestanding warrants and rights to receive additional warrants based either on the passage of time or upon the occurrence (or non-occurrence) of certain contingent future events (contingently-issuable warrants). The Company determined that certain of these freestanding warrants, for a period of time in 2001, and contingently-issuable warrants could not be classified within stockholders' equity based on the application of the criteria in EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, and accordingly has classified those warrants as a liability in the balance sheet. Further, those warrants classified as a liability are subject to the provisions of SFAS 133, including the requirement to adjust the recorded amount of the warrants to fair value at each balance sheet date, with changes in fair value being recognized in earnings. The Company has determined which warrants are to be classified within stockholders' equity by first considering those warrants that have been issued (exercisable), to the extent there are a sufficient number of authorized shares, and then considering contingently-issuable warrants, to the extent there are a sufficient number of authorized shares.

        The Company's financial statements reflect the Company's systematic evaluation of the maximum potential issuance of shares possible at each time an instrument with associated warrants is issued (taking into consideration the terms of existing contractual agreements) as compared to the number of authorized shares of Common Stock at the dates of issuance of each instrument. The maximum number of authorized shares of Common Stock was 50,000,000 in 2000 and from January 1, 2001 to September 25, 2001. Pursuant to a vote held at a special meeting of the Company's shareholders on September 20, 2001, the maximum number of authorized shares of Common Stock was increased, effective September 26, 2001, to 150,000,000 shares. On June 19, 2001, the issued freestanding warrants exceeded the authorized number of shares and, accordingly, some of the warrants issued on that date were classified as liabilities, in accordance with the method described below, until the increase in authorized shares was approved in September 2001, at which time such issued, freestanding warrants were reclassified as permanent equity. In June 2001, certain of the Series F preferred stock holders agreed not to exercise their warrants if, in doing so, the authorized number of shares remaining after exercise by the holders of the Series F preferred stock was not sufficient to permit warrants associated with the $140 Million Facility to be exercised. To the extent that the number of freestanding warrants and the maximum number of additional warrants that could potentially be issued in the future exceed the maximum number of authorized shares (the "Share Cap") at the time the debt or preferred stock instrument is issued, the Company determines the classification of, and accounting for, the freestanding and additional warrants as follows: (1) freestanding warrants (those that are immediately exercisable) are considered first for equity treatment, to the extent of the maximum number of authorized shares; (2) among various outstanding instruments, those with the earlier issuance dates are considered first for equity treatment; and (3) contractual priorities are considered where applicable. Freestanding warrants and the maximum number of additional warrants that could potentially be issued in the future resulting in the Company's exceeding the Share Cap are treated as liabilities. If the freestanding warrants and the maximum number of additional warrants that could be issued in the future exceed the Share Cap

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on the date the debt or preferred stock instrument is issued, the proceeds from issuance are first allocated to the freestanding warrants and the contingent additional warrants based on the fair value of those warrants, with the remainder allocated to the debt or preferred stock instrument. If only the maximum number of additional warrants that could be issued in the future exceed the Share Cap on the date the debt or preferred stock instrument is issued, the proceeds from issuance are first allocated between the freestanding warrants and the debt or preferred stock instrument based on their relative fair value. An amount is then allocated to the contingent additional warrants based on the estimated fair value of those warrants, which results in an additional discount on the debt or preferred stock instrument. In determining the fair value of the contingent additional warrants, the probability of their issuance as well as the price of the underlying Common Stock is considered. The classification of freestanding and contingently-issued warrants as equity or as liabilities is reevaluated at each issuance, and at each balance sheet date, upon consideration of the priorities outlined above.

        Issued $0.01 warrants classified as liabilities, if any, are recognized in the balance sheet at their fair value, as determined periodically based on quoted market prices of the underlying common stock. As of December 31, 2002, January 1, 2002, and December 31, 2000, there were no issued warrants classified as liabilities. Contingently-issuable $0.01 warrants classified as liabilities are also recorded at fair value based on quoted market prices of the underlying Common Stock and considering the probability of issuance and other pertinent factors. Changes in the fair value of derivative liabilities are recorded within the statement of operations. If reclassification from liability to permanent equity is required under EITF 00-19, prior to reclassification the liability is adjusted to fair value, with the change recorded in cumulative change in derivative fair value within the statement of operations. In the event of reclassification from permanent equity to liability, the related warrants are adjusted to fair value, with the change recorded in additional paid-in capital.

2. Liquidity

        The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses in recent years, and such losses have continued through March 26, 2003. The Company also has a deficit in stockholders' equity of approximately $88,672,000 as of December 31, 2002, and, as of the date, the Company's current liabilities exceeded its current assets by approximately $164,751,000. As discussed in Note 7, during the year ended January 1, 2002 and December 31, 2002, and continuing into 2003, the Company was in violation of certain covenants on its $140 Million Facility. This could be considered an event of default under the indenture if the Company was unable to cure the violation within 30 days of receiving written notice from the trustee or holders specifying the default; however, such notice has not been received as of March 26, 2003. If such notice were to occur, the entire amount of the $140 Million Facility could become immediately due and payable. In any event, the $140 Million Facility matures on June 15, 2003. These factors raise substantial doubt about the Company's ability to continue as a going concern.

        In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to obtain new financing, and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the

F-18

recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

        As discussed in Note 15, The Company has engaged an investment bank to assist it in developing alternatives to rationalize its capital structure. The Company is actively pursuing options to effect the refinancing or retiring of the $140 Million Facility on or before its maturity on June 15, 2003. Such options currently under consideration by the Company include the sale of all or part of the Company, which could result in an investment of equity and a refinancing or retirement of the Company's primary debt obligations, and the refinancing of the $140 Million Facility with a new debt facility, which may entail a new 144A senior note offering (Note 18).

        The Company has recorded a loss from operations for the fiscal years ending December 21, 2002, January 1, 2002 and December 31, 2000 of approximately $316,000, $6.8 million and $3.1 million, respectively. The Company also recorded net cash flow used in operating activities of approximately $6,670,000 in 2002 as a result of the operating loss as well as working capital contraction related primarily to shorter payment terms associated with its new distribution contracts. The Company has initiated cost reduction programs that stem primarily from the integration of Einstein into the Company, including supply chain efficiencies and reductions in overhead as a result of the elimination of duplicative functions and the streamlining of various functional areas. While most of these initiatives commenced in fiscal 2002, the full year effect is not expected to be realized until 2003. In addition, the Company incurred substantial expenses in 2002 related to (1) the payment of unauthorized bonuses to certain members of former management as well as the internal investigation that ensued and (2) legal and advisory fees related to various efforts to refinance the $140 Million Facility and the Company's revolving line of credit, which are not anticipated to recur at similar levels in 2003. Although there is no assurance that funding will be available to refinance or retire the $140 Million Facility, the Company believes that its current business plan, if successfully funded, will improve its operating results and cash flow in the future.

3. Acquisitions

        On August 31, 1999, the Company acquired the assets of Chesapeake Bagel Bakery, a franchisor of bagel bakeries operating under the Chesapeake brand name. The purchase price was $4,071,085 consisting of $2,421,000 in cash paid to the seller, $1,500,000 in notes payable to the seller and the accrual of $150,085 of post acquisition liabilities representing unearned franchise fees and post-closing store conversion costs.

        On May 5, 2000, the Company acquired certain lien rights on substantially all the assets of New York Bagel Enterprises ("NYBE") and its wholly owned subsidiary, Lots 'A Bagels, Inc. ("LAB"), from a bank for consideration of $1,175,000, plus certain acquisition costs and assumed liabilities of $890,353. Both NYBE and LAB were operating as Debtors in Possession under Chapter 11 of the bankruptcy code. On May 13, 2000, the Company acquired the leases and other assets of 17 NYBE stores through NYBE's bankruptcy proceeding. In addition, the Company acquired all trademarks and franchise rights for 12 stores operating under the New York Bagel & Deli trade name. The store assets acquired are included as assets held for resale in the accompanying balance sheet, as the Company intends to sell the stores to franchisees. On July 12, 2000, in LAB's bankruptcy proceeding, the Company acquired the leases and other assets of an additional six LAB stores.

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        On June 26, 2000, the Company acquired the operating assets of 13 Manhattan Bagel stores in Western New York from a franchisee that was operating in bankruptcy. The store assets were acquired for cash approximating $1,231,091, the settlement of a note receivable with a carrying value of $1,250,000 held by the Company, and certain acquisition costs. The stores acquired are included in assets held for resale (Note 11) in the accompanying balance sheet as of January 1, 2002, as the Company intends to sell them to franchisees.

        These acquisitions have been accounted for under the purchase method of accounting and accordingly the results of operations of the acquired business have been included in the statement of operations since their respective acquisition dates. The impact of the acquisition of the NYBE, LAB and the Western New York stores was not material to the financial statements.

        On June 19, 2001, the Company purchased substantially all of the assets (the "Einstein Acquisition") of Einstein/Noah Bagel Corp. and its majority-owned subsidiary, Einstein/Noah Bagel Partners, L.P. (collectively, "Einstein"). Einstein was the largest bagel bakery chain in the United States, with 458 stores, nearly all of which were company-operated. The Einstein Acquisition was made pursuant to an Asset Purchase Agreement, which was entered into by the Company as the successful bidder at an auction conducted by the United States Bankruptcy Court, District of Arizona, on June 1, 2001 in the Einstein bankruptcy case. The purchase price was $160,000,000 in cash and the assumption of certain liabilities, subject to adjustment to the extent that Assumed Current Liabilities (as defined in the Asset Purchase Agreement) exceed $30,000,000.

        In connection with the Einstein Acquisition, the Company incurred approximately $9,722,000 of acquisition costs. The acquisition has been accounted for under the purchase method of accounting and accordingly the results of operations of the acquired company have been included in the statement of operations since the acquisition date. The aggregate purchase price of $163,337,000 is being allocated based on the fair value of the tangible and intangible assets acquired and liabilities assumed as follows:

	(amounts in thousands)
Assets Acquired:
Current assets	$	13,800
Plant property and equipment		98,107
Trademarks and intangible assets		97,784
Liabilities assumed:
Current liabilities		(34,223	)
Long-term liabilities		(12,131	)
Total purchase price	$	163,337

        The purchase price was allocated to the assets acquired and liabilities assumed based on management's estimate of their fair market value at the date of acquisition, which was determined by an independent appraisal. Pursuant to the Asset Purchase Agreement, the Company is entitled to a reduction in purchase price to the extent that assumed current liabilities (as defined) exceed $30,000,000 as of the acquisition date. The accompanying balance sheet as of January 1, 2002 reflects approximately $3,918,000 as due from the Einstein bankruptcy estate. This amount is based upon the final determination of assumed current liabilities by the independent arbitrator as of the acquisition date, net of certain payments received from the Einstein bankruptcy estate through the date of these financial statements. The Company received the amount during fiscal 2002.

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        The following unaudited pro forma consolidated statements of operations data for the years ended January 1, 2002 and December 31, 2000, give effect to the Einstein Acquisition as if it had occurred as of the beginning of each period reported. All of the following unaudited pro forma consolidated results of operations give effect to purchase accounting adjustments and the financings necessary to complete the acquisition. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place as of the beginning of each period reported, and may not be indicative of future operating results.

	Pro Forma For the Years Ended
	January 1, 2002			December 31, 2000
	(amounts in thousands, except per share data) (Unaudited)
Revenues	$	403,777		$	418,781
Loss from operations	$	(14,682	)	$	(24,424	)
Net loss	$	(47,497	)	$	(35,092	)
Net loss available to common stockholders	$	(92,084	)	$	(79,679	)
Loss per share—Basic and Diluted	$	(2.50	)	$	(2.16	)

4. Property, Plant and Equipment

        Property, plant and equipment consists of the following:

	December 31, 2002			January 1, 2002			December 31, 2000
	(amounts in thousands)
Leasehold improvements	$	51,026		$	50,448		$	3,735
Store/factory equipment		49,781			51,220			3,407
Furniture & fixtures		1,799			2,189			445
Office and computer equipment		9,251			9,576			1,942
		111,857			113,433			9,529
Less accumulated depreciation		(30,603	)		(12,316	)		(3,027	)
	$	81,254		$	101,117		$	6,502

        Depreciation expense totaled approximately $22,808,000, $9,568,000 and $1,517,000 for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, respectively.

5. Notes Receivable

        The Company has issued promissory notes to franchisees to facilitate their construction of stores and provide other initial and ongoing operating cash flows. The notes are payable with interest thereon at rates ranging from 6-10% per annum and are generally to be paid in full simultaneously upon the closing of a subsequent financing by the franchisee. The notes have terms expiring through November 2004. Substantially all of the assets of the franchisees' stores are pledged as collateral for the notes. Allowance for doubtful notes receivable was $2,618,000, $2,477,000 and $1,897,000 as of December 31, 2002, January 1, 2002 and December 31, 2000 respectively.

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6. Debt Issuance Costs and Other Assets

        Debt issuance costs and other assets consist of the following:

	December 31, 2002		January 1, 2002		December 31, 2000
	(amounts in thousands)
Security deposits	$	265	$	250	$	424
Deferred acquisition costs		—		—		701
Debt issuance costs		566		2,234		—
Other		695		753		519
	$	1,526	$	3,237	$	1,644

7. Long-Term Debt

Long-term debt consists of the following:

	December 31, 2002		January 1, 2002		December 31, 2000
	(amounts in thousands)
Senior secured increasing rate notes, net of unamortized     discount of $1,916 and $7,959 (a)	$	138,084	$	132,041	$	—
Bridge loan (b)		4,443		34,350		—
Greenlight obligation (c)		10,000		10,437		—
Note payable to a bank (d)		—		—		11,000
Revolving credit note payable to a bank (e)		—		—		3,000
Revolving credit note payable to an affiliate (f)		6,000		—		—
Promissory note payable in connection with Chesapeake     Bagel Bakery acquisition (g)		1,500		1,500		1,500
Note payable to New Jersey Economic Development     Authority (h)		1,680		1,960		2,240
Other (i) (j)		176		225		373
		161,883		180,513		18,113
Less-Current portion of long-term debt		150,872		168,394		16,240
	$	11,011	$	12,119	$	1,873

a.

The Company consummated a private placement of 140,000 units consisting of $140 million of senior secured increasing rate notes (the "$140 Million Facility") and 140,000 Common Stock purchase warrants, each exercisable into 98 shares of Common Stock. The notes under the $140 Million Facility were issued at 91.75% of par, resulting in an initial discount of $11,550,000. The terms of the facility are governed by a certain indenture (the "Indenture") dated as of June 19, 2001, mature on June 15, 2003 and bear interest at an initial annual rate of 13%, increasing by 100 basis points each quarter commencing September 15, 2001 to a maximum rate of 18%. The Company commenced quarterly interest payments on September 15, 2001. The Company may redeem all or a portion of the notes at any time for their face value plus accrued and unpaid interest. If there is a Change in Control (as such term is defined in the Indenture) of the Company, the holders of the notes will have the right to require the Company to repurchase the notes at a price equal to 101% of the face

F-22

amount plus accrued and unpaid interest. The notes are secured by a security interest in all of the Company's assets and the assets of the Company's subsidiaries (other than the assets of a non-restricted subsidiary (EnbcDeb Corp.) which holds the Einstein Bonds (see (b) below). The Indenture also contains certain restrictive covenants, including certain financial covenants that are required to be measured on an annual basis, such as minimum consolidated cash flow and capital expenditures, each defined in the Indenture. The Company has violated certain of these covenants during the year ended January 1, 2002 and continuing into 2003, which could trigger an event of default if the Company was to receive a written notice of default from the trustee or holders that was not cured within 30 days. Although such notice of default has not been received as of March 26, 2003, the amounts outstanding under the $140 Million Facility have been classified as current within the January 1, 2002, as well as the December 31, 2002 balance sheet. The Company did not obtain waivers from the trustee or holders.

As noted above, the Company also issued warrants to purchase in the aggregate 13,720,000 shares of the Company's Common Stock at an exercise price of $0.01 per share. The warrants will expire on June 20, 2006. The Company is required to repurchase all the outstanding warrants in the event of a change in control (as defined in the warrant agreement) at a price equal to the fair market value of the common stock issuable upon exercise of the warrants, less the exercise price. The Company is also contingently obligated to issue additional $0.01 warrants as follows: (1) an additional 1% of the fully-diluted common stock if the Notes remain outstanding on March 15, 2002, (2) an additional 1% of the fully-diluted common stock if the Notes remain outstanding on June 15, 2002, and (3) an additional 1% of the fully-diluted common stock issued on a monthly basis if the Notes remain outstanding after June 15, 2002. If the Company redeems all or a portion of the notes prior to the dates on which additional warrants become issuable it will not be required to issue the additional warrants relating to the portion of the notes redeemed. The additional warrants also expire on June 20, 2006. Through March 26, 2003, the Company has issued 6,454,084 of additional $0.01 warrants and has obligations (issuance date has occurred, but warrants have not yet been issued) to issue an additional 4,158,826.

The warrants were issued pursuant to, and are governed by, the terms of a certain Warrant Agreement dated as of June 19, 2001, by and among the Company, Jefferies & Co. and U.S. Trust. The holders of the notes and warrants are entitled to certain registration rights as set forth in the Registration Rights Agreement dated as of June 19, 2001, by and among the Company, Jefferies & Co. and U.S. Trust. Pursuant to the Registration Rights Agreement, the Company was required, among other things, to consummate an exchange offer for the notes pursuant to which the Company would offer to the holders of the notes the opportunity to exchange their notes for substantially identical new notes that would not be subject to transfer restrictions. In the event of a breach of the covenants in the Registration Rights Agreement, the Company is required to pay, as liquidated damages, additional interest on the notes at the rate of 0.25% per annum for the first 90 days of such breach, increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period up to a maximum increase in the interest rates on the notes of 1% per annum, until the Company cures any such breach. Commencing November 17, 2001, the Company failed to comply with certain covenants in the Registration Rights Agreement, which remain uncured, and accordingly, as of January 1, 2002, was paying interest on the notes at the rate of 15.25%, increasing by .25% for each subsequent 90-day period thereafter until such default is

F-23

cured, up to a maximum of 1% of additional interest. The stated rate of interest on the notes is 19% at December 31, 2002.

The Company incurred approximately $6 million of issuance costs.

Since the maximum number of additional warrants that could be issued exceeded the Share Cap on the date the $140 Million Facility was issued, the Company has accounted for the $140 Million Facility by first allocating the net proceeds from issuance (notes issued at 91.75% of par) between the freestanding warrants granted at issuance and the debt instrument. An amount was then allocated to the obligation to issue additional warrants in the future based on the estimated fair value of those warrants, which resulted in an additional discount on the debt instrument. The Company is recognizing interest at an effective interest rate that was determined considering the expected life of the instrument, scheduled increases in the interest rate occurring during that estimated term, additional interest charges resulting from a breach of the Registration Rights Agreement, and the amortization of any discount from allocating the proceeds. The expected life of the instrument, which was determined based on refinancing options being pursued by the Company, was reviewed and changed periodically as a function of changes in the expected timing of those refinancing options. The Company recognized the obligation to issue additional warrants as a liability and has marked that liability to fair value to reflect changes in the underlying Common Stock prices, management's estimate of the probability of issuance and other factors at each balance sheet date.

The components of the $140 Million Facility were included in the accompanying balance sheet as follows:

	December 31, 2002			January 1, 2002
	(amounts in thousands)
Original face value of $140 Million Facility	$	140,000		$	140,000
Issuance discount from face value		(11,550	)		(11,550	)
Discount attributable to initial and future warrants		(17,312	)		(17,312	)
Effective interest amortization of discount		26,946			20,903
	$	138,084		$	132,041

b.

In 2001, the Company entered into a $35 million asset-backed secured loan due June 15, 2002 (the "Bridge Loan") through EnbcDeb Corp., a wholly owned subsidiary of the Company. Pursuant to the terms of a Note Purchase and Security Agreement dated as of June 19, 2001, (the "Purchase and Security Agreement"), EnbcDeb Corp. sold $35 million aggregate principal amount of secured increasing rate notes to third-parties. The aggregate proceeds were $33,250,000. The notes are secured by EnbcDeb Corp.'s investment in $61.5 million aggregate principal amount of 7.25% subordinated convertible debentures due June 2004 of Einstein/Noah Bagel Corp. (the Einstein Bonds). Interest on the $35 million of notes initially accrues at a rate of 14% per annum, increasing by .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 EnbcDeb Corp.'s option. The Purchase and Security Agreement provides for a mandatory pre-payment of the notes upon a change of control of EnbcDeb Corp., which requires the Company to pay 101% of the principal amount thereof plus accrued and unpaid interest thereon. EnbcDeb Corp. is required to apply all

F-24

proceeds relating to the Einstein Bonds as a repayment of the $35 million notes. The Company anticipates that this loan will be repaid in part from the proceeds of the Einstein Bonds distributed in the Einstein bankruptcy case. To the extent that the proceeds received by EnbcDeb Corp. from the Einstein bankruptcy estate are insufficient to repay these notes, the holders of the notes will have the option to require the Company to issue to such holders preferred stock having a redemption value equal to the deficiency. If the amount of such deficiency is less than $5 million, then the preferred stock will be entitled to an annual cash dividend equal to 17% per annum, increasing 100 basis points per month until the preferred stock is redeemed and the Company will be required to issue warrants, exercisable at $0.01 per share, to purchase 5% of the fully-diluted shares of Common Stock of the Company. If the amount of such deficiency is greater than or equal to $5 million, then the preferred stock will be entitled to an annual cash dividend equal to 18% per annum, increasing 100 basis points per month until the preferred stock is redeemed and the Company will be required to issue warrants, exercisable at $0.01 per share, to purchase 10% of the fully-diluted shares of Common Stock of the Company. The Company has classified the contingently issuable warrants as a derivative liability as discussed further below. In 2002, the Company received distributions relating to its investment in the Einstein Bonds of $36,711,000, which were used to repay an equivalent portion of the Bridge Loan. As a result of paid-in-kind interest on the Bridge Loan, $4,442,884 remains outstanding as of December 31, 2002. The Company anticipates the Bridge Loan balance will be retired in 2003, at the conclusion of the Einstein bankruptcy estate, through the issuance of preferred stock.

The Company incurred approximately $1 million of issuance costs.

The proceeds from issuance of the Bridge Loan, net of an initial discount of $1,750,000, were allocated to the estimated number of additional warrants that could potentially be issued in the future, representing an estimated fair value of $5,365,430, with the remaining balance allocated to the debt instrument. The Company has included the impact of future increases in the interest rate on the Bridge Loan over its expected life and is amortizing the discount over that same term, and is marking the obligation to issue additional warrants to fair value to reflect changes in the underlying Common Stock price.

        The components of the Bridge Loan were included in the accompanying balance sheet as follows:

	December 31, 2002			January 1, 2002
	(amounts in thousands)
Original face value of Bridge Loan	$	35,000		$	35,000
Issuance discount from face value		(1,750	)		(1,750	)
Discount attributable to future warrants		(5,365	)		(5,365	)
Accreted PIK interest		6,153			2,627
Effective interest amortization of discount		7,116			3,838
Reductions in Principal		(36,711	)		—
	$	4,443		$	34,350

c.

On January 17, 2001, the Company entered into a Bond Purchase Agreement (the "Bond Purchase Agreement") with Greenlight. Pursuant to the Bond Purchase Agreement, Greenlight formed a limited liability company, GNW, and contributed $10,000,000 (the "Contribution Amount") to be utilized for the purchase of Einstein Bonds. The Company is the sole manager of GNW. The

F-25

Company consolidated GNW as debt given that the Bond Purchase Agreement provided Greenlight with a secure interest in GNW's investment in Einstein Bonds, and a right for repayment of its investment within two years with a guaranteed accretion of 15% per year (increasing to 17% on January 17, 2002 and by an additional 2% each six months thereafter). In connection with the Bond Purchase Agreement, the Company issued Greenlight five-year warrants to purchase an aggregate of 4,242,056 shares of the Common Stock at $0.01 per share. In addition, the terms of the Bond Purchase Agreement stipulate that a) warrants for an additional 0.9375% of the fully diluted Common Stock of the Company shall be issued at the first anniversary date of the agreement and at the beginning of each three-month period thereafter provided that certain conditions have not been met (including but not limited to a combination of the Company and Einstein) and b) warrants for an additional 1.5% of the fully diluted Common Stock of the Company shall be issued at such time as the Series F preferred stock is redeemed through the issuance of senior subordinated notes, which obligations were superceded by the terms included in the letter agreement described below.

On June 19, 2001, the Company, GNW and Greenlight entered into a letter agreement (the "Letter Agreement"). Under the terms of the Letter Agreement, Greenlight consented to the pledge (the "Pledge") by the Company, as manager of GNW, of the Einstein Bonds to Jefferies & Co. to secure the Bridge Loan (see (b) above). The Company is required to apply 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 below. 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, as discussed further below.

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.

As a result of the maximum number of additional warrants that could be issued under the Bond Purchase Agreement dated January 17, 2001 exceeding the Share Cap, the Company concluded that the obligation to issue warrants in the future could not be classified within stockholders' equity on the date of issuance. However, as a result of the subsequent extinguishment of the Series D preferred stock, the obligation to issue warrants in the future under the Bond Purchase Agreement did not exceed the Share Cap and, accordingly, the liability established was reclassified to stockholders' equity in accordance with EITF 00-19. The Company included the impact of the increases in the interest rate associated with the instrument and the amortization of any related discount in its effective interest rate calculations. The Letter Agreement between Greenlight and the Company executed in June 2001 resulted in a substantial modification that requires accounting as an extinguishment pursuant to EITF 96-19, primarily due to the additional warrant coverage

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(deficiency warrants) provided in the Letter Agreement in the event the proceeds from the Einstein Bonds were not sufficient to retire the Greenlight obligation. The extinguishment resulted in a loss from extinguishment of Greenlight obligation of $16,641,566 in 2001 representing the difference between the fair value of the new debt obligation and the carrying amount of the extinguished debt, plus the fair value of the estimated deficiency warrants that were recorded as a liability. Additionally, the Greenlight obligation is presented in the financial statements as debt with interest expense thereon recorded within the statement of operations since its inception.

The components of the Greenlight instrument were included in the accompanying balance sheet as follows:

	December 31, 2002			January 1, 2002
	(amounts in thousands)
Proceeds from issuance of Greenlight obligation	$	10,000		$	10,000
Discount attributable to initial and future warrants		(4,316	)		(4,316	)
Extinguishment of discount		4,195			4,195
Effective interest amortization of discount		121			558
	$	10,000		$	10,437

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

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bear interest at the rate of 13% 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.

g.

As a part of the acquisition of the assets of Chesapeake Bagel Bakery (Note 3), 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, January 1, 2002 and December 31, 2000 balance sheets as the Company did not obtain waivers for such violations, which results in the entire balance being due and payable at the discretion of the holder. As of March 26, 2003, the holder has not expressed any intent to call the loan prior to its stated maturity date.

i.

In June 1996, the Company issued a promissory note for $770,000 in connection with the acquisition of three Coopers Coffee Bar locations. The note is payable over four years in equal installments and bears interest at 6%, which represented a below-market interest rate at the time of the acquisition. The note was discounted using an interest rate of 10%, a more appropriate market rate at issuance. The note is secured by certain store assets purchased pursuant to the acquisition. This note was repaid in full during 2001.

j.

The Company is obligated under a mortgage payable of $208,000 on its plant in South Carolina. The mortgage bears interest at prime plus 1.25% and matures in March 2010. The mortgage is secured by the associated real estate.

        Scheduled maturities of long-term debt are as follows:

	December 31, 2002
2003	$	150,872
2004		915
2005		40
2006		40
2007		16
Thereafter		10,000
	$	161,883

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8. Accrued Expenses

        Accrued expenses consist of the following:

	December 31, 2002		January 1, 2002		December 31, 2000
	(amounts in thousands)
Accrued payroll and related bonuses	$	13,949	$	13,472	$	876
Accrued reorganization		2,768		2,936		236
Acquisition financing expenses		—		968		—
Accrued vendor contracts		—		2,714		—
Accrued taxes		2,310		2,100		—
Accrued interest		4,342		2,332		528
Gift certificate liability		1,789		1,224		—
Accrued utilities		1,115		1,190		—
Other		4,715		2,545		1,310
Total	$	30,988	$	29,481	$	2,950

9. Stockholders' Equity and Redeemable Preferred Stock

Series A and Series B Preferred Stock

        The Series B convertible preferred stock bears no dividend and has limited voting rights except as provided under the General Corporation Law of the State of Delaware. The stock is convertible into shares of Common Stock in accordance with the Certificate of Designation of Series B convertible preferred stock. On June 7, 1999, the Company's board of directors authorized the issuance of a Series A junior participating preferred stock in the amount of 700,000 shares. This issuance was made in accordance with the Stockholders' Rights Plan discussed below.

Series C Convertible Preferred Stock

        In connection with a private placement discussed below, the Company issued 444,190 shares of Series C convertible preferred stock. Each share of Series C preferred stock was converted into three shares of Common Stock upon the effective date of the registration of the Common Stock issued in connection with the offering (September 11, 2000). The Series C convertible preferred stock provided for a cumulative dividend equal to 10% per annum, based upon a deemed value of $7.00 per share. Pursuant to the terms of the offering, the Series C convertible preferred stock, which had an embedded beneficial conversion feature, (See description of common stock) was converted to 1,332,570 shares of Common Stock on the effective date of the registration of the Common Stock.

Series D Redeemable Preferred Stock

        On August 11, 2000, the Company, Brookwood and BET entered into a Series D Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement"). The first closing under the Purchase Agreement, pursuant to which BET purchased its Series D preferred stock and its warrants, occurred on August 11, 2000. The second closing under the Purchase Agreement, pursuant to which Brookwood purchased its Series D preferred stock and warrants, occurred on August 18, 2000. Under the terms of the Purchase Agreement, Brookwood and BET each purchased (i) 8,108.108 shares of Series D preferred stock and (ii) warrants to purchase up to 1,196,910 shares of the Common Stock of the

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Company, each of which represented the right to purchase approximately 7.7% of the Common Stock. Pursuant to the Purchase Agreement, the number of shares that Brookwood and BET may receive upon exercise of their warrants is subject to upward adjustment depending upon certain future events affecting the capitalization of the Company. The shares of Common Stock issuable upon exercise of such warrants are entitled to registration rights under the terms of a Registration Rights Agreement among the Company, Brookwood and BET. Under the terms of the Purchase Agreement, if the Company fails to take actions to redeem the Series D preferred stock within one year of the closing, the Company will be required to issue to each of Brookwood and BET, each quarter for the next four quarters, additional warrants representing the right to purchase an additional 1.34% of Common Stock, subject to reduction for any redemption(s) of Series D preferred stock that occur during that year. Further, under the terms of the Purchase Agreement, if the Company fails to take actions to redeem the Series D preferred stock within two years of the closing, the Company will be required to issue to each of Brookwood and BET, each quarter for the next four quarters, additional warrants representing an additional 2.015% of Common Stock, subject to reduction for any redemption(s) that occur during that year. The Series D preferred stock provided for a cumulative dividend equal to 7.5% per annum, based upon a deemed value of $1,000 per share.

        The accounting for the Series D preferred stock is as follows: Net proceeds from the issuance have been allocated between the freestanding warrants and the preferred stock based on the relative fair value of each instrument. Proceeds initially allocated to the freestanding warrants are classified within equity. The Company has computed the effective dividend rate over the three-year term to the final mandatory redemption date. The effective dividend rate established on the date of issuance includes an estimate of the fair value of additional warrants that are required to be issued in years two and three if the Company has not redeemed the preferred stock by that time. The estimated fair value of the warrants was determined using the stock price on the computation date. Changes in the estimated fair value of the warrants the Company expects to issue will be taken into account in determining a new effective dividend rate at the end of each reporting period. The new effective dividend rate will be applied prospectively as of the beginning of such reporting period.

        On January 18, 2001, the two holders of Series D preferred stock — BET Associates, L.P. ("BET") and Brookwood New World Investors, LLC ("Brookwood") — exchanged their Series D preferred stock for Series F preferred stock. The financial statements account for the exchange as an extinguishment of the Series D preferred stock. 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 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 $8,358,403.

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        As of December 31, 2000, the components of Series D preferred stock were included in the accompanying balance sheet as follows:

	December 31, 2000
	(amounts in thousands)
Proceeds from issuance of Series D preferred stock	$	15,000
Fees and commissions		(538	)
Discount attributable to initial and future warrants		(3,572	)
Accretion of warrant value and dividends		1,750
	$	12,640

Series F Redeemable Preferred Stock

        On January 18, 2001, the Company consummated a sale of 20,000 shares of its authorized but unissued Series F preferred stock to Halpern Denny III, L.P. ("Halpern Denny") in exchange for the sum of $20,000,000. In connection with the purchase, the Company issued Halpern Denny five-year warrants to purchase 8,484,112 shares of Common Stock at an exercise price of $0.01 per share. The Series F Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of any notes issued thereon), Halpern Denny shall receive additional warrants equal to 1.5% of the fully diluted Common Stock of the Company (excepting certain options and warrants) on January 18, 2002 and on each succeeding June 30 and December 31. The warrant agreement further provides that it would be 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 the Company, whereby they exchanged all of their outstanding 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 preferred stock. BET and Brookwood also exchanged the warrants received by them in August 2000 for warrants to purchase an aggregate of 6,526,356 shares of Common Stock at an exercise price of $0.01 per share. The Series F Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of any notes issued thereon), BET and Brookwood shall receive additional warrants equal to a semi-annual increase in aggregate of 1.154% of the fully diluted Common Stock of the Company (excepting certain options and warrants).

        On March 29, 2001, the Company consummated a sale of 5,000 additional shares of its authorized, but unissued, Series F preferred stock 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, the Company also sold Halpern Denny five-year warrants to purchase 2,121,028 shares of Common Stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant). The Series F Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of any notes issued thereon), Halpern Denny shall receive additional warrants equal to a semi-annual increase in aggregate of 0.375% of the fully diluted Common Stock of the Company (excepting certain options and warrants).

        On June 7, 2001, the Company consummated the sale of 4,000 additional shares of its authorized, but unissued, Series F preferred stock to Halpern Denny in exchange for the sum of $4,000,000

F-31

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, the Company also sold Halpern Denny five-year warrants to purchase an aggregate of 3,384,629 shares of Common Stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant). The Series F Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of any notes issued thereon), Halpern Denny shall receive additional warrants equal to a semi-annual increase in aggregate of 0.3% of the fully diluted Common Stock of the Company (excepting certain options and warrants).

        In addition, on June 19, 2001, the Company consummated the sale of 21,000 additional shares of its authorized, but unissued, Series F preferred stock 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 the Company, Halpern Denny, Greenlight and Special Situations. In connection with the sale of the June 2001 Series F preferred stock, the Company sold warrants to purchase 17,769,305 shares of Common Stock at a price per share of $0.01 (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 provide 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 are an aggregate of 1.575% of the fully diluted Common Stock (excepting certain options and warrants).

        As set forth in a Second Amended Certificate of Designation, Rights and Preferences of Series F preferred stock (the Second Amended Certificate of Designation), the Series F preferred stock accrues dividends payable in shares of Series F preferred stock at the rate of 16% per annum for the first year, which rate increases semi-annually at the rate of 2% per annum. The Series F preferred stock, including accrued dividends, is redeemable three years from the date of issue (the Mandatory Redemption Date). If the Company fails to redeem the Series F preferred stock at the Mandatory Redemption Date, the Company is entitled to redeem the Series F preferred stock by issuing senior subordinated notes (the "Senior Notes") to the holders of the Series F preferred stock. The Senior Notes would bear interest at a rate comparable to the dividend rate under the Series F preferred stock, which rate increases monthly thereafter at the rate of 1% per month and would be due and payable 120 days from the Mandatory Redemption Date.

        The Company, Halpern Denny, Brookwood, Greenlight and Special Situations entered into an agreement which stated that notwithstanding the provisions concerning the mandatory redemption date of the Series F preferred stock contained in the Second Amended Certificate of Designation, the Series F preferred stock shall be redeemable on the later of (a) January 18, 2004 for all shares of Series F preferred stock issued on or prior to March 31, 2001, and June 30, 2004 for all shares of Series F preferred stock issued after March 31, 2001, and (b) the maturity date of any notes (the "Refinancing Senior Notes"), the proceeds of which are used to repay the outstanding notes issued under the $140 Million Facility, provided that the indenture for the Refinancing Senior Notes includes language which permits the Company to make certain specified restricted payments (a "Restricted Payment") (including certain payments to redeem Series F preferred stock) so long as certain covenants contained therein are satisfied. The amount of any Restricted Payment, together with any aggregate amount of all other Restricted Payments made by the Company and its subsidiaries must be less than the sum of (x) fifty (50%) percent of the consolidated net income of the Company for the period from

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the issue date of the Refinancing Senior Notes to the end of the Company's most recently ended fiscal quarter, plus (y) one hundred (100%) percent of the aggregate net cash proceeds received by the Company from the issuance or sale of equity interests in the Company or any subsidiary, plus (z) one hundred (100%) percent of the net cash proceeds received by the Company from the issuance or sale, other than to a subsidiary of the Company, of any debt security of the Company that has been converted into equity interests of the Company. In the event that the maturity date of the Refinancing Senior Notes is after January 18, 2004 or June 30, 2004, as the case may be, then the Mandatory Redemption Date for such Series F Preferred Stock will be the maturity date of the Refinancing Senior Notes.

        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 preferred stock and consented to the filing of the Second Amended Certificate of Designation which increased the number of shares of Series F preferred stock the Company is authorized to issue from 73,000 shares to 116,000 shares.

        The Third Purchase Agreement provides that for so long as the Series F preferred stock has not been redeemed for cash (including payment of the Senior Notes, if any), Halpern Denny, Greenlight and Special Situations shall 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. If the Company redeems all its issued and outstanding shares of Series F preferred stock on or prior to March 19, 2002, the number of shares of Common Stock issuable upon the exercise of the warrants (the "Original Warrant Shares") which were issued pursuant to the Second Purchase and Third Purchase Agreements shall be reduced by an amount equal to one-third (¹/3) the number of Original Warrant Shares. If the Company redeems all issued and outstanding shares of Series F preferred stock on or prior to June 19, 2002, the number of Original Warrant Shares shall instead be reduced by an amount equal to one-fourth (¹/4) of the number of Original Warrant Shares.

        In connection with each of the Second Purchase and Third Purchase Agreements, the parties amended the form of the Senior Notes to be issued to the holders of Series F preferred stock upon redemption of their shares to refer to their agreement with the Company's secured lender concerning subordination of their interests to the secured lender's interests. As a consequence of the amendment to the Senior Notes, the Company amended its January 2001 Exchange Agreement with BET and Brookwood and the January 2001 Purchase Agreement with Halpern Denny to reflect the new form of Senior Notes. In addition, the Company, BET, Brookwood and Halpern Denny entered into amendments to each of the Stockholders Agreement and Amended and Restated Registration Rights Agreement executed in connection with the January 2001 financing to conform certain defined terms therein to include the additional securities issued pursuant to the Second and Third Purchase Agreements.

        The holders of warrants issued in connection with Series F preferred stock issued prior to March 31, 2001 may be entitled to purchase additional shares of Common Stock as the result of the warrants to purchase 13,720,000 shares of Common Stock issued in connection with the $140 Million Facility and have agreed that such $0.01 warrants may not be issuable if such Series F preferred stock is redeemed for cash not later than June 19, 2002. The Company has evaluated the terms of the obligation to issue additional warrants to such holders in the context of EITF No. 96-19 and

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determined that the agreement to provide such additional warrants constituted an extinguishment, for accounting purposes, of the Series F preferred stock held by such holders. The deemed dividend was computed in a manner similar to that described for the Series D preferred stock. In connection with the modification, the Company determined that the obligation to issue warrants in the future should be classified as a liability. Accordingly, the deemed dividend was increased by the fair value of the additional warrants. The deemed dividend associated with the extinguishment was $23,883,583 in 2001.

        In connection with the issuance of the Series F preferred stock, the Company incurred approximately $3.6 million of issuance costs.

        Through March 26, 2003, the Company has issued 17,291,471 of additional $0.01 warrants and has obligations (issuance date has occurred, but warrants have not yet been issued) to issue an additional 7,625,062.

        Each issuance of Series F preferred stock was evaluated as to the classification of, and accounting for, associated freestanding warrants and additional warrants to purchase Common Stock as permanent equity or liabilities as previously described in Note 1 — Derivative Instruments. Proceeds from the issuance of Series F preferred stock were then allocated using the appropriate allocation method, also as previously described. In its effective dividend rate calculations, the Company included the impact of increasing rate dividends, issuance costs, the estimated fair value of additional warrants (if not classified as derivative liabilities), the amortization of any related discount, and the estimated outstanding term of the instrument based on management's intent to refinance a portion of the original Series F preferred stock. The obligation to issue additional warrants, if classified as a liability, is marked to fair value to reflect changes in the underlying Common Stock prices, management's estimates of the probability of issuance and other factors at each balance sheet date.

        The components of Series F preferred stock were included in the accompanying balance sheet as follows:

	December 31, 2002			January 1, 2002
	(amounts in thousands)
Proceeds from issuance of Series F preferred stock, $16,398 of which was the value of the Series D conversion	$	66,398		$	66,398
Discount attributable to fees and commissions		(3,254	)		(3,254	)
Discount attributable to initial and future warrants		(33,027	)		(33,027	)
Accreted PIK Preferred Stock		23,330			8,735
Extinguishment of discount		8,271			8,271
Effective dividend amortization of discount		23,214			10,215
	$	84,932		$	57,338

Common Stock

        At a special meeting of the Company's shareholders held on September 20, 2001, the Company's shareholders approved an increase in the number of authorized shares of the Company's Common Stock to 150,000,000 shares. In a series of closings from April 18, 2000 through June 21, 2000, the Company completed a private placement consisting of 1,360,390 shares of Common Stock and 444,190

F-34

shares of convertible Series C preferred stock. The proceeds from the offering, net of related offering expenses, were $4,144,305, exclusive of 169,902 shares of Common Stock issued to the placement agent. Each share of Series C preferred stock was converted into three shares of Common Stock upon the effective date of the registration of the Common Stock issued in connection with the offering (September 11, 2000). The Company accounted for the offering pursuant to the rules under EITF 98-5. Pursuant to these rules, convertible securities with an embedded conversion right that is in the money when the security is issued are considered to contain a beneficial conversion feature. The value of the beneficial conversion feature associated with the Series C preferred stock issued was $623,449. This amount has been charged to accumulated deficit and was accounted for as an increase in net loss available to common stockholders for the purpose of computing loss per share.

Stockholders Rights Plan

        On June 7, 1999, the 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 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. The Board has the ability to exclude any Acquiring Person from the provision of this stockholders Rights Plan, resulting in such Acquiring Person's purchase of the Company's Common Stock not 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 the Company is 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.

Warrants

        As of December 31, 2002, the Company has 41,244,218 warrants outstanding all of which were exercisable. These warrants have exercise prices ranging from $0.01 – $11.00 per share, of which 40,357,065 are exercisable at $0.01 per share, and have terms ranging from three to ten years. Such warrants were issued in connection with financings and certain other services. In the third and fourth

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quarter of 2002, certain holders of warrants exercised 39,635,976 of warrants, using a cashless exercise options, and were issued 33,325,458 of Common Stock.

		December 31, 2002 Warrants		January 1, 2002 Warrants	December 31, 2000 Warrants
Outstanding, beginning of year		57,134,639		3,280,973	369,357
	Issued	23,745,555		53,853,666	4,096,286
	Exercised	(39,635,976	)	—	—
	Forfeited	—		—	(1,184,670	)
Outstanding, end of year		41,244,218		57,134,639	3,280,973
Exercisable, end of year		41,244,218		57,134,639	3,280,973

Stock Options

        The Company's 1994 Stock Plan (the "1994 Plan") provides for the granting to employees of incentive stock options and for the granting to employees and consultants of non-statutory stock options and stock purchase rights. Unless terminated sooner, the 1994 Plan will terminate automatically in August 2004. The board of directors has the authority to amend, suspend or terminate the 1994 Plan, subject to any required stockholder approval under applicable law, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the 1994 Plan.

        Options generally become exercisable in ratable installments over a period of up to four years and expire ten years from the date of grant. In December of 2002, the stockholders approved an amendment to the 1994 Plan to increase the number of shares available for issuance under the 1994 Stock plan to 6,500,000. As of December 31, 2002, there were 1,263,149 shares reserved for future issuance under the 1994 Plan. No options currently available for exercise are considered "in-the-money".

        The Company's 1995 Directors' Stock Option Plan (the "Directors' Option Plan") was adopted by the board of directors and approved by the Company's shareholders in August 1995. Unless terminated sooner, the Directors' Option Plan will terminate automatically in August 2005. The board of directors may amend or terminate the Directors' Option Plan at any time; provided, however, that no such action may adversely affect any outstanding option without the optionee's consent and the provisions affecting the grant and terms of options may not be amended more than once during any six-month period. A total of 100,000 shares of Common Stock have been reserved for issuance under the Directors' Option Plan. The Directors' Option Plan provides for the automatic grant of non-statutory stock options to nonemployee directors of the Company. These options vest immediately upon grant.

        The Company issues options from time to time outside the plans described above.

F-36

        A summary of the Company's option activity during the years ended December 31, 2002, January 1, 2002, and December 31, 2000 is presented in the table and narrative below:

		December 31, 2002				January 1, 2002				December 31, 2000
		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, beginning of year		2,864,564		$	1.62	1,601,929		$	2.46	1,030,229		$	2.48
	Granted	5,070,242			0.26	1,263,635			0.56	947,500			2.04
	Forfeited	(2,718,364	)		1.64	(1,000	)		3.00	(375,800	)		1.44
Outstanding, end of year		5,216,442			0.29	2,864,564			1.62	1,601,929			2.46
Exercisable, end of year		1,831,281		$	0.33	1,670,929		$	2.39	1,548,729		$	2.47
Weighted average, fair value of options granted				$	0.11			$	0.38			$	1.00

        The following table summarizes information about the Company's stock options at December 31, 2002:

Exercise Price	Number Outstanding at December 31, 2002	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at December 31, 2002	Weighted Average Exercise Price
$0.14 – $1.00	5,100,242	9.92	$	0.26	1,740,081	$	0.26
$1.01 – $2.00	100,000	8.14	$	1.46	75,000	$	1.54
$2.01 – $4.00	16,200	6.57	$	2.31	16,200	$	2.31
	5,216,442	9.88	$	0.29	1,831,281	$	0.33

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free interest rates of 3.0%, 3.0% and 6.0%; expected dividend yields of 0%; expected lives of four, four and five years; and expected stock price volatility of 100%, 100% and 78%.

10. Income Taxes

        The Company's effective tax rate differs from the federal statutory rate primarily due to the impact of the recognition of valuation allowances against certain future deferred tax benefits for the periods presented.

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        A summary of the significant components of deferred taxes as of December 31, 2002, January 1, 2002 and December 31, 2000 is as follows:

	December 31, 2002			January 1, 2002			December 31, 2000
	(amounts in thousands)
Deferred tax assets:
Operating loss carryforwards	$	30,794		$	18,646		$	15,941
Non-cash charges not yet realized for tax reporting purposes		7,223			7,793			386
Allowance for doubtful accounts		1,829			1,639			1,511
Property, plant and equipment—Depreciation and Amortization		1,969			—			—
		41,815			28,078			17,838
Deferred tax liability:
Property, plant and equipment—Depreciation and Amortization		—			(2,204	)		(5,006	)
Net deferred tax asset		41,815			25,874			12,832
Valuation allowance		(41,815	)		(25,874	)		(12,832	)
	$	—		$	—		$	—

        At December 31, 2002, the Company had net operating loss carryforwards of approximately $88,394,000 available to offset future taxable income. These net operating loss carryforwards expire on various dates through 2021. As a result of ownership changes, which resulted from the issuance of warrants in connection with the sale of Series F preferred stock and the acquisition of Manhattan Bagel Company, the Company's ability to utilize the loss carryforwards is subject to limitations as defined in Section 382 of the Internal Revenue Code, as amended.

        At December 31, 2002, January 1, 2002 and December 31, 2000, the Company has recorded full valuation allowances against its deferred tax assets. The valuation allowances are based upon management's current assessment of the Company's ability to realize the related tax benefits considering the limitations imposed by Section 382 of the Internal Revenue Code, the status of the Company's integration of the operations of Einstein, and its history of operating losses.

11. Assets Held for Resale

        Assets held for resale include company-owned stores that the Company intends to sell to franchisees within the next fiscal year. The Company continually evaluates the realization of the carrying amount of such assets based on the estimated fair value of such assets, which is determined based on the stores' estimated selling prices, less costs to sell. During 2000, the Company acquired certain store assets in upstate New York and in Oklahoma, Colorado and Kansas (see Note 3), which have been classified as assets held for resale based upon the Company's plan and intent to dispose of such stores. In 2000, the Company evaluated the fair value of all assets held for resale and recorded an impairment of $966,001. In 2000, the Company closed two stores classified as assets held for resale.

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        In 2001, the Company recorded a further impairment charge of approximately $3.3 million in accordance with SFAS 121, as a result of the Company's continued inability to sell the stores, and a shift in brand focus given the Einstein Acquisition (Note 3). During 2001, the Company sold four stores in New York and closed ten locations classified as assets held for resale. During 2002, the Company sold seven stores for an aggregate sales price of $1.4 million, and closed 15 stores classified as assets held for resale.

12. Other Long-Term Liabilities

        Other long-term liabilities consist of the following:

	December 31, 2002		January 1, 2002		December 31, 2000
	(amounts in thousands)
Vendor contractual agreements (a)	$	8,210	$	8,466	$	—
Distributor contractual agreements		—		2,783		—
Guaranteed franchisee debt (b)		905		999		1,104
Other		1,445		943		175
	$	10,560	$	13,191	$	1,279

(a)

The Company has a contract to buy product from a major vendor. The accounting for this contract is to recognize a reduction of cost of goods sold based on the volume of purchases of the vendor's product.

(b)

In connection with its acquisition of Manhattan Bagel Company, the Company agreed to guarantee certain loans to franchisees made by two financial institutions. The Company evaluates the fair value of such liability at each balance sheet date. As of December 31, 2002, January 1, 2002 and December 31, 2000, the fair value of the liability reflected above is the maximum potential exposure related to such loans pursuant to agreements with the financial institutions regarding the established caps on the Company's obligation.

13. Derivative Liability

        The following table indicates the value of embedded derivatives related to the Company's debt and equity instruments as of December 31, 2002 and January 1, 2002 and the cumulative impact of changes in the derivative liability within the statement of operations for the years ended December 31, 2002, and January 1, 2002:

	December 31, 2002		For the Year Ended December 31, 2002
Instrument	Value of Embedded Derivative Liability		Cumulative Change in Fair Value of Derivatives
	(amounts in thousands)
Series F preferred stock	$	266	$	(677	)
Greenlight obligation		1,599		1,544
Bridge Loan		502		643
$140 Million Facility		480		(1,277	)
Total	$	2,847	$	233

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	January 1, 2002		For the Year Ended January 1, 2002
Instrument	Value of Embedded Derivative Liability		Cumulative Change in Fair Value of Derivatives
	(amounts in thousands)
Series F Preferred Stock	$	5,113	$	41,654
Greenlight obligation		3,144		11,374
Bridge Loan		1,145		4,220
$140 Million Facility		—		432
Total	$	9,402	$	57,680

        The amounts listed in the above table are affected by the market price of the underlying Common Stock and other factors described in Note 1—Derivative Instruments. As of December 31, 2000, the closing price of the Common Stock was $1.125, which price had decreased to $0.26 by January 1, 2002 and was $0.09 on December 31, 2002. Additionally, as disclosed in Notes 7 and 9, significant issuances of warrants (previously contingently-issuable) under the $140 Million Facility and Series F preferred stock agreements occurred during the year ended December 31, 2002. As a result of applying the classification methodology described in Note 1—Derivative Instruments, the fair value of the issued warrants was reclassified to permanent equity, as denoted on the consolidated statement of changes in stockholders' equity for the year ended December 31, 2002.

14. Reorganization and Integration

        During the quarter ended October 1, 2002, the Company implemented a plan to shut down its dough manufacturing facilities on the East Coast. During the quarter ended December 31, 2002, the Company implemented a plan to terminate the lease obligation for the Eatontown location. As discussed in Note 1—Nature of Business and Organization, the Company vacated the Eatontown location in the last week of 2002. When initiated, the restructuring plans were expected to take approximately one year to complete, subject to the Company's ability to sublease the Eatontown facility. The Company recorded a $4.8 million charge associated with these restructuring plans. Approximately $2.2 million of this charge represented a write-off of the equipment and leasehold improvements no longer usable by the Company.

        The following table displays the activity and balances of the 2002 restructuring accrual account from inception to December 31, 2002:

Category	Initial Accrual		Application of costs against accrual			Underaccrual Additional Expense		Overaccrual Expense Reduction		Balance as of December 31, 2002
	(amounts in thousands)
Plant lease termination	$	1,447	$	—		$	—	$	—	$	1,447
Severance costs		787		(662	)		—		—		125
Contract termination and other		300		(168	)		—		—		132
Total	$	2,534	$	(830	)	$	—	$	—	$	1,704

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        During the quarter ended July 3, 2001, the Company implemented a plan to consolidate the two dough manufacturing facilities on the West Coast, eliminate duplicative labor lines of assembly, terminate certain lease obligations inclusive of several company-operated locations. When initiated, the restructuring plan was expected to take approximately one year to complete. The Company recorded a $4.4 million charge associated with this restructuring plan. Approximately $1.0 million of this charge represented a write-off of the equipment and leasehold improvements no longer usable by the Company.

        The following tables display the 2001 and 2002 activity and balances of the 2001 restructuring accrual account:

Category	Balance as of January 1, 2002		Application of costs against accrual			Underaccrual Additional Expense		Overaccrual Expense Reduction			Balance as of December 31, 2002
	(amounts in thousands)
Plant lease termination	$	379	$	(68	)	$	—	$	—		$	311
Severance costs		151		(229	)		85		—			7
Contract termination and other		58		(94	)		43		—			7
Store lease termination		2,348		(907	)		445		(1,147	)		739
Total	$	2,936	$	(1,298	)	$	573	$	(1,147	)	$	1,064

Category	Initial Accrual		Application of costs against accrual			Underaccrual Additional Expense		Overaccrual Expense Reduction			Balance as of January 1, 2002
	(amounts in thousands)
Plant lease termination	$	379	$	—		$	—	$	—		$	379
Severance costs		151		—			—		—			151
Contract termination and other		233		(204	)		42		(13	)		58
Store lease termination		2,629		(293	)		12		—			2,348
Total	$	3,392	$	(497	)	$	54	$	(13	)	$	2,936

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15. Commitments and Contingencies

Operating Leases

        The Company leases office and retail space under various non-cancelable operating leases. Property leases normally require payment of a minimum annual rental plus a pro rata share of certain landlord operating expenses. As of December 31, 2002, approximate future minimum rental payments under non-cancelable operating leases for the next five years and the period thereafter are as follows:

Year	December 31, 2002
	(amounts in thousands)
2003	$	27,485
2004		26,706
2005		24,225
2006		18,326
2007		8,739
2008 and thereafter		8,360
Total minimum lease payments		113,841
Less: sub-lease income		(2,148	)
	$	111,693

        Rent expense under operating leases was approximately $30,641,000, $18,022,000 and $2,522,000 for the years ended December 31, 2002, January 1, 2002 and December 31, 2000, respectively.

Capital Leases

        The Company has capital leases for computer equipment used in its stores and offices. As of December 31, 2002, the remaining payments under such capital leases are as follows:

Year	December 31, 2002
	(amounts in thousands)
2003	$	295
2004		181
2005		44
2006		22
2007		11
Total minimum lease payments		553
Less: amount representing interest		(93	)
	$	460

Employment Agreements

        The Company has entered into an employment agreement with one officer of the Company that expires on December 31, 2004. The minimum base salary and bonus after December 31, 2002 and

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through the term of this employment agreement totals $1,695,000. In addition, severance payments of $565,000 may be due under the contract depending on the circumstance of the officer's termination.

401(k) Plan

        The Einstein/Noah Bagel Corp. Employee Savings Plan (401(k) plan) was assumed by the Company with the purchase of Einstein on June 19, 2001. All employees of Einstein and Noah Corporation, excluding officers, are eligible to participate in the plan if they meet certain compensation and eligibility requirements. The 401(k) plan allows participating employees to defer the receipt of a portion of their compensation and contribute such amount to one or more investment options. For the period from June 19, 2001 through December 31, 2001 the Company matched 40% of the participants' elective contribution as defined, not to exceed 6% of the employees' annual compensation. The Company has accrued to match 25% of the participants' elective contribution for the period from January 1, 2002 to December 31, 2002. The Company's contribution expense in 2002 and 2001 was $298,283 and $101,506, respectively. Employer contributions vest at the rate of 100% after three years of service.

Health Insurance Plan

        As of December 31, 2002, the Company was self-insured for health costs. The Company has a stop loss policy with an insurance carrier to minimize its risk. Under this plan, the aggregate stop loss under the policy for the year ended December 31, 2002 was approximately $4.4 million. The Company's claims expense for the years ended December 31, 2002 and January 1, 2002 was approximately $4,004,000 and $3,673,000, respectively.

        At December 31, 2002, the Company has recorded an estimated liability for claims incurred but not reported based on review of historical claims activity by the Company and an independent insurance broker.

Legal Proceedings

        The Company is subject to claims and legal actions in the ordinary course of business, including claims by franchisees. The Company does not believe that an adverse outcome in any currently pending or threatened matter, other than described below, would have a material adverse effect on its business, results of operations or financial condition.

        On April 3, 2002, the Company was notified by the Securities and Exchange Commission that the Commission is conducting an investigation into the resignation of the former Chairman, R. Ramin Kamfar, and the termination for cause of the former Chief Financial Officer, Jerold Novack, and the delay in filing the Form 10-K for 2001. The Company is cooperating fully with the investigation. The Company is also cooperating fully with a recent Department of Justice inquiry relating to these issues. Further, several of the former and present officers and directors have requested that the Company advance reasonable legal expense on their respective behalf to the extent any of them is or has been requested to provide information to the Commission in connection with its investigation. The Company is fulfilling its obligations as required by applicable law and the Company's By-Laws.

        On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager filed a purported class action complaint against Einstein in the Superior Court for the

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State of California, County of San Francisco. The plaintiffs allege that Noah's failed to pay overtime wages to managers and assistant managers of its California stores, whom it is alleged were improperly designated as exempt employees in violation of California and Business Profession Code Section 17200. As a result of subsequent communications regarding the circumstances under which the Company purchased Einstein out of bankruptcy, the plaintiffs filed a first amended complaint disclaiming back wages for the period prior to June 19, 2001. However, the first amended complaint added as defendants certain former directors and officers of Einstein. The first amended complaint also added a second cause of action seeking to invalidate releases obtained from Noah's assistant managers pursuant to the settlement of a Department of Labor investigation. The Company filed a demurrer to the first amended complaint, which the plaintiffs opposed. Subsequent to the filing of that demurrer, the Company procured a dismissal without prejudice of the claims brought against Paul Murphy, the only individual defendant the Company employed subsequent to its acquisition of Einstein. The plaintiffs subsequently stipulated to the severance of the claims against the Company and those against the remaining individual defendants. The stipulation provides that the plaintiffs will file separate second amended complaints against the Company and against the remaining individual defendants. As a result, the Company's demurrer will be taken off calendar. The Company will have thirty days from the date of the filing of the second amended complaint to refile the demurrer.

        In July 2002, the New Jersey Division of Taxation entered judgment in the amount of $5,744,902, plus costs, against Manhattan Bagel Construction Company, a wholly owned subsidiary of Manhattan Bagel Company. This judgment represents amounts for corporate income taxes for the period from 1996 to 2000, and sales and use taxes for the period from 1995 to 1997. At that same time, the Division of Taxation provided Manhattan Bagel Construction Company with a Notice and Demand for Payment of Tax in the additional amount of $130,200, for corporate income taxes and sales and use taxes for the period from October 2001 through June 2002. Manhattan Bagel Construction Company ceased operations in or about early 1997 and has existed since that time only as a non-operating entity with no assets. Therefore, the Company is currently working with the New Jersey Division of Taxation to have all tax assessments for the period after Manhattan Bagel Construction Company ceased operations removed, and that portion of the judgment deemed satisfied. With regard to taxes imposed for the period prior to early 1997, the Company believes those amounts are barred from being asserted against Manhattan Bagel Company, to the extent they otherwise could have been, because they were not asserted in Manhattan Bagel Company's November 1997 bankruptcy proceeding.

        On February 23, 2000, New World Coffee of Forest Hills, Inc., a franchisee, filed a demand for arbitration with the American Arbitration Association (American Arbitration Association, New York, New York, Case No. 13-114-237-00) against the Company alleging fraudulent inducement and violations of New York General Business Law Article 33. The franchisee seeks damages in the amount of $750,000. New World has asserted a counterclaim in the arbitration seeking amounts owed under the franchisee's franchise agreement and monies owed for goods purchased by the franchisee in the amount of $200,000. An arbitrator has been selected and document exchange is complete. Hearings were scheduled for June 2002 but have been postponed by order of the arbitrator.

        On October 28, 2002, Sansim Patel, Inc., a subfranchisee of Manhattan Bagel Company, filed suit against Manhattan Bagel Company, the master franchisee, and others in Orange County (Orlando, Florida). The plaintiff alleges claims of civil conspiracy and unjust enrichment against Manhattan Bagel Company and seeks rescission of its franchise agreement with Manhattan Bagel Company. The plaintiff also seeks damages in an unspecified amount. In December 2002, the Company filed a motion to

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dismiss all of the claims asserted against it by the plaintiff, based in part on a general release the plaintiff had previously executed in favor of Manhattan Bagel Company. That motion remains pending with the Court. However, on March 18, 2003, default judgments were obtained against the other named defendants.

        On March 17, 2003, Jason and Andrew Gennusa, former employees of the Company and founders of Manhattan Bagel Company, filed suit against the Company in the Superior Court of New Jersey, Monmouth County. As the founders of Manhattan Bagel Company, the plaintiffs claim to be reproducing the "original formula" Manhattan Bagel dough, and selling it to franchisees at a competitive price. Their complaint seeks a judgment declaring that their production and sale of this bagel dough to franchisees does not violate various non-competition covenants and confidentiality agreements they previously entered into with the Company. Furthermore, the plaintiffs seek a declaration that the "original recipe" bagel dough they manufacture is not a trade secret of the Company and that their manufacture and sale of the dough is not in violation of intellectual property law. The Company has not yet answered or otherwise responded to plaintiffs' complaint.

        On December 28, 2001, Robert Higgs, a franchisee, filed a complaint against the Company and its officers and agents in New Jersey (Superior Court of New Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and business opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a new complaint against the Company and its officers and agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and business opportunities, and violations of New Jersey's franchise law. The franchisee seeks damages in an unspecified amount, punitive damages, costs and attorneys' fees. The Company moved to dismiss all of the claims in the new complaint. The court dismissed the breach of fiduciary duty claims and one of the breach of contract claims. Discovery requests have been served by the Company.

        Given the early stage of these matters, the Company cannot predict their outcome. However, there can be no assurance that the Company will not be subject to regulatory sanctions, civil penalties and/or claims for monetary damages or other relief.

        Special Situations, holders of Series F preferred stock, had notified the Company that they believe that material misrepresentations were made to them in June 2001 in connection with their purchase of the stock. Special Situations filed a complaint in the United States District Court for the Southern District of New York regarding this claim. Special Situations alleged various contractual and tort claims against the Company, as well as Ramin Kamfar, the former Chairman of the Board of Directors, Jerold Novack, the former Chief Financial Officer, and Greenlight Capital, another holder of the Series F preferred stock. Special Situations sought, among other relief, damages in the amount of at least $5,166,000 and the equitable remedy of rescission of its purchase of stock. These claims are still pending.

        On February 28, 2003, the Company's former insurance broker of record filed suit in Superior Court of the State of California, County of Orange, against the Company and its subsidiaries, alleging wrongful termination of the Company's brokerage contract with plaintiff, Pension & Benefit Insurance Services, Inc. ("PBIS"), which deprived PBIS of brokerage commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services, intentional interference with prospective advantage and negligent interference with prospective advantages. Plaintiff seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint,

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the Company entered into a settlement agreement with PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, the Company agreed to list PBIS as its insurance broker of record until at least the end of 2003. A Request for Dismissal of the suit was filed by PBIS with the Superior Court of the State of California, County of Orange on April 9, 2003.

Fixed Fee Distribution Agreement

        Through December of 2002, the Company maintained a fixed fee distribution agreement with a national distribution company ("distributor") whereby the distributor supplied substantially all products for resale in the Company's company-operated restaurant locations. In addition, the Company maintained a separate fixed fee distribution agreement with the distributor for delivery of certain proprietary products to its franchised locations. Effective February 20, 2002, the Company entered into Mutual Termination Agreements with the distributor which provided for the termination of each of the fixed fee distribution agreements effective August 2, 2002. Pursuant to the restated agreement, the distributor was required to provide distribution services to all locations through August 2, 2002, which date was extended until December 2002. As a part of the agreement, the Company was required to pay the distributor $12,000,000, representing a portion of the unamortized $5,000,000 investment made by the distributor at the inception of the original agreement and a reduced amount of outstanding trade payables and other previously accrued charges. The Company recorded a reduction to general and administrative expense of $2,750,000 in 2002 as the carrying amount of the associated liabilities exceeded the payments made under this agreement by such amount.

        As of November 2002, the Company had replaced the national distributor with six regional custom distributors to its Company-operated and franchised locations.

Investment Banking Agreement

        In October of 2002, the Company engaged CIBC World Markets Corp. as its financial advisor in connection with its review of strategic alternatives to rationalize its capital structure.

16. Related Party Transactions

        Leonard Tannenbaum, a director, is a limited partner and 10% owner in BET, one of the Company's principal stockholders. On August 11, 2000, BET purchased approximately 8,108 shares of Series D preferred stock for a sum of $7,500,000. In a related transaction on August 18, 2000, Brookwood, one of the Company's principal stockholders, purchased approximately 8,108 shares of the Company's Series D preferred stock for a sum of $7,500,000 (collectively, the Series D Financing). Each of BET and Brookwood received a warrant to purchase 1,196,909 shares of Common Stock at a price of $0.01 per share. In connection with the Series D Financing, MYFM Capital LLC, of which Mr. Tannenbaum is the Managing Director, received a fee of $252,650 and a warrant to purchase 70,000 shares of Common Stock at its closing price of $1.938 per share on August 18, 2000. In addition, Mr. Tannenbaum was designated by BET as a director to serve for the period specified in the Stockholders Agreement dated January 18, 2001, as amended (the "Stockholders Agreement"), among the Company and the holders of its Series F preferred stock.

        Eve Trkla, a director of the Company, is the Chief Financial Officer and principal of Brookwood Financial Partners, L.P., an affiliate of Brookwood. Ms. Trkla was designated by Brookwood as a director to serve for the period specified in the Stockholders Agreement.

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        As of January 18, 2001, the Company consummated a sale of 20,000 shares of its authorized but unissued Series F preferred stock to Halpern Denny, one of the Company's principal stockholders, in exchange for the sum of $20 million. At such time, the Company entered into a Series F Preferred Stock and Warrant Purchase Agreement with Halpern Denny. Pursuant to the Series F Preferred Stock and Warrant Agreement, Halpern Denny was paid a transaction fee of $500,000. William Nimmo, a director, is a partner in Halpern Denny and Co., an affiliate of Halpern Denny. Mr. Nimmo was designated by Halpern Denny as a director of the Company. In connection with the Series F Preferred Stock and Warrant Purchase Agreement, the Company issued Halpern Denny a warrant to purchase 8,484,112 shares of Common Stock at an exercise price of $0.01 per share.

        BET and Brookwood had invested the sum of $15 million for substantially the same purpose as that contemplated by the Series F Purchase Agreement, which investment was made in August 2000, and BET and Brookwood were then holding Series D preferred stock, and had a right to approve the creation of the Series F preferred stock. Therefore, the Company considered it appropriate to restructure the investment documents relating to the August 2000 investment by BET and Brookwood. Accordingly, the Company, BET and Brookwood entered into an Exchange Agreement as of January 18, 2001, whereby the Company exchanged all of its outstanding 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 preferred stock. In connection with the January 2001 Exchange Agreement BET and Brookwood were each paid a transaction fee of $187,500. BET and Brookwood also exchanged the warrants received by them in August 2000 for warrants to purchase an aggregate of 6,526,356 shares of Common Stock. On May 30, 2001, the Company issued 25,000 shares of Common Stock to Mr. Tannenbaum in connection with the exchange of all of the outstanding shares of Series D preferred stock for shares of Series F preferred stock. In connection with the January 2001 Series F preferred stock financing, Bruce Toll, an affiliate of BET, was issued 200,000 shares of Common Stock. On March 29, 2001, the Company consummated a sale of 5,000 additional shares of its Series F preferred stock to Halpern Denny in exchange for the sum of $5,000,000. Pursuant to the terms of the Second Purchase Agreement with Halpern Denny, the Company also sold Halpern Denny warrants to purchase 2,121,028 shares of Common Stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant). Pursuant to the Second Purchase Agreement, Halpern Denny was paid a transaction fee of $200,000.

        In connection with the Einstein Acquisition, on June 7 and June 19, 2001, Halpern Denny purchased an additional 7,500 shares of Series F preferred stock for the sum of $7,500,000 and warrants to purchase 6,346,180 shares of Common Stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant) pursuant to the Series F Preferred Stock Purchase Agreement. In addition, on June 19, 2001, Greenlight, one of the Company's principal stockholders, purchased 12,500 shares of Series F Preferred Stock and warrants to purchase 10,576,967 shares of Common Stock at a price per share of $0.01 (subject to adjustment as provided in the form of warrant) pursuant to the Third Purchase Agreement. Pursuant to the Third Purchase Agreement, the Company agreed to pay Halpern Denny a transaction fee of $250,000 and Greenlight a transaction fee of $417,000.

        Commencing in 2002, the holders of the Series F preferred stock are entitled to receive additional warrants. See Note 9.

F-47

        On January 16, 2001, the Company entered into a Bond Purchase Agreement with Greenlight. Pursuant to the agreement, Greenlight formed a limited liability company, GNW, and contributed $10 million to GNW to purchase Einstein bonds. The Company is the sole manager of GNW. The agreement provided Greenlight with a secure interest in GNW and a right to receive the return of its original contribution plus a guaranteed accretion of 15% per year, increasing to 17% on January 16, 2002 and by an additional 2% each six months thereafter (the "Guaranteed Return"). In connection with the agreement, the Company issued Greenlight warrants to purchase an aggregate of 4,242,056 shares of Common Stock at $0.01 per share. On June 19, 2001, the Company, GNW and Greenlight entered into a letter agreement, pursuant to which, among other things, Greenlight consented to the pledge of the Einstein bonds owned by GNW to secure the EnbcDeb Corp. notes. The Company is required to apply all proceeds received with respect to the Einstein bonds to repay the EnbcDeb Corp. notes. To the extent that there are any excess proceeds, the Company is required to pay them to Greenlight. If Greenlight does not receive a return equal to its Guaranteed Return, the Company is obligated to issue Greenlight Series F preferred stock with a face amount equal to the deficiency and warrant coverage equal to 1.125% of its fully diluted Common Stock for each $1 million of deficiency.

        The Company, BET, Brookwood, Halpern Denny, Greenlight and Special Situations entered into a Stockholders Agreement, which relates principally to the composition of the board of directors of the Company. Pursuant to the terms of the Stockholders Agreement, as amended, the authorized number of directors shall be ten members. Each of BET and Brookwood is entitled to designate one member to the board of directors (and has designated one, Mr. Nimmo, as of this time) until such time as its Series F preferred stock, including any notes issued upon redemption thereof, have been redeemed and paid in full. Halpern Denny is entitled to designate two members to the board of directors until such time as its Series F preferred stock, including any notes issued upon redemption thereof, have been redeemed and paid in full, at which time it shall be allowed to designate one director, which right will continue until such time as it owns less than 2% of the outstanding Common Stock. The Stockholders Agreement provides that should Halpern Denny designate a second member to the board of directors, a majority of directors who are not designees of BET, Brookwood or Halpern Denny may designate an additional member to the board of directors. In addition, pursuant to the terms of the Certificate of Designation for the Series F preferred stock, in the event that any dividends on the Series F preferred stock are in arrears, the holders of the Series F preferred stock will have the right to designate not less than 50% of the members of the board of directors.

        Certain of the Series F holders exercised warrants in 2002, under the cashless exercise provision of the warrant agreement, as detailed below:

Holder	Amount of Warrants Exercised	Amount of Shares of Common Stock Issued
Halpern Denny	27,141,454	23,264,107
Brookwood New World Investors, LLC	6,252,011	4,995,325
BET Associates	6,242,511	5,066,026
Totals	39,635,976	33,325,458

        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 $7.5 million revolving loan facility. The facility

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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. In connection with obtaining the facility, the Company paid MYFM Capital LLC a fee of $75,000. Leonard Tannenbaum, one of the Company's directors, is the Managing Director of MYFM Capital and is a partner at BET. 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 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.

        In June 1999, the Company entered into a franchise agreement for a New World location with NW Coffee, Inc., pursuant to which NW Coffee, Inc. paid the Company an initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5.0% of gross sales, due and payable monthly. In connection with the franchise agreement the Company also entered into an asset purchase agreement with NW Coffee, Inc., pursuant to which NW Coffee, Inc. purchased the assets of the New World location from the Company for $250,000. In connection with the asset purchase agreement, NW Coffee, Inc. delivered to the Company a promissory note in the amount of $255,000, which bears interest at 8% and is payable in installments commencing in June 2002. The Company has received no payments on this note to date. As of December 31, 2002, the Company has fully-reserved the note within its allowance for doubtful accounts. The note is secured by the assets of NW Coffee, Inc. used in the operation of the franchise. Mr. Kamfar's uncle owns NW Coffee, Inc. and Mr. Kamfar's parents are officers of NW Coffee, Inc. In periods prior to April 2001, the Company purchased goods for the franchisee and paid for all of the expenses of the franchisee other than payroll (other than the salary of the general manager), which generated receivables for the Company. From time to time, NW Coffee, Inc. and Mr. Kamfar made payments to the Company to reduce the outstanding receivables. The outstanding receivable from NW Coffee, Inc. was $249,948 and $266,950 for the period ended January 1, 2002 and December 31, 2002, respectively. As of December 31, 2002, the amount of the receivable was fully reserved. Until April 2002, the Company also provided payroll, accounting and other services to NW Coffee, Inc. for no charge.

        In August 1997, the Company entered into a franchise agreement for a New World location with 723 Food Corp., pursuant to which 723 Food Corp. paid the Company an initial franchise fee of $25,000 for the franchise. In addition, the franchise agreement provides for royalty payments equal to 5.0% of gross sales, due and payable monthly. In connection with the franchise agreement, 723 Food Corp. purchased the assets of the New World location from the Company for $275,000. In connection with the asset purchase agreement, 723 Food Corp. delivered to the Company a promissory note in the amount of $125,000, which bears interest at 6% and is payable on August 30, 2002, and a promissory note in the amount of $100,000, which bears interest at 6% and is payable on November 30, 2002. The assets of 723 Food Corp. and 200,000 shares of Common Stock secure the notes. In addition, Mr. Novack guaranteed the obligations of 723 Food Corp. The guarantee is no longer in effect. Until August 17, 2000, Mr. Novack owned 50% of the capital stock of 723 Food Corp. and was an officer and director of 723 Food Corp. The outstanding receivable from 723 Food Corp. was $16,137 and $14,808 as of January 1, 2002 and December 31, 2002, respectively. As of December 31, 2002, the amount of the receivable was fully reserved. In addition, the Company issued a warrant to 723 Food Corp. to purchase 100,000 shares of Common Stock for $1.25 per share.

F-49

17. Selected Quarterly Financial Data (unaudited)

        The following table presents selected quarterly financial data for the periods indicated (in thousands, except per share data)

	April 2, 2002			July 2, 2002			October 1, 2002			December 31, 2002
Revenues(1)	$	97,647		$	101,578		$	98,697		$	100,728
Income (loss) from operations(2)		(1,506	)		2,512			(5,803	)		4,481
Net loss(3)		(27,420	)		(84	)		(9,538	)		(3,431	)
Net loss available to common stockholders(4)		(34,132	)		(6,901	)		(16,464	)		(10,570	)
Basic loss per share	$	(0.45	)	$	(0.09	)	$	(0.18	)	$	(0.11	)
Diluted loss per share	$	(0.45	)	$	(0.09	)	$	(0.18	)	$	(0.11	)

	April 1, 2001			July 3, 2001			October 2, 2001		January 1, 2002
Revenues(1)	$	10,061		$	24,780		$	100,034	$	99,300
Income (loss) from operations(2)		240			(9,922	)		2,384		525
Net income (loss)(3)		(600	)		(27,311	)		18,440		(9,229	)
Net loss available to common stockholders(4)		(11,356	)		(61,918	)		11,890		(15,836	)
Basic earnings (loss) per share	$	(0.35	)	$	(1.64	)	$	0.31	$	(0.41	)
Diluted earnings (loss) per share	$	(0.35	)	$	(1.64	)	$	0.30	$	(0.41	)

(1)

The increase in revenues beginning in the quarter ended July 3, 2001 and continuing in subsequent quarters is due to the Einstein Acquisition.

(2)

The loss from operations in the quarter ended October 1, 2002 was primarily due to a provision for integration and restructuring, and costs associated with the Einstein Acquisition. The loss from operations in the quarter ended July 3, 2001 was primarily due to a provision for integration and restructuring, an impairment charge in connection with the realization of assets held for sale and costs associated with the Einstein Acquisition.

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(3)

The net loss for the period ended April 2, 2002 and January 1, 2002 is primarily due to the cumulative change in fair value of derivatives and interest expenses.

(4)

The net income (loss) available to common stockholders primarily reflects the deduction of the dividends and accretion on preferred stock impact from the net income (loss).

18. $160,000,000 Note Offering

        On June 27, 2003, the Company entered into an agreement with Jefferies & Company, Inc. (Initial Purchaser) whereby the Company agreed to issue, and the Initial Purchaser agreed to purchase, $160,000,000 aggregate principal amount of notes. The notes bear interest at 13% and are due in July 2008. The closing date for the transaction was July 8, 2003. The Company used the net proceeds of the offering, among other things, to refinance the $140.0 Million Facility.

19. Subsequent Events (unaudited)

        On July 8, 2003, the Company issued $160,000,000 of 13% senior secured notes due 2008. The notes were offered by the Company and guaranteed, jointly and severally, by all present and all future subsidiaries of the Company other than the Non-Restricted Subsidiaries (as defined in the Indenture governing the notes). The Company is a holding company that conducts substantially all of its business operations through its subsidiaries. The Company is dependent upon distributions or other inter-company transfers from its subsidiaries to make payments on the notes and service its other obligations. There are no significant restrictions on the Company's ability to obtain funds from its subsidiaries by dividend or loan.

        On March 31, 2003, Jerold E. Novack, the former Chief Financial Officer, Secretary, and shareholder of the Company, filed a complaint in the United States District Court for the District of New Jersey against the Company, Anthony D. Wedo, Chairman and Chief Executive Officer of the Company, and William J. Nimmo, a former member of the Board of Directors. The complaint purports to state claims for breach of plaintiff's employment contract with the Company, breach of the Company's fiduciary duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee Protection Act, and in addition seeks a declaration that the termination of plaintiff "for cause" was invalid. As a basis for his purported claims, the plaintiff alleges that the Company wrongfully contended certain bonuses he received were unauthorized and that he was wrongfully terminated for cause in order to deny him certain other benefits allegedly owed under his employment agreement. Furthermore, the plaintiff asserts that he was defamed by certain of defendants' public statements regarding his dismissal and also that his termination was in retaliation for certain actions he believes were protected by the New Jersey Conscientious Employee Protection Act. The Company intends to vigorously oppose the plaintiff's purported claims. The Company was served with the complaint on May 2, 2003. On June 23, 2003, the Company filed its answer and counterclaims as well as a motion to dismiss certain of the claims against it. That motion remains pending with the court.

        On April 7, 2003, General Electric Capital Corp. filed an action in the Supreme Court for the State of New York, County of New York, against the Company and its franchisee, captioned General Electric Capital Corp. v. New World Coffee/Manhattan Bagels, Inc. et. al. In its complaint, plaintiff asserts that it entered into certain equipment lease agreements with the Company on April 18, 2001, and with the franchisee on February 26, 2001, upon which the Company and its franchisee subsequently defaulted. As a result of those alleged defaults, plaintiff purports to state claims against defendants for

F-51

breach of contract, conversion, unjust enrichment, foreclosure of security interest, and replevin, and demands damages from defendants, jointly and severally, in the total specified amount of $118,555.49, plus late charges, taxes, interest, costs and attorneys' fees. The Company served an answer to plaintiff's complaint on May 14, 2003. The plaintiff has since dismissed all claims against us.

        On December 28, 2001, Robert Higgs, a franchisee, filed a complaint against the Company and its officers and agents in New Jersey (Superior Court of New Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and business opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a new complaint against the Company and its officers and agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and business opportunities, and violations of New Jersey's franchise law. The franchisee seeks damages in an unspecified amount, punitive damages, costs and attorneys' fees. The Company moved to dismiss all of the claims in the new complaint. The court dismissed the breach of fiduciary duty claims and one of the breach of contract claims. This matter has since been settled with our payment of $40,000, and on August 10, 2003, a stipulation of settlement was filed with the Court.

        On August 7, 2003, the Company received a subpoena for documents from the Office of the Attorney General of the State of New York. The subpoena primarily requests information bearing upon whether a net worth exemption from franchise registration, which was granted to the Company in April 2000 pursuant to the New York Franchise Act, Article 33 of New York's General Business Law, remains valid. The Company is cooperating fully with the Attorney General's requests under the subpoena, and has made an initial production of many of the documents requested. The Company anticipates producing additional responsive documents in the near future.

        Special Situations, holders of Series F preferred stock, had notified the Company that they believed that material misrepresentations were made to them in connection with their purchase of the stock and filed a complaint in the United States District Court for the Southern District seeking damages in the amount of at least $5,166,000 and the equitable remedy of rescission of its purchase of stock. Prior to responding to Special Situations' complaint, the Company and Special Situations entered into a settlement agreement and release on April 29, 2003, pursuant to which the Company agreed to settle Special Situations' claims against the Company and its present and former officers, directors, agents and other representatives, and Special Situations agreed to release those entities and individuals, in exchange for payment to Special Situations of $176,000. A Notice of Voluntary Withdrawal was filed by Special Situations with the United States District Court for the Southern District of New York on May 5, 2003.

        On June 4, 2003, Ramin Kamfar, our former Chairman of the Board and Chief Executive Officer, filed an action in the United States District Court for the Southern District of New York, against us and Anthony Wedo, our current Chief Executive Officer, alleging causes of action for breach of contract, defamation, declaratory relief and punitive damages. In this action, Mr. Kamfar alleges that we breached confidentiality and non-disparagement provisions in his separation agreement with us by disclosing certain financial and other terms contained therein. Mr. Kamfar is seeking damages of at least $7.0 million. On September 9, 2003, the Company and Mr. Wedo answered Mr. Kamfar's complaint and asserted affirmative defenses, and the Company filed various counterclaims against Mr. Kamfar, including claims for breach of fiduciary duty, fraud and breach of contract. The Company

F-52

believes that the claims of Mr. Kamfar are without merit, and intends to vigorously defend itself and Mr. Wedo in this matter.

        On June 2, 2003, a group of four Manhattan Bagel franchisees filed a lawsuit captioned Kaufman et al. v. New World Restaurant Group, Inc. in the Superior Court of New Jersey, Chancery Division, Monmouth County. In their Complaint, plaintiffs allege that since New World closed its Eatontown, New Jersey baking facility and began contracting with Harlan Bakeries, the quality of its bagels has suffered. As a result of this alleged decline in bagel quality, plaintiffs claim that they will lose bagel sales and customer goodwill if they continue to purchase their bagels from Harlan Bakeries in accordance with the terms of their franchise agreements. Alleging claims for breach of contract, consumer fraud, constructive termination of the franchise agreement, and violation of the New Jersey Franchise Practices Act, plaintiffs seek a judgment permitting their purchase of "New York style" bagels from any third-party supplier, enjoining our termination of their Franchise Agreements because of their purchase of such nonapproved bagels, and awarding to plaintiffs damages in an unspecified amount. In July 2003, the plaintiffs voluntarily withdrew their claims with prejudice. Settlement agreements are awaiting execution.

        On July 22, 2003, the Company announced that the previously disclosed lawsuit filed on March 17, 2003 by Jason and Andrew Gennusa had been settled. As part of the settlement, the plaintiffs acknowledged that Manhattan Bagel franchisees are obligated under their franchise agreements to purchase frozen bagel dough only from suppliers approved by Manhattan Bagel Corp. and New World and withdrew their request for an injunction that would have allowed such franchisees to purchase frozen dough from unapproved outside suppliers.

        Halpern Denny, Greenlight and the Company entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure (the "Equity Recap"). The Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the Company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F preferred stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. The Equity Recap is subject to stockholder approval and other customary conditions. The agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap. Assuming that such stockholder approval is received, following the closing of the Equity Recap, the Stockholders Agreement will terminate and Greenlight will beneficially own approximately 92% of the Company's outstanding common stock and the warrants issued to the holders of the $140 million senior secured increasing rate notes issued in June 2001 (the "Increasing Rate Notes") will represent approximately 4.3% of our common stock in the aggregate.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities presentation, and requires an issuer of those financial statements to recognize changes in fair value or redemption amount as applicable in earnings. This statement is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this new standard will impact the Company's financial statements by moving the Series F Preferred Stock (see Note 3c) from the mezzanine section to the long-term liability section. After adoption of SFAS 150, all dividends and accretion of discount or amortization of premiums will be recognized as interest expense. If this

F-53

standard had been in effect as of December 31, 2002, $84.9 million would have migrated from the mezzanine section to the long-term liability section.

        From January 1, 2003 through July 31, 2003, the Company issued an additional 33,800,694 warrants to certain Series F holders and to the holders of the Increasing Rate Notes, all of which were exercisable. These warrants have an exercise price of $0.01 per share, and have terms that expire on June 20, 2006. Since January 1, 2003, warrants to purchase 50,000 shares of common stock have expired. In addition, existing agreements require us to issue (i) $0.01 warrants semi-annually to the holders of our Series F preferred stock until such Series F preferred stock has been redeemed (this obligation will cease if and when the Equity Recap is consummated) and (ii) $0.01 warrants to Greenlight at the rate of 1.125% of our fully diluted common stock for each $1.0 million of deficiency if Greenlight does not receive a return on its investment in GNW equal to its Guaranteed Return (this obligation ceases on June 30, 2003 and no additional warrants will accrue after that date).

        In connection with a standstill agreement that we entered into with certain holders of the Increasing Rate Notes, we agreed to issue to the holders of the Increasing Rate Notes additional warrants to purchase an aggregate of up to 11,309,994 shares of our common stock.

        On July 16, 2003, Eve Trkla resigned from the Company's Board of Directors. Josh Clark was appointed to fill a vacancy on the Company's Board of Directors.

F-54

NEW WORLD RESTAURANT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

AS OF JULY 1, 2003 AND DECEMBER 31, 2002
(in thousands, except share information)

			July 1, 2003			December 31, 2002
			(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents		$	9,367		$	10,705
	Franchise and other receivables, net of allowance of $2,214 and $1,955			5,310			5,775
	Current maturities of notes receivables			86			194
	Inventories			4,871			5,005
	Prepaid expenses and other current assets			9,526			3,180
		Total current assets		29,160			24,859
Property, plant and equipment, net				74,364			81,254
Trademarks and other intangibles, net				94,221			98,134
Goodwill, net				4,875			4,875
Debt issuance costs and other assets				2,184			1,526
		Total Assets	$	204,804		$	210,648
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
	Accounts payable		$	9,886		$	7,650
	Accrued expenses			38,084			30,988
	Short term debt and current portion of long-term debt			154,246			150,872
	Current portion of obligations under capital leases			101			100
		Total current liabilities		202,317			189,610
Senior notes and other long-term debt				10,998			11,011
Obligations under capital leases				157			360
Derivative liability				2,026			2,847
Other liabilities				10,535			10,560
		Total liabilities		226,033			214,388
Series F Preferred Stock, $.001 par value; 116,000 shares authorized;     99,356 and 89,698 shares issued and outstanding				99,356			84,932
Stockholders' deficit:
Common stock, $.001 par value; 150,000,000 shares authorized; 51,016,857 and 51,016,857 shares issued and outstanding				51			51
Additional Paid-In capital				89,975			86,607
Accumulated deficit				(210,611	)		(175,330	)
		Total stockholders' deficit		(120,585	)		(88,672	)
Total Liabilities and Stockholders' Deficit			$	204,804		$	210,648

The accompanying notes are an integral part of these consolidated financial statements.

F-55

NEW WORLD RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002

AND FOR THE SIX-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002
(UNAUDITED)

(in thousands, except earnings per share and related share information)

			Three-Month Period Ended						Six-Month Period Ended
			July 1, 2003			July 2, 2002			July 1, 2003			July 2, 2002
Revenues:
	Retail sales		$	90,878		$	94,384		$	179,328		$	184,568
	Manufacturing revenues			5,754			5,870			11,178			12,010
	Franchise related revenues			1,117			1,324			2,454			2,647
Total revenues				97,749			101,578			192,960			199,225
Cost of sales				83,639			81,461			162,676			161,131
General and administrative expenses				9,432			9,354			18,644			22,645
Depreciation and amortization				7,092			8,907			14,297			14,995
Provision (income) for integration and reorganization cost				—			(656	)		—			(552	)
Income (loss) from operations				(2,414	)		2,512			(2,657	)		1,006
Interest expense, net				(9,975	)		(12,274	)		(18,271	)		(24,604	)
Cumulative change in the fair value of derivatives (expense)				(727	)		9,777			(70	)		(3,858	)
Other income				321			53			571			104
Income (loss) before income taxes				(12,795	)		68			(20,427	)		(27,352	)
Provision for income taxes				320			152			430			152
Net loss.				(13,115	)		(84	)		(20,857	)		(27,504	)
Dividends and accretion on preferred stock				(9,821	)		(6,817	)		(14,424	)		(13,529	)
Net loss available to common stockholders			$	(22,936	)	$	(6,901	)	$	(35,281	)	$	(41,033	)
Net loss per common share — Basic and Diluted			$	(0.21	)	$	(0.09	)	$	(0.34	)	$	(0.53	)
Weighted average number of common shares outstanding:
		Basic and Diluted		107,842,599			79,202,076			104,304,782			77,560,135

The accompanying notes are an integral part of these consolidated financial statements.

F-56

NEW WORLD RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002

(Unaudited)
(in thousands)

		July 1, 2003			July 2, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(20,857	)	$	(27,504	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			14,297			14,995
Provision for integration and reorganization			—			(552	)
Cumulative change in fair value of derivatives			70			3,858
Amortization of debt issuance costs			296			1,317
Amortization of debt discount			1,916			7,660
Notes issued as paid in kind for interest on Bridge Loan			510			2,545
Standstill Warrants			1,238			—
Greenlight interest			1,025			842
Stock issued for compensation and consulting			—			235
Changes in operating assets and liabilities:
Receivables and notes receivable			573			4,754
Accounts payable and accrued expenses			8,307			(4,647	)
Other assets and liabilities			(6,156	)		(7,322	)
	Net cash provided by (used in) operating activities		1,219			(3,819	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(3,494	)		(2,653	)
Proceeds from the sale of assets held for resale			—			1,325
Proceeds from the sale of debt securities			—			24,186
	Net cash provided by (used in) investing activities		(3,494	)		22,858
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt			1,500			—
Repayment of notes payable			(563	)		(24,694	)
Net cash provided by (used in) financing activities			937			(24,694	)
Net decrease in cash			(1,338	)		(5,655	)
Cash and cash equivalents, beginning of period			10,705			15,478
Cash and cash equivalents, end of period		$	9,367		$	9,823

The accompanying notes are an integral part of these consolidated financial statements.

F-57

NEW WORLD RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

        The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments necessary for a fair presentation of the Company's financial position at July 1, 2003 and the results of its operations and its cash flows for the three-month and six-month periods ended July 1, 2003 and July 2, 2002. All such adjustments are of a normal recurring nature. Interim financial statements are prepared on a basis consistent with the Company's annual financial statements. Results of operations for the three-month and six-month periods ended July 1, 2003 are not necessarily indicative of the operating results that may be expected for future periods. The consolidated balance sheet as of December 31, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2002.

        Certain reclassifications have been made to conform previously reported data to the current presentation.

2. Liquidity

        The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses in recent years, and such losses have continued through unaudited periods in 2003. The Company also has a deficit in stockholders' equity of approximately $120,585,000 as of July 1, 2003, and, as of that date, the Company's current liabilities exceeded its current assets by approximately $173,157,000. During the years ended January 1, 2002 and December 31, 2002, and continuing into 2003, the Company was in violation of certain covenants on the indenture for the Company's $140 million aggregate principal amount of notes due June 15, 2003 (the "$140 Million Facility"). On July 8, 2003, the Company issued $160,000,000, 13% senior secured notes (the "$160 Million Facility"). The Company used the proceeds from these notes, among other things, to refinance the $140 Million Facility (Note 13 and 14). Concurrently with the debt refinancing, the Company entered into a $15 million senior secured revolving credit facility (the "Senior Credit Facility") (Note 8). On June 27, 2003, the Company also entered into an Equity Recapitalization Agreement (Note 15).

        In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to obtain new financing, and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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        The Company has also initiated cost reduction programs that stem primarily from the integration of Einstein Noah Bagel Corp. and its majority-owned subsidiary, Einstein/Noah Bagel Partners, L.P. (collectively, "Einstein") into the Company, including supply chain efficiencies and reductions in overhead as a result of the elimination of duplicative functions and the streamlining of various functional areas. While most of these initiatives commenced in fiscal 2002, the full year effect is not expected to be realized until 2003 and beyond. The Company believes that its current business plan will improve its operating results and cash flow in the future.

3. Earnings Per Share

        In accordance with SFAS No. 128, Earnings Per Share, basic earnings per common share amounts (basic EPS) are computed by dividing net earnings by the weighted average number of common shares outstanding (which include warrants exercisable for a nominal price of $0.01 per share) and exclude any potential dilution. The Company has included both issued and obligations to issue $0.01 warrants in the calculation described above. Diluted earnings per common share amounts assuming dilution (diluted EPS) are computed by reflecting potential dilution of the Company's common stock equivalents. Common stock equivalents are not reflected in diluted EPS if their effect would be anti-dilutive. The following table summarizes the weighted average shares used in the basic and diluted EPS computations:

	For the Three-Month Period Ended		For the Six-Month Period Ended
	July 1, 2003	July 2, 2002	July 1, 2003	July 2, 2002
Weighted average shares outstanding	51,016,857	17,481,394	51,016,857	17,481,394
Weighted average warrants exercisable for $0.01	56,825,742	61,720,682	53,287,925	60,078,741
	107,842,599	79,202,076	104,304,782	77,560,135

        All stock options and warrants outstanding (excluding those exercisable for $0.01) during the three- and six-month periods ended July 1, 2003 and July 2, 2002 were excluded from the computation because of their anti-dilutive effect. The excluded options and warrants for the three-month and six-month periods ended July 1, 2003 and July 2, 2002 were 6,103,595 and 6,101,095, respectively.

4. Recent Pronouncements

        In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The accounting and reporting requirements will be effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS 149 is not expected to have a significant impact to the Company's financial statements.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in

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fair value or redemption amount as application in earnings. This statement is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this new standard will result in the Company's Series F Preferred Stock being presented as a liability rather than the current mezzanine presentation, beginning in the third quarter 2003. After adoption all dividends and accretion of discount or amortization of premiums will be recognized as interest expense. Additionally, the Series Z Preferred Stock which will be issued when and if the Equity Recapitalization (Note 15) occurs will also be presented as a liability.

        The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on its financial statements.

5. Stock-Based Compensation

        The Company currently follows the intrinsic value method of APB 25 to account for its employee stock compensation, and has no intention to change to the fair value method to account for employee stock-based compensation.

        Had compensation cost for the Company's two stock option plans (the 1994 Stock Plan and 1995 Directors' Plan) been recognized under the fair value method specified in SFAS 123, the Company's net loss and loss per share would have been increased to the following pro forma amounts:

	For the Three-Month Period Ended
							For the Six-Month Period Ended
				July 2, 2002
	July 1, 2003						July 1, 2003			July 2, 2002
As reported	$	(22,936	)	$	(6,901	)	$	(35,281	)	$	(41,033	)
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards		(45	)		(49	)		(90	)		(98	)
Pro forma	$	(22,981	)	$	(6,950	)	$	(35,371	)	$	(41,131	)
Basic and diluted net loss available to common stockholders per common share:
As reported	$	(0.21	)	$	(0.09	)	$	(0.34	)	$	(0.53	)
Pro forma	$	(0.21	)	$	(0.09	)	$	(0.34	)	$	(0.53	)

6. Goodwill, Trademarks and Other Intangibles

        Goodwill represents the excess of cost over fair value of net assets acquired in the acquisition of Manhattan Bagel Company.

        The Company uses a two-step approach to assess its goodwill impairment. This requires that the Company first compare the estimated fair value of each reporting unit that houses goodwill to the carrying amount of the unit's assets and liabilities, including its goodwill and intangible assets. If the fair value of the reporting unit is below its carrying amount, then the second step of the impairment test is performed, in which the current fair value of the unit's assets and liabilities will determine the current implied fair value of the unit's goodwill. The annual impairment tests relating to goodwill and

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trademarks are performed as of year-end, unless events and circumstances indicate a potential impairment, which would require an interim impairment test. The Company's management has determined that no impairment indicators were present during the three-month and six-month periods ended July 1, 2003, and accordingly no interim tests for impairment of goodwill, trademarks or amortizing intangibles were performed.

        In 2002 and forward, in accordance with SFAS 142, goodwill and indefinite-lived trademarks are not amortized and other intangibles are being amortized on a straight-line basis consistent with the associated estimated future cash flows.

		Unaudited July 1, 2003			December 31, 2002
		(amounts in thousands)
Non-amortizing intangibles:
	Trademarks	$	70,746		$	70,746
Amortizing intangibles (5 year lives):
	Trade Secrets		5,385			5,385
	Patents-manufacturing process		33,741			33,741
			39,126			39,126
Less accumulated amortization			(15,651	)		(11,738	)
Total amortizing intangibles			23,475			27,388
Total intangibles		$	94,221		$	98,134

7. Accrued Expenses

        Accrued expenses consist of the following:

	Unaudited July 1, 2003		December 31, 2002
	(amounts in thousands)
Accrued payroll and related	$	14,213	$	13,949
Accrued reorganization		2,373		2,768
Accrued taxes		2,472		2,310
Accrued interest		11,017		4,342
Accrued utilities		1,182		1,789
Gift certificates liability		1,703		1,115
Other		5,124		4,715
	$	38,084	$	30,988

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8. Debt and Equity Instruments

        The major components of the Company's short-term and long-term debt are included in the accompanying balance sheets as follows:

	Unaudited July 1, 2003			December 31, 2002
	(amounts in thousands)
Greenlight obligation	$	10,000		$	10,000
Bridge Loan		4,952			4,443
$140 Million Facility (Note 13 and 14)		140,000			138,084
BET Revolver		7,500			6,000
All other debt		2,792			3,356
		165,244			161,883
Less current portion		(154,246	)		(150,872	)
Long-term debt	$	10,998		$	11,011

        The components of Series F Preferred Stock, Greenlight obligation, the $35 million assets-backed loan to the Company's non-restricted subsidiary, New World EnbcDeb Corp. (the "Bridge Loan"), and $140 Million Facility are included in the accompanying balance sheets as follows:

Series F Preferred Stock (Note 15)

	Unaudited July 1, 2003			December 31, 2002
	(amounts in thousands)
Proceeds from issuance of Series F preferred stock, $16,398 of which was the value of the Series D conversion	$	66,398		$	66,398
Discount attributable to fees and commissions		(3,254	)		(3,254	)
Discount attributable to initial and future warrants		(33,027	)		(33,027	)
Accreted PIK preferred stock		32,958			23,330
Extinguishment of discount		8,271			8,271
Effective dividend amortization of discount		28,010			23,214
	$	99,356		$	84,932

Greenlight Obligation

	Unaudited July 1, 2003			December 31, 2002
	(amounts in thousands)
Proceeds from issuance of Greenlight obligation	$	10,000		$	10,000
Discount attributable to initial and future warrants		(4,316	)		(4,316	)
Extinguishment of discount		4,195			4,195
Effective interest amortization of discount		121			121
	$	10,000		$	10,000

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Bridge Loan

	Unaudited July 1, 2003			December 31, 2002
	(amounts in thousands)
Original face value of Bridge Loan	$	35,000		$	35,000
Issuance discount from face value		(1,750	)		(1,750	)
Discount attributable to future warrants		(5,365	)		(5,365	)
Accreted PIK interest		6,662			6,153
Effective interest amortization of discount		7,116			7,116
Reductions in Principal		(36,711	)		(36,711	)
	$	4,952		$	4,443

$140 Million Facility (Note 13 and 14)

	Unaudited July 1, 2003			December 31, 2002
	(amounts in thousands)
Original face value of $140 Million Facility	$	140,000		$	140,000
Issuance discount from face value		(11,550	)		(11,550	)
Discount attributable to initial and future warrants		(17,312	)		(17,312	)
Effective interest amortization of discount		28,862			26,946
	$	140,000		$	138,084

Revolving Line of Credit

        On May 30, 2002, the Company entered into a Loan and Security Agreement with one of the Company's principal stockholders, BET Associates, L.P. ("BET"), which provides for a $7,500,000 revolving loan facility. The facility is secured by substantially all of the Company's assets. At the time the Company entered into this facility, the Company terminated its prior revolving loan facility. Borrowings under the facility bore interest at the rate of 11% per annum until February 2003. The facility originally expired on March 31, 2003. In February of 2003, the Company extended the maturity of the revolving loan facility to June 1, 2003. From February 1, 2003 to June 1, 2003, the facility will bear interest at the rate of 13%. After June 1, 2003 the interest rate for borrowings under the facility is 15%. This facility was repaid with proceeds from the $160 Million Facility (Note 14) on July 8, 2003.

        Concurrently on July 8, 2003, the Company entered into a three-year, $15 million senior secured revolving credit facility with AmSouth Bank. Initially, the Senior Credit Facility bears interest at the AmSouth "prime rate" plus 1.00%. After the receipt of the Company's audited fiscal year ended December 30, 2003 financial statements, the Senior Credit Facility will be subject to an interest pricing grid based on the Company's Fixed Charge Coverage (as defined by the Indenture).

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9. Contingencies

        The Company is subject to claims and legal actions in the ordinary course of business, including claims by franchisees. The Company does not believe that an adverse outcome in any currently pending or threatened matter, other than described below, would have a material adverse effect on its business, results of operations or financial condition.

        On April 3, 2002, the Company was notified by the Securities and Exchange Commission that the Commission is conducting an investigation into the resignation of the former Chairman, R. Ramin Kamfar, and the termination for cause of the former Chief Financial Officer, Jerold Novack, and the delay in filing the Form 10-K for 2001. The Company is cooperating fully with the investigation. The Company is also cooperating fully with a recent Department of Justice inquiry relating to these issues. Further, several of the former and present officers and directors have requested that the Company advance reasonable legal expense on their respective behalf to the extent any of them is or has been requested to provide information to the Commission in connection with its investigation. The Company is fulfilling its obligations as required by applicable law and the Company's By-Laws.

        On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a purported class action complaint against Einstein in the Superior Court for the State of California, County of San Francisco. The plaintiffs allege that Noah's failed to pay overtime wages to managers and assistant managers of its California stores, whom it is alleged were improperly designated as exempt employees in violation of California and Business Profession Code Section 17200. As a result of subsequent communications regarding the circumstances under which the Company purchased Einstein out of bankruptcy, the plaintiffs filed a first amended complaint disclaiming back wages for the period prior to June 19, 2001. However, the first amended complaint added as defendants certain former directors and officers of Einstein. The first amended complaint also added a second cause of action seeking to invalidate releases obtained from Noah's assistant managers pursuant to the settlement of a Department of Labor investigation. The Company filed a demurrer to the first amended complaint, which the plaintiffs opposed. Subsequent to the filing of that demurrer, the Company procured a dismissal without prejudice of the claims brought against Paul Murphy, the only individual defendant the Company employed subsequent to its acquisition of Einstein. The plaintiffs subsequently stipulated to the severance of the claims against the Company and those against the remaining individual defendants. The stipulation provides that the plaintiffs will file separate second amended complaints against the Company and against the remaining individual defendants. As a result, the Company's demurrer will be taken off calendar. The Company will have thirty days from the date of the filing of the second amended complaint to refile the Company's demurrer.

        On March 31, 2003, Jerold E. Novack, the former Chief Financial Officer, Secretary, and shareholder of the Company, filed a complaint in the United States District Court for the District of New Jersey against the Company, Anthony D. Wedo, Chairman and Chief Executive Officer of the Company, and William J. Nimmo, a member of the Board of Directors. The complaint purports to state claims for breach of plaintiff's employment contract with the Company, breach of the Company's fiduciary duties to plaintiff, defamation, and violation of the New Jersey Conscientious Employee Protection Act, and in addition seeks a declaration that the termination of plaintiff "for cause" was invalid. As a basis for his purported claims, the plaintiff alleges that the Company wrongfully contended certain bonuses he received were unauthorized and that he was wrongfully terminated for cause in order to deny him certain other benefits allegedly owed under his employment agreement. Furthermore, the plaintiff asserts that he was defamed by certain of defendants' public statements

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regarding his dismissal and also that his termination was in retaliation for certain actions he believes were protected by the New Jersey Conscientious Employee Protection Act. The Company intends to vigorously oppose the plaintiff's purported claims. The Company was served with the complaint on May 2, 2003. On June 23, 2003, the Company filed its answer and counterclaims as well as a motion to dismiss certain of the claims against it. That motion is pending with the court.

        On June 4, 2003, Ramin Kamfar, our former Chairmen of the Board and Chief Executive Office, filed an action in the United States District Court for the Southern District of New York Against us and Anthony Wedo, our current Chief Executive Officer, alleging causes of action for breach of contract, defamation, declaratory relief and punitive damages. In this action, Mr., Kamfar alleges that we breached confidentiality and non-disparagement provisions in his separation agreement with us by disclosing certain financial and other terms contained therein. Mr. Kamfar is seeking damages of at least $7.0 million. As of the date of this filing, we have not yet been served with the complaint relating to this action. We believe that the claims of Mr. Kamfar are without merit, and we intend to vigorously defend ourself and Mr. Wedo in this matter.

        In July 2002, the New Jersey Division of Taxation entered judgment in the amount of $5,744,902, plus costs, against Manhattan Bagel Construction Company, a wholly owned subsidiary of Manhattan Bagel Company. This judgment represents amounts for corporate income taxes for the period from 1996 to 2000, and sales and use taxes for the period from 1995 to 1997. At that same time, the Division of Taxation provided Manhattan Bagel Construction Company with a Notice and Demand for Payment of Tax in the additional amount of $130,200, for corporate income taxes and sales and use taxes for the period from October 2001 through June 2002. Manhattan Bagel Construction Company ceased operations in or about early 1997 and has existed since that time only as a non-operating entity with no assets. Therefore, the Company is currently working with the New Jersey Division of Taxation to have all tax assessments for the period after Manhattan Bagel Construction Company ceased operations removed, and that portion of the judgment deemed satisfied. With regard to taxes imposed for the period prior to early 1997, the Company believes those amounts are barred from being asserted against Manhattan Bagel Company, to the extent they otherwise could have been, because they were not asserted in Manhattan Bagel Company's November 1997 bankruptcy proceeding.

        On February 23, 2000, New World Coffee of Forest Hills, Inc., a franchisee, filed a demand for arbitration with the American Arbitration Association (American Arbitration Association, New York, New York, Case No. 13-114-237-00) against the Company alleging fraudulent inducement and violations of New York General Business Law Article 33. The franchisee seeks damages in the amount of $750,000. New World has asserted a counterclaim in the arbitration seeking amounts owed under the franchisee's franchise agreement and monies owed for goods purchased by the franchisee in the amount of $200,000. An arbitrator has been selected and document exchange is complete. Hearings were scheduled for June 2002 but have been postponed by order of the arbitrator.

        On October 28, 2002, Sansim Patel, Inc., a subfranchisee of Manhattan Bagel Company, filed suit against Manhattan Bagel Company, the master franchisee, and others in Orange County (Orlando, Florida). The plaintiff alleges claims of civil conspiracy and unjust enrichment against Manhattan Bagel Company and seeks rescission of its franchise agreement with Manhattan Bagel Company. The plaintiff also seeks damages in an unspecified amount. In December 2002, the Company filed a motion to dismiss all of the claims asserted against it by the plaintiff, based in part on a general release the

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plaintiff had previously executed in favor of Manhattan Bagel Company. That motion remains pending with the Court. However, on March 18, 2003, default judgments were obtained against the other named defendants.

        On March 17, 2003, Jason and Andrew Gennusa, former employees of the Company and founders of Manhattan Bagel Company, filed suit against the Company in the Superior Court of New Jersey, Monmouth County. As the founders of Manhattan Bagel Company, the plaintiffs claim to be reproducing the "original formula" Manhattan Bagel dough, and selling it to franchisees at a competitive price. Their complaint seeks a judgment declaring that their production and sale of this bagel dough to franchisees does not violate various non-competition covenants and confidentiality agreements they previously entered into with the Company. Furthermore, the plaintiffs seek a declaration that the "original recipe" bagel dough they manufacture is not a trade secret of the Company and that their manufacture and sale of the dough is not in violation of intellectual property law. The Company has not yet answered or otherwise responded to plaintiffs' complaint. We answered plaintiff's complaint on May 14, 2003, and filed counterclaims and a motion for the preliminary injunction on June 2, 2003. On July 22, 2003, we announced that this lawsuit had been settled. As part of the settlement, the plaintiffs acknowledged that Manhattan Bagel franchisees are obligated under their franchisee agreements to purchase frozen bagel dough only from suppliers approved by Manhattan Bagel Corp. and New World and withdrew their request for an injunction that would have allowed such franchisees to purchase frozen dough from unapproved outside suppliers.

        On June 2, 2003, a group of four Manhattan Bagel franchisees filed a lawsuit captioned Kaufman et al. v. New World Restaurant Group, Inc. in the Superior Court of New Jersey, Chancery Division, Monmouth County. In their complaint, plaintiffs allege that since we closed our Eatontown, New Jersey baking facility and began contracting with Harlan Bakeries, the quality of its bagels has suffered. As a result of this alleged decline in bagel quality, plaintiffs claim that they will lose bagel sales and customer goodwill if they continue to purchase their bagels from Harlan Bakeries in accordance with the terms of their franchise agreements. Alleging claims for breach of contract, consumer fraud, constructive termination of the franchise agreements, and violation of the New Jersey Franchise Practices Act, plaintiffs seek a judgment permitting their purchase of "New York style" bagels from any third-party supplier, enjoining our termination of their franchise agreements because of their purchase of such non-approved bagels, and awarding to plaintiffs damages in an unspecified amount. The Company's time to answer or otherwise respond to the complaint has not yet elapsed. We intend to defend this matter vigorously.

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Given the early stage of the proceeding matters, the Company cannot predict their outcome. However, there can be no assurance that the Company will not be subject to regulatory sanctions, civil penalties and/or claims for monetary damages or other relief.

        Special Situations Fund, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, "Special Situations"), holders of Series F preferred stock, had notified the Company that they believe that material misrepresentations were made to them in June 2001 in connection with their purchase of the stock. Special Situations filed a complaint in the United States District Court for the Southern District of New York regarding this claim. Special Situations alleged various contractual and tort claims against the Company, as well as Ramin Kamfar, the former Chairman of the Board of Directors, Jerold Novack, the former Chief Financial Officer, and Greenlight Capital, L.P., Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd. (collectively, "Greenlight"), another holder of the Series F preferred stock. Special Situations sought, among other relief, damages in the amount of at least $5,166,000 and the equitable remedy of rescission of its purchase of stock. Prior to responding to Special Situations' complaint, the Company and Special Situations entered into a settlement agreement and release on April 29, 2003, pursuant to which the Company agreed to settle Special Situations' claims against the Company and its present and former officers, directors, agents and other representatives, and Special Situations agreed to release those entities and individuals, in exchange for payment to Special Situations of $176,000. A Notice of Voluntary Withdrawal was filed by Special Situations with the United States District Court for the Southern District of New York on May 5, 2003.

        On February 28, 2003, the Company's former insurance broker of record filed suit in Superior Court of the State of California, County of Orange, against the Company and its subsidiaries, alleging wrongful termination of the Company's brokerage contract with plaintiff, Pension & Benefit Insurance Services, Inc. ("PBIS"), which deprived PBIS of brokerage commissions. PBIS's complaint asserts claims for breach of contract, reasonable value of services, intentional interference with prospective advantage and negligent interference with prospective advantages. Plaintiff seeks $500,000 in consequential damages and $20 million in punitive damages. Prior to responding to PBIS's complaint, the Company entered into a settlement agreement with PBIS on April 2, 2003. As consideration for PBIS's agreement to settle and dismiss this matter, the Company agreed to list PBIS as its insurance broker of record until at least the end of 2003. A Request for Dismissal of the suit was filed by PBIS with the Superior Court of the State of California, County of Orange on April 9, 2003.

        On April 7, 2003, General Electric Capital Corp. filed an action in the Supreme Court for the State of New York, County of New York, against the Company and its franchisee, captioned General Electric Capital Corp. v. New World Coffee/Manhattan Bagels, Inc. et al. In its complaint, plaintiff asserts that it entered into certain equipment lease agreements with the Company on April 18, 2001, and with the franchisee on February 26, 2001, upon which the Company and its franchisee subsequently defaulted. As a result of those alleged defaults, plaintiff purports to state claims against defendants for breach of contract, conversion, unjust enrichment, foreclosure of security interest, and replevin, and demands damages from defendants, jointly and severally, in the total specified amount of $118,555.49, plus late charges, taxes, interest, costs and attorneys' fees. The Company served an answer to plaintiff's complaint on May 14, 2003. The plaintiff has dismissed its claim against the Company with prejudice.

        On December 28, 2001, Robert Higgs, a franchisee, filed a complaint against the Company and its officers and agents in New Jersey (Superior Court of New Jersey, Case No. OCN-L-2153-99) alleging breach of contract, breach of fiduciary duties and tortuous interference with contract and business opportunities. The complaint was subsequently withdrawn by the franchisee without prejudice. In February 2002, the franchisee filed a new complaint against the Company and its officers and agents alleging breach of contract, breach of fiduciary duties, tortuous interference with contract and business opportunities, and violations of New Jersey's franchise law. The franchisee seeks damages in an unspecified amount, punitive damages, costs and attorneys' fees. The Company moved to dismiss all of

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the claims in the new complaint. The court dismissed the breach of fiduciary duty claims and one of the breach of contract claims. Discovery requests have been served by the Company. This matter has been settled for an immaterial amount.

10.   Derivative Instruments

        Effective January 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair value. Changes in the fair values of derivatives that do not qualify for hedge accounting under SFAS 133 are recognized through earnings. In conjunction with certain debt and preferred stock issuances in 2000 and 2001, the Company issued freestanding warrants and rights to receive additional warrants based either on the passage of time or upon the occurrence (or non-occurrence) of certain contingent future events (contingently-issuable warrants). In June 2001, certain of the Series F preferred stock holders agreed not to exercise their warrants if, in doing so, the authorized number of shares remaining after exercise by the holders of the Series F preferred stock was not sufficient to permit warrants associated with the $140 Million Facility to be exercised. The Company determined the contingently-issuable warrants cannot be classified within stockholders' equity based on the application of the criteria in EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, and accordingly have classified those warrants as a liability in the balance sheet. To the extent that the number of freestanding warrants and the maximum number of additional warrants that could potentially be issued in the future exceed the maximum number of authorized shares (the Share Cap) at the time the debt or preferred stock instrument is issued, the Company determines the classification of, and accounting for, the freestanding and additional warrants as follows: (1) freestanding warrants (those that are immediately exercisable) are considered first for equity treatment, to the extent of the maximum number of authorized shares; (2) among various outstanding instruments, those with the earlier issuance dates are considered first for equity treatment; and (3) contractual priorities are considered where applicable.

        Issued $0.01 warrants classified as liabilities, if any, are recognized in the balance sheet at their fair value, as determined periodically based on quoted market prices of the underlying Common Stock. As of July 1, 2003 and 14 December 31, 2002, there were no issued warrants classified as liabilities. Contingently-issuable $0.01 warrants classified as liabilities are also recorded at fair value based on quoted market prices of the underlying common stock and considering the probability of issuance, the Company's assessments of the probability of refinancing its debt, and other pertinent factors. Changes in the fair value of derivative liabilities are recorded within the statement of operations. If reclassification from liability to permanent equity is required under EITF 00-19, prior to reclassification the liability is adjusted to fair value, with the change recorded in cumulative change in derivative fair value within the statement of operations. In the event of reclassification from permanent equity to liability, the related warrants are adjusted to fair value, with the change recorded in additional paid-in-capital.

        From January 1, 2003 through July 31, 2003, the Company issued an additional 27,539,258 warrants to certain Series F holders and to the holders of the $140 Million Facility, all of which were exercisable. These warrants have an exercise price of $0.01 per share, and have terms that expires on June 20, 2006. Since January 1, 2003, warrants to purchase 50,000 shares of common stock have expired. In addition, existing agreements require us to issue (i) $0.01 warrants semi-annually to the holders of our Series F preferred stock until such Series F preferred stock has been redeemed (this obligation will cease if and when the Equity Recap (Note 15) is consummated) and (ii) $0.01 warrants to Greenlight at the rate of 1.125% of our fully diluted common stock for each $1.0 million of deficiency if Greenlight does not receive a return on its investment in GNW equal to its Guaranteed Return (this obligation will cease

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on June 30, 2003 and no additional warrants will be accrued after that date, if and when the Equity Recapitalization (Note 15) is consumated.)

11.   Additional Paid-In Capital

        Additional paid-in capital increased from $86.6 million as of December 31, 2002, to $90.0 million as of July 1, 2003 due to the issuance of additional warrants under the terms of the Series F preferred stock and the $140 Million Facility agreements, that had previously been classified as derivative liabilities in accordance with the policy outlined in Note 10.

12.   Reorganization and Integration

        The following table displays the activity for the quarter ended July 1, 2003 and July 2, 2002, respectively and balances of the restructuring accrual accounts.

	2002 Restructuring Accrual (amounts in thousands)
2003 Activity	Balance at Beginning of Period		Initial Accrual	Application of Costs Against Accrual		Net Accrual Adjustments	Balance at End of Period
Quarter ended July 1, 2003	$	1,513	—	(52	)	—	$	1,461
Year to Date Period Ended July 1, 2003	$	1,704	—	(243	)	—	$	1,461

	2001 Restructuring Accrual (amounts in thousands)
2003 Activity	Balance at Beginning of Period		Initial Accrual	Application of Costs Against Accrual		Net Accrual Adjustments	Balance at End of Period
Quarter ended July 1, 2003	$	979	—	(67	)	—	$	912
Year to Date Period Ended July 1, 2003	$	1,064	—	(152	)	—	$	912

	2001 Restructuring Accrual (amounts in thousands)
2002 Activity	Balance at Beginning of Period		Initial Accrual	Application of Costs Against Accrual		Net Accrual Adjustments		Balance at End of Period
Quarter ended July 2, 2002	$	2,820	—	(463	)	(656	)	$	1,701
Year to Date Period Ended July 2, 2002	$	2,936	—	(683	)	(552	)	$	1,701

13.   $140 Million Facility Refinancing

        At July 1, 2003, Company had outstanding $140 Million of Senior Increasing Rate Notes (the "$140 Million Facility"), which matured on June 15, 2003. The Company called the $140 Million Facility for redemption on June 10, 2003. On June 17, 2003, the Company entered into a 30-day standstill agreement with the holders of approximately $113.0 million, or 80.7% of the $140 Million Facility, while continuing to actively pursue the refinancing of its debt as well as the rationalization of its capital structure. Under this initial accord, holders of those notes agreed not to take any action to enforce any of their rights and remedies against the Company until July 15, 2003, as a result of the Company's failure to repay the notes. The interest rate and terms under the standstill agreement stayed the same as the original agreement. Concurrently, the Company entered into a 30-day standstill agreement with its senior lender with respect to the BET revolving line of credit. The interest rate on

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the revolving line of credit increased from 13% to 15% starting June 1, 2003. In consideration of the agreements by the holder of the $140 Million Facility, the Company agreed to issue to the holders of the $140 Million Facility and additional $0.01 warrants to purchase an aggregate of up to 11,309,994 shares of its Common Stock. The Company is recognizing a charge to interest expense related to the warrants, over the 30-day standstill period and has recognized $1.2 million of this charge in the three-month and six-month periods ended July 1, 2003. This charge was based on the fair value of the Company's stock at June 18, 2003 less $0.01. The $140 Million Facility and related accrued interest was repaid with the proceeds from the $160 Million Facility (Note 14).

14.   $160 Million Facility

        On June 27, 2003, the Company entered into an agreement with Jefferies & Company, Inc. (Initial Purchaser) whereby the Company agreed to issue, and the Initial Purchaser agreed to purchase, $160,000,000 aggregate principal amount of notes. On July 8, 2003, the Company issued $160,000,000 of 13% senior secured notes due 2008 to replace its $140.0 Million Facility. The $160 Million Facility was offered by the Company and guaranteed, jointly and severally, by all present and all future subsidiaries of the Company other than the Non-Restricted Subsidiaries (as defined in the Indenture governing the notes). The Company is a holding company that conducts substantially all of its business operations through its subsidiaries. The Company is dependent upon distributions or other inter-company transfers from its subsidiaries to make payments on the notes and service its other obligations. There are no significant restrictions on the Company's ability to obtain funds from its subsidiaries by dividend or loan. The Company used the net proceeds of the offering, among other things, to refinance the $140.0 Million Facility.

15.   Equity Recapitalization

        On June 27, 2003, Halpern Denny, Greenlight and the Company entered into an equity recapitalization agreement pursuant to which the parties agreed to a recapitalization of our equity structure (the "Equity Recap"). The Board of Directors has approved the Equity Recap. In the Equity Recap, (a) Halpern Denny will exchange all of its equity interests in the Company for $57.0 million face amount of a new Series Z Preferred Stock and (b) all other outstanding preferred stock, including the Series F Preferred Stock to be issued in full payment of the outstanding EnbcDeb Notes, will be converted into common stock. The Equity Recap is subject to stockholder approval, which will be voted on at the annual stockholders meeting in September 2003, and other customary conditions. The Agreement among the parties includes an undertaking by the parties thereto to vote in favor of the Equity Recap. Assuming that such stockholder approval is received, following the closing of the Equity Recap, the Stockholder Agreement will terminate and Greenlight will beneficially own approximately 92% of the Company's outstanding common stock and the warrants issued to the holders of the $140 Million Facility will represent approximately 4.3% of our common stock in the aggregated.

        The following table sets forth (I) our historical cash and cash equivalents and capitalization as of July 1, 2003, (II) our pro forma cash and cash equivalents and capitalization as of July 1, 2003, as adjusted to reflect the issuance of the $160 Million Facility and the application of the net proceeds therefrom and (III) our pro forma cash and cash equivalents and capitalization as of July 1, 2003 adjusted to reflect the issuance of the $160 Million Facility and the application of the net proceeds

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therefrom, as well as the closing of the Equity Recap. This table should be read in conjunction with our historical financial statement and the related notes.

		As of July 1, 2003
		Actual			Pro Forma for the Notes			Pro Forma for the Equity Recap and the Notes
		(dollars in thousands)
Cash and cash equivalents		$	9,367		$	5,165	(1)	$	5,165	(1)
Existing revolving credit facility		$	7,500		$	—			—
New revolving credit facility			—			—			—
Bridge loan			4,952			4,952			—
Greenlight obligation			10,000			10,000			—
Increasing Rate Notes			140,000			—			—
New Senior Secured Notes			—			160,000			160,000
Capital leases and other debt			3,050			1,370			1,370
	Total debt		165,502			176,322			161,370
Series F and Series Z preferred stock(2)			99,356			99,356			33,831
Stockholders' deficit			(120,585	)		(120,585	)		(35,312	)
	Total capitalization	$	144,273		$	155,093		$	159,889

(1)

Does not reflect cash used in operations since July 1, 2003.

(2)

Net of allocation of discount attributable to fees and initial and future warrants. Does not include the 4,337.481 shares of Series F preferred stock issued by us to the holder of the EnbcDeb Notes upon the consummation of the offering of the $140 Million Facility. Effective with the third quarter of 2003, the balance of the Company's outstanding preferred stock will move from the mezzanine section of our balance sheet to the long-term liability section due to the implementation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Note 4).

16.   Subsequent Events

        On July 16, 2003, Eve Trkla resigned from the Company's Board of Directors. Josh Clark was appointed to fill a vacancy on the board of directors. In addition, Len Tannenbaum, as chairman of the Audit Committee and Compensation Committee will receive a fee of $25,000 per month from August 2003 through October 2003 for service in such capacities.

        On August 5, 2003, we entered into a consulting agreement with Herbert Buchwald, P.A., a Florida Professional Association, effective as of July 16, 2003. The agreement expires on August 5, 2006, but is subject to earlier termination as provided in the agreement. Pursuant to the agreement, the consultant shall provide legal, consulting and advisory services, including: serving as Chairman of the Advisory Committee of the board of directors; conducting a comprehensive analysis and evaluation of our financial condition; and developing a business plan for approval by the board of directors covering a strategic plan for our stability and future growth, a compensation plan, an audit plan and a legal plan. The consultant is required to spend a minimum of 160 hours per calendar month on average during the term of the agreement providing us with consulting services. The consultant is subject to a confidentiality clause in the agreement. The agreement provides that we will pay the consultant a consulting fee as follows: $100,000 within two days of the execution of the agreement; $100,000 on or before August 16, 2003; $100,000 on or before September 16, 2003; $50,000 on or before October 16,

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2003; $50,000 on or before November 16, 2003; $50,000 on or before December 16, 2003; and $25,000 on or before the sixteenth of each month thereafter until the expiration or termination of the agreement. Additionally, if we conclude a transaction that results in the sale of 51% or more of our aggregate outstanding securities or of substantially all our assets, the consultant will be entitled to a transaction fee equal to the sum of (A) 3.75% of the first $65 million of gross proceeds received by the holders of our common stock from the transaction and (B) 1% of the gross proceeds received by holders of our common stock from the transaction. Under certain circumstances, the transaction fee shall be reduced by the amount of previously paid consulting fees. In the event that we terminate the agreement with the consultant for any reason, the consultant will not be entitled to a transaction fee unless the sale of 51% or more of our aggregate outstanding securities or of substantially all our assets was considered by the board of directors during the consultant's tenure and is consummated within six-months of the termination of the agreement. After serving six months as a consultant, the consultant is entitled to receive a ten-year option to purchase 5% of our common stock for a strike price initially based on a valuation of our common stock at $65 million and increasing at a rate of LIBOR plus 2% compounded monthly. The option is not exercisable so long as entities affiliated with Greenlight hold 10% of more of our outstanding equity securities. The consultant is also entitled to the reimbursement of reasonable and necessary out-of-pocket expenses incurred at our request or with our approval, including the reimbursement for the consultant's use of the consultant's aircraft for company-related travel at a rate of $650 per flight hour.

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New World Restaurant Group, Inc.

Offer to Exchange
any and all of our $160,000,000 Principal Amount Outstanding
13% Senior Secured Notes due 2008
for
a like Principal Amount of
13% Senior Secured Notes due 2008
that have been registered under the Securities Act of 1933

PROSPECTUS
                       , 2003

        Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933, as amended, or the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for original notes where the original notes were acquired by the broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the Commission declares the registration statement effective, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

        Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), Article Twelfth of Certificate of Incorporation of New World Restaurant Group, Inc., a Delaware corporation ("New World"), eliminates the personal liability of New World's directors to New World or its stockholders for monetary damages for the breach of any fiduciary duty as a director, except for liabilities related to (a) any breach of a director's duty of loyalty to New World or its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) a violation under Section 174 of the DGCL or (d) for any transaction from which a director derives an improper personal benefit.

        Section 145 of the DGCL provides for indemnification by New World of its directors and officers. In addition, Article VII of New World's Certificate of Incorporation and Article VIII, Sections 1 and 2 of New World's By-laws require New World to indemnify any current or former director or officer to the fullest extent permitted by the DGCL.

Item 21. Exhibits.

        The exhibits listed below in the "Index to Exhibits" are part of this registration statement on Form S-4 and are numbered in accordance with Item 601 of Regulation S-K.

Item 22. Undertakings.

        The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933 (the "Securities Act"), each filing of the registrants' annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        The undersigned registrants hereby undertake as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus that is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

        The undersigned registrants hereby undertake that every prospectus: (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415 of the Securities Act, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is,

II-1

therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

        The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

[Remainder intentionally blank.]

II-2

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

NEW WORLD RESTAURANT GROUP, INC.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)
By	/s/  LEONARD TANNENBAUM Leonard Tannenbaum	Director
By	/s/  JOSH CLARK Josh Clark	Director

II-3

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

MANHATTAN BAGEL COMPANY, INC.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) and Sole Director

II-4

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

CHESAPEAKE FRANCHISE CORP.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) and Sole Director

II-5

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

WILLOUGHBY'S INCORPORATED
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

II-6

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

EINSTEIN AND NOAH CORP.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) and Sole Director

II-7

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

EINSTEIN/NOAH BAGEL PARTNERS, INC.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) and Sole Director

II-8

SIGNATURES

        Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 19th day of September, 2003.

I. & J. BAGEL, INC.
By:	/s/  ANTHONY D. WEDO Anthony D. Wedo President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.

	Signature	Title
By	/s/  ANTHONY D. WEDO Anthony D. Wedo	President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer) and Sole Director

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Schedule II

Schedule II—Valuation of Qualifying Accounts

		Balance at Beginning of Period		Additions		Deductions		Balance at End of Period
		(amounts in thousands)
For the fiscal year ended December 31, 2000:
	Allowance for doubtful accounts	$	9,559	$	1,357	$	7,454	$	3,462
	Restructuring reserve		926		—		926		—
	Valuation allowance for deferred taxes	$	7,136	$	5,696		—	$	12,832
For the fiscal year ended January 1, 2002:
	Allowance for doubtful accounts	$	3,462	$	1,175	$	1,140	$	4,097
	Restructuring reserve		—	$	3,446	$	510	$	2,936
	Valuation allowance for deferred taxes	$	12,832	$	13,042		—	$	25,874
For the fiscal year ended December 31, 2002:
	Allowance for doubtful accounts	$	4,097	$	505	$	125	$	4,574
	Restructuring reserve	$	2,936	$	3,107	$	3,275	$	2,768
	Valuation allowance for deferred taxes	$	25,874	$	15,941		—	$	41,815

S-1

INDEX TO EXHIBITS

3.1	Articles of incorporation(1)
3.2	Restated Certificate of Incorporation(6)
3.3	By-laws(2)
3.4	Amendments to By-laws(8)
4.1	Specimen Common Stock Certificate of Registrant(2)
4.2	Form of Representatives' Warrant Agreement, including Form of Representatives Warrant(2)
4.3	Certificate of Designation of Series B Preferred Stock(3)
4.4	Certificate of Designation, Preferences and Rights of Series F Preferred Stock as filed with the Delaware Secretary of State on January 18, 2001(8)
4.5	Amended Certificate of Designation, Preferences and Rights of Series F Preferred Stock as filed with the Delaware Secretary of State on March 29, 2001(9)
4.6	Amended Certificate of Designation, Preferences and Rights of Series F Preferred Stock as filed with the Delaware Secretary of State June 19, 2001(11)
5.1	Opinion of Proskauer Rose LLP regarding the validity of the securities being offered.**
8.1	Opinion of Proskauer Rose LLP regarding the material United States federal income tax consequences to the holders of the securities being offered.**
10.1	1994 Stock Plan(2)
10.2	Investor Rights Agreement(2)
10.3	Directors' Option Plan(2)
10.4	Form of Franchise Agreement(4)
10.5	Form of Store Franchise Sale Agreement(4)
10.6	Manhattan Bagel Company, Inc.—DIP Amended Acquisition Agreement and Exhibits(5)
10.7	Manhattan Bagel Company, Inc.—Debtor in Possession First Amended Joint Plan of Reorganization(5)
10.8	Manhattan Bagel Company, Inc.—Debtor in Possession Confirmation Order(5)
10.9	Amended and Restated Employment Agreement with Anthony D. Wedo(14)
10.10	Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of June 7, 1999(7)
10.11	Series F Preferred Stock and Warrant Purchase Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood(8)
10.12	Form of Note issuable to Halpern Denny, BET and Brookwood(8)
10.13	Form of Common Stock Purchase Warrant issued to Halpern Denny, BET and Brookwood(8)
10.14	Amended and Restated Registration Rights Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood(8)
10.15	Stockholders Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood(8)
10.16	Exchange Agreement dated as of January 18, 2001, by and among the Company, BET and Brookwood(8)
10.17	Bond Purchase Agreement dated as of January 17, 2001, by and among the Company, Greenlight Capital, L.P., Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd.(8)
10.18	Form of Common Stock Purchase Warrant issued to the Greenlight Entities(8)

10.19	Registration Rights Agreement dated as of January 17, 2001, by and among the Company, Greenlight Capital, L.P., Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd.(8)
10.20	Second Series F Preferred Stock and Warrant Purchase Agreement dated as of March 29, 2001, by and between the Company and Halpern Denny(9)
10.21	Form of Common Stock Purchase Warrant issued to Halpern Denny(9)
10.22	Form of Note issuable to Halpern Denny, BET and Brookwood(9)
10.23	Amendment No. 1 to Exchange Agreement dated as of January 18, 2001, by and among the Company, BET and Brookwood(9)
10.24	Amendment No. 1 to Series F Preferred Stock and Warrant Purchase Agreement dated as of January 18, 2001, by and between the Company and Halpern Denny(9)
10.25	Amendment No. 1 to Stockholders Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood(9)
10.26	Amendment No. 1 to Amended and Restated Registration Rights Agreement dated as of January 18, 2001, by and among the Company, Halpern Denny, BET and Brookwood(9)
10.27	Series F Preferred Stock Purchase Agreement dated June 7, 2001 by and between the Company and Halpern Denny(10)
10.28	Third Series F Preferred Stock and Warrant Purchase Agreement dated as of June 19, 2001, by and among the Company, Halpern Denny, Greenlight Capital and Special Situations(10)
10.29	Amendment No. 2 to Registration Rights Agreement dated as of June 19, 2001, by and among the Company, Halpern Denny, BET and Brookwood(10)
10.30	Amendment No. 2 to Stockholders Agreement dated June 19, 2001, by and between the Company, Halpern Denny, BET and Brookwood(10)
10.31	Letter Agreement dated as of June 19, 2001, by and between the Company, BET, Brookwood and Halpern Denny(13)
10.32	Amendment No. 1 to First Series F Preferred Stock Purchase Agreement dated as of June 19, 2001 by and among the Company, Halpern Denny, BET and Brookwood(10)
10.33	Form of Note issuable to Halpern Denny, Greenlight Capital, BET, Brookwood and Special Situations(10)
10.34	Form of Common Stock Purchase Warrant issued to Halpern Denny, Greenlight Capital and Special Situations(10)
10.35	Warrant Agreement dated as of June 19, 2001, by and among the Company, Jefferies & Co. and United States Trust Company of New York(10)
10.36	Registration Rights Agreement dated as of June 19, 2001, by and between the Company and Jefferies & Co.(10)
10.37	Asset Purchase Agreement dated as of June 1, 2001, by and between Einstein Acquisition Corp., GNW, ENBC and ENBP(10)
10.38	Transition Services Agreement dated as of June 19, 2001, by and between Einstein Acquisition Corp. and ENBC and ENBP(10)
10.39	Order of the United States Bankruptcy Court for the District of Arizona dated June 1, 2001 approving the Asset Purchase Agreement(10)
10.40	Letter Agreement dated as of June 19, 2001, among the Company, GNW and Greenlight Capital (11)
10.41	Letter Agreement dated as of October 10, 2002, by and among the Company, BET, Brookwood and Halpern Denny(13)
10.42	Amendment No. 1 to Warrant Agreement dated as of March 15, 2002 between the Company and The Bank of New York, as successor in interest to the United States Trust Company of New York*

10.43	Escrow Deposit Agreement dated as of June 10, 2003, between the Company and The Bank of New York, as Trustee*
10.44	Standstill Agreement dated as of June 17, 2003, between the Company and BET**
10.45	Standstill Agreement dated as of June 17, 2003, by and among the Company and the Increasing Rate Note Holders as set forth therein**
10.46	Equity Recapitalization Agreement dated as of June 26, 2003, by and among the Company, Greenlight and Halpern Denny**
10.47	Purchase Agreement dated as of June 27, 2003, between the Company and Jefferies & Company*
10.48	Note Purchase and Put Agreement dated as of June 27, 2003, by and among the Company, Jefferies & Co., Farallon and Greenlight**
10.49	Indenture dated as of July 8, 2003, by and among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee*
10.50	144A Global Note (including guarantees thereon) by and among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee*
10.51	IAI Global Note (including guarantees thereon) by and among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee*
10.52	Amendment to Note Purchase and Security Agreement dated as of July 8, 2003 by and among Jefferies & Co., the Company and New World EnbcDeb Corp.*
10.53	Pledge and Security Agreement dated as of July 8, 2003, by and among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee*
10.54	Patent Security Agreement dated as of July 8, 2003, by and among the Company and the Subsidiary Guarantors, in favor of The Bank of New York, as Collateral Agent*
10.55a	Trademark Security Agreement dated as of July 8, 2003, between the Company and The Bank of New York, as Collateral Agent.*
10.55b	Trademark Security Agreement dated as of July 8, 2003, between Chesapeake Bagel Franchise Corp. and The Bank of New York, as Collateral Agent.*
10.55c	Trademark Security Agreement dated as of July 8, 2003, between Einstein/Noah Bagel Partners, Inc. and The Bank of New York, as Collateral Agent.*
10.55d	Trademark Security Agreement dated as of July 8, 2003, between Einstein and Noah Corp. and The Bank of New York, as Collateral Agent.*
10.55e	Trademark Security Agreement dated as of July 8, 2003, between Manhattan Bagel Company, Inc. and The Bank of New York, as Collateral Agent.*
10.56	Loan and Security Agreement dated as of July 8, 2003, by and among the Company and certain of its Subsidiaries (as therein defined), as Borrower(s) and Guarantors, AmSouth Bank, as Agent, AmSouth Bank and the financial institutions named therein, as Lenders, and AmSouth Capital Corp., as Administrative Agent**
10.57	Security Agreement and Mortgage—Trademarks and Patents dated as of July 8, 2003, by and among the Company, the Subsidiary Guarantors and the Bank of New York as Trustee**
10.58	Pledge Agreement dated as of July 8, 2003, by and among the Company and certain of its Subsidiaries, as Pledgors in favor of AmSouth Bank, as Agent**
10.59	Intercreditor Agreement dated as of July 8, 2003, by and among the Company, the Subsidiary Guarantors, AmSouth Bank and the Bank of New York as Trustee**
10.60	Registration Rights Agreement dated as of July 8, 2003, between the Company, the Subsidiary Guarantors and Jefferies & Company, Inc.*
12.1	Statement re: Computation of Ratio of Earnings to Fixed Charges**
21.1	List of Subsidiaries(13)
23.1	Consent of Grant Thornton LLP**

23.2	Consent of Proskauer Rose LLP (included in Exhibit 5.1).**
25.1	Form T-1, Statement of Eligibility and Qualification of Trustee.**
99.1	Form of Letter of Transmittal.**
99.2	Form of Notice of Guaranteed Delivery.**

*

Filed previously.

**

Filed herewith.

(1)

Incorporated by reference to Exhibit 3.2 from the Registrant's Registration Statement on Form SB-2 (33-95764).

(2)

Incorporated by reference from the Registrant's Registration Statement on Form SB-2 (33-95764).

(3)

Incorporated by reference from the Registrant's Annual Report on Form 10-KSB, for the Fiscal Year Ended December 29, 1996.

(4)

Incorporated by reference from the Registrant's Annual Report on Form 10-KSB, for the Fiscal Year Ended December 28, 1997.

(5)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated November 24, 1998.

(6)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated September 7, 1999.

(7)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated June 7, 1999.

(8)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated January 17, 2001.

(9)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated March 29, 2001.

(10)

Incorporated by reference from the Registrant's Current Report on Form 8-K dated July 3, 2001.

(11)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 1, 2002.

(12)

Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 2002.

(13)

Incorporated by reference from the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2002.

QuickLinks

TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PROSPECTUS SUMMARY
The Exchange Offer
The Company
Summary of the Exchange Offer
Summary Description of the Exchange Notes
Risk Factors
Recent Developments
Summary Historical Financial and Operating Data
RISK FACTORS
Risks Related to the Exchange Offer
Risk Factors Relating to the Notes
Risks Factors Relating to Our Business
THE EXCHANGE OFFER
USE OF PROCEEDS
RATIO OF EARNINGS TO FIXED CHARGES
CAPITALIZATION
SELECTED FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED UNAUDITED PRO FORMA AND HISTORICAL FINANCIAL DATA
2000 FISCAL YEAR CONSOLIDATED PRO FORMA RESULTS (amounts in thousands)
2001 FISCAL YEAR CONSOLIDATED PRO FORMA RESULTS (amounts in thousands)
BUSINESS
MANAGEMENT
SUMMARY COMPENSATION TABLE
OPTION GRANTS IN FISCAL 2002
FISCAL YEAR END OPTION VALUES
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF EXCHANGE NOTES
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000 (in thousands, except share and per share information)
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000 (in thousands, except share and per share information)
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000 (in thousands, except share and per share information)
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, JANUARY 1, 2002 AND DECEMBER 31, 2000 (in thousands)
NEW WORLD RESTAURANT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED BALANCE SHEETS AS OF JULY 1, 2003 AND DECEMBER 31, 2002 (in thousands, except share information)
NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002 AND FOR THE SIX-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002 (UNAUDITED) (in thousands, except earnings per share and related share information)
NEW WORLD RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED JULY 1, 2003 AND JULY 2, 2002 (Unaudited) (in thousands)
NEW WORLD RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
SIGNATURES
SIGNATURES
SIGNATURES
SIGNATURES
SIGNATURES
SIGNATURES
Schedule II—Valuation of Qualifying Accounts
INDEX TO EXHIBITS

EX-5.1

Exhibit 5.1

Proskauer Rose LLP

1585 Broadway

New York, New York 10036

September 19, 2003

New World Restaurant Group, Inc.
1687 Cole Boulevard
Golden, Colorado 80401

Ladies and Gentlemen:

                We have acted as counsel to New World Restaurant Group, Inc., a Delaware corporation (the “Company”), Manhattan Bagel Company, Inc., a New Jersey corporation (“MBC”), Chesapeake Franchise Corp., a New Jersey corporation (“Chesapeake”), Willoughby’s Incorporated, a Connecticut corporation (“Willoughby’s”), Einstein and Noah Corp., a Delaware corporation (“EAN”), Einstein/Noah Bagel Partners, Inc., a California corporation (“ENBP”) and I. & J. Bagel, Inc., a California corporation (collectively with MBC, Chesapeake, Willoughby’s, EAN and ENBP the “Guarantors”), in connection with the proposed offer by the Company to exchange $160,000,000 aggregate principal amount of its 13% Senior Secured Notes due 2008 that have been registered under the Securities Act of 1933 (the “New Notes”) for all of its outstanding 13% Senior Secured Notes due 2008 (the “Old Notes”).  Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Company’s Registration Statement on Form S-4 (the “Registration Statement”), as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the New Notes.

                In rendering this opinion, we have examined and relied upon executed originals, counterparts or copies of such documents, records and certificates (including certificates of public officials and officers of the Company and the Guarantors) as we considered necessary or appropriate for enabling us to express the opinions set forth below.  In all such examinations, we have assumed the authenticity and completeness of all documents submitted to us as originals and the conformity to originals and completeness of all documents submitted to us as photostatic, conformed, notarized or certified copies.

                Based upon and subject to the foregoing, we are of the opinion that the New Notes have been duly authorized and, when the Registration Statement has become effective and the New Notes have been duly executed, authenticated, issued and delivered in accordance with the terms of the Registration Rights Agreement and the Indenture, such New Notes will be legally issued and will constitute the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors’ rights generally and subject to general principles of equity.  In addition, we are of the opinion that when the New Notes have been duly executed, authenticated, issued and delivered in accordance

with the terms of the Registration Rights Agreement and the Indenture, each Guarantee will constitute the valid and legally binding obligation of the Guarantor party thereto, enforceable against such Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors’ rights generally and subject to general principles of equity.

                In connection with our opinion above, we have assumed that at or prior to the time of delivery of the New Notes, the authorization of the New Notes will be applicable to each New Note, will not be modified or rescinded and there will not have occurred any change in the law affecting the validity or enforceability of such New Notes.  We have also assumed that the issuance and delivery of the New Notes will not, at or prior to the time of delivery of the New Notes, violate any applicable law and will not, at or prior to the time of delivery of the New Notes, result in a violation of any provision of any instrument or agreement then binding on the Company, or any restriction imposed by any court or governmental body having jurisdiction over the Company.

                Insofar as this opinion relates to the guarantees by the Guarantors under the Guarantees, we have assumed the adequacy of the consideration that supports the agreements of the Guarantors and the solvency and adequacy of capital of each of the Guarantors.  Furthermore, certain of the Guarantors are organized under the laws of a state other than Delaware or New York.  Our opinion with regard to the validity, binding nature and enforceability of the Guarantees is based upon the assumption that the laws of those states are identical to the law of the State of New York without giving effect to the principles of conflicts of laws.

                This opinion is limited to the federal law of the United States, the Delaware General Corporation Law and the law of the State of New York, and we express no opinion as to the law of any other jurisdiction.

                We hereby consent to the filing of this opinion with the Securities and Exchange Commission as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in the Registration Statement.  In giving this consent, we do not admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission.

                Very truly yours,

                /s/ Proskauer Rose LLP

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EX-8.1

EXHIBIT 8.1

Proskauer Rose LLP

1585 Broadway

New York, New York 10036

September 19, 2003

New World Restaurant Group, Inc.
1687 Cole Boulevard
Golden, Colorado  80401

Ladies and Gentlemen:

                We have acted as counsel to New World Restaurant Group, Inc., a Delaware corporation (the “Company”), Manhattan Bagel Company, Inc., a New Jersey corporation (“MBC”), Chesapeake Franchise Corp., a New Jersey corporation (“Chesapeake”), Willoughby’s Incorporated, a Connecticut corporation (“Willoughby’s”), Einstein and Noah Corp., a Delaware corporation (“EAN”), Einstein/Noah Bagel Partners, Inc., a California corporation (“ENBP”) and I. & J. Bagel, Inc., a California corporation (collectively with MBC, Chesapeake, Willoughby’s, EAN and ENBP the “Guarantors”), in connection with the proposed offer by the Company to exchange $160,000,000 aggregate principal amount of its 13% Senior Secured Notes due 2008 that have been registered under the Securities Act of 1933 (the “New Notes”) for all of its outstanding 13% Senior Secured Notes due 2008 (the “Old Notes,” and collectively with the New Notes, the “Notes”).  You have requested our opinion regarding certain United States federal income tax matters in connection with the Exchange Offer.  Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Company’s Registration Statement on Form S-4 (File No. 333-107894) (the “Registration Statement”), as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the New Notes.

                In formulating our opinion herein, we have reviewed the Registration Statement and such other documents as we have deemed necessary or appropriate as a basis for the opinion set forth below.  In conducting this review for purposes of rendering our opinion, we have not conducted an independent investigation of any of the facts set forth in the Registration Statement and other documents, and have, consequently, relied upon the Company’s representations that the information presented in these documents or otherwise furnished to us accurately represent and completely describe all material facts relevant to our opinion herein, and upon the authenticity of documents submitted to us as originals or certified copies, the accuracy of copies, the genuineness of all signatures and the legal capacity of all natural persons.  No facts have come to our attention, however, that would cause us to question the accuracy and completeness of these facts or documents.

                Additionally, in rendering our opinion herein, we have assumed that the Exchange Offer or any other transactions described in or contemplated by any of the aforementioned documents have been or will be consummated consistent with the descriptions of such transactions as set

 forth in the Registration Statement and in accordance with the operative documents relating to these transactions.

                The opinion set forth in this letter is based on relevant provisions of the Internal Revenue Code of 1986, as amended, Treasury Regulations thereunder (including proposed and temporary regulations) and interpretations of the foregoing as expressed in court decisions, administrative determinations and legislative history, as of the date hereof.  These provisions and interpretations are subject to change, which may or may not be retroactive in effect.  Our opinion is not binding on the Internal Revenue Service or on the courts, and, therefore, provides no guarantee or certainty as to results.  In addition, our opinion is based on certain factual representations and assumptions described herein.  Any change occurring after the date hereof in, or a variation from, any of the foregoing bases for our opinion could affect the conclusion expressed below.

                The discussion in the Registration Statement under the caption “United States Federal Income Tax Considerations” sets forth our opinion as to the material United States federal tax consequences, to the United States holders described in the discussion, of the Exchange Offer and the ownership and disposition of the Notes.  This opinion is based on our reliance upon the assumptions, and is subject to the limitations and qualifications, herein.

                We hereby consent to the filing of this opinion as an exhibit to the Registration Statement.  We also consent to the references to Proskauer Rose LLP under the caption “Legal Matters” in the Registration Statement.

                This opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matter relating to the Company or to any investment therein, or under any other law.  We assume no obligation to update or supplement this opinion to reflect any facts or circumstances that arise after the date of this opinion and come to our attention, or any future changes in law.

Very truly yours,

/s/ Proskauer Rose LLP

2

EX-10.44

Exhibit 10.44

NEW WORLD RESTAURANT GROUP, INC.

and

BET ASOCIATES, L.P.

STANDSTILL AGREEMENT

June 17, 2003

Table of Contents

1.	PAYMENT DEFAULT; WARRANT ISSUANCE.
2.	REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
	2.1	Organization and Authority of the Company.
	2.2	Authority of the Company.
	2.3	No Conflicts; Consents of Third Parties.
3.	REPRESENTATIONS AND WARRANTIES BY BET.
	3.1	Organization and Authority of BET.
	3.2	Authority of BET.
	3.3	No Conflicts; Consents of Third Parties.
4.	FURTHER AGREEMENTS OF THE PARTIES.
	4.1	Fees and Expenses.
	4.2	Notice of Breaches.
	4.3	Default Interest.
	4.4	Further Assurances.
5.	MISCELLANEOUS.
	5.1	Entire Agreement.
	5.2	Headings.
	5.3	Governing Law.
	5.4	Separability.
	5.5	Waiver.
	5.6	Assignment.
	5.7	Jurisdiction.
	5.8	No Third Party Beneficiaries.
	5.9	Counterparts.

STANDSTILL AGREEMENT

June 17, 2003

The parties to this agreement are New World Restaurant Group, Inc., a Delaware corporation (the “Company”), and BET Associates, L.P., a Delaware limited partnership (“BET”).

RECITALS

On March 30, 2002, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with BET, which provides for a $7.5 million revolving loan facility.  The facility is secured by substantially all of the Company’s assets.  The facility was to expire on March 31, 2003.  In February 2003, the Company and BET executed an amendment to the facility to extend the maturity of the facility to June 1, 2003.  The Company has not repaid the facility and is currently in default of the Loan and Security Agreement.

The Company called its senior secured increasing rate notes due 2003 (the “Existing Notes”) for redemption on June 10, 2003.  The Company has not redeemed the Existing Notes, and the Company is in default of the Notes and the Indenture dated as of June 19, 2001, as supplemented (the “Indenture”), by and among the Company, the subsidiary guarantors named therein (the “Subsidiary Guarantors”) and The Bank of New York (as successor in interest to the corporate trust business of United States Trust Company of New York), as trustee (the “Trustee”), pursuant to which the Existing Notes were issued.

The Company is seeking to refinance its Existing Notes and, in connection therewith, is engaged in negotiations with respect to (i) an offering pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, of $160.0 million of senior secured notes due 2008 and (ii) a new senior revolving credit facility secured by substantially all of the assets of the Company and its subsidiaries, other than certain inactive subsidiaries (the “Refinancing”).

The Company does not want BET to take any action to enforce any of its rights and remedies against the Company or the Subsidiary Guarantors, either directly or indirectly by permitting the Trustee to exercise any rights under the Indenture, for a specified period of time so that the Company can continue its efforts to complete the Refinancing, and BET is willing not to take any such action against the Company or the Subsidiary Guarantors in exchange for $25,000.00.

Accordingly, it is agreed as follows:

1.        Payment Default; Warrant Issuance.

(a)   Notwithstanding anything to the contrary in the Loan Documents (as defined in the Loan and Security Agreement), BET shall not take any Enforcement Action (as hereinafter defined) with respect to the Loan Documents until the earliest of (i) July 15, 2003, (ii) the commencement of a Proceeding (as hereinafter defined) other than by BET in violation of this Agreement, (iii) any breach of this Agreement by the Company, (iv) the redemption of all or a substantial portion of the Existing Notes (as defined in the IRN Standstill Agreement (as hereinafter defined)), (v) the expiration or termination of the “Standstill Period” as such term is defined in the IRN Standstill Agreement, and (vi) the consummation of the Refinancing.

(b)   “Enforcement Action” shall mean (i) to sue for payment of the amounts outstanding under the Loan and Security Agreement, or to initiate or participate with others in any suit, action or proceeding against the Company or any Subsidiary Guarantor, to (A) enforce payment of or to collect the whole or any part of the indebtedness represented by the Loan and Security Agreement or (B) commence judicial enforcement of any of the rights and remedies under the Loan Documents or applicable law with respect to the indebtedness represented by the Loan and Security Agreement, (iii) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code or Chapter 11 of Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder (the “Bankruptcy Code”), or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of the Company or any Subsidiary Guarantor or (iv) permit the Trustee to (A) enforce payment of or to collect the whole or any part of the indebtedness represented by the Existing Notes or (B) commence judicial enforcement of any of the rights and remedies under the Existing Notes, the Indenture or any Collateral Agreement or applicable law with respect to the indebtedness represented by the Existing Notes, (iii) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code or the Bankruptcy Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of the Company or any Subsidiary Guarantor.

(c)   “Proceeding” shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a person.

(d)   Upon execution of this Agreement, the Company shall pay to BET or its designee by wire transfer of immediately available funds an amount equal to $25,000.00.

2

(e)   “IRN Standstill Agreement” shall mean that certain Standstill Agreement of even date herewith among the Company and the holders of the Company’s senior secured increasing rate notes due 2003.

2.        Representations and Warranties by the Company.  The Company represents and warrants to BET as follows:

2.1        Organization and Authority of the Company.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full power, right and authority to enter into and perform this Agreement in accordance with its terms and to own, lease and operate its properties as it now does and to carry on its business as it is presently being conducted.

2.2        Authority of the Company.  The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement.  This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties to this Agreement, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

2.3        No Conflicts; Consents of Third Parties.

(a)           The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company; (ii) conflict with, or result in the breach or termination of, or constitute a default under any lease, agreement, commitment or other instrument, or any order, judgment or decree, to which the Company is a party or by which it is bound; (iii) constitute a violation by the Company of any law, regulation, order, writ, judgment, injunction or decree applicable to it; or (iv) result in the creation of any claim, lien, security interest, charge or encumbrance upon any of the capital stock of the Company or upon any assets of the Company.

3

(b)           The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity.

3.        Representations and Warranties by BET.  BET represents and warrants to the Company as follows:

3.1        Organization and Authority of BET.  BET is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full power, right and authority to enter into and perform this Agreement in accordance with its terms.

3.2        Authority of BET.  BET has all necessary limited partnership power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by BET and the consummation by BET of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary limited partnership action on the part of BET, and no other limited partnership proceedings on the part of BET are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement.  This Agreement has been duly and validly executed and delivered by BET and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties to this Agreement, constitutes a legal, valid and binding obligation of BET, enforceable against BET in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

3.3        No Conflicts; Consents of Third Parties.

(a)           The execution, delivery and performance of this Agreement by BET and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the limited partnership agreement of BET; (ii) conflict with, or result in the breach or termination of, or constitute a default under any lease, agreement, commitment or other instrument, or any order, judgment or decree, to which BET, is a party or by which it is bound; or (iii) constitute a violation by BET of any law, regulation, order, writ, judgment, injunction or decree applicable to it.

4

(b)           The execution and delivery of this Agreement by BET does not, and the performance of this Agreement by BET and the consummation by BET of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity.

4.        Further Agreements of the Parties.

4.1        Fees and Expenses.  The Company shall be responsible for and reimburse BET for all of the fees and expenses, in an aggregate amount not in excess of $5,000, incurred by BET, including, without limitation, the fees and expenses of counsel to BET, in connection with the negotiation, drafting and preparation of this Agreement.

4.2        Notice of Breaches.  The Company shall immediately notify BET of any Default (as defined in the Loan and Security Agreement) or Event of Default (as defined in the Loan and Security Agreement) after the Company has actual knowledge of any event or condition that constitutes a Default or an Event of Default.

4.3        Default Interest.  The Company acknowledges that, in accordance with Section 2.6 of the Loan and Security Agreement, all Obligations (as defined in the Loan and Security Agreement) that have been charged to the Loan Account (as defined in the Loan and Security Agreement) since June 1, 2003 shall bear interest on the Daily Balance (as defined in the Loan and Security Agreement) thereof at a per annum rate equal to fifteen percent (15%).

4.4        Further Assurances. At any time and from time to time after the date of this Agreement, each of the parties shall, without further consideration, execute and deliver or cause to be executed and delivered to the other parties such additional instruments, and shall take such other action as the other parties may request to carry out the transactions contemplated by this Agreement.

5.        Miscellaneous.

5.1        Entire Agreement.  This Agreement contains a complete statement of all the arrangements among the parties with respect to its subject matter, supersedes any previous agreements among them relating to that subject matter and cannot be changed or terminated orally.  Except as specifically set forth in this Agreement, there are no representations or warranties by any party in connection with the transactions contemplated by this Agreement.

5.2        Headings.  The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

5

5.3        Governing Law.  This Agreement shall be governed by and construed in accordance with the law of the State of New York applicable to agreements made and to be performed in New York.

5.4        Separability.  If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

5.5        Waiver.  Any party may waive compliance by any other party with any provision of this Agreement.  No waiver of any provision shall be construed as a waiver of any other provision.  Any waiver must be in writing.

5.6        Assignment.  No party may assign any of its rights or delegate any of its duties under this Agreement without the consent of the other parties.

5.7        Jurisdiction.  The courts of the State of New York in New York county and the United States District Court for the Southern District of New York shall have exclusive jurisdiction over the parties with respect to any dispute or controversy among them arising under or in connection with this Agreement and, by execution and delivery of this Agreement, each of the parties to this Agreement submits to the jurisdiction of those courts, waives any objection to such jurisdiction on the grounds of venue or forum non conveniens, the absence of any personal or subject matter jurisdiction and any similar grounds, consents to service of process by mail or any other manner permitted by law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  These consents to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement.

5.8        No Third Party Beneficiaries.  This Agreement does not create, and shall not be construed as creating, any rights in favor of any person not a party to this Agreement.

5.9        Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be considered an original and all of which shall be considered a single instrument.

[Remainder of this page intentionally left blank]

6

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers or authorized representatives as of the date first written above.

NEW WORLD RESTAURANT GROUP, INC.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: Chief Executive Officer
BET ASSOCIATES, L.P.
By:	/s/ BRUCE E. TOLL
	Name:
	Title:

7

EX-10.45

Exhibit 10.45

[EXECUTION COPY]

NEW WORLD RESTAURANT GROUP, INC.

STANDSTILL AGREEMENT

June 17, 2003

Table of Contents

1.	STANDSTILL; WARRANT ISSUANCE.
2.	REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
	2.1	Organization and Authority of the Company.
	2.2	Authority of the Company.
	2.3	No Conflicts; Consents of Third Parties.
	2.4	Capitalization.
	2.5	No Other Defaults.
	2.6	Issuance of Additional Warrants.
	2.7	Exercise of Warrants.
	2.8	Reservation of Common Stock.
3.	REPRESENTATIONS AND WARRANTIES BY THE IRN HOLDERS.
	3.1	Organization and Authority of Such IRN Holder.
	3.2	Authority of Such IRN Holder.
	3.3	No Conflicts; Consents of Third Parties.
	3.4	Ownership.
4.	FURTHER AGREEMENTS OF THE PARTIES.
	4.1	Transfer of Existing Notes.
	4.2	Limited Release.
	4.3	Accrued Interest; Interest Rate; Principal Amount.
	4.4	Interest Through July 15, 2003.
	4.5	Certain Matters Relating to the Warrants.
	4.6	Fees and Expenses.
	4.7	Further Assurances.
	4.8	Indenture in Full Force and Effect; No Waiver.
	4.9	Issuance of Warrants.
	4.10	Other Holders.
	4.11	Other Transactions.
5.	CONDITIONS.
6.	MISCELLANEOUS.
	6.1	Entire Agreement.
	6.2	Headings.
	6.3	Governing Law.
	6.4	Separability.

6.5	Waiver.
6.6	Assignment.
6.7	Jurisdiction.
6.8	No Third Party Beneficiaries
6.9	Counterparts.

STANDSTILL AGREEMENT

STANDSTILL AGREEMENT, dated as of June 17, 2003, among New World Restaurant Group, Inc., a Delaware corporation (the “Company”), Bruce E & Robbi S Toll Foundation (“BET Foundation”), Bruce E. Toll (“Toll”), BET Associates, L.P. (“BET Associates”), Bruce E. Toll Family Trust (“Toll Trust”), Scott’s Cove Special Credits Master Fund, Inc. (“SCSCMF”), Scott’s Cove Special Credits Fund I, L.P. (“SCSCF”), GSC Capital (“GSC”), Royal Bank of Canada (“RBC”), Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P. and Farallon Capital Offshore Investors, Inc. (collectively, “Farallon”), and such other holders of the Existing Notes (as defined below) that execute a signature page to this Agreement (collectively with BET Foundation, Toll, BET Associates, Toll Trust, SCSCMF, SCSCF, GSC, RBC and Farallon, the “IRN Holders”).

RECITALS

A.    The Company called its senior secured increasing rate notes due 2003 (the “Existing Notes”) for redemption on June 10, 2003.  The Company has not redeemed the Existing Notes, and as a result the Company is in payment default of the Notes and the Indenture dated as of June 19, 2001, as supplemented (the “Indenture”), by and among the Company, the subsidiary guarantors named therein (the “Subsidiary Guarantors”) and The Bank of New York (as successor in interest to the corporate trust business of United States Trust Company of New York), as trustee (the “Trustee”), pursuant to which the Existing Notes were issued.

B.    Each of the IRN Holders holds Existing Notes having an aggregate principal amount set forth opposite such IRN Holder’s name on Schedule 3.4 hereof.

C.    The Company is seeking to refinance its Existing Notes and, in connection therewith, is engaged in negotiations with respect to (i) an offering pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, of $160.0 million of senior secured notes due 2008 and (ii) a new senior revolving credit facility secured by substantially all of the assets of the Company and its subsidiaries, other than certain inactive subsidiaries (the “Refinancing”).

D.    The Company does not want any of the IRN Holders to take any action to enforce any of its rights and remedies in respect of the Existing Notes against the Company, either directly or indirectly by so instructing the Trustee, for a specified period of time so that the Company can continue its efforts to complete the Refinancing, and the IRN Holders are willing not to take any such action against the Company for a specified period of time in respect of the Violations (as defined below) in exchange for the issuance to such IRN Holders of Additional Warrants (as defined below) and additional interest pursuant to Section 4.4 hereof.

AGREEMENT

In consideration of the premises and the mutual covenants and the agreements herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1.  Standstill; Warrant Issuance.

(a)   Standstill.  Subject to the terms and conditions of this Agreement, notwithstanding any provision of the Existing Notes, the Indenture or the Collateral Agreements (as defined in the Indenture), each of the IRN Holders hereby agrees during the Standstill Period, not to exercise any of the their rights or remedies under the Existing Notes or the Indenture with respect to the Violations; provided, however, that nothing in this Agreement shall be deemed to be a waiver of any rights or remedies relating to any breach, default, event of default, Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) under the Indenture, the Existing Notes or any of the Collateral Agreements or under any other agreement or document, other than the Violations.  For the avoidance of doubt, the failure to pay interest on the Existing Notes on July 15, 2003 will be a Default and Event of Default.

(b)   Definitions.  For purposes of this Agreement, the following terms have the following meanings:

(i)    “Standstill Period” means the period from the date of this Agreement, through the earliest to occur of (A) July 15, 2003, (B) immediately prior to the date on which a Proceeding (as defined below) with respect to the Company or any of its subsidiaries is commenced, other than by an IRN Holder in violation of this Agreement, (C) the date on which any Default or Event of Default, other than the Violations, shall occur, and (D) the date on which the Company or any of its subsidiaries breaches any provision of this Agreement, the Warrant Agreement (as defined below), the warrants issued under the Warrant Agreement prior to the date of this Agreement (the “Existing Warrants”, and together with the Additional Warrants, the “Warrants”) or the Additional Warrants.

(ii)   “Proceeding” means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a person.

(iii)  “Violations” means each of the following, to the extent they have occurred prior to the date of this Agreement, (A) the Defaults and Events of Default under the Indenture set forth on Schedule 1(b) hereof (the “Schedule of Defaults”), (B) the Company’s failure to pay interest on the Existing Notes on June 15, 2003, and (C) the breaches, defaults, events of default, Defaults and Events of Default under the Indenture, the Existing Notes, any Collateral Agreements, the Warrant Agreement, the Warrants or under any agreement or document of the Company relating to indebtedness of the Company or any of its subsidiaries resulting from or triggered by, any of the matters or items referred to in clauses (A) or (B) above.

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(c)   Warrant Issuance.  In consideration of the agreements by the IRN Holders in this Agreement, simultaneously with the execution of this Agreement, the Company shall issue to each IRN Holder additional warrants under the Warrant Agreement (the “Additional Warrants”) to purchase an aggregate number of shares of Common Stock equal to the product of (i) 11,309,994, multiplied by (ii) such IRN Holders’ Warrant Percentage (as defined below).  The Company and the IRN Holders agree that each IRN Holder shall receive Additional Warrants under this Section 1(c) to purchase an aggregate number of shares of Common Stock as set forth opposite such IRN Holder’s name on Schedule 1(c) hereof.

For purposes of this Agreement

(i)    “Required Percentage” means as of any date, the sum of (A) 31%, plus (B) such additional percentage of Common Stock, if any, required to be issued pursuant to Section 4.28(c) of the Indenture as of such date.  For the avoidance of doubt, the Required Percentage as of the date of this Agreement is 31%.

(ii)   “Fully-Diluted Shares of Common Stock” means, as of the time of determination, all issued and outstanding shares of Common Stock and all shares of Common Stock issuable upon conversion or exercise of any rights, options, warrants or other securities convertible into or exercisable for shares of Common Stock, including, without limitation, convertible preferred stock of the Company, if any, and the Warrants, in each case, taking into account all anti-dilution provisions of such rights, options, warrants and securities.

(iii)  “Warrant Percentage” for an IRN Holder is the percentage obtained by dividing (A) the aggregate principal amount of Existing Notes held by such IRN Holder, by (B) the aggregate principal amount of all outstanding Existing Notes (not including any Existing Notes held by the Company or its subsidiaries, if any).

2.     Representations and Warranties by the Company.  The Company represents and warrants to the IRN Holders as follows:

2.1   Organization and Authority of the Company.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full power, right and authority to enter into and perform this Agreement in accordance with its terms and to own, lease and operate its properties as it now does and to carry on its business as it is presently being conducted.

2.2   Authority of the Company.  The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement.  This Agreement has been duly and validly

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executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties to this Agreement, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

2.3   No Conflicts; Consents of Third Parties.

(a)   The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company; (ii) conflict with, or result in the breach or termination of, or constitute a default under any material lease, agreement, commitment or other instrument, or any material order, judgment or decree, to which the Company is a party or by which the Company, any of its subsidiaries or any of their respective assets or properties is bound or affected; (iii) constitute a breach or violation of any law, regulation, order, writ, judgment, injunction or decree applicable to the Company, any of its subsidiaries or any of their respective assets or properties; or (iv) result in the creation of any claim, lien, security interest, charge or encumbrance upon any of the capital stock of the Company or upon any assets of the Company or any of its subsidiaries.

(b)   The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity.

2.4   Capitalization.

(a)   The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, par value $0.001 per share.  As of June 15, 2003, (i) 51,016,857 shares of Common Stock were issued and outstanding, (ii) no shares of Common Stock were held in the treasury of the Company, (iii) 94,349.053 shares of Series F Preferred Stock were issued and outstanding (including 16,093.883 shares representing accrued and unpaid dividends due on outstanding shares of Series F Preferred Stock), (iv) no shares of Series F Preferred Stock were held in the treasury of the Company, (v) 25,000 shares of Series D Preferred Stock of the Company, par value $0.001 per share, were designated, (vi) no shares of Series D Preferred Stock were issued and outstanding, (vii) 500,000 shares of Series C Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (viii) no shares of Series C Convertible Preferred Stock were issued and outstanding, (ix) 225 shares of Series B Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (x) no shares of Series B Convertible Preferred Stock were issued and outstanding, (xi) 400 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (xii) no shares of Series A Convertible Preferred Stock were issued and outstanding, (xiii) 5,266,442 shares of Common Stock were reserved for issuance pursuant to

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outstanding options, and (xiv) 58,133,784 shares of Common Stock were reserved for issuance pursuant to outstanding warrants.  All of the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable.

(b)   Schedule 2.4(b) sets forth a true and complete list of each current or former employee, officer, director or consultant of the Company or any of its subsidiaries who holds an option (“Options”) to purchase Common Stock as of June 15, 2003, together with the number of shares of Common Stock subject to such option, the date of grant of such Option, the exercise price of such Option, the expiration date of such Option, the vesting schedule for such Option.

(c)   Schedule 2.4(c) sets forth a true and complete list of all warrants, rights and other securities convertible into or exchangeable or exercisable for, Common Stock (other than Options) as of June 15, 2003, together with the number of shares of Common Stock subject to such warrant, right or security, the date of grant of such warrant, right or security, the exercise or conversion price of such warrant, right or security and the expiration date of such warrant, right or security.

(d)   Except as set forth on Schedule 2.4(b), 2.4(c) or 2.4(d) and as contemplated by this Agreement, there are no securities, Options, warrants, calls, rights, commitments, agreements, arrangements or preemptive rights relating to the issued or unissued capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, transfer, deliver or sell, or cause to be issued, transferred, delivered or sold, any shares of capital stock of, or any securities directly or indirectly convertible into or exercisable or exchangeable for any shares of capital stock of, the Company or any of its subsidiaries.

(e)   No holder of any securities of the Company is entitled to any anti-dilution or similar protections or rights, except with respect to the securities set forth on Schedule 2.4(e).

(f)    The sum of (i) the 11,309,994 shares of Common Stock that may be purchased pursuant to the Additional Warrants issued pursuant to Section 1(c), plus (ii) all of the shares of Common Stock that may be purchased pursuant to all of the Existing Warrants, represents 31% of the Fully-Diluted Shares of Common Stock of the Company as of the date of this Agreement.

2.5   No Other Defaults.  Except for the Violations, the Company is not in breach of or default under, and no Default, event of default or Event of Default exists under, the Indenture, the Existing Notes, the Collateral Agreements, the Warrant Agreement, the Warrants or any other agreement or document of the Company relating to indebtedness of the Company or any of its subsidiaries.

2.6   Issuance of Additional Warrants.  The Additional Warrants issued to the IRN Holders pursuant to this Agreement will have the terms and provisions set forth in the Warrant Agreement.  Upon delivery to the IRN Holders of the warrant certificates representing the Additional Warrants for the issuance, sale, transfer, assignment, conveyance and delivery to the IRN Holders hereunder, the IRN Holders will become the sole record owners of such Additional Warrants and good and marketable title to such Additional Warrants will pass to the IRN Holders, free and clear of any liens, claims, encumbrances, security interests, taxes, options,

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charges and transfer restrictions of any kind, except for those created by the Warrant Agreement and applicable securities laws.

2.7   Exercise of Warrants.  Upon the exercise of the Warrants in accordance with their terms, the person or entity exercising such Warrants will become the sole record owner of the shares of Common Stock issuable upon such exercise and good and marketable title to such shares of Common Stock will pass to the person or entity exercising such Warrant, free and clear of any liens, claims, encumbrances, security interests, taxes, options, charges and transfer restrictions of any kind, except for those created by applicable securities laws, and such shares of Common Stock will be duly authorized, validly issued, fully paid and nonassessable.

2.8   Reservation of Common Stock.  The Company has a sufficient number of authorized but unissued shares of Common Stock, free from preemptive rights, so that the Company will at all times have a sufficient number of authorized but unissued shares of Common Stock to issue upon the exercise in full of all of the Existing Warrants and the Additional Warrants to be issued under Section 1(c) of this Agreement.

3.     Representations and Warranties by the IRN Holders.  Each of the IRN Holders severally and not jointly, with respect to itself only, represents and warrants to the Company as follows:

3.1   Organization and Authority of Such IRN Holder.  Such IRN Holder is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation.  Such IRN Holder has the full power, right and authority to enter into and perform this Agreement in accordance with its terms.

3.2   Authority of Such IRN Holder.  Such IRN Holder has all necessary power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by such IRN Holder and the consummation by such IRN Holder of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action on the part of such IRN Holder, and no other proceedings on the part thereof are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement.  This Agreement has been duly and validly executed and delivered by such IRN Holder and, assuming the due authorization, execution and delivery of this Agreement by the Company, constitutes a legal, valid and binding obligation of such IRN Holder, enforceable against such IRN Holder in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

3.3   No Conflicts; Consents of Third Parties.

(a)   The execution, delivery and performance of this Agreement by such IRN Holder and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the constitutive agreements of such IRN Holder; (ii) conflict with, or result in the breach or

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termination of, or constitute a default under any material lease, agreement, commitment or other instrument, or any material order, judgment or decree, to which such IRN Holder, is a party or by which it is bound; or (iii) constitute a violation by such IRN Holder of any law, regulation, order, writ, judgment, injunction or decree applicable to it.

(b)   The execution and delivery of this Agreement by such IRN Holder does not, and the performance of this Agreement by such IRN Holder and the consummation by such IRN Holder of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity.

3.4   Ownership.  Such IRN Holder owns Existing Notes with the aggregate principal amount set forth opposite its name on Schedule 3.4.

4.     Further Agreements of the Parties.

4.1   Transfer of Existing Notes.  During the Standstill Period, none of the IRN Holders shall sell, transfer, assign, pledge or otherwise dispose of its Existing Notes, unless the transferee agrees, in writing, to be bound by the terms of this Agreement.

4.2   Limited Release.

(a)   So long as (i) the Company issues Additional Warrants to the IRN Holders as required by Section 4.5, and (ii) the Company does not breach this Agreement, each IRN Holder fully and unconditionally releases and discharges the Company and its subsidiaries from all claims or causes of action, whether known or unknown, which it ever had or now has relating to the number of warrants to purchase Common Stock to be issued to it pursuant to the terms of the Warrant Agreement, dated as of June 19, 2001, as amended between the Company and The Bank of New York (as successor in interest to the corporate trust business of United States Trust Company of New York), as warrant agent (the “Warrant Agreement”), or any agreement or other document executed in connection therewith.

(b)   With respect to each IRN Holder, so long as such IRN Holder does not breach this Agreement, the Company fully and unconditionally releases and discharges such IRN Holder from all claims or causes of action, whether known or unknown, which it ever had or now has relating to the number of Warrants to purchase Common Stock to be issued to it pursuant to the terms of the Warrant Agreement, or any agreement or other document executed in connection therewith.

4.3   Accrued Interest; Interest Rate; Principal Amount.

(a)   The Company and each of the IRN Holders hereby acknowledges and agrees that the aggregate amount of accrued and unpaid interest and Additional Interest (as defined in the Indenture) payable on the Existing Notes as of (a) June 15, 2003 will be an amount equal to $6,650,000.00 (the “June 15 Amount”), and (b) July 15, 2003, will be an amount equal to (i) $2,216,666.67, plus (ii) the June 15 Amount (if the June 15 Amount is unpaid), plus (iii) interest

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on the June 15 Amount (if the June 15 Amount is unpaid), from June 15, 2003 to July 15, 2003 in the amount of $105,291.67.

(b)   In addition, the Company and each of the IRN Holders hereby acknowledges and agrees that as required by the Registration Rights Agreement (the “Registration Rights Agreement”), dated June 19, 2001 between the Company and Jefferies & Company, Inc., the annual interest rate on the Existing Notes for all purposes of the Indenture and the Existing Notes is 18%, plus 1% (as required by Section 4(a) of the Registration Rights Agreement) for an aggregate interest rate of 19% per annum.

(c)   The Company and each of the IRN Holders hereby acknowledges and agrees that (i) the aggregate principal amount that is due and owing on the Existing Notes as of the date of this Agreement is $140,000,000 (such amount being the “Outstanding Principal Amount”), and (ii) that the Outstanding Principal Amount is due and owing by the Company as of the date of this Agreement, without set-off, counterclaim, defenses or other deduction of any kind.

4.4   Interest Through July 15, 2003.  The Company hereby covenants and agrees that notwithstanding any provision of this Agreement, the Indenture or the Existing Notes to the contrary, in the event that the Company shall pay the redemption price in full for the Existing Notes or otherwise redeem or repay the Existing Notes prior to July 15, 2003, in addition to the amounts required to be paid by the Company pursuant to the Indenture and the Existing Notes, the Company shall be required to pay to the IRN Holders an additional amount in cash equal to the amount of interest that would have accrued on the Existing Notes from the actual date of redemption or repayment, through July 15, 2003.

4.5   Certain Matters Relating to the Warrants.

(a)   (i)  Subject to the provisions of Section 4.5(a)(ii) below, the Company hereby covenants and agrees that in the event that on any date during the period from the date of this Agreement through June 15, 2006, a Warrant Shortfall (as defined below) shall occur, the Company shall from time to time issue to each IRN Holder Additional Warrants to purchase an aggregate number of shares of Common Stock equal to the product of (A) the Per Dollar of Existing Note Amount (as defined below), multiplied by (B) the aggregate principal amount of Existing Notes held by such IRN Holder as of such date.

For purposes of this Agreement:

(A)  “Warrant Shortfall” means as of any date, that (x) the Required Share Number (as defined below) as of such date, is greater than (y) the Aggregate Warrant Share Number (as defined below) as of such date.

(B)   “Required Share Number” means as of any date, the Required Percentage as of such date of the Fully-Diluted Shares of Common Stock of the Company as of such date.

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(C)   “Aggregate Warrant Share Number” means as of any date, the aggregate number of shares of Common Stock that may be purchased pursuant to all Warrants that have ever been issued under the Warrant Agreement (for purposes of this calculation, including all Warrants that have been exercised or transferred and whether or not such Warrants are then held by any IRN Holder).

(D)  “Shortfall Amount” means a number of shares of Common Stock equal to (x) the Required Share Number as of such date, minus (y) the Aggregate Warrant Share Number as of such date.

(E)   “Per Dollar of Existing Note Amount” means as of any date, (x) the Shortfall Amount, divided by (y) 140,000,000.

(ii)   Notwithstanding the provisions of Section 4.5(a)(i) above, so long as the Company shall have actually issued all of the Warrants the Company is required to issue under the Indenture, the Warrant Agreement and this Agreement as of the date of a Qualified Recapitalization (as defined below), then from and after the date on which a Qualified Recapitalization shall occur, the Company shall no longer be required to issue any further Additional Warrants to the IRN Holders hereunder; provided, however, that notwithstanding the occurrence of a Qualified Recapitalization, the Company shall be required to issue and deliver all Warrants to the Warrant Agent (as defined in the Warrant Agreement) in the manner required by the Warrant Agreement that the Company was required to issue and deliver on or prior to the date of the Qualified Recapitalization under the Indenture, the Warrant Agreement or this Agreement.  The Company will use its best efforts to cause the Warrant Agent to transfer the Additional Warrants to DTC, to cause DTC to transfer the Additional Warrants to its participants and to otherwise assist the IRN Holders in receiving the Additional Warrants from the Warrant Agent and DTC.

For purposes of this Agreement, a “Qualified Recapitalization” means a debt refinancing and a recapitalization of the equity capital of the Company consummated on or prior to the “drop-dead” or termination date specified for such transaction in the definitive documentation for such refinancing and recapitalization on substantially the following terms (or on such other terms as IRN Holders holding a majority in principal amount of the Existing Notes held by the IRN Holders may otherwise agree in their sole discretion):

(i)    the Company will issue $160 million aggregate principal amount of 13%, 5 year debt, with no equity component;

(ii)   the Company will enter into a $15 million revolving credit facility on terms and conditions no less favorable to the Company than the terms and conditions set forth on Schedule 4.5(a);

(iii)  certain holders of the Series F Preferred Stock of the Company will convert all of their shares of Series F Preferred Stock of the Company, and all of their Common Stock and warrants to purchase Common Stock into shares of a newly-issued non-interest

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bearing preferred security of the Company, having an aggregate face amount of $57 million which is redeemable by the Company in 5-1/2 years or later;

(iv)  the obligations of the Company and New World EnbcDeb Corp. under the Note Purchase and Security Agreement dated June 19, 2001, as amended, by and among the Company, New World EnbcDeb Corp. and Jefferies & Company, Inc. and the secured increasing rate notes of New World EnbcDeb Corp. (approximately $4.5 million) will be converted into approximately 5% of the Common Stock;

(v)   all remaining holders of Series F Preferred Stock of the Company will convert all of the remaining shares of Series F Preferred Stock of the Company (approximately $57 million) into approximately 82% of the Common Stock; and

(vi)  all other Common Stock, options, rights, warrants (including the Warrants) and equity securities of the Company will represent approximately 13% of the Common Stock.  Immediately following the Qualified Recapitalization, the holders of the Warrants will hold an aggregate number of shares of Common Stock and/or Warrants to purchase shares of Common Stock equal to the product of (A) the Required Percentage, multiplied by (B) 13%.

(b)   The Company and each of the IRN Holders agrees that nothing in this Agreement shall be deemed to be a waiver, release, modification  or discharge of the Company’s obligations under Section 4.28(c) of the Indenture and that notwithstanding any provision of this Agreement, the Indenture, the Warrant Agreement or the Warrants to the contrary, for so long as one or more Existing Notes remain outstanding, the Company shall be required to issue additional Warrants to the IRN Holders as provided in such Section 4.28(c) of the Indenture.

(c)   The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock for issuance upon the exercise in full of all of the Warrants, free from preemptive rights, such number of shares of Common Stock for which the Warrants may be from time to time be exercisable; provided, however, that in the event that the Company shall not have a sufficient number of authorized and unissued shares of Common Stock reserved for issuance upon the exercise in full of the Warrants, the Company shall use its best efforts to promptly obtain the approval of its board of directors and shareholders (and any other required person or entity) to increase the amount of authorized shares of Common Stock of the Company such that the Company has a sufficient number of authorized but unissued shares of Common Stock for issuance upon the exercise in full of all of the Warrants, free from preemptive rights.

(d)   The Company will not, by amendment of its charter documents, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale or transfer of assets or any other voluntary or involuntary action, (i) avoid or seek to avoid the observance or performance of any of the terms of the Warrants or this Agreement to be observed or performed by the Company, (ii) materially and adversely affect the rights of the IRN Holders in respect of the Warrants, or (iii) directly or indirectly, create or otherwise cause or suffer to exist or become effective, any restriction or encumbrance on the ability of the Company to perform and comply with its obligations under the Warrants.  The Company will at all times in good faith assist in the

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carrying out of all of the terms and provisions of the Warrants and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the IRN Holders under the Warrants.

(e)   If and so long as any Common Stock issuable upon the exercise of the Warrants is listed on any national securities exchange, the Company will, if permitted by the rules of such exchange, list and keep listed on such exchange, upon official notice of issuance, all shares of Common Stock issuable upon exercise of the Warrants.

4.6   Fees and Expenses.  The Company shall be responsible for and reimburse the IRN Holders for all of the fees and expenses, in an aggregate amount not in excess of $50,000, incurred by the IRN Holders, including, without limitation, the fees and expenses of counsel to the holders of a majority of the principal amount of the Existing Notes, accountants and other advisors, in connection with the negotiation, drafting and preparation of this Agreement and the performance of their obligations hereunder, and in connection with any and all financing alternatives and similar transactions that have been proposed to the Company.

4.7   Further Assurances.  At any time and from time to time after the date of this Agreement, each of the parties shall, without further consideration, execute and deliver or cause to be executed and delivered to the other parties such additional instruments, and shall take such other action as the other parties may reasonably request to carry out the transactions contemplated by this Agreement.

4.8   Indenture in Full Force and Effect; No Waiver.  Notwithstanding any other provision of this Agreement, each party acknowledges and agrees that the Indenture remains in full force and effect, without waiver or modification, and shall remain in full force and effect.  No provision hereof shall preclude any of the IRN Holders from exercising any and all rights and/or remedies available to it under the Existing Notes, the Indenture, the Warrant Agreement, the Warrants or otherwise from and after the time immediately preceding the commencement of a Proceeding with respect to the Company or any of its subsidiaries by the Company, any holder of Existing Notes other than an IRN Holder in violation of this Agreement or any other person or entity.

4.9   Issuance of Warrants.  The Company shall not redeem, retire or repay any of the Existing Notes unless and until the Company shall have actually issued to the Warrant Agent in the manner required by the Warrant Agreement all of the Warrants that the Company was or is required to issue and deliver under the Indenture, the Warrant Agreement or this Agreement through the date of such redemption, retirement or repurchase of the Existing Notes.  The Company will use its best efforts to cause the Warrant Agent to transfer the Warrants to DTC, to cause DTC to transfer the Warrants to its participants and to otherwise assist the IRN Holders in receiving the Warrants from the Warrant Agent and DTC.

4.10  Other Holders.  The Company shall promptly hereafter offer to execute this Agreement with all of the holders of the Company’s Existing Notes.

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4.11 Other Transactions.  In the event that the Company shall enter into any transaction with any holder of Existing Notes (each, a “Holder”) which transaction contains a term or terms that are more favorable to the Holder than the terms of this Agreement, the Warrant Agreement or the Warrants, then each IRN Holder shall have the option (at such IRN Holder’s election) to have such more favorable term or terms apply to, and be incorporated into, the terms of this Agreement, the Warrants Agreement and the Warrants.  The Company shall give the IRN Holders written notice stating all of the terms and conditions of all transactions between the Company and a Holder or Holders in writing at least two business days before entering into or consummating any such transaction.

5.     Conditions.  The provisions of Section 1(a) and 4.2 of this Agreement shall not be effective unless and until the following conditions shall be satisfied:

(a)   Representations and Warranties; Performance of Agreements.  All of the representations and warranties of the Company in this Agreement shall be true and correct in all respects and the Company shall have performed and complied with all of its covenants and other obligations contained in this Agreement

(b)   Additional Warrants.  The Company shall have issued and delivered to the Warrant Agent in the manner required by the Warrant Agreement, all of the Additional Warrants that the Company is required to issue to the IRN Holders on the date of this Agreement.

(c)   Secretary’s Certificate.  The IRN Holders shall have received a certificate of the secretary of the Company with respect to (i) the certificate of formation of the Company, (ii) the bylaws of the Company, (iii) the resolutions of the board of directors of the Company approving this Agreement and the other documents to be delivered by the Company under this Agreement and the performance of the obligations of the Company hereunder, and (iv) the names and true signatures of the officers of the Company authorized to sign this Agreement and the other documents to be delivered by it under the Agreement.

(d)   Opinion of Counsel.  The IRN Holders shall have received an opinion of Proskauer Rose LLP, counsel for the Company in form and substance satisfactory to the IRN Holders.

6.     Miscellaneous.

6.1   Entire Agreement.  This Agreement, the Warrant Agreement and the Warrants to be issued hereunder, including the schedules, contains a complete statement of all the arrangements among the parties with respect to its subject matter, supersedes any previous agreements among them relating to that subject matter and cannot be changed or terminated orally.  Except as specifically set forth in this Agreement, the Warrant Agreement and the Warrants, there are no representations or warranties by any party in connection with the transactions contemplated by this Agreement.

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6.2   Headings.  The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

6.3   Governing Law.  This Agreement shall be governed by and construed in accordance with the law of the State of New York applicable to agreements made and to be performed in New York.

6.4   Separability.  If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

6.5   Waiver.  Any party may waive compliance by any other party with any provision of this Agreement.  No waiver of any provision shall be construed as a waiver of any other provision.  Any waiver must be in writing.  No failure or delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or privilege will not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

6.6   Assignment.  Except as provided in Section 4.1, no party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other parties.

6.7   Jurisdiction.  The courts of the State of New York in New York county and the United States District Court for the Southern District of New York shall have exclusive jurisdiction over the parties with respect to any dispute or controversy among them arising under or in connection with this Agreement and, by execution and delivery of this Agreement, each of the parties to this Agreement submits to the jurisdiction of those courts, waives any objection to such jurisdiction on the grounds of venue or forum non conveniens, the absence of any personal or subject matter jurisdiction and any similar grounds, consents to service of process by mail or any other manner permitted by law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  These consents to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement.

6.8   No Third Party Beneficiaries.  This Agreement does not create, and shall not be construed as creating, any rights in favor of any person not a party to this Agreement.

6.9   Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be considered an original and all of which shall be considered a single instrument.

[Remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers or authorized representatives as of the date first written above.

NEW WORLD RESTAURANT GROUP, INC.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: Chief Executive Officer
BRUCE E & ROBBI S TOLL FOUNDATION
By:	/s/ BRUCE E. TOLL
	Name: Bruce E. Toll
	Title:
/s/ BRUCE E. TOLL
Bruce E. Toll
BET ASSOCIATES, L.P.
By:	/s/ BRUCE E. TOLL
	Name: Bruce E. Toll
	Title:
BRUCE E. TOLL FAMILY TRUST
By:	/s/ BRUCE E. TOLL
	Name: Bruce E. Toll
	Title:

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SCOTT’S COVE SPECIAL CREDITS MASTER FUND, INC.
By:	Scott’s Cove Capital Management, LLC, as
	investment adviser
By:	/s/ PHILIP S. SCHAEFFER
	Philip S. Schaeffer
	Managing Member
SCOTT’S COVE SPECIAL CREDITS FUND I, L.P.
By:	Scott’s Cove Capital Management, LLC, as
	investment adviser
By:	/s/ PHILIP S. SCHAEFFER
	Philip S. Schaeffer
	Managing Member

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GSC CAPITAL
By:
	Name:
	Title:
ROYAL BANK OF CANADA
By:		RBC Dominion Securities Corp. as agent
By:	/s/ STEPHEN R. LEVITAN
	Name: Stephen R. Levitan
	Title: Managing Director
By:	/s/ RICHARD J. TAVOSO
	Name: Richard J. Tavoso
	Title: Managing Director

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FARALLON CAPITAL PARTNERS, L.P.
FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P.
FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P.
TINICUM PARTNERS, L.P.
By: Farallon Partners, L.L.C., their General Partner
By:
	Name:
	Title:
FARALLON CAPITAL OFFSHORE INVESTORS, INC.
By: Farallon Capital Management, L.L.C., its Agent and Attorney-in-Fact
By:
	Name:
	Title:

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EX-10.46

EXHIBIT 10.46

NEW WORLD RESTAURANT GROUP, INC.

EQUITY RESTRUCTURING AGREEMENT

June 26, 2003

Table of Contents

1.	EXCHANGE OF HALPERN DENNY’S INTERESTS IN THE COMPANY.
2.	EXCHANGE OF GREENLIGHT’S SERIES F PREFERRED STOCK.
3.	CAPITALIZATION.
4.	THE CLOSING.
5.	REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
	5.1	Organization and Authority of the Company.
	5.2	Authority of the Company.
	5.3	No Conflicts; Consents of Third Parties.
	5.4	Capitalization.
6.	REPRESENTATIONS AND WARRANTIES BY THE EQUITY HOLDERS.
	6.1	Organization and Authority of such Equity Holder.
	6.2	Authority of such Equity Holder.
	6.3	No Conflicts; Consents of Third Parties.
	6.4	Ownership.
7.	ADDITIONAL REPRESENTATIONS AND WARRANTIES OF GREENLIGHT AND HALPERN DENNY.
8.	FURTHER AGREEMENTS OF THE PARTIES.
	8.1	Proxy Statement; Company Stockholder Approval.
	8.2	Voting.
	8.3	No Transfers of or Encumbrances on Securities.
	8.4	Waiver of Rights.
	8.5	Termination of Stockholders Agreement.
	8.6	Limitation on Accretion.
	8.7	Amendment to Warrant Agreement.
	8.8	Fees and Expenses.
	8.9	Further Assurances.
	8.10	Withdrawal of Board Recommendation.

9.	CONDITIONS TO CLOSING.
	9.1	Conditions to the Obligation of each Equity Holder.
	9.2	Conditions to the Obligations of the Company.
10.	TRANSACTIONS AT THE CLOSING.
	10.1	Items to Be Delivered by the Company.
	10.2	Items to Be Delivered by each Equity Holder.
11.	TERMINATION.
	11.1	Termination.
	11.2	Liability.
12.	CONTINUING DIRECTOR AND OFFICER INDEMNIFICATION.
13.	MISCELLANEOUS.
	13.1	Notices.
	13.2	Entire Agreement.
	13.3	Headings.
	13.4	Governing Law.
	13.5	Separability.
	13.6	Waiver.
	13.7	Assignment.
	13.8	Jurisdiction.
	13.9	No Third Party Beneficiaries
	13.10	Counterparts.
14.	FEES AND EXPENSES.
	14.1	Greenlight Fees and Expenses.
	14.2	Halpern Denny Fees and Expenses.

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EQUITY RESTRUCTURING AGREEMENT

June 26, 2003

The parties to this Agreement are New World Restaurant Group, Inc., a Delaware corporation (the “Company”), Greenlight Capital, L.P., a Delaware limited partnership (“Greenlight Capital”), Greenlight Capital Qualified, L.P., a Delaware limited partnership (“Greenlight Qualified”), Greenlight Capital Offshore, Ltd., a British Virgin Islands company (“Greenlight Offshore”), Brookwood New World Investors, L.L.C., a Delaware limited liability company (“Brookwood”), and NWCI Holdings, LLC, a Delaware limited liability company (“NWCI” and with Brookwood, NWCI, Greenlight Capital, Greenlight Qualified, Greenlight Offshore, “Greenlight”) and Halpern Denny Fund III, L.P. (“Halpern Denny” and together with Greenlight, the “Equity Holders”).

RECITALS

The Company is seeking to refinance its existing senior secured increasing rate notes due 2003 (the “Existing Notes”) and, in connection therewith, is engaged in negotiations with respect to (i) an offering pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, of $160.0 million of senior secured notes due 2008 and (ii) a new senior revolving credit facility secured by substantially all of the assets of the Company and its subsidiaries, other than certain inactive subsidiaries (the “Refinancing”).

Greenlight owns 57,368.756 shares of Series F Preferred Stock, par value $0.001 per share of the Company (the “Series F Preferred Stock”), 10,061,351 shares of common stock, par value $0.001 per share of the Company (the “Common Stock”), and warrants to purchase 22,078,114 shares of Common Stock.

Halpern Denny owns 56,237.994 shares of Series F Preferred Stock, 23,264,107 shares of Common Stock and warrants to purchase 13,711,054 shares of Common Stock (collectively, the “Halpern Denny Interests”).

Pursuant to the terms of an amendment to the Note Purchase and Security Agreement dated June 19, 2001, as amended (the “Note Purchase Agreement”), by and among Jefferies & Company, Inc. (“Jefferies”), the Company and Greenlight, Jefferies agreed to purchase all of the secured increasing rate notes (the “EnbcDeb Corp. Notes”) of New World EnbcDeb Corp., a New York corporation (“EnbcDeb Corp.”), immediately prior to the consummation of the Refinancing, and the Company has agreed to issue, contemporaneously with the consummation of such Refinancing, 4,337.481 shares of its Series F Preferred Stock to Jefferies in full satisfaction of the Company’s obligations under the Note Purchase Agreement.  Immediately upon the issuance to Jefferies of the Series F Preferred Stock, Greenlight agreed to purchase such shares of Series F Preferred Stock from Jefferies for aggregate consideration of

$2,770,000, payable in cash.  Following such purchase, Greenlight will hold 61,706.237 shares of Series F Preferred Stock.

This Agreement provides for the restructuring of the Company’s capital stock (the “Equity Restructuring”).

Accordingly, it is agreed as follows:

1.Exchange of Halpern Denny’s Interests in the Company.  At the Closing referred to in Section 4, Halpern Denny shall deliver, assign and transfer to the Company, 56,237.994 shares of Series F Preferred Stock, 23,264,107 shares of Common Stock and warrants to purchase 13,711,054 shares of Common Stock, and the Company shall issue to Halpern Denny in exchange therefor 57,000 shares of Series Z Preferred Stock, par value $0.001 per share (the “Series Z Preferred Stock”), which shall have the rights and preferences set forth in the Certificate of Designation, Preferences and Rights of Series Z Preferred Stock (the “Certificate of Designation”) attached to this Agreement as Schedule 1.  Such shares of Series Z Preferred Stock will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and shall contain a legend stating that such securities have not been registered under the Securities Act and may only be transferred pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act.

2.Exchange of Greenlight’s Series F Preferred Stock.  At the Closing referred to in Section 4, Greenlight shall deliver, assign and transfer to the Company, 61,706.237 shares of Series F Preferred Stock, and the Company shall issue to Greenlight in exchange therefor 938,084,289 shares of Common Stock (prior to any reverse stock split effect in connection with the Equity Restructuring).  Such shares of Common Stock will not be registered under the Securities Act and shall contain a legend stating that such securities have not been registered under the Securities Act and may only be transferred pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act.

3.Capitalization.  The Company and the Equity Holders acknowledge and agree that immediately upon the Closing of the transactions contemplated by this Agreement; the Company’s capitalization will be as set forth on Schedule 3 attached to this Agreement.

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4.The Closing.  The Closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Proskauer Rose LLP, 1585 Broadway, New York, New York 10036 (or at such other place as the parties may agree upon in writing) on the fifth business day after the conditions specified in Section 9 have been fulfilled (or waived by the applicable parties) or such other date as the parties may agree upon.  The date on which the Closing is held is referred to in this Agreement as the “Closing Date.”  At the Closing, the parties shall take the actions and execute and deliver the documents and other items referred to in Section 9.

5.Representations and Warranties by the Company.  The Company represents and warrants to the Equity Holders as follows:

5.1Organization and Authority of the Company.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full power, right and authority to enter into and perform this Agreement in accordance with its terms and to own, lease and operate its properties as it now does and to carry on its business as it is presently being conducted.

5.2Authority of the Company.

(a)The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement (other than the approval and adoption of this Agreement and the amendment of the Company’s certificate of incorporation by the holders of the Common Stock in accordance with the Delaware General Corporation Law (“Delaware Law”) and the Company’s certificate of incorporation (the “Company Stockholders’ Action”)).  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement, other than the Company Stockholders’ Action.  This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties to this Agreement, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

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(b)The Company’s board of directors (the “Company Board”) has, by resolutions duly adopted by unanimous vote at a meeting of all directors duly called and held and not subsequently rescinded or modified in any way, (i) duly declared that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of, the Company’s stockholders, (ii) authorized, approved and adopted this Agreement and the transactions contemplated by this Agreement, and (iii) recommended that the holders of the Company’s Common Stock approve and adopt this Agreement and the transactions contemplated by this Agreement and directed that such matters be submitted to the holders of the Company’s Common Stock at a meeting of the holder’s of the Company’s Common Stock.

(c)The Company Board has taken all necessary action so that the restrictions contained in Section 203 of the Delaware Law applicable to a “business combination” (as defined in Section 203) are, and at all times upon or prior to the Closing such restrictions shall be, inapplicable to the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement.

(d)The Company Board has taken all necessary action so that (A) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will cause (i) the Rights (as defined in the Rights Agreement) to become exercisable under the Rights Agreement, dated as of June 7, 1999 between the Company and American Stock Transfer & Trust Company, as Rights Agent (the “Rights Agreement”), or (ii) Greenlight to be deemed to be an “Acquiring Person” (as defined in the Rights Agreement).  The “Distribution Date” (as defined in the Rights Agreement) has not occurred.

(e)The Company Board has received the opinion of CIBC World Markets Corp., financial advisor to the Company, to the effect that, as of the date of this Agreement, the shares of Series Z Preferred Stock and Common Stock to be issued by the Company in the Equity Restructuring in exchange for the Halpern Denny Interests and Greenlight’s Series F Preferred Stock is fair, from a financial point of view, to the Company.

5.3No Conflicts; Consents of Third Parties.

(a)The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the certificate of incorporation or by-laws of the Company; (ii) conflict with, or result in the breach or termination of, or constitute a default under any material lease, agreement, commitment or other instrument, or any material order, judgment or decree, to which the Company, is a party or by which the Company, any of its subsidiaries or any of their respective assets or properties is bound or affected; (iii) constitute a breach or violation of any law, regulation, order, writ, judgment, injunction or decree applicable to the Company, any of its

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subsidiaries or any of their respective assets or properties; or (iv) result in the creation of any claim, lien, security interest, charge or encumbrance upon any of the capital stock of the Company or upon any assets of the Company or any of its subsidiaries.

(b)The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity, except for the filing with the Securities and Exchange Commission (the “SEC”) of the proxy statement to be distributed to the holders of the Company Common Stock in connection with the meeting of the holders of the Company’s Common Stock to approve the Company Common Stockholders’ Action (the “Proxy Statement”) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”).

5.4Capitalization.

(a)The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, par value $0.001 per share.  The Company designated 116,000 shares of preferred stock as Series F Preferred Stock.  As of June 15, 2003, (i) 51,016,857 shares of Common Stock were issued and outstanding, (ii) no shares of Common Stock were held in the treasury of the Company, (iii) 94,349.053 shares of Series F Preferred Stock were issued and outstanding (including 16,093.883 shares representing accrued and unpaid dividends due on outstanding shares of Series F Preferred Stock), (iv) no shares of Series F Preferred Stock were held in the treasury of the Company, (v) 25,000 shares of Series D Preferred Stock of the Company, par value $.001 per share, were designated, (vi) no shares of Series D Preferred Stock were issued and outstanding, (vii) 500,000 shares of Series C Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (viii) no shares of Series C Convertible Preferred Stock were issued and outstanding, (ix) 225 shares of Series B Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (x) no shares of Series B Convertible Preferred Stock were issued and outstanding, (xi) 400 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share, were designated, (xii) no shares of Series A Convertible Preferred Stock were issued and outstanding, (xiii) 5,266,442 shares of Common Stock were reserved for issuance pursuant to outstanding options, and (xiv) 58,133,784 shares of Common Stock were reserved for issuance pursuant to outstanding warrants.

(b)Schedule 5.4(b) sets forth a true and complete list of each current or former employee, officer, director or consultant of the Company or any of its subsidiaries who holds an option to purchase Common Stock (“Options”) as of June 15, 2003, together with the number of shares of Common Stock subject to such option, the date of grant of such Option, the

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exercise price of such Option, the expiration date of such Option, the vesting schedule for such Option.

(c)Schedule 5.4(c) sets forth a true and complete list of all warrants, rights and other securities (other than Options) convertible into or exchangeable or exercisable for, Common Stock as of June 15, 2003, together with the number of shares of Common Stock subject to such warrant, right or security, the date of grant of such warrant, right or security, the exercise or conversion price of such warrant, right or security the expiration date of such warrant, and the vesting schedule, if any, for such warrant, right or security.

(d)Except as set forth on Schedule 5.4(b), 5.4(c) or 5.4(d) and as contemplated by this Agreement, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or preemptive rights relating to the issued or unissued capital stock of the Company any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, transfer, deliver or sell, or cause to be issued, transferred, delivered or sold, any shares of capital stock of, or any securities directly or indirectly convertible into or exercisable or exchangeable for any shares of capital stock of, the Company or any of its subsidiaries, all of which will be subject to the restructuring contemplated by this Agreement.

(e)No holder of any securities of the Company is entitled to any anti-dilution or similar protections or rights, except with respect to the securities set forth on Schedule 5.4(d).

(f)Upon the consummation of the Equity Restructuring, the Company’s capitalization will be as set forth on Schedule 3 attached to this Agreement.

6.Representations and Warranties by the Equity Holders.  Each of the Equity Holders severally and not jointly, with respect to itself only, represents and warrants to the Company as follows:

6.1Organization and Authority of such Equity Holder.  Such Equity Holder is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation or organization and has the full power, right and authority to enter into and perform this Agreement in accordance with its terms.

6.2Authority of such Equity Holder.  Such Equity Holder has all necessary power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by such Equity Holder and the consummation by such

6

Equity Holder of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action on the part of such Equity Holder, and no other proceedings on the part of such Equity Holder is necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement.  This Agreement has been duly and validly executed and delivered by such Equity Holder and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties to this Agreement, constitutes a legal, valid and binding obligation of such Equity Holder, enforceable against such Equity Holder in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally now or hereafter in effect and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

6.3No Conflicts; Consents of Third Parties.

(a)The execution, delivery and performance of this Agreement by such Equity Holder and the consummation of the transactions contemplated by this Agreement will not (i) conflict with the constitutive agreements of such Equity Holder; (ii) conflict with, or result in the breach or termination of, or constitute a default under any material lease, agreement, commitment or other instrument, or any material order, judgment or decree, to which such Equity Holder, is a party or by which it is bound; or (iii) constitute a violation by such Equity Holder of any law, regulation, order, writ, judgment, injunction or decree applicable to it.

(b)The execution and delivery of this Agreement by such Equity Holder does not, and the performance of this Agreement by such Equity Holder and the consummation by such Equity Holder of the transactions contemplated by this Agreement will not, require any consent, approval, authorization of, or declaration or filing with any governmental body, court or other person or entity, other than filings pursuant to applicable securities laws.

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6.4Ownership.  Such Equity Holder owns the number of shares of Series F Preferred Stock, Common Stock and warrants to purchase Common Stock set forth opposite its name on Schedule 6.4.

7.Additional Representations and Warranties of Greenlight and Halpern Denny.  Greenlight and Halpern Denny have executed and delivered the Consent and Waiver Agreement dated June 26, 2003, and the Consent and Waiver Agreement has not been superseded, amended or terminated.

8.Further Agreements of the Parties.

8.1Proxy Statement; Company Stockholder Approval.

(a)As promptly as practicable after the consummation of the Refinancing, the Company shall prepare and file the Proxy Statement with the SEC.  The Company shall use all commercially reasonable efforts to respond as promptly as practicable to any comments of the SEC on the Proxy Statement.

(b)The Company shall notify the other parties hereto of the receipt of any comments from the SEC relating to the Proxy Statement.

(c)The Company shall, in accordance with Delaware Law and the Company’s certificate of incorporation and by-laws, call, hold and convene a special meeting of the holders of the Common Stock (the “Company Stockholders’ Meeting”) to consider and vote upon the approval and adoption of the Company Stockholders’ Action.  The Company Board shall recommend the approval and adoption of the Company Stockholders’ Action by the holders of the Common Stock and shall include such recommendation in the notice of and in the Proxy Statement.  The Company will use its commercially reasonable efforts to cause the Proxy Statement to be mailed to the holders of the Common Stock as promptly as practicable after the SEC has no further comments on the Proxy Statement.  The Company shall take all lawful action to solicit from the holders of the Common Stock proxies in favor of the approval and adoption of the Company Stockholders’ Action and will take all other action necessary or advisable to secure the vote or consent of the holders of the Common Stock required by Delaware Law to obtain such approvals.

8.2Voting.  Each Equity Holder shall vote all of its shares of Common Stock that such Equity Holder is entitled to vote at the Company Stockholders’ Meeting in favor of the approval and adoption of the Company Stockholders’ Action.  Each Equity Holder shall not vote any of its shares of Common Stock that such Equity Holder is entitled to vote at the Company

8

Stockholders’ Meeting, in favor of the approval of any corporate action that would frustrate the purposes, or prevent or delay the consummation, of the transactions contemplated by this Agreement.

8.3No Transfers of or Encumbrances on Securities.  Except pursuant to the terms of this Agreement, no Equity Holder shall, without the prior written consent of the Company, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any of its shares of capital stock of the Company or (ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any of its shares of capital stock of the Company during the term of this Agreement.  No Equity Holder shall seek or solicit any such sale, assignment, transfer, encumbrance or other disposition or any such contract, option or other arrangement or understanding and agrees to notify the Company promptly, and to provide all details requested by the Company, if that Equity Holder shall be approached or solicited, directly or indirectly, by any person with respect to any of the foregoing.

8.4Waiver of Rights.  Each Equity Holder waives any preemptive rights and rights to anti-dilution protection that such Equity Holder may possess pursuant to any warrants, rights and other securities issued to such Equity Holder by the Company or agreements with the Company in connection with (i) the Equity Restructuring and (ii) any Common Stock, options, rights and other securities exercisable for Common Stock that may be issued to any of the Company’s or its subsidiaries’ officers or employees pursuant to any management incentive plans approved and adopted by the Company Board and stockholders.

8.5Termination of Stockholders Agreement.  Immediately prior to the Closing, the Company, Halpern Denny and Greenlight shall cause the Stockholders Agreement dated January 18, 2001, as amended March 29, 2001, June 19, 2001 and July 9, 2001 by and among the Company, BET Associates, L.P., Brookwood, Halpern Denny and Greenlight (the “Stockholders Agreement”) to be terminated.

8.6Limitation on Accretion.  Notwithstanding anything to the contrary contained in the LLC Agreement, the Bond Purchase Agreement or the letter agreement dated as of June 19, 2001 (the “Side Letter”), among Greenlight Capital, Greenlight Qualified and Greenlight Offshore, the Company and Greenlight New World, L.L.C. (the “LLC”), the LLC Agreement and the Bond Purchase Agreement (each, as defined in the Side Letter), in the event (and only in the event) of the consummation of the Equity Restructuring, the Contribution Amount (as defined in the Bond Purchase Agreement) shall be calculated as of June 30, 2003, without accretion thereafter, regardless of the date upon which the Equity Restructuring is consummated, for purposes of determining the number of warrants to purchase shares of Common Stock and shares of Series F Preferred Stock issuable to Greenlight Capital, Greenlight Qualified and Greenlight Offshore pursuant to the Side Letter.  The warrants to purchase Common Stock and shares of Series F Preferred Stock so issued shall be issued in full

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satisfaction of all obligations of the Company to Greenlight Capital, Greenlight Qualified and Greenlight Offshore under the LLC Agreement, the Bond Purchase Agreement and the Side Letter.

8.7Amendment to Warrant Agreement.  The Company and Greenlight shall execute Amendment No. 2 to the Warrant Agreement dated as of June 19, 2001, as amended between the Company and The Bank of New York, as successor in interest to the corporate trust business of United States Trust Company of New York, as warrant agent in substantially the form attached hereto as Schedule 8.7 (the “Warrant Agreement Amendment”).

8.8Fees and Expenses.  Subject to Section 14, each party shall bear its own expenses incurred in connection with the negotiation and preparation of this Agreement and in connection with all obligations required to be performed by it under this Agreement.

8.9Further Assurances.  At any time and from time to time after the Closing, each of the parties shall, without further consideration, execute and deliver or cause to be executed and delivered to the other parties such additional instruments, and shall take such other action as the other parties may request to carry out the transactions contemplated by this Agreement.

8.10 Withdrawal of Board Recommendation.  The Company Board shall not (i) withdraw or modify or propose to withdraw or modify, the approval or recommendation of the Company Board of this Agreement, or (ii) approve or recommend, or propose to approve or recommend, any Acquisition Proposal (as hereinafter defined) provided that, the Company Board may withdraw or modify or propose to withdraw or modify its recommendation of this Agreement or recommend or propose to recommend an Acquisition Proposal if, in each case, the Company Board determines in good faith, after consultation with its financial advisor, that such Acquisition Proposal is a Superior Proposal (as hereinafter defined) and determines in good faith, based upon advice of its outside legal counsel, that it would be inconsistent not to do so in order to comply with its fiduciary duties to the Company’s stockholders under applicable law.  The Company shall provide reasonable notice to the Equity Holders to the effect that it is taking such action.  For purposes of this Agreement, “Acquisition Proposal” shall mean any offer or proposal, whether in writing or otherwise, made by a third party to acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of all or a material portion of the assets of, or any material equity interest in, the Company or its material subsidiaries pursuant to a merger, consolidation or other business combination, recapitalization, sale of shares of capital stock, sale of assets, tender offer or exchange offer or similar transaction involving the Company (other than the transactions contemplated by this Agreement).  The term “Superior Proposal” means any proposal to acquire, directly or indirectly, for consideration consisting of cash or securities, more than a majority of each class of capital stock then outstanding or all or substantially all of the assets of the Company, and otherwise on terms which the Company Board determines in good faith to be more favorable to the Company and its stockholders than the Equity Restructuring contemplated by this Agreement, for which financing, to the extent required, is then committed.

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8.11“Short Form” Merger.  Greenlight shall not effect a merger of the Company with any other entity pursuant to Section 253 of the Delaware Law.

9.Conditions to Closing.

9.1Conditions to the Obligation of each Equity Holder.  Each Equity Holder’s obligation to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or prior to the Closing, of each of the following conditions (any of which may be waived in writing by such Equity Holder):

(a)all representations and warranties of the Company under this Agreement shall be true and correct (i) at and as of the time given (or with respect to any representation and warranty, which speaks as of a specific date, as of such date) and (ii) at and as of the time of the Closing with the same effect as if the representations and warranties had been made again at and as of that time;

(b)the Company shall have performed and complied in all material respects with all obligations, covenants and conditions required by this Agreement to be performed or complied with by the Company prior to or at the Closing;

(c)the Refinancing shall have been consummated on substantially the terms set forth in the preliminary offering circular dated June 26, 2003;

(d)the Company shall have entered into a new senior revolving credit facility on substantially the terms set forth in the preliminary offering circular dated June 26, 2003;

(e)Jefferies shall have purchased all of the EnbcDeb Corp. Notes;

(f)Greenlight shall have purchased all of the Series F Preferred Stock held by Jefferies;

(g)the Company Stockholders’ Action shall have been approved and adopted by the Company’s stockholders at the Company Stockholders’ Meeting in accordance with Delaware Law and the Company’s certificate of incorporation;

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(h)the Company shall have filed the Certificate of Designation with the Secretary of State of the State of Delaware and the Certificate of Designation shall have been accepted and certified by the Secretary of State of the State of Delaware;

(i)the Company shall have filed an amendment to its certificate of incorporation in a form reasonably acceptable to the parties with the Secretary of State of the State of Delaware and such amendment shall have been accepted and certified by the Secretary of State of the State of Delaware;

(j)in the case of Greenlight, the Company and such Equity Holder shall have executed and delivered the Registration Rights Agreement in the form attached hereto as Schedule 9.1(j);

(k)there shall not be any material litigation pending which seeks to enjoin the consummation of the Refinancing, the purchase of the EnbcDeb Corp. Notes, the issuance of the Series F Preferred Stock to Jefferies contemplated by the Note Purchase Agreement, Greenlight’s purchase of Jefferies’ shares of Series F Preferred Stock and the transactions contemplated by this Agreement;

(l)such Equity Holder shall have been furnished with each of the items to be delivered in accordance with Section 10.1;

(m)the Company shall have executed and delivered the Warrant Agreement Amendment;

(n)the Stockholders Agreement shall have been terminated;

(o)Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P. and Farallon Capital Offshore Investors, Inc. (collectively, “Farallon”) shall have consummated the transactions contemplated by the Agreement of even date herewith between Farallon and the Company;

(p)Halpern Denny shall have received the opinion of Proskauer Rose LLP, counsel to the Company in form and substance reasonably acceptable to Halpern Denny; and

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(q)Greenlight shall have received the opinion of Proskauer Rose LLP, counsel to the Company in form and substance reasonably acceptable to Greenlight.

9.2Conditions to the Obligations of the Company.  The obligation of the Company to consummate the transactions under this Agreement is subject to the fulfillment, at or prior to the Closing, of each of the following conditions (any of which may be waived in writing by the Company):

(a)all representations and warranties of each of the Equity Holders contained in this Agreement shall be true in all material respects at and as of the time of the Closing with the same effect as if the representations and warranties had been made again at and as of that time;

(b)each Equity Holder shall have performed and complied in all material respects with all obligations, covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing;

(c)there shall not be any material litigation pending which seeks to enjoin the consummation of the transactions contemplated by this Agreement;

(d)Greenlight shall have executed and delivered the Registration Rights Agreement;

(e)Greenlight shall have executed and delivered the Warrant Agreement Amendment; and

(f)the Company shall have been furnished with each of the other items to be delivered in accordance with Section 10.2.

10.Transactions at the Closing.

10.1Items to Be Delivered by the Company.  At the Closing, the Company shall deliver the following:

(a)to Greenlight: (i) certificates representing the shares of Common Stock to be issued to Greenlight, (ii) the general release in substantially the form of Schedule 10.1(a)

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and (iii) such other certificates, instruments and documents as Greenlight may reasonably request; and

(b)to Halpern Denny: (i) certificates representing the shares of Series Z Preferred Stock to be issued to Halpern Denny, (ii) the general release in substantially the form of Schedule 10.1(a), including, without limitation, a general release for any of Halpern Denny’s former designees to the Company Board or any of the boards of directors of the Company’s subsidiaries and (iii) such other certificates, instruments and documents as Halpern Denny may reasonably request.

10.2    Items to Be Delivered by each Equity Holder.

(a)At the Closing, Greenlight shall deliver to the Company or Halpern Denny, as applicable the following: (i) stock certificates representing all of the shares of Series F Preferred Stock owned by Greenlight, together with duly executed stock powers; (ii) a general release in favor of the Company in substantially the form of Schedule 10.1(a); (iii) a general release in favor of Halpern Denny in substantially the form of Schedule 10.1(a); and (iv) such other certificates, instruments and documents as the Company may reasonably request.

(b)At the Closing, Halpern Denny shall deliver to the Company or Greenlight, as applicable the following: (i) stock certificates representing all of the shares of Series F Preferred Stock owned by Halpern Denny, together with duly executed stock powers; (ii) stock certificates representing all shares of Common Stock owned by Halpern Denny, together with duly executed stock powers; (iii) all of the warrants held by Halpern Denny, duly endorsed for transfer; (iv) a general release in favor of the Company in substantially the form of Schedule 10.1(a); (v) a general release in favor of Greenlight in substantially the form of Schedule 10.1(a); and (vi) such other certificates, instruments and documents as the Company may reasonably request.

11.Termination.

11.1Termination.  This Agreement may be terminated:

(a)by written agreement of the parties;

(b)by any of the parties if the Equity Restructuring shall not have occurred by September 30, 2003; or

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(c)by any of the parties if the Company Board shall have withdrawn its recommendation set forth in Section 5.2(b) as to the advisability of the circumstances contemplated by this Agreement.

11.2Liability.  The termination of this Agreement under Section 11.1 shall not relieve any party of any liability for breach of this Agreement prior to the date of termination.

12.Continuing Director and Officer Indemnification.

(a)From and after the Closing, the Company shall fulfill and honor the obligations of the Company pursuant to the indemnification and advancement provisions in the Company’s certificate of incorporation and by-laws existing as in effect on the date of this Agreement with respect to the Company’s directors and officers, including former directors and officers, for a period of six years.

(b)For a period of six years after the Closing, the Company shall use its commercially reasonable efforts to maintain in effect, a directors and officers liability insurance policy covering those persons who are covered by the Company’s directors and officers liability insurance policy as of the date of this Agreement, which policy provides coverage for such individuals on at least as favorable terms as the policy or policies from time to time in effect for the Company’s then existing directors and officers.

(c)The provisions of this Section 12 are intended to be for the benefit of any designee of any Equity Holder who has served as a director of the Company.

13.Miscellaneous.

13.1Notices.  Any notice or other communication under this Agreement shall be in writing and shall be considered given when delivered personally, one business day after being sent by a major overnight courier, or four days after being mailed by registered mail, return receipt requested, to the parties at the addresses set forth below (or at such other address as a party may specify by notice to the other):

(a)If to the Company:

New World Restaurant Group, Inc.
1687 Cole Boulevard
Golden, CO 80401
Facsimile: (303) 568-8039
Attention: Anthony D. Wedo

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(b)if to Greenlight:

c/o Greenlight Capital, Inc.
420 Lexington Avenue, Suite 1740
New York, New York 10017
Facsimile: (212) 973-1900
Attention: David Einhorn

(c)if to Halpern Denny:

Halpern Denny Fund III, L.P.
500 Boylston Street
Suite 1880
Boston, MA  02116
Facsimile: (617) 536-8535
Attention: William J. Nimmo

13.2Entire Agreement.  This Agreement, including the schedules, contains a complete statement of all the arrangements among the parties with respect to its subject matter, supersedes any previous agreements among them relating to that subject matter and cannot be changed or terminated orally.  Except as specifically set forth in this Agreement, there are no representations or warranties by any party in connection with the transactions contemplated by this Agreement.

13.3Headings.  The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

13.4Governing Law.  This Agreement shall be governed by and construed in accordance with the law of the State of New York applicable to agreements made and to be performed in New York without giving effect to choice of law or conflicts of law principles.

13.5Separability.  If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

13.6Waiver.  Any party may waive compliance by any other party with any provision of this Agreement.  No waiver of any provision shall be construed as a waiver of any other provision.  Any waiver must be in writing.  No failure or delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or

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privilege will not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

13.7Assignment.  No party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other parties.

13.8Jurisdiction.    The courts of the State of New York in New York county and the United States District Court for the Southern District of New York shall have exclusive jurisdiction over the parties with respect to any dispute or controversy among them arising under or in connection with this Agreement and, by execution and delivery of this Agreement, each of the parties to this Agreement submits to the jurisdiction of those courts, waives any objection to such jurisdiction on the grounds of venue or forum non conveniens, the absence of any personal or subject matter jurisdiction and any similar grounds, consents to service of process by mail (in accordance with Section 13.1) or any other manner permitted by law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  These consents to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement.

13.9No Third Party Beneficiaries  This Agreement does not create, and shall not be construed as creating, any rights in favor of any person not a party to this Agreement.

13.10Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be considered an original and all of which shall be considered a single instrument.

14.Fees and Expenses.

14.1Greenlight Fees and Expenses.  The Company shall pay any and all legal fees and expenses of counsel to Greenlight, which fees and expenses relate to services rendered in connection with Greenlight’s investment in the Company, including, without limitation, the transactions contemplated by this Agreement, provided, however, that such fees and expenses shall not exceed $500,000.

14.2Halpern Denny Fees and Expenses.  The Company shall pay any and all legal fees and expenses of Ropes & Gray LLP (or its predecessor), counsel to Halpern Denny, which fees and expenses relate to services rendered since May 1, 2003 in connection with Halpern Denny’s investment in the Company, including, without limitation, the transactions contemplated by this Agreement, provided, however, that such fees and expenses shall not exceed $125,000.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers or authorized representatives as of the date first written above.

NEW WORLD RESTAURANT GROUP, INC.
By:		/s/ ANTHONY D. WEDO
		Name: Anthony D. Wedo
		Title:
BROOKWOOD NEW WORLD INVESTORS, L.L.C.
By: GREENLIGHT CAPITAL, L.P., its member
By: GREENLIGHT CAPITAL, L.L.C., its general partner
	By:		/s/ DAVID EINHORN
			Name: David Einhorn
			Title: Senior Managing Member
NWCI HOLDING, LLC
By: GREENLIGHT CAPITAL, L.P., its member
By: GREENLIGHT CAPITAL, L.L.C., its general partner
	By:			/s/ DAVID EINHORN
				Name: David Einhorn
				Title: Senior Managing Member
GREENLIGHT CAPITAL, L.P.
By: GREENLIGHT CAPITAL, L.L.C., its general partner
	By:			/s/ DAVID EINHORN
				Name: David Einhorn
				Title: Senior Managing Member
GREENLIGHT CAPITAL QUALIFIED, L.P.
By: GREENLIGHT CAPITAL, L.L.C., its general partner

	By:	/s/ DAVID EINHORN
		Name: David Einhorn
		Title: Senior Managing Member
GREENLIGHT CAPITAL OFFSHORE, LTD.
By: GREENLIGHT CAPITAL, INC., its investment advisor
By:		/s/ DAVID EINHORN
		Name:  David Einhorn
		Title: Senior Managing Member
HALPERN DENNY FUND III, L.P.
By:		/s/ WILLIAM NIMMO
		Name: William Nimmo
		Title:

EX-10.48

EXHIBIT 10.48

NOTE PURCHASE AND PUT AGREEMENT (this “Agreement”), dated as of June 27, 2003, among JEFFERIES & COMPANY, INC. (the “Initial Purchaser”) and the purchasers set forth on Annex A hereto (each, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

A.  New World Restaurant Group, Inc. (the “Company”) has entered into a Purchase Agreement (the “Purchase Agreement”), dated as of the date hereof, with the Initial Purchaser, pursuant to which the Company has agreed to issue and sell $160,000,000 aggregate principal amount of 13% Senior Secured Notes due 2008 (the “Notes”) of the Company.

B.  Immediately following the purchase of the Notes by the Initial Purchaser pursuant to the Purchase Agreement, the Purchasers have agreed, severally, and not jointly and severally, to purchase $70,000,000 aggregate principal amount of the Notes from the Initial Purchaser at a price equal to 97% of the principal amount of the Notes, on the terms and subject to the conditions of this Agreement.

C.  In addition, the Purchasers have granted to the Initial Purchaser an option to put to the Purchasers, severally, and not jointly and severally, up to an additional $30,000,000 aggregate principal amount of the Notes at a price equal to 95% of the principal amount of the Notes, on the terms and subject to the conditions of this Agreement.

D.  The parties hereto now wish to enter into this Agreement to provide for the Purchasers’ commitment to purchase up to $100,000,000 aggregate principal amount of the Notes, on the terms and conditions set forth herein.

AGREEMENT

In consideration of the promises and the mutual covenants and the agreements herein set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1.  Definitions.  As used in this Agreement, the following terms have the meanings stated:

“Affiliate” of a Person means any other Person that directly or indirectly controls, is controlled by or is under common control with, the Person or any of its Subsidiaries.

“Dollars” and “$” refer to United States dollars and other lawful currency of the United States of America from time to time in effect.

“Person” means any individual, corporation, partnership, limited liability company, association, joint venture, trust or any other entity or organization.

“Purchaser Percentage” means, for each Purchaser, the percentage set forth opposite such Purchaser’s name under the heading “Purchaser Percentage” on Annex A.

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“Securities Act” means the Securities Act of 1933, as amended, and the related regulations and published interpretations.

Section 2.  Agreement to Purchase Notes.  Upon the terms and subject to the conditions set forth in this Agreement, each Purchaser, severally, and not jointly and severally, hereby agrees to purchase from the Initial Purchaser, and the Initial Purchaser hereby agrees to sell, transfer, assign, convey and deliver to each Purchaser, on the Closing Date (as defined in the Purchase Agreement), Notes having an aggregate original principal amount equal to the principal amount set forth opposite such Purchaser’s name on Annex A hereto (such Notes being the “Purchased Notes”), for an amount in cash equal to the product of (a) 0.97, multiplied by (b) the aggregate principal amount of Purchased Notes to be purchased by such Purchaser, in each case, by wire transfer of immediately available funds in accordance with the wire transfer instructions attached hereto on Annex B; provided, however, that in the event that the Closing Date shall not occur on or prior to the date which is three months after the date of this Agreement (the “Termination Date”), none of the Purchasers shall be obligated to purchase any Notes hereunder after the Termination Date.

Section 3.  Put Option.

(a)  Grant of Option.  Upon the terms and subject to the conditions set forth in this Agreement, each Purchaser, severally, and not jointly and severally, hereby grants to the Initial Purchaser the right and option (the “Put Option”) to sell to such Purchaser, on the Closing Date, Notes (the “Additional Notes”) in an aggregate principal amount not to exceed the product of (i) the aggregate principal amount of Notes that the Initial Purchaser is unable to sell to third parties up to a maximum of $30,000,000, multiplied by (ii) Purchaser Percentage for such Purchaser, for an amount in cash equal to the product of (i) 0.95, multiplied by (ii) the aggregate principal amount of Additional Notes to be purchased by such Purchaser, in each case, by wire transfer of immediately available funds in accordance with the wire transfer instructions attached hereto on Annex B.

(b)  Exercise of Put Option.  The Put Option shall be exercisable during the period from the date of this Agreement through the Termination Date.  In order to exercise the Put Option, the Initial Purchaser shall deliver to each Purchaser a written notice on or prior to the Closing Date setting forth the aggregate principal amount of Additional Notes to be purchased by each Purchaser.

Section 4.  Time and Place of the Closing.  The closing of the sale, transfer, assignment, conveyance and delivery of the Purchased Notes and the Additional Notes (the “Closing”), will take place at the offices of Mayer, Brown, Rowe & Maw, on the Closing Date immediately following the consummation of the transactions described in the Purchase Agreement.

Section 5.  Conditions Precedent to the Obligations of the Purchasers.  The obligations of the Purchasers under this Agreement are expressly subject to the fulfillment of each of the following conditions, unless expressly waived by the Purchasers in writing, at or before the Closing.

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(a)  Representations and Warranties; Covenants.  The representations and warranties of the Initial Purchaser set forth in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.  The Initial Purchaser shall have performed and complied in all material respects with all of its covenants and other obligations contained in this Agreement required to be performed or complied with by the Initial Purchaser at or before the Closing.

(b)  Purchase Agreement.  The representations and warranties of the Company set forth in the Purchase Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.  The Company shall have performed and complied in all material respects with all of its covenants and other obligations contained in the Purchase Agreement required to be performed or complied with by the Company at or before the closing under the Purchase Agreement.  All of the conditions set forth in Section 7 of the Purchase Agreement shall have been satisfied (and not waived).

(c)  Purchase of Notes.  The Initial Purchaser shall have purchased Notes having an aggregate principal amount equal to $160,000,000 from the Company pursuant to the Purchase Agreement.

(d)  Purchased Notes and Additional Notes.  The Purchasers shall have received the Purchased Notes and the Additional Notes.

(e)  Documents.  The final Indenture and the final Intercreditor Agreement (as defined in the Indenture) shall conform in all material respects to the draft Indenture and the draft Intercreditor Agreement delivered to the Purchasers on the date of this Agreement.

(f)  Material Adverse Effect.  Since the date of this Agreement through the date of the Closing hereunder, no event or circumstance shall have occurred, which has had, or could reasonably be expected to have, a Material Adverse Effect (as defined in the Purchase Agreement).

Section 6.  Conditions Precedent to the Obligations of the Initial Purchaser.  The obligations of the Initial Purchaser under this Agreement are expressly subject to the fulfillment of each of the following conditions, unless waived by the Initial Purchaser in writing, at or before the Closing.

(a)  Representations and Warranties; Covenants.  The representations and warranties of the Purchasers set forth in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date.  The Purchasers shall have performed and complied in all material respects with all of their covenants and other obligations contained in this Agreement required to be performed or complied with by the Purchasers at or before the Closing.

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(b)  Purchase of Notes.  The Company shall have issued to the Initial Purchaser Notes having an aggregate principal amount equal to $160,000,000 pursuant to the Purchase Agreement.

(c)  Purchase Price.  The Initial Purchaser shall have received the aggregate purchase price for the Purchased Notes and the Additional Notes by wire transfer of immediately available funds in accordance with the provisions of Sections 2 and 3 hereof.

Section 7.  Representations and Warranties of the Initial Purchaser.  The Initial Purchaser hereby represents and warrants to the Purchasers as of the date hereof and as of the Closing Date as follows:

(a)  Existence and Power.  The Initial Purchaser (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and (ii) has all necessary corporate power and authority required to execute and deliver this Agreement and to consummate the transactions described in this Agreement.

(b)  Authorization; Binding Effect.  The execution and delivery by the Initial Purchaser of this Agreement, the performance by the Initial Purchaser of its obligations under this Agreement and the consummation of the transactions described in this Agreement by the Initial Purchaser has been duly authorized by all necessary corporate action on the part of the Initial Purchaser.  This Agreement is the legal, valid and binding obligation of the Initial Purchaser enforceable against the Initial Purchaser in accordance with its terms, except that such enforcement (i) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally and (ii) is subject to the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.

(c)  Contravention.  Neither the execution, delivery and performance of this Agreement by the Initial Purchaser nor the consummation of the transactions described in this Agreement by the Initial Purchaser will (with or without notice or lapse of time or both) (i) violate or breach any provision of the Initial Purchaser’s organizational or governing documents, (ii) violate or breach any statute, law, regulation, rule or order by which the Initial Purchaser or any of its material assets or properties may be bound or affected, or (iii) breach or result in a default under any material contract or agreement to which the Initial Purchaser is a party or by which the Initial Purchaser or any of its material assets or properties may be bound or affected.

(d)  Consents.  No approval, consent, authorization or order of, notice to or registration or filing with, or any other action by, any governmental authority or other person or entity are required in connection with (i) the due execution and delivery by the Initial Purchaser of this Agreement and the performance of the Initial Purchaser’s obligations hereunder, and (ii) the consummation of the transactions described in this Agreement.

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(e)  Litigation.  There is no action, arbitration, lawsuit or proceeding against the Initial Purchaser that involves any of the transactions described in this Agreement and the Purchase Agreement.

(f)  The Purchased Notes and Additional Notes.  Upon delivery to the Purchasers at the Closing of the Purchased Notes and the Additional Notes, and upon the Initial Purchaser’s receipt of the purchase price for the Purchased Notes and the Additional Notes as provided in Sections 2 and 3 hereof, the Purchasers will become the sole record and legal owners of the Purchased Notes and the Additional Notes and good and marketable title to such Purchased Notes and Additional Notes will pass to the Purchasers, free and clear of any liens, claims, encumbrances, security interests, charges, options and transfer restrictions of any kind created by or through the Initial Purchaser.

(g)  Securities Laws.  The Initial Purchaser has not offered to sell any portion of the Purchased Notes or the Additional Notes or any interest therein in a manner which violates any applicable securities law or would require the issuance and sale hereunder to be registered under the Securities Act.

Section 8.  Representations and Warranties of the Purchasers.  Each Purchaser, severally, and not jointly and severally, with respect to itself only, hereby represents and warrants to the Initial Purchaser as of the date of this Agreement and as of the Closing Date as follows:

(a)  Existence and Power.  Such Purchaser (i) is a limited partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (ii) has all necessary partnership or limited liability company power and authority, as the case may be, to execute and deliver this Agreement and to consummate the transactions described in this Agreement.

(b)  Authorization; Binding Effect.  The execution and delivery by such Purchaser of this Agreement, the performance by such Purchaser of its obligations under this Agreement and the consummation of the transactions described in this Agreement by such Purchaser has been duly authorized by all necessary partnership or limited liability company action, as the case may be, on the part of such Purchaser.  This Agreement is the legal, valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with its terms, except that such enforcement (i) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally and (ii) is subject to the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.

(c)  Contravention.  Neither the execution, delivery and performance of this Agreement by such Purchaser nor the consummation of the transactions described in this Agreement by such Purchaser will (with or without notice or lapse of time or both) (i) violate or breach any provision of such Purchaser’s organizational or governing documents, (ii) violate or breach any statute, law, regulation, rule or order by which such Purchaser or any of its material assets or properties may be bound or affected, or (iii) breach, or result in a default under, any material contract or agreement to which such Purchaser is a party or by which such Purchaser or any of its material assets or properties may be bound or affected.

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(d)  Consents.  No approval, consent, authorization or order of, notice to or registration or filing with, or any other action by, any governmental authority or other person or entity are required in connection with (i) the due execution and delivery by such Purchaser of this Agreement and the performance of such Purchaser’s obligations hereunder, and (ii) the consummation of the transactions described in this Agreement.

(e)  Litigation.  There is no action, lawsuit or proceeding against such Purchaser that involves any of the transactions described in this Agreement.

Section 9.  Miscellaneous.

(a)  Notices.  All notices, requests, demands and other communications to any party or given under this Agreement will be in writing and delivered personally, by overnight delivery or courier, by registered mail or by telecopier (with confirmation received) to the parties at the address or telecopy number specified for such parties on the signature pages hereto (or at such other address or telecopy number as may be specified by a party in writing given at least five business days prior thereto).  All notices, requests, demands and other communications will be deemed delivered when actually received.

(b)  Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed will be deemed an original, but all of which taken together will constitute one and the same instrument.

(c)  Amendment of Agreement.  This Agreement may not be amended, modified or waived except by an instrument in writing signed on behalf of each of the parties hereto.

(d)  Successors and Assigns; Assignability.  This Agreement will be binding upon and inures to the benefit of and is enforceable by the respective successors and permitted assigns of the parties hereto.  This Agreement may not be assigned by any party hereto without the prior written consent of all other parties hereto.  Any assignment or attempted assignment in contravention of this Section will be void ab initio and will not relieve the assigning party of any obligation under this Agreement.

(e)  Governing Law.  This Agreement will be governed by, and construed in accordance with, the laws of the state of New York applicable to contracts executed in and to be performed entirely within that state, without reference to conflicts of laws provisions.

(f)  Integration.  This Agreement contains and constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, agreements and understandings, whether written or oral, of the parties hereto.

(g)  Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect.

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(h)  No Third-Party Rights.  This Agreement is not intended, and will not be construed, to create any rights in any parties other than the Initial Purchaser and the Purchasers and no person or entity may assert any rights as third-party beneficiary hereunder.

(i)  Waiver of Jury Trial.  EACH OF THE INITIAL PURCHASER AND THE PURCHASERS HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY LAWSUIT, ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR TO BE DELIVERED IN CONNECTION WITH THIS AGREEMENT AND AGREES THAT ANY LAWSUIT, ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

(j)  No Waiver; Remedies.  No failure or delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of the right, power or privilege.  A single or partial exercise of any right, power or privilege will not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.  The rights and remedies provided in this Agreement will be cumulative and not exclusive of any rights or remedies provided by law.

(k)  Several Obligations.  Notwithstanding anything contained in this Agreement to the contrary, the parties agree that all obligations and liabilities of any Purchaser under this Agreement are enforceable solely against such Purchaser and the obligations and liabilities of the Purchasers under this Agreement are several and not joint and several and each Purchaser is only liable for such Purchaser’s Percentage of any liability or obligation under this Agreement.

(l)  Further Assurances.  Promptly upon the reasonable request by any Purchaser, the Initial Purchaser shall (i) correct any defect or error that may be discovered in this Agreement or in the execution or delivery of this Agreement, (ii) execute, acknowledge, deliver, record, file and register, any and all such further acts, conveyances, assignments, notices of assignment, transfers, certificates, assurances, endorsements and other instruments, and (iii) take all such action, in each case, as such requesting party may require from time to time.

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In witness whereof, the parries have executed and delivered this Agreement as of the date first written above.

INITIAL PURCHASER:

	JEFFERIES & COMPANY, INC.
Address for Notices:
51 JFK Parkway, 3rd Floor
Short Hills, New Jersey  07078
Attention: Eric R. Macy		By:	___/s/ ERIC R. MACY
Facsimile No.: 973-912-2790			Name:     Eric R. Macy
			Title:       Executive Vice President

with a copy to:

Mayer, Brown, Rowe & Maw

1675 Broadway

New York, New York  10019

Attention: Ronald S. Brody, Esq.

Facsimile No.: 212-262-1910

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PURCHASERS:

	FARALLON CAPITAL PARTNERS, L.P.
Address for Notices:	FARALLON CAPITAL INSTITUTIONAL
c/o Farallon Capital Management, L.L.C.	PARTNERS, L.P.
One Maritime Plaza, Suite 1325	FARALLON CAPITAL INSTITUTIONAL
San Francisco, California  94111	PARTNERS II, L.P.
Attention: Derek Schrier	FARALLON CAPITAL INSTITUTIONAL
Facsimile No.: 415-421-2133	PARTNERS III, L.P.
	TINICUM PARTNERS, L.P.

with a copy to:
Richards Spears Kibbe & Orbe LLP	By: Farallon Partners, L.L.C.,
One World Financial Center	their General Partner
29th Floor
New York, New York  10281
Attention: Andrew M. Weinfeld
Facsimile No.: 212-530-1801	By:___/s/ WILLIAM F. MELLIN
	Name:     William F. Mellin
	Title:       Managing Member
		FARALLON CAPITAL OFFSHORE
Address for Notices:		INVESTORS, INC.
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325		By.  Farallon Capital Management, L.L.C.,
San Francisco, California  94111		its Agent and Attorney-in-Fact
Attention:  Derek Schrier
Facsimile No.:  415-421-2133
with a copy to:	By:___/s/ WILLIAM F. MELLIN
Richards Spears Kibbe & Orbe LLP	Name:     William F. Mellin
One World Financial Center	Title:       Managing Member
29th Floor
New York, New York 10281
Attention: Andrew M. Weinfeld
Facsimile No.: 212-530-1801.

9

EX-10.56

EXHIBIT 10.56

EXECUTION COPY

LOAN AND SECURITY AGREEMENT

Dated as of July 8, 2003

Among

THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders

and

AMSOUTH BANK
as the Agent

and

AMSOUTH CAPITAL CORP.
as the Administrative Agent

and

NEW WORLD RESTAURANT GROUP, INC.
MANHATTAN BAGEL COMPANY, INC.
CHESAPEAKE BAGEL FRANCHISE CORP.
WILLOUGHBY’S INCORPORATED
EINSTEIN AND NOAH CORP.
EINSTEIN/NOAH BAGEL PARTNERS, INC.
I. & J. BAGEL, INC.
as the Borrowers

and

THE GUARANTORS NAMED HEREIN
as the Guarantors

TABLE OF CONTENTS

ARTICLE I	INTERPRETATION OF THIS AGREEMENT
	Section 1.1.Definitions
	Section 1.2.Accounting Terms
	Section 1.3.Interpretive Provisions
ARTICLE II	LOANS AND LETTERS OF CREDIT
	Section 2.1.Total Facility
	Section 2.2.Revolving Loans
	Section 2.3.[Intentionally Omitted.]
	Section 2.4.Letters of Credit
ARTICLE III	INTEREST AND FEES
	Section 3.1.Interest
	Section 3.2.[Intentionally Omitted.]
	Section 3.3.Maximum Interest Rate
	Section 3.4.Closing and Other Fees
	Section 3.5.Unused Line Fee
	Section 3.6.Letter of Credit Fee
	Section 3.7.Reduction of Revolving Credit Commitments
ARTICLE IV	PAYMENTS AND PREPAYMENTS
	Section 4.1.Revolving Loans
	Section 4.2.Termination of Facility
	Section 4.3.Mandatory Payments
	Section 4.4.[Intentionally Omitted.]
	Section 4.5.[Intentionally Omitted.]
	Section 4.6.Payments by the Borrowers
	Section 4.7.Payments as Revolving Loans
	Section 4.8.Apportionment, Application and Reversal of Payments
	Section 4.9.Indemnity for Returned Payments
	Section 4.10.Agent’s and Lenders’ Books and Records; Monthly Statements
ARTICLE V	TAXES, YIELD PROTECTION AND ILLEGALITY
	Section 5.1.Taxes
	Section 5.2.Increased Costs
	Section 5.3.Reduction of Return

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	Section 5.4.Certificates of Lenders
	Section 5.5.Survival
ARTICLE VI	COLLATERAL
	Section 6.1.Grant of Security Interest
	Section 6.2.Perfection and Protection of Security Interest
	Section 6.3.Location of Collateral
	Section 6.4.Jurisdiction of Organization
	Section 6.5.Title to, Liens on, and Sale and Use of Collateral
	Section 6.6.Field Examinations
	Section 6.7.Access and Examination; Confidentiality
	Section 6.8.Collateral Reporting
	Section 6.9.Accounts
	Section 6.10.Collection of Accounts; Payments
	Section 6.11.Inventory
	Section 6.12.Equipment
	Section 6.13.[Intentionally Omitted.]
	Section 6.14.Documents, Instruments, and Chattel Paper
	Section 6.15.Right to Cure
	Section 6.16.Power of Attorney
	Section 6.17.The Agent’s and Lenders’ Rights, Duties and Liabilities
ARTICLE VII	BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
	Section 7.1.Books and Records
	Section 7.2.Financial Information
	Section 7.3.Notices to the Lenders
ARTICLE VIII	GENERAL WARRANTIES AND REPRESENTATIONS
	Section 8.1.Authorization, Validity, and Enforceability of this Agreement and the Other Transaction Documents
	Section 8.2.Validity and Priority of Security Interest
	Section 8.3.Organization and Qualification
	Section 8.4.Corporate Name; Prior Transactions
	Section 8.5.Subsidiaries
	Section 8.6.Financial Statements and Projections
	Section 8.7.Capitalization
	Section 8.8.Solvency
	Section 8.9.Debt
	Section 8.10.Title to Property

ii

	Section 8.11.Real Estate; Leases
	Section 8.12.Proprietary Rights
	Section 8.13.Trade Names
	Section 8.14.Litigation
	Section 8.15.Restrictive Agreements
	Section 8.16.Labor Disputes
	Section 8.17.Environmental Laws
	Section 8.18.No Violation of Law
	Section 8.19.No Default
	Section 8.20.ERISA Compliance
	Section 8.21.Tax Filings
	Section 8.22.Regulated Entities
	Section 8.23.Use of Proceeds; Margin Regulations
	Section 8.24.Copyrights, Patents, Trademarks and Licenses, etc.
	Section 8.25.No Material Adverse Change
	Section 8.26.Full Disclosure
	Section 8.27.Material Agreements
	Section 8.28.Bank Accounts
	Section 8.29.Governmental Authorization
	Section 8.30.Restructuring
	Section 8.31.Subordinated Lien
	Section 8.32.Distributions
	Section 8.33.Franchises
ARTICLE IX	AFFIRMATIVE AND NEGATIVE COVENANTS
	Section 9.1.Taxes and Other Obligations
	Section 9.2.Corporate Existence and Good Standing
	Section 9.3.Compliance with Law and Agreements; Maintenance of Licenses
	Section 9.4.Maintenance of Property
	Section 9.5.Insurance
	Section 9.6.Environmental Laws
	Section 9.7.Compliance with ERISA
	Section 9.8.Mergers, Consolidations or Sales
	Section 9.9.Distributions; Capital Change; Restricted Investments
	Section 9.10.Transactions Affecting Collateral or Obligations
	Section 9.11.Guaranties
	Section 9.12.Debt
	Section 9.13.Prepayment
	Section 9.14.Transactions with Affiliates
	Section 9.15.Investment Banking and Finder’s Fees

iii

	Section 9.16.Negative Pledge
	Section 9.17.Business Conducted
	Section 9.18.Liens
	Section 9.19.Sale and Leaseback Transactions
	Section 9.20.New Subsidiaries; Activation Event
	Section 9.21.Fiscal Year
	Section 9.22.Capital Expenditures
	Section 9.23.Operating Lease Obligations
	Section 9.24.Minimum EBITDA
	Section 9.25.Operating Cash Flow Coverage Ratio
	Section 9.26.Minimum Net Worth
	Section 9.27.Use of Proceeds
	Section 9.28.Amendments
	Section 9.29.Maintain Operating Accounts
	Section 9.30.Further Assurances
	Section 9.31.Post-Closing
ARTICLE X	CONDITIONS OF LENDING
	Section 10.1.Conditions Precedent to Making of Loans on the Closing Date
	Section 10.2.Conditions Precedent to Each Loan
ARTICLE XI	DEFAULT; REMEDIES
	Section 11.1.Events of Default
	Section 11.2.Remedies
ARTICLE XII	TERM AND TERMINATION
	Section 12.1.Term and Termination
ARTICLE XIII	AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
	Section 13.1.No Waivers; Cumulative Remedies
	Section 13.2.Amendments and Waivers
	Section 13.3.Assignments; Participations

iv

ARTICLE XIV	THE AGENT
	Section 14.1.Appointment and Authorization
	Section 14.2.Delegation of Duties
	Section 14.3.Liability of Agent
	Section 14.4.Reliance by Agent
	Section 14.5.Notice of Default
	Section 14.6.Credit Decision
	Section 14.7.Indemnification
	Section 14.8.Each Agent in Its Individual Capacity
	Section 14.9.Successor Agent
	Section 14.10.Administrative Agent
	Section 14.11.Collateral Matters
	Section 14.12.Restrictions on Actions by Lenders; Sharing of Payments
	Section 14.13.Agency for Perfection
	Section 14.14.Payments by Agent to Lenders
	Section 14.15.Concerning the Collateral and the Related Loan Documents
	Section 14.16.Field Audit and Examination Reports; Disclaimer by Lenders
	Section 14.17.Relation Among Lenders
ARTICLE XV	MISCELLANEOUS
	Section 15.1.Recourse to Collateral
	Section 15.2.Severability
	Section 15.3.Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
	Section 15.4.WAIVER OF JURY TRIAL
	Section 15.5.Survival of Representations and Warranties
	Section 15.6.Other Security and Guaranties
	Section 15.7.Fees and Expenses
	Section 15.8.Notices
	Section 15.9.Waiver of Notices
	Section 15.10.Binding Effect
	Section 15.11.Indemnity of the Agent and the Lenders by the Loan Parties

v

	Section 15.12.Limitation of Liability
	Section 15.13.Final Agreement
	Section 15.14.Counterparts
	Section 15.15.Captions
	Section 15.16.Right of Setoff
	Section 15.17.Joint and Several Liability
	Section 15.18.Effectiveness; Ratification and Confirmation
	Section 15.19.Covenant Calculation
ARTICLE XVI	GUARANTEES

vi

EXHIBITS
EXHIBIT A	-	FORM OF NOTICE OF BORROWING
EXHIBIT B	-	FINANCIAL STATEMENTS
EXHIBIT C	-	FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT D	-	FORM OF FINANCIAL COVENANT CALCULATION WORKSHEET
EXHIBIT E	-	FORM OF ADDENDUM
SCHEDULES
Schedule 6.3	-	Location of Collateral
Schedule 6.4	-	Jurisdiction of Organization
Schedule 8.3	-	Qualification in Foreign Jurisdictions
Schedule 8.4	-	Corporate Names; Prior Transactions
Schedule 8.5	-	Subsidiaries and Affiliates
Schedule 8.7	-	Capitalization
Schedule 8.9	-	Debt
Schedule 8.10	-	Title to Property
Schedule 8.11	-	Real Estate; Existing Leases
Schedule 8.12	-	Proprietary Rights
Schedule 8.13	-	Trade Names
Schedule 8.27	-	Material Agreements
Schedule 8.28	-	Bank Accounts
Schedule 9.9	-	Restricted Investments
Schedule 9.12	-	Debt
Schedule 9.18	-	Liens
Schedule 9.31	-	Trademark Filings

vii

LOAN AND SECURITY AGREEMENT

Loan and Security Agreement, dated as of July 8, 2003, among the financial institutions listed on the signature pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a “Lender” and collectively as the “Lenders”), AmSouth Bank (“ASB”), with an office at 1900 5th Avenue North, Birmingham, Alabama 35203, as agent (ASB in such capacity, together with any successor in such capacity, the “Agent”), AmSouth Capital Corp., as administrative agent (in such capacity, together with any successor in such capacity, the “Administrative Agent”), New World Restaurant Group, Inc., a Delaware corporation (“New World”), Manhattan Bagel Company, Inc., a New Jersey corporation (“Manhattan Bagel”), Chesapeake Bagel Franchise Corp., a New Jersey corporation (“Chesapeake Bagel”), Willoughby’s Incorporated, a Connecticut corporation (“Willoughby’s”), Einstein and Noah Corp., a Delaware corporation (“Einstein”), Einstein/Noah Bagel Partners, Inc., a California corporation (“Einstein/Noah”) and I. & J. Bagel, Inc., a California corporation (“I&J”; New World, Manhattan Bagel, Chesapeake Bagel, Willoughby’s, Einstein, Einstein/Noah and I&J, each a “Borrower,” and, collectively, the “Borrowers”), and the Guarantors named herein and signatories hereto.

W I T N E S S E T H

WHEREAS, the Borrowers have requested the Lenders to make available a revolving line of credit for loans and letters of credit in an amount not to exceed $15,000,000, which revolving line of credit will also be available for working capital needs and general corporate purposes of the Borrowers; and

WHEREAS, the Lenders have agreed to make available to the Borrowers a revolving credit facility upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Agent, the Administrative Agent and the Borrowers hereby agree as follows:

ARTICLE I

INTERPRETATION OF THIS AGREEMENT

Section 1.1.Definitions. As used herein:

“Account Debtor” means each Person obligated in any way on or in connection with an Account.

“Accounts” means all of each Loan Party’s now owned or hereafter acquired or arising accounts, as defined in the UCC, and any other rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance.

“Activation Event” means, at any time, in respect of any Subsidiary that is a Non-Restricted Subsidiary at such time, the commencement of business operations or obtaining of assets with a value in excess of $100,000 by such Subsidiary.

“Addendum” has the meaning specified in Section 9.20(a).

“Adjusted EBITDA” means, with respect to any Test Period, EBITDA of New World and its Subsidiaries for such Test Period, except that the exclusion of the amounts attributable to clauses (h), (i) and (k) of the definition of EBITDA shall not exceed (x) $7 million on a 12 month trailing basis through the end of the Fiscal Year ending December 31, 2003, (y) $4 million on a 12 month trailing basis for the first fiscal quarter of the Fiscal Year ending December 31, 2004, and (z) $2 million on a 12 month trailing basis for the second fiscal quarter of the Fiscal Year ending December 31, 2004 and each fiscal quarter thereafter.

“Administrative Agent” has the meaning set forth in the introductory paragraph hereof.

“Affiliate” means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or which owns, directly or indirectly, ten percent (10%) or more of the outstanding equity interest of such Person.  A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise.

“Agent” has the meaning set forth in the introductory paragraph hereof.

“Agent Advances” has the meaning specified in Section 2.2(i).

“Agent-Related Persons” means the Agent and any successor agent, together with their respective Affiliates (including, without limitation, AmSouth Capital Corp. individually and in its capacity as Administrative Agent), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.

“Agent’s Liens” means the Liens granted to the Agent, for the benefit of the Agent and the Lenders, pursuant to this Agreement and the other Loan Documents.

“Agreement” means this Loan and Security Agreement.

“Anniversary Date” means each anniversary of the Closing Date.

“Applicable Letter of Credit Rate” means (a) prior to the first Margin Adjustment Period beginning after the Closing Date, 2.50% and (b) during each Margin Adjustment Period beginning after the Closing Date, the percentage per annum set forth below opposite the respective Level indicated to have been achieved on the applicable Test Date for such Margin Adjustment Period (as shown on the respective officer’s certificate delivered pursuant to

2

Section 7.2(e), in accordance with the Fixed Charge Coverage Ratio for the applicable Margin Adjustment Test Period):

Level	Fixed Charge Coverage Ratio	Applicable Letter of Credit Rate
I	Less than 1.00:1	4.50	%
II	Greater than or equal to	2.50	%
	1.00:1 but less than 1.20:1
III	Greater than or equal to	2.00	%
	1.20:1

“Applicable Margin” means (a) prior to the first Margin Adjustment Period beginning after the Closing Date, 1.00% and (b) during each Margin Adjustment Period beginning after the Closing Date, the percentage per annum set forth below opposite the respective Level indicated to have been achieved on the applicable Test Date for such Margin Adjustment Period (as shown on the respective officer’s certificate delivered pursuant to Section 7.2(e), in accordance with the Fixed Charge Coverage Ratio for the applicable Margin Adjustment Test Period ):

Level	Fixed Charge Coverage Ratio	Applicable Margin
I	Less than 1.00:1	2.50	%
II	Greater than or equal to	1.00	%
	1.00:1 but less than 1.20:1
III	Greater than or equal to	.50	%
	1.20:1

“ASB” has the meaning set forth in the introductory paragraph hereof.

“ASB Loan” and “ASB Loans” have the meanings specified in Section 2.2(h).

“Asset Sale” means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business, and sales or other dispositions of Equipment), assignment or other transfer for value by any Loan Party (including any sale and leaseback transaction) to any Person other than a Loan Party or a Subsidiary of a Loan Party of (a) any Capital Stock of any Subsidiary of New World that is not a Loan Party or (b) any other property or assets of any Loan Party other than in the ordinary course of business.

3

“Assignee” has the meaning specified in Section 13.3(a).

“Assignment and Acceptance” has the meaning specified in Section 13.3(a).

“Attorney Costs” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel engaged by the Agent, the allocated cost of internal legal services of the Agent and all expenses and disbursements of internal counsel of the Agent.

“Availability” means, with respect to the Borrowers, at any time, (a) the Maximum Revolver Amount at such time minus (b) the Total Exposure at such time.

“Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. § 101 et seq.).

“Base Rate” means, for any day, the rate of interest in effect for such day as publicly announced from time to time by AmSouth Bank, as its “prime rate” (the “prime rate” being a rate set by AmSouth Bank based upon various factors including AmSouth Bank’s costs and desired return, general economic conditions and other AmSouth Bank factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate).  Any change in the reference rate announced by AmSouth Bank shall take effect at the opening of business on the day specified in the public announcement of such change.  Each Interest Rate based upon the Base Rate shall be adjusted simultaneously with any change in the Base Rate.

“Borrower” and “Borrowers” have the meanings set forth in the introductory paragraph hereof.

“Borrowing” means a borrowing hereunder consisting of Revolving Loans made on the same day by the Lenders to a Borrower (or by ASB in the case of a Borrowing funded by ASB Loans) or by the Agent in the case of a Borrowing consisting of an Agent Advance or the issuance of a Letter of Credit hereunder.

“Business Day” means any day that is not a Saturday, Sunday, or a day on which banks in Birmingham, Alabama or New York, New York, are required or permitted to be closed.

“Capital Adequacy Regulation” means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank.

“Capital Expenditures” means all payments due (whether or not paid during any fiscal period) in respect of the cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, which has a useful life of more than one year, including, without limitation, those costs arising in connection with the direct or indirect acquisition of such asset by

4

way of increased product or service charges or offset items or in connection with a Capital Lease, in each case in accordance with GAAP, net of the net proceeds from franchising of company-operated stores during the applicable period.

“Capital Lease” means any lease of property by any Person which, in accordance with GAAP, is or should be reflected as a capital lease on the balance sheet of such Person.

“Capital Stock” means, with respect to any Person, any and all shares, interests, participations, rights or other equivalents of corporate stock and any and all warrants, options and rights with respect thereto, including, without limitation, each class of common stock and preferred stock, partnership interests and other indicia of ownership of such Person.

“Change of Control” means any transaction or event occurring on or after the date hereof as a direct or indirect result of which (a) any Person or any group (other than the Permitted Holders) shall (A) beneficially own (directly or indirectly) in the aggregate capital stock of New World having more than 50% of the aggregate voting power of all capital stock of New World at the time outstanding or (B) have the right or power to appoint a majority of the board of directors of New World; (b) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of New World (together with any new directors whose election by such board of directors or whose nomination for election by the shareholders of New World was approved by a vote of a majority of the directors of New World then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the board of directors of New World then in office; (c) any event or circumstance constituting a “change of control” under any documentation evidencing or governing any Debt of any Loan Party in a principal amount in excess of $10,000,000 shall occur which results in an obligation of any Loan Party to prepay (by acceleration or otherwise), purchase, offer to purchase redeem or defease all or a portion of such Debt; or (d) New World shall cease to own, directly or indirectly, 100% of the Equity Interests of any of the other Borrowers or the Guarantors.

The terms “beneficially own,” “beneficial owner” and “Group” shall have the meanings ascribed to such terms in Sections 13(d) and 14(d) of the Exchange Act, provided, however, that, for the purposes of this definition of “Change of Control” only any Person or Group other than the Permitted Holders shall be deemed to be the current beneficial owner of any shares of Voting Stock of New World, or any interests or participations in, or measured by the profits of, New World, that are issuable upon the exercise of any option, warrant or similar right, or upon the conversion of any convertible security, in either case owned by such Person or Group without regard to whether such option, warrant or convertible security is currently exercisable or convertible or will become convertible or exercisable within 60 days if the exercise or conversion price thereof at the time of grant was lower than the fair market value of the underlying security at the time of grant.

“Chattel Paper” means all of each Loan Party’s now owned or hereafter acquired chattel paper, as defined in the UCC, including electronic chattel paper.

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“Chesapeake Bagel” has the meaning set forth in the introductory paragraph hereof.

“Closing Date” means the date of this Agreement.

“Coca-Cola Equipment” has the meaning specified in Section 6.1.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute, and regulations promulgated thereunder.

“Collateral” has the meaning specified in Section 6.1.

“Committed Capital Expenditures” means those anticipated Capital Expenditures relating to new store openings for which any Borrower has entered into a written commitment.

“Concentration Account” means the account of New World (account number 4120901491) at Wells Fargo Bank, N.A., which account is subject to the “control” (as defined in the UCC) of the Agent pursuant to documentation in form and substance satisfactory to the Agent.

“Contaminant” means any material regulated or controlled under Environmental Laws as a pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any form or condition or polychlorinated biphenyls (“PCBs”).

“Credit Support” has the meaning specified in Section 2.4(a).

“Debt” means all liabilities, obligations and indebtedness of any Borrower or any of its Subsidiaries to any Person, of any kind or nature, now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise, and including, without in any way limiting the generality of the foregoing:  (i) the liabilities and obligations of the Borrowers or any of their Subsidiaries to trade creditors; (ii) all Obligations; (iii) all obligations and liabilities of any Person secured by any Lien on property of the Borrowers or any of their Subsidiaries, even though the Borrowers or such Subsidiary, as the case may be, shall not have assumed or become liable for the payment thereof; provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the lesser of (a) the amount of such obligations or liabilities secured by such Lien or (b) the book value of such property as would be shown on a balance sheet of the Borrowers or such Subsidiary, as the case may be, prepared in accordance with GAAP; (iv) all obligations or liabilities created or arising under any Capital Lease or conditional sale or other title retention agreement with respect to property used or acquired by the Borrowers or any of their Subsidiaries, even if the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the lesser of (a) the amount of such obligations or

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liabilities or (b) the book value of such property as would be shown on a balance sheet of the Borrowers or such Subsidiary, as the case may be, prepared in accordance with GAAP; (v) all accrued pension fund and other employee benefit plan obligations and liabilities; (vi) all obligations and liabilities under Guaranties; (vii) deferred taxes and (viii) all Senior Secured Debt, provided that “Debt” shall not include obligations as a lessee under any lease treated as an operating lease under GAAP.

“Default” means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default.

“Default Rate” means a fluctuating per annum interest rate at all times equal to the sum of the Interest Rate, calculated as if such Loan was at Level I as set forth in the Applicable Margin table plus two percent (2.0%).  In addition, with respect to Letters of Credit, the Default Rate shall mean an amount equal to the sum of the Applicable Letter of Credit Rate calculated at Level I as set forth in the Applicable Letter of Credit Rate table plus two percent (2.0%).

“Defaulting Lender” has the meaning specified in Section 2.2(g)(ii).

“Disqualified Capital Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date (as defined in the Senior Secured Debt Documents).

“Distribution” means, in respect of any Person:  (a) the payment or making of any dividend or other distribution of property in respect of Equity Interests (or any options or warrants for such Equity Interests) of such Person, other than distributions in Equity Interests (or any options or warrants for such Equity Interests) that are not Disqualified Capital Stock; or (b) the redemption or other acquisition of any Equity Interests (or any options or warrants for such Equity Interests) of such Person.

“Documentary Letter of Credit” means a Letter of Credit covering the importation of goods constituting Inventory.

“Documents” means all documents as such term is defined in the UCC, including bills of lading, warehouse receipts or other documents of title, now owned or hereafter acquired by any Loan Party.

“DOL” means the United States Department of Labor or any successor department or agency.

“Dollar” and “$” mean dollars in the lawful currency of the United States.

“EBITDA” means, with respect to any fiscal period of New World and its

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Subsidiaries, the net income of New World and its consolidated Subsidiaries after provision for income taxes for such fiscal period, as determined in accordance with GAAP on a consolidated basis and reported on the Financial Statements for such period, excluding the effect of any and all of the following included in the calculation of such net income: (a) gain arising from the sale or other disposal of any capital assets; (b) gain arising from any write-up in the book value of any asset; (c) earnings or losses of any corporation or other Person, substantially all the assets of which have been acquired by New World or any of its consolidated Subsidiaries in any manner, to the extent realized by such other corporation or Person prior to the date of acquisition; (d) earnings or losses of any business entity (other than New World’s consolidated Subsidiaries) in which New World or any of its consolidated Subsidiaries has an ownership interest to the extent such earnings or losses are not actually received or paid for by New World or any of its consolidated Subsidiaries in the form of cash; (e) earnings or losses of any Person to which assets of New World or any of its consolidated Subsidiaries shall have been sold, transferred or disposed of, or into which New World or any of its consolidated Subsidiaries shall have been merged, or which has been a party with New World or any of its consolidated Subsidiaries to any consolidation or other form of reorganization, prior to the date of such transaction; (f) gain or loss arising from the acquisition of debt or equity securities of New World or any of its consolidated Subsidiaries or from cancellation or forgiveness of Debt; (g) gain and non-cash losses arising from extraordinary items, as determined in accordance with GAAP; (h) legal, accounting, financing, consulting, advisory and other out-of-pocket fees and expenses incurred in connection with debt financings, equity financing, acquisitions and/or divestitures (including, without limitation, the offering of notes under the Indenture and the Equity Restructuring), whether or not such transactions are consummated; (i) fees and expenses related to store closures; (j) legal fees related to pending SEC and DOJ investigations and other litigation pending as of the Closing Date and litigation related to the subject matter thereof or related thereto commenced after the Closing Date; (k) expenses relating to the cumulative change in the fair value of derivatives, extinguishments of debt or equity (including, without limitation, in connection with current recapitalization efforts of the Borrowers), impairments, other income/expense, and reorganization costs, expenses or provisions; (l) any other non-recurring expenses; and (m) the sum of the provisions for income tax, interest expense, depreciation and amortization expense, in each case, to the extent deducted in determining net income for such period. Net income for any period will be determined by expensing (and not capitalizing) all costs associated with the opening of new retail locations other than Capital Expenditures consisting of fixtures, furniture, leasehold and improvements and equipment; and (n) any other non-cash charge or expense to the extent such charge or expense does not relate to a future cash payment obligation, including, without limitation, non-cash compensation expense.

“Einstein” has the meaning set forth in the introductory paragraph hereof.

“Einstein/Noah” has the meaning set forth in the introductory paragraph hereof.

“Eligible Assignee” means (a) a commercial bank, commercial finance company or other asset based lender, having total assets in excess of $100,000,000, which is acceptable to the Agent and, unless a Default or an Event of Default has occurred and is continuing, consented to by New World (which consent shall not be unreasonably withheld); (b) any Lender; (c) any

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Affiliate of any Lender; and (d) if a Default or an Event of Default has occurred and is continuing, any Person acceptable to the Agent.

“Environmental Laws” means all federal, state or local laws, statutes, common law requirements or duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, licenses and permits of, and written agreements with, any Governmental Authority, in each case relating to environmental, health and safety matters.

“Environmental Lien” means a Lien in favor of any Governmental Authority for (a) any liability under any Environmental Laws, or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment.

“Equipment” means all of each Loan Party’s now owned and hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and other tangible personal property (except Inventory), including embedded software, motor vehicles with respect to which a certificate of title has been issued to the relevant Loan Party, aircraft, dies, tools, jigs, molds and office equipment, as well as all of such types of property leased by any Loan Party and all of each Loan Party’s rights and interests with respect thereto under such leases (including, without limitation, options to purchase); together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located.

“Equity Interest” means, collectively, all of the issued and outstanding shares, interests or other equivalents of capital stock of any corporation at any time now or hereafter owned by any Loan Party (including, without limitation, any corporation that is or hereafter becomes a Subsidiary of such Loan Party), whether voting or non-voting and whether common or preferred, all partnership, joint venture, limited liability company or other equity interests in any person not a corporation at any time now or hereafter owned by any Loan Party (including, without limitation, any such Person that is or hereafter becomes a Subsidiary of such Loan Party), all options, warrants and other rights to acquire, and all securities convertible into, any of the foregoing, all rights to receive interest, income, dividends, distributions, returns of capital and other amounts (whether in cash, securities, property, or a combination thereof), and all additional stock, warrants, options, securities, interests and other property, from time to time paid or payable or distributed or distributable in respect of any of the foregoing, including, without limitation, all rights of such Loan Party to receive amounts due and to become due under or in respect of any Investment Agreement or upon the termination thereof, all rights of access to the books and records of any such Person, and all other rights, powers, privileges, interests, claims and other property in any manner arising out of or relating to any of the foregoing, of whatever kind or character (including any tangible or intangible property or interests therein), and whether provided by contract or granted or available under applicable law in connection therewith, including, without limitation, such Loan Party’s right to vote and to manage and administer the business of any such Person pursuant to any applicable Investment Agreement, together with all certificates, instruments and entries upon the books of financial intermediaries at any time

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evidencing any of the foregoing, in each case whether now owned or existing or hereafter acquired or arising.

“Equity Restructuring” means the equity restructuring contemplated by the Equity Restructuring Agreement.

“Equity Restructuring Agreement” means the Equity Restructuring Agreement dated June 26, 2003, among New World, Halpern Denny III, L.P. and Greenlight Capital, L.P., Greenlight Capital Qualified, L.P., Greenlight Capital Offshore, Ltd., Brookwood New World Investors, L.L.C. and NWCI Holdings, LLC.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with New World or any of its Subsidiaries within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer Plan is in reorganization under Section 4241 of ERISA; (d) the filing of a notice of intent to terminate a Pension Plan (other than in a “standard termination” within the meaning of Section 4041 of ERISA which would not result in a material liability to any Loan Party), the treatment of a Pension Plan amendment as a termination (other than such a “standard termination”) under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multi-employer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multi-employer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate.

“Event of Default” has the meaning specified in Section 11.1.

“Exchange Act” means the Securities and Exchange Act of 1934, and regulations promulgated thereunder.

“Excluded Agreements” has the meaning specified in Section 6.1(a).

“Federal Funds Rate” means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal

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Reserve Bank of New York (including any such successor, “H.15(519)”) on the preceding Business Day opposite the caption “Federal Funds (Effective)”; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any successor thereto.

“Fee Letter” has the meaning specified in Section 3.4.

“Financial Statements” means, according to the context in which it is used, the financial statements referred to in Section 7.2 or Section 8.6.

“Fiscal Year” means, with respect to the Borrowers and their Subsidiaries, each fiscal year ending on December 31 of each year.

“Fixed Assets” means Equipment and Real Estate of the Loan Parties.

“Fixed Charge Coverage Ratio” means, for any Test Period, the ratio of (a) EBITDA for such Test Period over (b) the sum of (i) cash interest expense of the Borrowers and their Subsidiaries for such Test Period, (ii) taxes (other than sales taxes) of the Borrowers and their Subsidiaries paid or required to be paid in cash during such Test Period, (iii) Capital Expenditures of the Borrowers and their Subsidiaries paid in cash during such Test Period, and (iv) scheduled principal payments of Debt of the Borrowers and their Subsidiaries due during such Test Period.

“Funding Date” means the date on which a Borrowing occurs.

“GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), consistently applied.

“General Intangibles” means all of each Loan Party’s now owned or hereafter acquired general intangibles, chooses in action and causes of action and all other intangible personal property of each Loan Party of every kind and nature (other than Accounts), including, without limitation, all contract rights, payment intangibles, Proprietary Rights, corporate or other business records, inventions, designs, blue-prints, plans, specifications, patents, patent applications, trademarks, service marks, trade names, trade secrets, goodwill, copyrights, computer software, customer lists, registrations, licenses, franchises, tax refund claims, any funds which may become due to any Loan Party in connection with the termination of any Plan or other employee benefit plan or any rights thereto and any other amounts payable to a Loan Party from

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any Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, extra expense insurance and proceeds thereof, property, casualty or any similar type of insurance and any proceeds thereof, proceeds of insurance covering the lives of key employees on which a Loan Party is beneficiary, and any letter of credit, guarantee, claim, security interest or other security held by or granted to a Loan Party.

“Government Contract” means any contract entered into between a Loan Party and the government of the United States of America, or any department, agency, public corporation or other instrumentality thereof.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

“Guarantors” means, collectively, New World and each Subsidiary of any of the Loan Parties, including, without limitation, each Subsidiary that, after the date hereof, executes an Addendum, in each case other than any Non-Restricted Subsidiary.

“Guaranty” means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other obligations of any other Person (the “guaranteed obligations”), or assure or in effect assure the holder of the guaranteed obligations against loss in respect thereof, including, without limitation, any such obligations incurred through an agreement, contingent or otherwise:  (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet condition; or (c) to lease property or to purchase any debt or equity securities or other property or services.

“I&J” has the meaning set forth in the introductory paragraph hereof.

“Inactive Subsidiary” means each of Manhattan Bagel Construction Corp., Bay Area Bagel, Inc., CR Bagel Leases, Inc., DAB Industries, Inc., MBC Tonowanda, LLC, MBC North Buffalo, LLC, MBC Northtown, LLC, MBC Cheekotowaga, LLC, MBC Elmwood, LLC, MBC Main Place, LLC, MBC Maple, LLC, MBC Orchard Park, LLC, MBC Amherst, LLC, MBC Snyder, LLC, MBC Transit, LLC, MBC Genesee, LLC, Paragon Bakeries, Inc. and MBC East Aurora, LLC, in each case with respect to which an Activation Event shall not have occurred and, to the extent that an Activation Event shall have occurred with respect to any of the foregoing, such Subsidiary shall cease to be an Inactive Subsidiary for the purposes of this Agreement and such Subsidiary shall comply with the provisions of Section 9.20.

“Indemnified Liabilities” has the meaning specified in Section 15.11.

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“Indenture” means the Indenture, dated as of the Closing Date, among the Borrowers and The Bank of New York, as trustee, as the same may be amended, restated, supplemented or otherwise modified in accordance with the terms hereof and thereof.

“Instruments” means all instruments, as such term is defined in the UCC, now owned or hereafter acquired by any Loan Party.

“Intercompany Accounts” means all assets and liabilities, however arising, which are due to any of the Loan Parties from, which are due from any of the Loan Parties to, or which otherwise arise from any transaction by any Loan Party with, any Affiliate.

“Intercreditor Agreement” means the Intercreditor Agreement, dated the Closing Date, among ASB, as lender, The Bank of New York, as Trustee and Subordinated Creditor, the Agent, as Lender Collateral Agent, The Bank of New York, as Subordinated Creditor Collateral Agent and the Borrowers, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms.

“Interest Rate” means each or any of the interest rates, including the Default Rate, set forth in Section 3.1.

“Inventory” means all of each Loan Party’s now owned and hereafter acquired inventory, goods and merchandise, wherever located, to be furnished under any contract of service or held for sale or lease, all returned goods, raw materials, other materials and supplies of any kind, nature or description which are or might be consumed in any Loan Party’s business or used in connection with the packing, shipping, advertising, selling or finishing of such goods, merchandise and such other personal property, and all documents of title or other documents representing them.

“Investment Agreement” means any articles or certificate of incorporation, partnership agreement, joint venture agreement, limited liability company operating agreement, stockholders agreement or other agreement creating, governing or evidencing any Equity Interests and to which any Loan Party is now or hereafter becomes a party, as any such agreement may be amended, modified, supplemented, restated or replaced from time to time.

“Investment Property” means all of each Loan Party’s right, title and interest in and to any and all:  (a) securities whether certificated or uncertificated; (b) securities entitlements; (c) securities accounts; (d) commodity contracts; or (e) commodity accounts.

“IRS” means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under the Code.

“Latest Projections” means the projections most recently received by the Agent pursuant to Section 7.2(f).

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“Lender” and “Lenders” have the meanings specified in the introductory paragraph hereof and shall include the Agent to the extent of any Agent Advance outstanding and ASB to the extent of any ASB Loan outstanding; provided that no such Agent Advance or ASB Loan shall be taken into account in determining any Lender’s Pro Rata Share.

“Letter of Credit” means a letter of credit issued or caused to be issued for the account of a Borrower pursuant to Section 2.4.

“Letter of Credit Exposure” means, with respect to the Borrowers, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with respect to all Letters of Credit, in each case, as of such time.

“Letter of Credit Fee” has the meaning specified in Section 3.6.

“Lien” means:  (a) any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including, without limitation, a security interest, charge, claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; and (b) to the extent not included under clause (a), any reservation, exception, encroachment, easement, right-of-way, covenant, condition, restriction, lease or other title exception or encumbrance affecting property.

“Loan Account” means, with respect to a Borrower, the loan account of such Borrower, which account shall be maintained by the Agent.

“Loan Documents” means this Agreement, the Fee Letter, the Pledge Agreement, the Patent and Trademark Agreement, and any other agreements, instruments and documents heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise relating to the Obligations, the Collateral or any other aspect of the transactions contemplated by this Agreement (including, without limitation, any Mortgage at any time entered into by any of the Borrowers or any of their Subsidiaries).

“Loan Party” means each of the following:  each Guarantor, each Borrower and each of their respective Subsidiaries other than a Non-Restricted Subsidiary.

“Loans” means, collectively, all loans and advances provided for in Article II.

“Major Premises” means the Real Property leased by New World located in Hamilton, New Jersey, Golden, Colorado (Cole Boulevard), Whittier, California and Los Angeles, California.

“Majority Lenders” means at any time (i) while the Revolving Commitments shall then be in effect, Lenders whose Revolving Commitments aggregate more than 51% of the sum

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of the Revolving Commitments of all Lenders and (ii) if no Revolving Commitments shall then be in effect, Lenders who hold more than 51% of the aggregate principal amount of the Loans then outstanding.

“Manhattan Bagel” has the meaning set forth in the introductory paragraph hereof.

“Margin Adjustment Period” means each period which shall commence the first day of the month beginning immediately after the earlier of the date of delivery and the date required for delivery pursuant to Section 7.2(a) of the financial statements for the Fiscal Year ending December 31, 2003 and each fiscal quarter and Fiscal Year thereafter and which Margin Adjustment Period shall end on the earlier of (i) the last day of the month of actual delivery of the next financial statements pursuant to Section 7.2(a) or Section 7.2(c) (as the case may be) and (ii) the last day of the month during which the next financial statements are required to be delivered pursuant to Section 7.2(a) or Section 7.2(c) (as the case may be).

“Margin Adjustment Test Period” means, with respect to each Margin Adjustment Period, the Fiscal Year or period of four consecutive fiscal quarters for which financial statements were last delivered or required to be delivered pursuant to Section 7.2(a) or Section 7.2(c), as the case may be, ending on the Test Date for such Margin Adjustment Period.

“Margin Stock” means “margin stock” as such term is defined in Regulation T, U or X of the Federal Reserve Board.

“Material Adverse Effect” means (a) a material adverse change in, a material impairment of, or a material adverse effect upon the operations, business, properties, performance or condition (financial or otherwise) of the Loan Parties (taken as a whole) or the Collateral; (b) a material impairment in the ability of the Loan Parties (taken as a whole) to perform in any material respect their obligations under the operative Loan Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability (except as limited by bankruptcy, insolvency, reorganization or moratorium or other similar laws relating to the enforcement of creditors’ rights generally) against any Loan Party of any operative Loan Document.

“Maximum Rate” has the meaning specified in Section 3.3.

“Maximum Revolver Amount” means $15,000,000 or such lesser amount as the sum of the Revolving Commitments of all Lenders shall have been reduced to in accordance with this Agreement.

“Mortgages” means all real property mortgages, leasehold mortgages, assignments of leases, mortgage deeds, deeds of trust, deeds to secure debt, security agreements, and other similar instruments at any time entered into which provide the Agent a Lien, for the benefit of the Agent and Lenders, on or other interest in any portion of the Premises or the Real Estate or which relate to any such Lien or interest.

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“Multi-employer Plan” means a “multi-employer plan” as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by any Loan Party or any ERISA Affiliate.

“New World” has the meaning set forth in the introductory paragraph hereof.

“Non-Restricted Subsidiary” means (i) New World EnbcDeb Corp. and each Inactive Subsidiary, and (ii) any Subsidiary that is designated by the board of directors of New World as a Non-Restricted Subsidiary pursuant to a resolution of such board, but only to the extent that such Subsidiary:  (a) has no Debt other than Debt both that is non-recourse to any Borrower or Guarantor, and with respect to which no Borrower or Guarantor provides any credit support; (b) is not party to any agreement, contract, arrangement or understanding with any Borrower or any Guarantor unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to such Borrower or Guarantor than those that might be obtained at the time from Persons who are not Affiliates of any Borrower; (c) is a Person with respect to which neither any Borrower nor any Guarantor has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Debt of any Borrower or any Guarantor.  Any such designation by the board of directors of New World shall be evidenced to the Agent by filing with the Agent a certified copy of such board resolution and an officers’ certificate certifying that such designation complied with the foregoing conditions and the other terms and conditions of this Agreement, such designation does not cause a Default or Event of Default, and no Activation Event with respect to such Subsidiary would be deemed to have occurred.  If, at any time, any Non-Restricted Subsidiary would fail to meet the foregoing requirements or an Activation Event shall occur with respect thereto, it shall thereafter cease to be a Non-Restricted Subsidiary for purposes of this Agreement and such Subsidiary shall comply with the provisions of Section 9.20.

“Notice of Borrowing” has the meaning specified in Section 2.2(b).

“Obligations” means all present and future loans, advances, liabilities, obligations, covenants, duties, and debts owing by any one or more of the Loan Parties to the Agent and/or any Lender, arising under or pursuant to this Agreement or any of the other Loan Documents, whether or not evidenced by any note, or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, including, without limitation, the Letters of Credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment from others, and any participation by the Agent and/or any Lender in a Loan Party’s debts owing to others), absolute or contingent, due or to become due, primary or secondary, as principal or guarantor, and including, without limitation, all principal, interest, charges, expenses, fees, attorneys’ fees, filing fees and any other sums chargeable to any of the Loan Parties hereunder or under any of the other Loan Documents (including, without limitation, all interest thereon, whether accruing prior or subsequent to the commencement of a bankruptcy or similar proceeding involving any Loan Party as a debtor and whether or not such interest is an allowed claim in any such proceeding).

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“Operating Cash Flow Coverage Ratio” means, for any Test Period, the ratio of (a)(i) Adjusted EBITDA for such Test Period minus (ii) Capital Expenditures of the Borrowers and their Subsidiaries paid in cash during such Test Period over (b) the sum of (i) cash interest expense of the Borrowers and their Subsidiaries for such Test Period, (ii) taxes (other than sales taxes) of the Borrowers and their Subsidiaries paid or required to be paid in cash during such Test Period, (iii) scheduled principal payments of Debt of the Borrowers and their Subsidiaries due during such Test Period (other than Debt being repaid on the Closing Date), (iv) management fees paid by the Borrowers during such Test Period and (v) Distributions paid in cash during such Test Period.

“Other Taxes” means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents.

“Participant” has the meaning specified in Section 13.3(e).

“Patent and Trademark Agreement” means the Security Agreement and Mortgage — Trademarks and Patents, dated the Closing Date, executed and delivered by each Loan Party to the Agent to evidence and perfect the Agent’s security interest (on behalf of the Agent and the Lenders) in each Loan Party’s present and future patents, trademarks, and related licenses and rights, together with all related assignments for security and special powers of attorney, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Payment Account” means each bank account established pursuant to this Agreement, to which the funds of any of the Borrowers (including, without limitation, proceeds of Accounts and other Collateral) are deposited or credited, and which is maintained in the name of the Agent or any Borrower, as the Agent may determine, on terms acceptable to the Agent.

“PBGC” means the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof.

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which any Loan Party sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multi-employer Plan, has made contributions at any time during the immediately preceding five (5) plan years.

“Permitted Distributions” means Distributions (or similar distribution or act, if not a corporation), to a Borrower by its Subsidiaries.

“Permitted Holders” means each of Halpern Denny & Co., NWCI Holdings, LLC, Brookwood New World Investors, LLC, Greenlight Capital, L.P., Greenlight Capital Qualified, L.P., Greenlight Capital Offshore, Ltd., Thomas Weisel Capital Partners LLC and Bruckmann, Rosser, Sherrill & Co. L.L.C., Triarc Companies, Inc. and their respective Affiliates.

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“Permitted Liens” means:

(a)Liens imposed by any Governmental Authority for taxes not delinquent or statutory Liens for taxes in an amount not to exceed $1,000,000 provided that the payment of such taxes which are due and payable is being contested in good faith and by appropriate proceedings diligently pursued and as to which adequate financial reserves have been established on a Loan Party’s books and records and for which no enforcement order has been entered or enforcement action has been taken with respect to any such Lien;

(b)the Agent’s Liens;

(c)pledges or deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business;

(d)Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons, provided that if any such Lien arises from the nonpayment of such claims or demand when due, such claims and demands are being contested in good faith by the applicable Loan Party and such claims or demands do not exceed (i) for the period commencing on the Closing Date and ending on the first Anniversary Date, $500,000 in the aggregate, (ii) for the period commencing on the day after the first Anniversary Date and ending on the second Anniversary Date, $750,000 in the aggregate and (iii) for the period after the day after the second Anniversary Date, $1,000,000 in the aggregate;

(e)reservations, exceptions, encroachments, easements, rights of way, covenants running with the land, and other similar title exceptions or encumbrances affecting any Real Estate; provided that they do not in the aggregate materially detract from the value of such Real Estate or materially interfere with its use in the ordinary conduct of a Loan Party’s business;

(f)judgment and other similar Liens arising in connection with judgments that would not result in an Event of Default pursuant to Section 11.1(k);

(g)Purchase Money Liens;

(h)any interest or title of a lessor under any Capital Lease permitted hereunder; provided, that (i) such Liens only serve to secure the payment arising under such Capital Lease and (ii) such Liens do not extend to any property or assets of any Loan Party which are not leased property subject to such Capital Lease;

(i)Liens existing on the Closing Date and set forth on Schedule 9.18; provided, however, that such Liens shall secure only those obligations that they secure on the

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Closing Date and such Liens shall attach only to those assets that such Liens attach to on the Closing Date;

(j)Liens securing Debt of the Loan Parties under the Senior Secured Debt Documents, which Liens shall be subject to the Intercreditor Agreement;

(k)rights of setoff or brokers’ Liens upon deposits of cash (other than on proceeds of Collateral) at financial institutions or upon deposits of cash in a deposit account subject to a blocked account agreement with the Agent;

(l)the replacement, extension or renewal of any Lien on Fixed Assets permitted by clauses (g), (h) or (i) of this definition; provided, however, that such Lien shall at no time be extended to cover any assets or property other than such Fixed Assets subject thereto on the Closing Date or the date such Fixed Asset was acquired, as applicable; and

(m)Liens securing obligations of any Loan Party in respect of any interest rate swaps, caps, floors, collars or similar agreements to which such Loan Party is a party, to the extent permitted pursuant to clause (i) of the definition of “Restricted Investment”.

“Permitted Rentals” has the meaning specified in Section 9.23.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority, limited liability company or any other entity.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) which any Loan Party sponsors or maintains or to which any Loan Party makes, is making, or is obligated to make contributions and includes any Pension Plan.

“Pledge Agreement” means the Pledge Agreement, dated as of the Closing Date, pursuant to which the shares of capital stock or other Equity Interests of each of the Loan Parties (other than New World) are pledged to the Agent, for the benefit of the Agent and the Lenders, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Premises” means the land identified by addresses on Schedule 8.11, together with all buildings, improvements and fixtures thereon and all tenements, hereditaments and appurtenances belonging or in any way appertaining thereto, and which constitutes all of the real property in which any Loan Party has any interests on the Closing Date.

“Primary Offering” means, with respect to any Person, an underwritten public offering of Capital Stock that is not Disqualified Capital Stock of such Person pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (other than a registration statement on Form S-8 or otherwise relating to equity securities under any employee benefit plans), or pursuant to an exemption from the registration requirements thereof.

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“Pro Rata Share” means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender’s Revolving Commitment and the denominator of which is the sum of the amounts of all of the Lenders’ Revolving Commitments, or if no Revolving Commitments are outstanding, a fraction (expressed as a percentage), the numerator of which is the amount of Obligations owed to such Lender and the denominator of which is the aggregate amount of the Obligations owed to the Lenders.

“Proprietary Rights” means all of each Loan Party’s now owned and hereafter arising or acquired:  franchises, permits, patents, patent applications, patent rights, copyrights, works which are the subject matter of copyrights, trademarks, service marks, trade names, trade styles, patent, trademark and service mark applications, and all licenses and rights related to any of the foregoing, including, without limitation, those patents, trademarks, service marks, trade names and copyrights set forth on Schedule 8.12 hereto, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing and licenses to any of the foregoing.

“Purchase Money Lien” means a Lien granted on a fixed asset to secure a Purchase Money Obligation permitted to be incurred hereunder, and incurred solely to finance the acquisition of such asset; provided, however, that such Lien encumbers only such asset and is granted within 10 days of such acquisition.

“Purchase Money Obligations” of any Person means any obligations of such Person to any seller or any other Person incurred or assumed to finance the acquisition of a fixed asset to be used in the business of such Person or any of its Subsidiaries in an amount that is not more than 100% of the cost of such asset, and incurred within 10 days after the date of such acquisition (excluding accounts payable to trade creditors incurred in the ordinary course of business).

“Qualified Recapitalization” means the conversion of all of the shares of series F preferred stock, par value $0.001 per share of New World, Common Stock of New World and warrants to purchase Common Stock of New World held by Halpern Denny Fund III, L.P. into shares of newly issued non-interest bearing preferred stock of New World having a face amount of $57.0 million, which is mandatorily redeemable by New World in five and one-half years.

“Real Estate” means all of the present and future interests of each Loan Party, as owner, lessee or otherwise (but not including any interest arising solely from such Loan Party’s position as franchisor), in the Premises or other real property, including, without limitation, any interest arising from an option to purchase or lease the Premises or any such other real property, or any portion thereof.

“Release” means a release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into the indoor or outdoor environment or into or out of any Real Estate or other property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Real Estate or other property.

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“Rentals” has the meaning specified in Section 9.23.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

“Requirement of Law” means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.

“Responsible Officer” means, with respect to a Loan Party, the chief executive officer or the president of such Loan Party, as the case may be, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer of such Loan Party, as the case may be, or any other officer having substantially the same authority and responsibility.

“Restricted Equipment” has the meaning specified in Section 6.1(a).

“Restricted Investment” means any acquisition of property (including, without limitation, any Equity Interest) by a Loan Party in exchange for cash or other property, whether in the form of an acquisition of stock, debt, or other indebtedness or obligation, or the purchase or acquisition of any other property, or a loan, advance, joint venture, capital contribution, or subscription, except the following:  (a) acquisitions of equipment, other assets or Real Estate to be used in the business of a Borrower or a Subsidiary thereof so long as the acquisition costs thereof constitute Capital Expenditures permitted hereunder and such acquisition is otherwise permitted hereunder; (b) acquisitions by a Borrower or a Subsidiary thereof of Inventory in the ordinary course of business; (c) acquisitions by a Borrower or a Subsidiary thereof of current assets arising from the sale or lease of goods or the rendition of services in the ordinary course of business of such Loan Party; (d) acquisitions by a Borrower or a Subsidiary thereof of direct obligations of the United States of America, or any agency thereof, or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (e) acquisitions by a Borrower or a Subsidiary thereof of certificates of deposit maturing within one year from the date of acquisition, bankers’ acceptances, Eurodollar bank deposits, or overnight bank deposits, in each case issued by, created by, or with a bank or trust company organized under the laws of the United States or any state thereof having capital and surplus aggregating at least $100,000,000; (f) acquisitions by a Borrower or a Subsidiary thereof of commercial paper given a rating of “A2” or better by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., or “P2” or better by Moody’s Investors Service, Inc. and maturing not more than 90 days from the date of creation thereof; (g) Debt permitted pursuant to Section 9.12(e); (h) investments by a Loan Party, in its wholly-owned Subsidiaries in existence on the Closing Date and in Persons that, following such investment, are wholly-owned Subsidiaries; provided, that the no further investments shall be made in a Subsidiary that is not a Borrower or a Guarantor hereunder; (i) acquisitions of interest rate swaps, caps, floors, collars or similar agreements; provided, that the aggregate amount of

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such investments for all Loan Parties under this clause (i) shall not exceed $500,000; (j) investments in securities of trade creditors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors solely in exchange for a claim against any such trade creditor; (k) investments in the notes issued pursuant to the Indenture; and (l) acquisitions by a Loan Party in any of the agreements, instruments, obligations or funds described in clauses (iv), (v), (vi) or (vii) of the definition of “Cash Equivalents” in the Indenture.  Any property excluded from this definition of “Restricted Investment” shall only be excluded if it is subject to the Agent’s Liens.

“Restructuring” means, collectively, the issuance by New World of the Senior Secured Debt to refinance (i) the existing $140,000,000 Senior Secured Notes of New World, plus accrued interest thereon, (ii) the existing $7,500,000 working capital facility of New World and (iii) outstanding promissory notes of New World having an aggregate outstanding balance of approximately $1,700,000.

“Revolving Commitment” means, with respect to each Lender, the amount set forth opposite such Lender’s name on the signature pages hereto next to the line entitled “Revolving Commitment,” or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.3, as such commitment may be adjusted from time to time in accordance with the provisions of Section 3.7 or Section 13.2.

“Revolving Loans” has the meaning specified in Section 2.2(a) and includes each Agent Advance and ASB Loan.

“Senior Secured Debt” has the meaning specified in Section 10.1(o).

“Senior Secured Debt Documents” means all documents, instruments and agreements evidencing, governing or otherwise relating to any of the Senior Secured Debt including, without limitation, the Indenture and any notes evidencing the Senior Secured Debt.

“Settlement” and “Settlement Date” have the meanings specified in Section 2.2(j)(i).

“Solvent” means when used with respect to any Person that at the time of determination:

(a)the assets of such Person, at a fair valuation, are in excess of the total amount of its debts (including, without limitation, contingent liabilities); and

(b)the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and

(c)it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and

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(d)it has capital sufficient to carry on its business as conducted and as proposed to be conducted.

For purposes of determining whether a Person is Solvent, the amount of any contingent liability shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Standby Letter of Credit” means all Letters of Credit other than Documentary Letters of Credit.

“Stated Termination Date” means the earlier to occur of (i) July 8, 2006 and (ii) six months prior to the stated maturity of the Senior Secured Debt.

“Subsidiary” of a Person means any corporation, association, partnership, joint venture, limited liability company or other business entity of which more than fifty percent (50%) of the voting stock or other Equity Interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a “Subsidiary” refer to a Subsidiary of New World.

“Supporting Letter of Credit” has the meaning specified in Section 2.4(j).

“Supporting Obligations” means all supporting obligations, as such term is defined in the UCC, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments or Investment Property.

“Taxes” means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender’s net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Agent, as the case may be, is organized or maintains a lending office.

“Termination Date” means the earliest to occur of (a) the Stated Termination Date, (b) the date the Total Facility is terminated either by the Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to Section 11.2, and (c) the date the Total Facility or this Agreement is otherwise terminated for any reason whatsoever.

“Test Date” means, with respect to any Margin Adjustment Period, the last day of New World’s fiscal quarter or Fiscal Year, as applicable, ending immediately prior to the commencement of such Margin Adjustment Period.

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“Test Period” means, for any determination required under this Agreement, the period of four consecutive fiscal quarters of New World ended at the end of the relevant fiscal quarter or Fiscal Year of New World.

“Total Exposure” means, with respect to the Borrowers, at any time, the sum of (i) the Letter of Credit Exposure at such time plus (b) the sum of outstanding Revolving Loans at such time.

“Total Facility” has the meaning specified in Section 2.1.

“Transaction Documents” means, collectively, the Loan Documents, the Senior Secured Debt Documents, the Intercreditor Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith.

“UCC” means the Uniform Commercial Code (or any successor statute) of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“Unused Letter of Credit Subfacility” means, at any time, an amount equal to $2,500,000 minus the Letter of Credit Exposure at such time.

“Unused Line Fee” has the meaning specified in Section 3.5.

“Voting Stock” means, with respect to any Person, one or more classes of the Capital Stock of such Person having general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

“Willoughby’s” has the meaning set forth in the introductory paragraph hereof.

Section 1.2.Accounting Terms.  Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the Financial Statements referred to in Section 8.6.  In the event that any accounting change of the Financial Accounting Standards Board shall be promulgated resulting in a change in the method of calculation of financial covenants, financial standards or other terms in this Agreement, then the Loan Parties, the Agent and the Majority Lenders agree to enter into good faith negotiations in

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order to amend such provisions of this Agreement so as to equitably reflect such accounting changes to the effect that the criteria for evaluating the financial condition and performance of the Borrowers and their Subsidiaries shall be the same after such accounting changes as if such accounting changes had not been made.  Until such time as such an amendment shall have been executed and delivered by the Loan Parties, the Agent and the Majority Lenders, all financial covenants, financial standards and other terms in this Agreement shall continue to be calculated or construed as if such accounting changes had not occurred.

Section 1.3.Interpretive Provisions.  (a)  The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)The words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and Subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c)(i)The term “documents” includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced.

(ii)The term “including” is not limiting and means “including without limitation.”

(iii)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.”

(d)Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation.

(e)The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

(f)This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters.  All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms.

(g)This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by each party’s counsel and are the products of all parties.  Accordingly, they shall not be construed against the Lenders or the Agent merely because of the Agent’s or Lenders’ involvement in their preparation.

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ARTICLE II

LOANS AND LETTERS OF CREDIT

Section 2.1.Total Facility.  Subject to all of the terms and conditions of this Agreement, the Lenders severally agree to make available a total credit facility of $15,000,000 (the “Total Facility”) for the Borrowers’ use from time to time during the term of this Agreement.  The Total Facility shall be comprised of a revolving line of credit consisting of revolving loans and letters of credit up to the Maximum Revolver Amount, as described in Sections 2.2 and 2.4.

Section 2.2.Revolving Loans.

(a)Amounts.  Subject to the satisfaction of the conditions precedent set forth in Article X, each Lender severally agrees, upon a Borrower’s request from time to time on any Business Day during the period from the Closing Date to the Termination Date, to make revolving loans (the “Revolving Loans”) to such Borrower, in amounts not to exceed on an aggregate basis (except for ASB with respect to ASB Loans or Agent Advances) the lesser of (i) such Lender’s Revolving Commitment and (ii) such Lender’s Pro Rata Share of the Borrowers’ Availability.  If the Total Exposure exceeds the Availability, the Lenders may refuse to make or otherwise restrict the making of Revolving Loans as the Lenders determine until such excess has been eliminated, subject to the Agent’s authority, in its sole discretion, to make Agent Advances pursuant to the terms of Section 2.2(i).

(b)Procedure for Borrowing.  Each Borrowing by a Borrower shall be made upon such Borrower’s irrevocable written notice delivered to the Agent in the form of a notice of borrowing substantially in the form of Exhibit A (a “Notice of Borrowing”), which must be received by the Agent no later than 11:00 a.m. on the requested Funding Date, specifying:

(i)the amount of the Borrowing by such Borrower;

(ii)the requested Funding Date, which shall be a Business Day; and

(iii)          the Availability as of such date.

(c)Reliance upon Authority.  On or prior to the Closing Date and thereafter prior to any change with respect to any of the information contained in the following clauses (i) and (ii) with respect to such Borrower, each Borrower shall deliver to the Agent a writing setting forth (i) the account of such Borrower to which the Agent is authorized to transfer the proceeds of the Revolving Loans requested by such Borrower pursuant to this Section 2.2, and (ii) the names of the officers authorized to request Revolving Loans on behalf of such Borrower, and shall provide the Agent with a specimen signature of each such officer.  The Agent shall be entitled to rely conclusively on such officer’s authority to request Revolving Loans on behalf of

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the applicable Borrower, the proceeds of which are to be transferred to any of the accounts specified by such Borrower pursuant to the immediately preceding sentence, until the Agent receives written notice from such Borrower to the contrary.  The Agent shall have no duty to verify the identity of any individual representing him or herself as one of the officers authorized by the applicable Borrower to make such requests on its behalf.

(d)No Liability.  The Agent shall not incur any liability to any Loan Party as a result of acting upon any notice referred to in Sections 2.2(b) and (c), which notice the Agent believes in good faith to have been given by an officer duly authorized by any Borrower to request Revolving Loans on its behalf or for otherwise acting in good faith under this Section 2.2, and the crediting of Revolving Loans to such Borrower’s deposit account, or transmittal to such Person as such Borrower shall direct, shall conclusively establish the obligation of such Borrower to repay such Revolving Loans as provided herein.

(e)Notice Irrevocable.  Any Notice of Borrowing made by a Borrower pursuant to Section 2.2(b) shall be irrevocable and such Borrower shall be bound to borrow the funds requested therein in accordance therewith.

(f)Agent’s Election.  Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b), the Agent shall elect, in its discretion, (i) to have the terms of Section 2.2(g) apply to such requested Borrowing, or (ii) to request ASB to make an ASB Loan pursuant to the terms of Section 2.2(h) in the amount of the requested Borrowing; provided, however, that if ASB declines in its sole discretion to make an ASB Loan pursuant to Section 2.2(h), the Agent shall elect to have the terms of Section 2.2(g) apply to such requested Borrowing.

(g)Making of Revolving Loans.  (i)  In the event that the Agent shall elect to have the terms of this Section 2.2(g) apply to a requested Borrowing as described in Section 2.2(f), then promptly after receipt of a Notice of Borrowing, the Agent shall notify the Lenders by telecopy, telephone or other similar form of transmission, of the requested Borrowing.  Each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to the Agent in same day funds, to such account of the Agent as the Agent may designate, not later than 11:00 a.m. (New York City time), on the Funding Date applicable thereto.  After the Agent’s receipt of the proceeds of such Revolving Loans, upon satisfaction of the applicable conditions precedent set forth in Article X, the Agent shall make the proceeds of such Revolving Loans available to the applicable Borrower on the applicable Funding Date by transferring same day funds equal to the proceeds of such Revolving Loans received by the Agent to the account of such Borrower, designated in writing by such Borrower and acceptable to the Agent; provided, however, that the amount of Revolving Loans so made on any date shall in no event exceed Availability on such date.

(ii)Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent for the account of the applicable Borrower the amount of that

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Lender’s Pro Rata Share of the Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available funds on the Funding Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to such Borrower on such date a corresponding amount.  If and to the extent any Lender shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to such Borrower such amount, that Lender shall on the Business Day following such Funding Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period.  A notice of the Agent submitted to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error.  If such amount is so made available, such payment to the Agent shall constitute such Lender’s Loan on the date of Borrowing for all purposes of this Agreement.  If such amount is not made available to the Agent on the Business Day following the Funding Date, the Agent will notify the applicable Borrower of such failure to fund and, upon demand by the Agent, such Borrower shall pay such amount to the Agent for the Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing.  The failure of any Lender to make any Loan on any Funding Date (any such Lender, prior to the cure of such failure, being hereinafter referred to as a “Defaulting Lender”) shall not relieve any other Lender of any obligation hereunder to make a Loan on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Funding Date.

(iii)The Agent shall not be obligated to transfer to a Defaulting Lender any payments made by a Borrower to the Agent for the Defaulting Lender’s benefit; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shall instead be paid to or retained by the Agent.  The Agent may hold and, in its discretion, re-lend to a Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender.  For purposes of voting or consenting to matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a “Lender” and such Lender’s Revolving Commitment shall be deemed to be zero (-0-).  Until a Defaulting Lender cures its failure to fund its Pro Rata Share of any Borrowing (1) such Defaulting Lender shall not be entitled to any portion of the Unused Line Fee and (2) the Unused Line Fee shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing, shall be allocated among such performing Lenders ratably based upon their relative Revolving Commitments, and shall be calculated based upon the average amount by which the aggregate Revolving Commitments of such performing Lenders exceeds the sum of outstanding Revolving Loans and the undrawn face amount of all outstanding Letters of Credit (and all unpaid reimbursement obligations in respect of Letters of Credit).  This section shall remain effective with respect to such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement.  The terms of this Section shall not be construed to increase or otherwise affect the Revolving Commitment of any Lender, or relieve or excuse the performance by any Borrower of its duties and obligations hereunder.

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(h)Making of ASB Loans.  (i)  In the event the Agent shall elect, with the consent of ASB, to have the terms of this Section 2.2(h) apply to a requested Borrowing as described in Section 2.2(f), ASB shall make a Revolving Loan in the amount of such Borrowing (any such Revolving Loan made solely by ASB pursuant to this Section 2.2(h) being referred to as an “ASB Loan” and such Revolving Loans being referred to collectively as “ASB Loans”) available to the applicable Borrower on the Funding Date applicable thereto by transferring same day funds to an account of such Borrower, designated in writing by such Borrower and reasonably acceptable to the Agent.  Each ASB Loan is a Revolving Loan hereunder and shall be subject to all the terms and conditions applicable to other Revolving Loans except that all payments thereon shall be payable to ASB solely for its own account (and for the account of the holder of any participation interest with respect to such Revolving Loan).  The Agent shall not request ASB to make any ASB Loan if (i) the Agent shall have received written notice from any Lender, or otherwise has actual knowledge, that one or more of the applicable conditions precedent set forth in Article X will not be satisfied on the requested Funding Date for the applicable Borrowing, (ii) the requested Borrowing would exceed Availability on such Funding Date or (iii) after giving effect to such ASB Loan, the aggregate amount of ASB Loans would exceed $2,500,000.  ASB shall not otherwise be required to determine whether the applicable conditions precedent set forth in Article X have been satisfied or the requested Borrowing would exceed the Availability on the Funding Date applicable thereto prior to making, in its sole discretion, any ASB Loan.

(ii)The ASB Loans shall be secured by the Collateral, shall constitute Revolving Loans and Obligations hereunder, and shall bear interest at the rate applicable to Revolving Loans from time to time.

(i)Agent Advances.  (i)  Subject to the limitations set forth in the provisos contained in this Section 2.2(i), the Agent is hereby authorized by the Borrowers and the Lenders, from time to time in the Agent’s sole discretion, (1) after the occurrence of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Article X have not been satisfied, to make Revolving Loans to one or more of the Borrowers on behalf of the Lenders which the Agent, in its reasonable business judgment, deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (C) to pay any other amount chargeable to one or more of the Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 15.7 (any of the advances described in this Section 2.2(i) being hereinafter referred to as “Agent Advances”); provided, that the Majority Lenders may at any time revoke the Agent’s authorization contained in this Section 2.2(i) to make Agent Advances, any such revocation to be in writing and to become effective prospectively upon the Agent’s receipt thereof; and provided further, that the Agent shall not make Agent Advances for purposes described in clauses (B) and (C) above which would cause Total Exposure to exceed the Availability of the Borrowers.

(ii)The Agent Advances shall be repayable on demand and secured by the Collateral, shall constitute Revolving Loans and Obligations hereunder, and shall bear

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interest as Revolving Loans from time to time.  The Agent shall notify each Lender in writing of each such Agent Advance.

(j)Settlement.  It is agreed that each Lender’s funded portion of the Revolving Loans is intended by the Lenders to be equal at all times to such Lender’s Pro Rata Share of the outstanding Revolving Loans.  Notwithstanding such agreement, the Agent, ASB and the Lenders agree (which agreement shall not be for the benefit of or enforceable by the Borrowers) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans, the ASB Loans and the Agent Advances shall take place on a periodic basis in accordance with the following provisions:

(i)The Agent shall request settlement (“Settlement”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by the Agent, (A) on behalf of ASB, with respect to each outstanding ASB Loan, (B) for itself, with respect to each Agent Advance, and (C) with respect to collections received, in each case, by notifying the Lenders of such requested Settlement by telecopy, telephone or other similar form of transmission, of such requested Settlement, no later than 11:00 a.m. (New York City time) on the date of such requested Settlement (the “Settlement Date”).  Each Lender (other than ASB in the case of ASB Loans and the Agent in the case of Agent Advances) shall make the amount of such Lender’s Pro Rata Share of the outstanding principal amount of the ASB Loans and Agent Advances with respect to which Settlement is requested available to the Agent, for itself or for the account of ASB, in same day funds, to such account of the Agent as the Agent may designate, not later than 2:00 p.m. (New York City time), on the Settlement Date applicable thereto, regardless of whether the applicable conditions precedent set forth in Article X have then been satisfied.  Such amounts made available to the Agent shall be applied against the amounts of the applicable ASB Loan or Agent Advance and, together with the portion of such ASB Loan or Agent Advance representing ASB’s Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders.  If any such amount is not made available to the Agent by any Lender on the Settlement Date applicable thereto, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after the Settlement Date and thereafter at the Interest Rate then applicable to the Revolving Loans.

(ii)Notwithstanding the foregoing, not more than one (1) Business Day after demand is made by the Agent (whether before or after the occurrence of a Default or an Event of Default and regardless of whether the Agent has requested a Settlement with respect to an ASB Loan or Agent Advance), each other Lender shall irrevocably and unconditionally purchase and receive from ASB or the Agent, as applicable, without recourse or warranty, an undivided interest and participation in such ASB Loan or Agent Advance to the extent of such Lender’s Pro Rata Share thereof by paying to the Agent, in same day funds, an amount equal to such Lender’s Pro Rata Share of such ASB Loan or Agent Advance.  If such amount is not in fact made available to the Agent by any Lender, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter at the Interest Rate then applicable to the Revolving Loans.

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(iii)From and after the date, if any, on which any Lender purchases an undivided interest and participation in any ASB Loan or Agent Advance pursuant to subsection (ii) above, the Agent shall promptly distribute to such Lender at such address as such Lender may request in writing, such Lender’s Pro Rata Share of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such ASB Loan or Agent Advance.

(iv)Between Settlement Dates, the Agent, to the extent no Agent Advances or ASB Loans are outstanding, may pay over to ASB any payments received by the Agent, which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to ASB’s other outstanding Revolving Loans.  If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to ASB’s other outstanding Revolving Loans other than to ASB Loans or Agent Advances, as provided for in the previous sentence, ASB shall pay to the Agent for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans.  During the period between Settlement Dates, ASB with respect to ASB Loans, the Agent with respect to Agent Advances, and each Lender with respect to the Revolving Loans other than ASB Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by ASB, the Agent and the other Lenders.

(k)Notation.  The Agent shall record on its books the principal amount of the Revolving Loans owing to each Lender, including the ASB Loans owing to ASB, and the Agent Advances owing to the Agent, from time to time.  In addition, each Lender is authorized, at such Lender’s option, to note the date and amount of each payment or prepayment of principal of such Lender’s Revolving Loans in its books and records, including computer records, such books and records constituting rebuttably presumptive evidence, absent manifest error, of the accuracy of the information contained therein.

(l)Lenders’ Failure to Perform.  All Revolving Loans (other than ASB Loans and Agent Advances) shall be made by the Lenders simultaneously and in accordance with their Pro Rata Shares.  It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any Revolving Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Loans hereunder, (ii) no failure by any Lender to perform its obligation to make any Revolving Loans hereunder shall excuse any other Lender from its obligation to make any Revolving Loans hereunder, and (iii) the obligations of each Lender hereunder shall be several, not joint and several.

Section 2.3.[Intentionally Omitted.]

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Section 2.4.Letters of Credit.

(a)Agreement to Cause Issuance.  Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties of the Loan Parties herein set forth, the Agent agrees to take reasonable steps to cause to be issued for the account of the requesting Borrower and to provide credit support or other enhancement to banks acceptable to the Agent (and reasonably acceptable to the Borrowers), which issue Letters of Credit for the account of such Borrower and for the benefit of such Borrower (any such credit support or enhancement being herein referred to as “Credit Support”) in accordance with this Section 2.4 from time to time during the term of this Agreement.

(b)Amounts; Outside Expiration Date.  The Agent shall not have any obligation to take steps to cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit at any time if:  (i) the maximum undrawn amount of the requested Letter of Credit and all commissions, fees, and charges due from the applicable Borrower in connection with the opening is greater than the Unused Letter of Credit Subfacility at such time; or (ii) such Letter of Credit has an expiration date later than thirty (30) days prior to the Stated Termination Date or more than twelve (12) months from the date of issuance.

(c)Other Conditions.  In addition to being subject to the satisfaction of the applicable conditions precedent contained in Article X, the obligation of the Agent to take reasonable steps to cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit is subject to the following conditions precedent having been satisfied in a manner satisfactory to the Agent:

(i)The applicable Borrower shall have delivered to the proposed issuer of such Letter of Credit, at such times and in such manner as such proposed issuer may prescribe, an application in form and substance satisfactory to such proposed issuer and to the Agent for the issuance of the Letter of Credit and such other documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit shall be satisfactory to such proposed issuer and to the Agent; and

(ii)As of the date of issuance, no order of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit.

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(d)Issuance of Letters of Credit.

(i)Request for Issuance.  The Borrower for whose account the Letter of Credit is to be issued shall give the Agent five (5) Business Days’ prior written notice of such Borrower’s request for the issuance of a Letter of Credit.  Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit requested, the effective date (which date shall be a Business Day) of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the date on which such requested Letter of Credit is to expire (which date shall be a Business Day), the purpose for which such Letter of Credit is to be issued, and the beneficiary of the requested Letter of Credit.  The applicable Borrower shall attach to such notice the proposed form of the Letter of Credit.

(ii)Responsibilities of the Agent; Issuance.  The Agent shall determine, as of the Business Day immediately preceding the requested effective date of issuance of the Letter of Credit set forth in the notice from the applicable Borrower pursuant to Section 2.4(d)(i), (A) the amount of the Unused Letter of Credit Subfacility at such time and (B) the Availability as of such date.  If (x) the undrawn amount of the requested Letter of Credit is not greater than the Unused Letter of Credit Subfacility at such time and (y) the issuance of such requested Letter of Credit and all commissions, fees, and charges due from the applicable Borrower in connection with the opening thereof would not exceed Availability at such time, the Agent shall take reasonable steps to cause such issuer to issue the requested Letter of Credit on such requested effective date of issuance.

(iii)Notice of Issuance.  On each Settlement Date the Agent shall give notice to each Lender of the issuance of all Letters of Credit issued since the last Settlement Date.

(iv)No Extensions or Amendment.  The Agent shall not be obligated to cause any Letter of Credit to be extended or amended unless the requirements of this Section 2.4(d) are met as though a new Letter of Credit were being requested and issued.  With respect to any Letter of Credit which contains any “evergreen” or automatic renewal provision, each Lender shall be deemed to have consented to any such extension or renewal unless any such Lender shall have provided to the Agent, not less than 30 days prior to the last date on which the applicable issuer can in accordance with the terms of the applicable Letter of Credit decline to extend or renew such Letter of Credit, written notice that it declines to consent to any such extension or renewal, provided, that if all of the requirements of this Section 2.4 are met and no Default or Event of Default exists, no Lender shall decline to consent to any such extension or renewal.

(e)Payments Pursuant to Letters of Credit.

(i)Payment of Letter of Credit Obligations.  Each Borrower agrees to reimburse the issuer for any draw under any Letter of Credit issued for the account of such Borrower and the Agent for the account of the Lenders upon any payment pursuant to any Credit Support related to such Letter of Credit immediately upon demand, and to pay the issuer of the Letter of Credit the amount of all other obligations and other amounts payable to such issuer

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under or in connection with any Letter of Credit issued for the account of such Borrower immediately when due, irrespective of any claim, setoff, defense or other right which such Borrower may have at any time against such issuer or any other Person.

(ii)Revolving Loans to Satisfy Reimbursement Obligations.  In the event that the issuer of any Letter of Credit honors a draw under such Letter of Credit or the Agent shall have made any payment pursuant to any Credit Support and the applicable Borrower shall not have repaid such amount to the issuer of such Letter of Credit or the Agent, as applicable, pursuant to Section 2.4(e)(i), the Agent shall, upon receiving notice of such failure, notify each Lender of such failure, and each Lender shall unconditionally pay to the Agent, for the account of such issuer or the Agent, as applicable, as and when provided hereinbelow, an amount equal to such Lender’s Pro Rata Share of the amount of such payment in Dollars and in same day funds.  If the Agent so notifies the Lenders prior to 11:00 a.m. (New York City time) on any Business Day, each Lender shall make available to the Agent the amount of such payment, as provided in the immediately preceding sentence, on such Business Day.  Such amounts paid by the Lenders to the Agent shall constitute Revolving Loans which shall be deemed to have been requested by the applicable Borrower pursuant to Section 2.2 as set forth in Section 4.7.

(f)Participations.

(i)Purchase of Participations.  Immediately upon issuance of any Letter of Credit in accordance with Section 2.4(d), each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation in the Letter of Credit or the Credit Support provided through the Agent to such issuer in connection with the issuance of such Letter of Credit, equal to such Lender’s Pro Rata Share of the face amount of such Letter of Credit or the amount of such Credit Support (including, without limitation, all obligations of the applicable Borrower with respect thereto, and any security therefor or guaranty pertaining thereto).

(ii)Sharing of Reimbursement Obligation Payments.  Whenever the Agent receives a payment from any Borrower on account of reimbursement obligations in respect of a Letter of Credit or Credit Support as to which the Agent has previously received for the account of the issuer thereof payment from a Lender pursuant to Section 2.4(e)(ii), the Agent shall promptly pay to such Lender such Lender’s Pro Rata Share of such payment from such Borrower in Dollars.  Each such payment shall be made by the Agent on the Business Day on which the Agent receives immediately available funds paid to such Person pursuant to the immediately preceding sentence, if received prior to 2:00 p.m. (New York City time) on such Business Day and otherwise on the next succeeding Business Day.

(iii)Documentation.  Upon the request of any Lender, the Agent shall furnish to such Lender copies of any Letter of Credit, reimbursement agreements executed in connection therewith, application for any Letter of Credit and credit support or enhancement provided through the Agent in connection with the issuance of any Letter of Credit, and such other documentation as may reasonably be requested by such Lender.

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(iv)Obligations Irrevocable.  The obligations of each Lender to make payments to the Agent with respect to any Letter of Credit or with respect to any Credit Support provided through the Agent with respect to a Letter of Credit, and the obligations of the Borrowers to make payments to the Agent, for the account of the Lenders, shall be irrevocable, not subject to any qualification or exception whatsoever, including, without limitation, any of the following circumstances:

(A)any lack of validity or enforceability of this Agreement or any of the other Loan Documents;

(B)the existence of any claim, setoff, defense or other right which a Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender, the Agent, the issuer of such Letter of Credit, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between any Borrower or any other Person and the beneficiary named in any Letter of Credit);

(C)any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(D)the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or

(E)the occurrence of any Default or Event of Default.

(g)Recovery or Avoidance of Payments.  In the event any payment by or on behalf of any Borrower received by the Agent with respect to any Letter of Credit or Credit Support provided for any Letter of Credit (or any guaranty by any Borrower or reimbursement obligation of any Borrower relating thereto) and distributed by the Agent to the Lenders on account of their respective participations therein is thereafter set aside, avoided or recovered from the Agent in connection with any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the Agent their respective Pro Rata Shares of such amount set aside, avoided or recovered, together with interest at the rate required to be paid by the Agent upon the amount required to be repaid by it.

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(h)Compensation for Letters of Credit.

(i)Letter of Credit Fee.  Each Borrower agrees to pay to the Agent, for the account of the Lenders, with respect to each Letter of Credit issued for the account of such Borrower, the Letter of Credit Fee specified in, and in accordance with the terms of, Section 3.6.

(ii)Issuer Fees and Charges.  Each Borrower shall pay to the issuer of any Letter of Credit issued for the account of such Borrower, or to the Agent, for the account of the issuer of any such Letter of Credit, solely for such issuer’s account, such fees and other charges as are charged by such issuer for letters of credit issued by it, including, without limitation, its standard fees for issuing, administering, amending, renewing, paying and canceling letters of credit and all other standard fees associated with issuing or servicing letters of credit, as and when assessed.

(i)Indemnification; Exoneration; Power of Attorney.

(i)Indemnification.  In addition to amounts payable as elsewhere provided in this Section 2.4, each Borrower hereby agrees to protect, indemnify, pay and save the Lenders and the Agent harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees) which any Lender or the Agent may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit for the account of such Borrower or the provision of any credit support or enhancement in connection therewith.  The Agreement in this Section 2.4(i)(i) shall survive payment of all Obligations.

(ii)Assumption of Risk by the Borrowers.  As among the Borrowers, the Lenders, and the Agent, each Borrower assumes all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lenders and the Agent shall not be responsible for:  (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B)  the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (H) any consequences arising from causes beyond the control of the Lenders or the Agent, including, without limitation, any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental

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Authority.  None of the foregoing shall affect, impair or prevent the vesting of any rights or powers of the Agent or any Lender under this Section 2.4(i).

(iii)Exoneration.  In furtherance and extension, and not in limitation, of the specific provisions set forth above, any action taken or omitted by the Agent or any Lender under or in connection with any of the Letters of Credit or any related certificates, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put the Agent or any Lender under any resulting liability to any Borrower or relieve any Borrower of any of its obligations hereunder to any such Person.

(iv)Power of Attorney.  In connection with all Inventory financed by Letters of Credit, each Loan Party hereby appoints the Agent, or the Agent’s designee, as its attorney, with full power and authority:  (A) to sign and/or endorse such Loan Party’s name upon any warehouse or other receipts; (B) to sign such Loan Party’s name on bills of lading and other negotiable and non-negotiable documents; (C) to clear Inventory through customs in the Agent’s or such Loan Party’s name, and to sign and deliver to customs officials powers of attorney in such Loan Party’s name for such purpose; (D) to complete in such Loan Party’s or the Agent’s name, any order, sale, or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof; and (E) to do such other acts and things as are necessary in order to enable the Agent to obtain possession of the Inventory and to obtain payment of the Obligations.  Neither the Agent nor its designee, as any Loan Party’s attorney, will be liable for any acts or omissions, nor for any error of judgement or mistakes of fact or law.  This power, being coupled with an interest, is irrevocable until all Obligations have been paid and satisfied and this Agreement is terminated.

(v)Account Party.  Each Loan Party hereby authorizes and directs any issuer of a Letter of Credit for the account of such Loan Party to name such Borrower as the “Account Party” therein and to deliver to the Agent all instruments, documents and other writings and property received by the issuer pursuant to the Letter of Credit, and to accept and rely upon the Agent’s instructions and agreements with respect to all matters arising in connection with the Letter of Credit or the application therefor.

(vi)Control of Inventory.  In connection with all Inventory financed by Letters of Credit, each Loan Party will, at the Agent’s request, instruct all suppliers, carriers, forwarders, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which the Agent holds a security interest to deliver them to the Agent and/or subject to the Agent’s order, and if they shall come into such Loan Party’s possession, to deliver them, upon request, to the Agent in their original form.  Each Loan Party shall also, at the Agent’s request, designate the Agent as the consignee on all bills of lading and other negotiable and non-negotiable documents.

(j)Supporting Letter of Credit; Cash Collateral.  If, notwithstanding the provisions of Section 2.4(b) and Section 12.1 any Letter of Credit is outstanding on the Termination Date, then on such date the Borrowers shall deposit with the Agent, for the ratable benefit of the Agent and the Lenders, with respect to each Letter of Credit then outstanding, as

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the Majority Lenders, in their discretion shall specify, either (i) a standby letter of credit (a “Supporting Letter of Credit”) in form and substance satisfactory to the Agent issued by an issuer satisfactory to the Agent in an amount equal to the greatest amount for which such Letter of Credit may be drawn plus any fees and expenses associated with such Letter of Credit (but, in any event, in an amount not less than 105% of the amount of such Letter of Credit), under which Supporting Letter of Credit the Agent is entitled to draw amounts necessary to reimburse the Agent and the Lenders for payments made by the Agent and the Lenders under such Letter of Credit or under any credit support or enhancement provided through the Agent with respect thereto and any fees and expenses associated with such Letter of Credit, or (ii) cash in amounts necessary to reimburse the Agent and the Lenders for payments made by the Agent or the Lenders under such Letter of Credit or under any credit support or enhancement provided through the Agent with respect thereto and any fees and expenses associated with such Letter of Credit (which amounts, in any event, shall not be less than 105% of the amount of such Letter of Credit).  Such Supporting Letter of Credit or deposit of cash shall be held by the Agent, for the ratable benefit of the Agent and the Lenders, as security for, and to provide for the payment of, the aggregate undrawn amount of such Letters of Credit remaining outstanding and all fees and expenses associated with such Letters of Credit.

ARTICLE III

INTEREST AND FEES

Section 3.1.Interest.

(a)Interest Rates.  All outstanding Obligations shall bear interest on the unpaid principal amount thereof (including, to the extent permitted by law, on interest thereon not paid when due) from the date made until paid in full in cash at a fluctuating per annum rate equal to the Base Rate plus the Applicable Margin.  Each change in the Base Rate shall be reflected in the interest rate described above as of the effective date of such change.  All interest charges shall be computed on the basis of a year of 360 days and actual days elapsed.  Interest accrued on all Revolving Loans will be payable in arrears on the first day of each month hereafter.

(b)Default Rate.  If any Default or Event of Default occurs and is continuing, and the Majority Lenders in their discretion so elect, then, while any such Default or Event of Default is continuing, all of the Obligations shall bear interest at the Default Rate applicable thereto and such interest shall be payable upon demand.

Section 3.2.[Intentionally Omitted.]

Section 3.3.Maximum Interest Rate.  In no event shall any interest rate provided for hereunder exceed the maximum rate legally chargeable by the Lenders under applicable law for loans of the type provided for hereunder (the “Maximum Rate”).  If, in any month, any interest rate, absent such limitation, would have exceeded the Maximum Rate, then

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the interest rate for that month shall be the Maximum Rate, and, if in future months, that interest rate would otherwise be less than the Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate.  In the event that, upon payment in full of the Obligations, the total amount of interest paid or accrued under the terms of this Agreement is less than the total amount of interest which would, but for this Section 3.3, have been paid or accrued if the interest rates otherwise set forth in this Agreement had at all times been in effect, then the applicable Borrower shall, to the extent permitted by applicable law, pay the Agent, for the account of the Lenders, an amount equal to the difference between (a) the lesser of (i) the amount of interest which would have been charged if the Maximum Rate had, at all times, been in effect or (ii) the amount of interest which would have accrued had the interest rates otherwise set forth in this Agreement, at all times, been in effect and (b) the amount of interest actually paid or accrued under this Agreement.  In the event that a court determines that the Agent and/or any Lender has received interest and other charges hereunder in excess of the Maximum Rate, such excess shall be deemed received on account of, and shall automatically be applied to reduce, the Obligations other than interest, in the inverse order of maturity, and if there are no Obligations outstanding, the Agent and/or such Lender shall refund to the applicable Borrower such excess.

Section 3.4.Closing and Other Fees.  The Borrowers agree, jointly and severally, to pay those fees and other compensation and perform all other obligations set forth in that certain fee and payment agreement entered into among ASB and the Borrowers dated the Closing Date (the “Fee Letter”).

Section 3.5.Unused Line Fee.  Until the Obligations have been paid in full and this Agreement is terminated, the Borrowers agree, jointly and severally, to pay, subject to Section 2.2(g)(iii), on the first day of each month and on the Termination Date, to the Agent, for the ratable account of the Lenders, an unused line fee (the “Unused Line Fee”) equal to the product of 0.50% per annum multiplied by the amount by which the Maximum Revolver Amount exceeded the sum of the average daily outstanding amount of Revolving Loans (other than ASB Loans and Agent Advances, so long as ASB is not the only Lender) and the average daily undrawn face amount of all outstanding Letters of Credit during the immediately preceding month or shorter period if calculated for the first month hereafter or on the Termination Date. The Unused Line Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed.

The above Unused Line Fee and all other fees hereunder and under the Fee Letter shall be fully earned and non-refundable for any reason upon payment thereof.

Section 3.6.Letter of Credit Fee.  Each Borrower agrees to pay to the Agent, for the ratable account of the Lenders, for each Letter of Credit issued for the account of such Borrower, a fee (the “Letter of Credit Fee”) equal to the Applicable Letter of Credit Rate then in effect per annum of the average daily undrawn face amount of each Letter of Credit issued for such Borrower’s account, plus, in each case, all out-of-pocket costs, fees and expenses incurred by the Agent in connection with the application for, issuance of, or amendment to such Letter of

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Credit, plus a “fronting fee” payable to the issuing bank of .25% of the principal amount of all applicable Letters of Credit.  The Letter of Credit Fee shall be payable monthly in arrears on the first day of each month following any month in which a Letter of Credit was issued and/or in which a Letter of Credit remains outstanding and on the Termination Date.  The Letter of Credit Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed.

Section 3.7.Reduction of Revolving Credit Commitments.  (a)  The Borrowers may at any time terminate, or from time to time reduce, the Revolving Commitments; provided that (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $100,000 and not less than $500,000, and (ii) the Borrowers shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 4.3, Availability would be less than zero.

(b)The Borrowers shall notify the Agent of any election to terminate or reduce the Revolving Commitments under paragraph (a) of this Section at least ten (10) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof.  Promptly following receipt of any notice, the Agent shall advise the applicable Lenders of the contents thereof.  Each notice delivered by the Borrowers pursuant to this Section shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrowers may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrowers (by notice to the Agent on or prior to the specified effective date) if such condition is not satisfied.  Any termination or reduction of the Revolving Commitments shall be permanent. Each reduction of the Revolving Commitments shall be made ratably among the Lenders with Revolving Commitments in accordance with their respective Revolving Commitments.

ARTICLE IV

PAYMENTS AND PREPAYMENTS

Section 4.1.Revolving Loans.  The Borrowers shall repay the outstanding principal balance of the Revolving Loans, plus all accrued but unpaid interest thereon, on the Termination Date.  The Borrowers may prepay Revolving Loans at any time, and reborrow subject to the terms of this Agreement; provided that each prepayment of Revolving Loans shall be in an amount that is an integral multiple of $100,000 and not less than $1,000,000.  In addition, and without limiting the generality of the foregoing, upon demand each Borrower promises, jointly and severally, to pay to the Agent, for the ratable account of the Lenders, the amount, without duplication, by which Total Exposure exceeds Availability.

Section 4.2.Termination of Facility.  (a)  The Borrowers may terminate this Agreement upon at least ten (10) Business Days’ notice to the Agent and the Lenders, upon (i) the payment in full of all outstanding Revolving Loans, together with accrued interest thereon, and the cancellation of all outstanding Letters of Credit, (ii) the payment of the early termination

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fee, if any, required pursuant to Section 4.2(b),  and (iii) the payment in full in cash of all other Obligations together with accrued interest thereon.

(b)If this Agreement is terminated by the Borrowers at any time on or prior to the Stated Termination Date, in addition to all other Obligations which shall then be due and payable the Borrowers shall pay to the Agent an early termination fee determined as follows:

Period during which early termination occurs	Early termination fee
On or prior to the first Anniversary Date	$	450,000
After the first Anniversary Date but on or prior to the second Anniversary Date	$	300,000
After the second Anniversary Date but on or prior to January 8, 2006	$	150,000

The above early termination fees shall not apply if the Borrowers prepay the Loans in full and terminate this Agreement in connection with (x) a Primary Offering of Capital Stock of New World, and no senior, secured debt financing remains outstanding, or (y) a refinancing under which ABS or its Affiliates remain as agent under such new financing facility.

Section 4.3.Mandatory Payments.  (a)  Following receipt thereof by any Loan Party of the cash proceeds from any permitted sale of assets (other than sales of inventory in the ordinary course of business) at any time that the Total Exposure is $5,000,000 or more, the Borrowers shall, subject to Section 6.12(c), pay to the Agent an amount equal to the lesser of (x) the difference between the then existing Total Exposure and $5,000,000 and (y) 100% of the net cash proceeds from such asset sale, and such payment shall be applied as a mandatory repayment of principal of the then outstanding Revolving Loans; provided, however, that, to the extent, and only to the extent, necessary to avoid any requirement under Section 4.15 of the Indenture that New World offer to purchase any Senior Secured Debt in accordance with the terms thereof (and notwithstanding the parenthetical above), (i) the Borrowers shall apply the cash proceeds from any permitted sale of assets that constitutes an “Asset Sale” (as such term is defined in the Indenture) to the payment of the Revolving Loans and (ii) there shall be a permanent reduction of the Revolving Commitments and the Maximum Revolver Amount in the amount of any such application to the Revolving Loans (such permanent reduction to be made concurrently with such application to the Revolving Loans and such reduction to result in each Lender’s Revolving Commitment to be permanently reduced by its Pro Rata Share of such reduction).

(b)Subsequent to the Closing Date, on the tenth day following the receipt thereof (with respect to clause (i) below, promptly (but in no event later than one Business Day) after receipt thereof) by any Loan Party at any time that the Total Exposure is $5,000,000 or more, the Borrowers shall pay to the Agent an amount equal to (i) 100% of the cash proceeds (net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith) of any sale or issuance of equity of any Loan Party (other than to another

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Loan Party) and (ii) 100% of the net cash proceeds of the issuance of any Debt by any Loan Party, and such payment shall be applied as a mandatory repayment of principal of the then outstanding Revolving Loans.

(c)Any amounts prepaid pursuant hereto may be immediately reborrowed (subject to the borrowing limitations otherwise set forth herein).

Section 4.4.[Intentionally Omitted.]

Section 4.5.[Intentionally Omitted.]

Section 4.6.Payments by the Borrowers.  (a)  All payments to be made by each Borrower shall be made without set-off, recoupment or counterclaim.  Except as otherwise expressly provided herein, all payments by each Borrower shall be made to the Agent for the account of the Lenders at the Agent’s address set forth in Section 15.8, and shall be made in Dollars and in immediately available funds, no later than 1:00 p.m. (New York City time) on the date specified herein.  Any payment received by the Agent later than 1:00 p.m. (New York City time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue.

(b)Whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

(c)Unless the Agent receives notice from the applicable Borrower prior to the date on which any payment is due to the Lenders that such Borrower will not make such payment in full as and when required, the Agent may assume that such Borrower has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender.  If and to the extent a Borrower has not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid.

Section 4.7.Payments as Revolving Loans.  All payments of principal, interest, reimbursement obligations in connection with Letters of Credit, fees, premiums and other sums payable hereunder, including all reimbursement for expenses pursuant to Section 15.7, may, at the option of the Agent, in its sole discretion, subject only to the terms of this Section 4.7, be paid from the proceeds of Revolving Loans made hereunder, whether made following a request by a Borrower pursuant to Section 2.2 or a deemed request as provided in this Section 4.7.  Each Borrower hereby irrevocably authorizes the Agent to charge the Loan Account of such Borrower for the purpose of paying principal, interest, reimbursement obligations in connection with Letters of Credit, fees, premiums and other sums payable hereunder owing by such Borrower, including reimbursing expenses pursuant to Section 15.7, and agrees that all such amounts charged shall constitute Revolving Loans (including ASB Loans and Agent Advances) of such

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Borrower and that all such Revolving Loans so made shall be deemed to have been requested by such Borrower pursuant to Section 2.2.

Section 4.8.Apportionment, Application and Reversal of Payments. Aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Loans to which such payments relate held by each Lender) and payments of the fees shall, as applicable, be apportioned ratably among the Lenders.  All payments shall be remitted to the Agent and all such payments not relating to principal or interest of specific Loans, or not constituting payment of specific fees, and all proceeds of Accounts or other Collateral received by the Agent, shall be applied, ratably, subject to the provisions of this Agreement, first, to pay any fees, indemnities or expense reimbursements then due to the Agent from any of the Borrowers; second, to pay any fees or expense reimbursements then due to the Lenders from any of the Borrowers; third, to pay interest due in respect of all Revolving Loans, including ASB Loans and Agent Advances; fourth, to pay or prepay principal of the ASB Loans and Agent Advances; fifth, to pay or prepay principal of the Revolving Loans (other than ASB Loans and Agent Advances) and unpaid reimbursement obligations in respect of Letters of Credit; and sixth, to the payment of any other Obligations due to the Agent or any Lender by any of the Borrowers.  The Agent shall promptly distribute to each Lender, pursuant to the applicable wire transfer instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided for in Section 2.2(j).  The Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations.

Section 4.9.Indemnity for Returned Payments.  If, after receipt of any payment of, or proceeds applied to the payment of, all or any part of the Obligations, the Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continue and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Agent or such Lender, and the applicable Borrower or Borrowers shall be liable to pay to the Agent, and hereby do indemnify the Agent and the Lenders and hold the Agent and the Lenders harmless for, the amount of such payment or proceeds surrendered.  The provisions of this Section 4.9 shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or any Lender in reliance upon such payment or application of proceeds, and any such contrary action so taken shall be without prejudice to the Agent’s and the Lenders’ rights under this Agreement and shall be deemed to have been conditioned upon such payment or application of proceeds having become final and irrevocable. The provisions of this Section 4.9 shall survive the termination of this Agreement.

Section 4.10.Agent’s and Lenders’ Books and Records; Monthly Statements. Each Borrower agrees the Agent’s and the Lender’s books and records showing the Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute rebuttably

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presumptive proof thereof, irrespective of whether any Obligation is also evidenced by a promissory note or other instrument.  The Agent will provide to the Borrowers a monthly statement of Loans, payments, and other transactions pursuant to this Agreement.  Such statement shall be deemed correct, accurate, and binding on the Borrowers and an account stated (except for reversals and reapplications of payments made as provided in Section 4.8 and corrections of errors discovered by the Agent), unless the applicable Borrower notifies the Agent in writing to the contrary within thirty (30) days after such statement is rendered.  In the event a timely written notice of objections is given by a Borrower, only the items to which exception is expressly made will be considered to be disputed by the Borrowers.

ARTICLE V

TAXES, YIELD PROTECTION AND ILLEGALITY

Section 5.1.Taxes.  (a)  Any and all payments by each Borrower to each Lender or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes.  In addition, the Borrowers shall pay all Other Taxes.

(b)Each Borrower agrees to indemnify and hold harmless each Lender and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 5.1(b)) paid by the Lender or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted.  Payment under this indemnification shall be made within 30 days after the date such Lender or the Agent makes written demand therefor.

(c)If a Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, then:

(i)the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made;

(ii)such Borrower shall make such deductions and withholdings;

(iii)such Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv)such Borrower shall also pay to each Lender or the Agent for the account of such Lender, at the time interest is paid, all additional amounts which the respective

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Lender specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes or Other Taxes had not been imposed.

(d)Within 30 days after the date of any payment by a Borrower of Taxes or Other Taxes, such Borrower shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent.

(e)If a Borrower is required to pay additional amounts to any Lender or the Agent pursuant to subsection (c) of this Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its lending office so as to eliminate any such additional payment by the Borrowers which may thereafter accrue, if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender.

(f)Each Lender (or transferee or assignee) and the Agent shall, prior to the due date of the first payment by any Borrower to such Person hereunder, deliver to the Borrowers such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W8-BEN, W8-ECI or W8-IMY and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.441-6(c) or any subsequent version thereof, properly completed and duly executed by such Person establishing that such payment is (i) not subject to withholding (including backup withholding) because such payment is made (and beneficially received) by a United States person, (ii) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Person of a trade or business in the United States, (iii) not subject to withholding under the Code because of the portfolio interest exception or (iv) totally exempt from United States tax under a provision of an applicable tax treaty.  Each such Person that changes its funding office shall promptly notify the Borrowers of such change and upon written request from the Borrowers, shall deliver any new certificates, documents or other evidence required pursuant to the preceding sentence prior to the immediately following due date of any payment by any Borrower hereunder.  Unless the Borrowers have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, the Borrowers shall withhold taxes from such payments at the applicable statutory rate, as required by law.

Section 5.2.Increased Costs.  If any Lender determines in good faith that, due to either (i) the introduction of or any change in the interpretation of any law or regulation (other than in each case any introduction or change in interpretation relating to withholding taxes, which is governed by Section 5.1) or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of participating in, issuing or maintaining any Letter of Credit or Credit Support, then the Borrowers shall be, jointly and severally, liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs.

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Section 5.3.Reduction of Return.  If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Lender or any corporation or other entity controlling the Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation or other entity controlling the Lender and (taking into consideration such Lender’s or such corporation’s or other entity’s policies with respect to capital adequacy and such Lender’s desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Borrowers through the Agent, the Borrowers agree, jointly and severally, to pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender for such increase.

Section 5.4.Certificates of Lenders.  Any Lender claiming reimbursement or compensation under this Article V shall deliver to the Borrowers (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Lender hereunder and the calculation thereof and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error.

Section 5.5.Survival.  The agreements and obligations of the Borrowers in this Article V shall survive the payment of all other Obligations.

ARTICLE VI

COLLATERAL

Section 6.1.Grant of Security Interest.  (a)  As security for all present and future Obligations, each Loan Party hereby grants to the Agent, for the ratable benefit of the Agent and the Lenders, a continuing security interest in, lien on, and right of set-off against, all of the following property and assets of such Loan Party, whether now owned or existing or hereafter acquired or arising, regardless of where located:

(i)all Accounts;

(ii)all Inventory;

(iii)all contract rights;

(iv)all Chattel Paper;

(v)all Documents;

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(vi)all Equity Interests;

(vii)all Instruments;

(viii)all Supporting Obligations;

(ix)all General Intangibles;

(x)all Equipment;

(xi)all Investment Property;

(xii)all money, cash, cash equivalents, securities and other property of any kind of such Loan Party held directly or indirectly by or in the control of the Agent or any Lender, any assignee of or participant in any of the Obligations, or a bailee of any such party or such party’s affiliates;

(xiii)all deposit accounts, credits and balances with and other claims against the Agent or any Lender or any of its Affiliates or any other financial institution with which such Loan Party maintains deposits, including any Payment Accounts;

(xiv)all other assets and property of such Loan Party;

(xv)all books, records and other property related to or referring to any of the foregoing, including, without limitation, books, records, account ledgers, data processing records, computer software and other property and General Intangibles at any time evidencing or relating to any of the foregoing; and

(xvi)all accessions to, substitutions for and replacements, products and proceeds of any of the foregoing, including, but not limited to, proceeds of any insurance policies, claims against third parties, and condemnation or requisition payments with respect to all or any of the foregoing.

All of the foregoing, together with the Real Estate covered by the Mortgage(s), and all other property of any Loan Party in which the Agent or any Lender may at any time be granted a Lien as collateral for any or all of the Obligations, is herein collectively referred to as the “Collateral”. Notwithstanding the foregoing, “Collateral” shall not include (i) any Equipment financed by a Loan Party with purchase money Debt or Capital Leases permitted hereunder (provided that such exclusion shall only apply to the extent such Loan Party is prohibited from granting a security interest under the terms of such Debt or Capital Lease and only so long as such Debt or Capital Lease remains outstanding) (such Equipment being “Restricted Equipment”), (ii) any contract rights or General Intangibles which by their express terms prohibit the applicable Loan Party from granting a security interest therein, but only to the extent that such prohibition would be enforceable notwithstanding the provisions of Section 9-406, 9-407 or 9-408 of the UCC (such contract rights or General Intangibles being “Excluded Agreements”) and (iii) all equipment

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purchased by the Borrowers under the agreement, dated September 27, 1996 (as amended, supplemented or modified from time to time), among Coca-Cola USA, Coca-Cola Foods and Einstein/Noah, concerning the competitive marketing program to be made available in connection with the purchase and promotion of Coca-Cola Company beverages by Einstein/Noah (the ”Coca-Cola Equipment”).

(b)As security for all present and future Obligations, each Loan Party shall, with respect to the Major Premises, use its commercially reasonable efforts to deliver Mortgages with respect to such Major Premises to the Agent within sixty (60) days of the Closing Date; provided, further, however, that in no event shall any Loan Party be required to incur any unreasonable expense, or agree to any significant increase in the applicable Loan Parties’ obligations thereunder, in order to obtain any such Mortgage.

(c)All of the Obligations shall be secured by all of the Collateral.

(d)Each Loan Party will, and will cause each of its Subsidiaries (other than Non-Restricted Subsidiaries) to, at the expense of such Loan Party, (i) grant to the Agent Mortgages in such Real Estate in which such Loan Party or any of its Subsidiaries acquires an ownership interest after the Closing Date (other than fee-owed Real Estate having a value less than $1,000,000 and with respect to which no Loan Party is required to deliver a mortgage under the Senior Secured Debt Documents) and (ii) grant to the Agent Mortgages in such Real Estate in which such Loan Party or any of its Subsidiaries acquires a leasehold interest after the Closing Date; provided, however that if after using commercially reasonable efforts, such Loan Party is unable to obtain Mortgages on Real Estate leased after the Closing Date having an aggregate value not in excess of 15% of all of the Loan Parties’ Real Estate leased after the Closing Date, such failure shall not constitute a breach of this provision.  Such Mortgages shall be in form and substance satisfactory to the Agent and shall constitute valid and enforceable Liens superior to and prior to the rights of all third Persons (other than holders of Permitted Liens) and subject to no other Liens except Permitted Liens.  The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall have been paid in full by the applicable Loan Parties.  In connection with any such Mortgage in respect of Real Estate owned by any Loan Party, the applicable Loan Party shall, at its expense, cause to be delivered to the Agent (i) a mortgagee title insurance policy issued by a title insurer satisfactory to the Agent (a “Mortgage Policy”) in an amount satisfactory to the Agent and assuring the Agent that such Mortgage is a valid and enforceable first priority mortgage Lien (subject only to Permitted Liens) on the Real Estate covered thereby, free and clear of all defects and encumbrances except Permitted Liens (such Mortgage Policy to be in form and substance satisfactory to the Agent and to include an endorsement for future advances under this Agreement and the Mortgages, for mechanics liens and for any other matter that the Agent in its discretion may reasonably request); (ii) a survey, in form and substance satisfactory to the Agent, to the Real Estate covered by such Mortgage, certified by a licensed professional surveyor satisfactory to the Agent and revealing no facts which would materially interfere with the use of such property by such Loan Party or any of its Subsidiaries, or an update of an existing survey

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provided the title company will delete the exception for existing facts which a current survey would disclose, and (iii) such conveyances, financing statements, transfers, endorsements, powers of attorney, certificates, reports, consents, non-disturbance agreements, estoppel agreements and other assurances or instruments, and shall take such further steps relating to such Real Estate, in each instance, as the Agent may reasonably require.  Furthermore, each Loan Party shall cause to be delivered to the Agent such opinions of counsel and other documents as may be requested by the Agent to assure the Agent that this Section 6.1(d) has been complied with.  In the event that the Agent at any time determines in its good faith reasonable discretion that real estate appraisals satisfying the requirements set forth in 12 C.F.R., Part 34-Subpart C, or any successor or similar statute, rule, regulation, guideline or order (any such appraisal a “Required Appraisal”) are or were required to be obtained, or should be obtained, in connection with any or all of the Real Estate of a Loan Party or any of its Subsidiaries relating to a Mortgage, then, such Required Appraisal shall be delivered, at the reasonable expense of such Loan Party, to the Agent, which Required Appraisal, and the respective appraiser, shall be satisfactory to the Agent.  All of the foregoing shall be complied with by no later than sixty (60) days after the Agent’s request therefor.

(e)With respect to any Real Property with respect to which any Loan Party obtains a leasehold interest after the Closing Date, prior to the effective date of any such lease, such Loan Party shall use its commercially reasonable efforts to provide to the Agent all of the items described in the third sentence of clause (d) above and in addition, in respect of each such Real Property with respect to which it obtains a Mortgage, shall provide an agreement, in form and substance satisfactory to the Agent, and executed by the lessor of such lease, whereby the lessor consents to the Mortgage and waives or subordinates its landlord Lien (whether granted by the instrument creating the leasehold estate or by applicable law).  The Loan Parties shall use their commercially reasonable efforts to deliver such an agreement as to each of the Major Premises and all of the items described in clause (d) above contemporaneously with the delivery of the Mortgages described in clause (b) above; provided, however, that in no event shall any Loan Party be required to incur any unreasonable expense, or agree to any significant increase in the lessee’s obligations thereunder, in order to obtain any lessor’s consent.  The Loan Parties shall perform all of their obligations required hereunder at their sole cost and expense.

(f)No Loan Party shall execute and deliver any mortgage in respect of any Real Property (owned or leased) in favor of the holders of the Senior Secured Debt unless and until a Mortgage is delivered hereunder with respect to such Real Property.

Section 6.2.Perfection and Protection of Security Interest.  (a)  Each Loan Party shall, at its expense, perform all steps requested by the Agent at any time to perfect, maintain, protect, and enforce the Agent’s Liens subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, including, without limitation:  (i) executing, delivering and/or filing and recording of the Mortgage(s), the Patent and Trademark Agreements, filing or authorizing the Agent to file financing or continuation statements, and amendments thereof, and executing and delivering and/or filing all documents in respect of assignments of Government Contracts, all of the foregoing to be in form and substance satisfactory to the Agent; (ii) delivering to the Agent the originals of all

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Instruments, Documents, and Chattel Paper, and all other Collateral of such Loan Party of which the Agent determines it should have physical possession in order to perfect and protect the Agent’s security interest therein or the first priority nature thereof, duly pledged, endorsed or assigned to the Agent without restriction; (iii) delivering to the Agent warehouse receipts covering any portion of the Collateral of such Loan Party located in warehouses and for which warehouse receipts are issued and certificates of title covering any portion of the Collateral of such Loan Party for which certificates of title have been issued; (iv) when an Event of Default has occurred and is continuing, transferring Inventory of such Loan Party to warehouses or other locations designated by the Agent; (v) placing notations on such Loan Party’s books of account to disclose the Agent’s security interest; (vi) obtaining control agreements from securities intermediaries with respect to financial assets of such Loan Party in the possession of securities intermediaries; (vii) assigning and delivering to the Agent all Supporting Obligations of such Loan Party, including letters of credit on which such Loan Party is named beneficiary with written consent of the issuer thereof; and (viii) taking such other steps as are deemed necessary or desirable by the Agent to maintain and protect the Agent’s Liens.  Each Loan Party hereby authorizes the Agent to file one or more financing statements and amendments thereto disclosing the Agent’s Liens.  Each Loan Party agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement.

(b)If any Collateral of a Loan Party is at any time in the possession or control of any warehouseman, bailee or any of a Loan Party’s agents or processors, then such Loan Party shall notify the Agent thereof and shall obtain a bailee letter acknowledged by the bailee that notifies such Person of the Agent’s security interest in such Collateral and instructs such Person to hold all such Collateral for the Agent’s account subject to the Agent’s reasonable instructions. If at any time any Collateral of a Loan Party is located on any operating facility of such or any other Loan Party which is not owned by such Loan Party, then such Loan Party shall use its commercially reasonable efforts (not including any obligation to pay money) to obtain written landlord lien waivers or subordinations, in form and substance satisfactory to the Agent, of all present and future Liens which the owner or lessor of such premises may be entitled to assert against the Collateral.

(c)From time to time, each Loan Party shall, upon the Agent’s request, execute and deliver confirmatory written instruments pledging to the Agent, for the ratable benefit of the Agent and the Lenders, the Collateral in which such Loan Party has an interest, but a Loan Party’s failure to do so shall not affect or limit the Agent’s security interest or the Agent’s other rights in and to the Collateral with respect to such Loan Party.  So long as this Agreement is in effect and until all Obligations (other than contingent indemnification obligations) have been fully satisfied the Agent’s Liens shall continue in full force and effect in all Collateral.

Section 6.3.Location of Collateral.  Each Loan Party represents and warrants to the Agent and the Lenders that:  (a) Schedule 6.3 is a correct and complete list of such Loan Party’s chief executive office, the location of its books and records, the locations of the Collateral, and the locations of all of its other places of business; and (b) Schedule 6.3 correctly identifies any of such facilities and locations that are not owned by such Loan Party and sets forth the names of the owners and lessors or sublessors of such facilities and locations.  Each Loan

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Party covenants and agrees that it will not (i) maintain any Collateral at any location other than those locations listed for such Loan Party on Schedule 6.3, (ii) otherwise add to or change any of such locations or (iii) change the location of its jurisdiction of incorporation or formation from the jurisdiction for such Loan Party identified in Schedule 6.4, unless in the case of (iii) above it gives the Agent at least thirty (30) days’ prior written notice thereof and executes any and all financing statements and other documents that the Agent requests in connection therewith.  In no event shall any Loan Party move any Collateral to a location outside the continental United States.  Without limiting the foregoing, each Loan Party represents that all of its Inventory (other than Inventory in transit) is, and covenants that all of its Inventory will be, located either (x) on premises owned by such Loan Party, (y) on premises leased by such Loan Party, provided that such Loan Party shall have used its commercially reasonable efforts (not including any obligation to pay money) to cause to be delivered to the Agent an executed landlord waiver from the landlord of such premises in form and substance satisfactory to the Agent, or (z) in a public warehouse, provided that the Agent has received an executed bailee letter from the applicable Person in form and substance satisfactory to the Agent.

Section 6.4.Jurisdiction of Organization.  Schedule 6.4 hereto identifies each Loan Party’s corporate name, its jurisdiction of incorporation or organization, the type of entity it was organized as and the state organization identification number of such Loan Party (if the state of its incorporation or organization provides such organization number).

Section 6.5.Title to, Liens on, and Sale and Use of Collateral.  Each Loan Party represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that:  (a) all of the Collateral in which such Loan Party has an interest is and will continue to be owned by such Loan Party free and clear of all Liens whatsoever, except for Permitted Liens; (b) the Agent’s Liens in the Collateral in which such Loan Party has an interest will not be subject to any prior Lien (except, with respect to Fixed Assets, for those Liens identified in clauses (c), (d), (e), (g), (h) and (k) (but only to the extent set forth in the related financial institution account agreement or blocked account agreement) of the definition of Permitted Liens); (c) such Loan Party will use, store, and maintain the Collateral in which such Loan Party has an interest with all reasonable care and will use such Collateral for lawful purposes only; and (d) such Loan Party will not, without the Agent’s prior written approval, sell or dispose of or permit the sale or disposition of any of the Collateral in which such Loan Party has an interest except for sales of Inventory in the ordinary course of business and sales of Equipment as permitted by Section 6.12 or otherwise under this Agreement.  The inclusion of proceeds in the Collateral shall not be deemed to constitute the Agent’s or any Lender’s consent to any sale or other disposition of the Collateral except as expressly permitted herein.

Section 6.6.Field Examinations.  Whenever a Default or an Event of Default exists, and at such other times not more frequently than twice in every calendar year in the case of field examinations and accounting reviews, as the Agent requests, each Loan Party shall, at its expense and upon the Agent’s request, permit the Agent to audit the existence and condition of the Accounts, Inventories and books and records of such Loan Party and each Subsidiary thereof and to review their compliance with the terms and conditions of this Agreement and the other Loan Documents.  Notwithstanding the foregoing, the Agent may perform more than two field

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examinations and accounting reviews in any calendar year at the Agent’s expense (and at the Borrowers’ expense whenever a Default or an Event of Default exists).

Section 6.7.Access and Examination; Confidentiality.  (a)  The Agent, accompanied by any Lender which so elects, may, upon prior notice, at reasonable intervals during regular business hours (and at any time and without prior notice when a Default or an Event of Default exists) have access to, examine, audit, make extracts from or copies of and inspect any or all of the records, files, and books of account and the Collateral and other properties of each Loan Party, and discuss the affairs of each Loan Party with the officers and management of such Loan Party.  Each Loan Party will deliver (or cause to be delivered) to the Agent any instrument necessary for the Agent to obtain records from any service bureau maintaining records for such Loan Party.  The Agent may, and at the direction of the Majority Lenders shall, at any time when a Default or an Event of Default exists, and at each Loan Party’s expense, make copies of all of such Loan Party’s books and records, or require each Loan Party to deliver such copies to the Agent.  The Agent may, without expense to the Agent, use such of the Loan Parties’ respective personnel, supplies and Real Estate as may be reasonably necessary for maintaining or enforcing the Agent’s Liens.  The Agent shall have the right at the site of any Loan Party with such Loan Party, at any time during regular business hours, upon prior notice, in the Borrower’s name or in the name of a nominee of the Borrower, to verify the validity, amount or any other matter relating to the Accounts, Inventory or other Collateral, by mail, telephone or otherwise.

(b)Each Loan Party agrees that, subject to such Loan Party’s prior consent for uses other than in a traditional tombstone, which consent shall not be unreasonably withheld or delayed, the Agent and each Lender may use such Loan Party’s name in advertising and promotional material and in conjunction therewith disclose the general terms of this Agreement. The Agent and each Lender agree to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to the Agent or such Lender by or on behalf of the Loan Parties, under this Agreement or any other Loan Document, and neither the Agent, nor such Lender nor any of their respective Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents, except to the extent that such information (i) was or becomes generally available to the public other than as a result of disclosure by the Agent or such Lender or their respective Affiliates, or (ii) was or becomes available on a nonconfidential basis from a source other than a Loan Party, provided that such source is not bound by a confidentiality agreement with a Loan Party known to the Agent or such Lender or their respective Affiliates; provided, however, that the Agent and any Lender may disclose such information (1) at the request or pursuant to any requirement of any Governmental Authority to which the Agent or such Lender is subject or in connection with an examination of the Agent or such Lender by any such Governmental Authority; (2) pursuant to subpoena or other court process; (3) when required to do so in accordance with the provisions of any applicable requirement of law; (4) to the extent reasonably required in connection with any litigation or proceeding (including, but not limited to, any bankruptcy proceeding) to which the Agent, any Lender or their respective Affiliates may be party; (5) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (6) to the Agent’s or such Lender’s independent auditors, accountants, attorneys and

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other professional advisors; (7) to any prospective Participant or Assignee under any Assignment and Acceptance, actual or potential, provided that such prospective Participant or Assignee agrees to keep such information confidential to the same extent required of the Agent and the Lenders hereunder; (8) as expressly permitted under the terms of any other document or agreement regarding confidentiality to which a Loan Party is party or is deemed party with the Agent or such Lender, and (9) to its Affiliates provided that such parties are advised of the confidential nature of such information and agree to keep such information confidential to the same extent required of the Agent and the Lenders hereunder.  Notwithstanding anything to the contrary contained herein, from the commencement of discussions with respect to the revolving credit facility established by this Agreement (the “Facility”), the Borrowers, the Lenders, ASB and the Agent (and each of their respective employees, representatives, or agents) are permitted to disclose to any and all Persons, without limitations of any kind, the tax treatment and tax structure of the Facility and all materials of any kind (including opinions or other tax analyses) that are or have been provided to the Borrowers, such Lender, ASB or the Agent related to such tax treatment and tax structure.

Section 6.8.Collateral Reporting.  Each Loan Party shall provide the Agent with the following documents at the following times in form reasonably satisfactory to the Agent: (a) upon request, a statement of the balance of each of the Intercompany Accounts; (b) upon five (5) Business Days prior notice, such other reports as to the Collateral of such Loan Party as the Agent shall reasonably request from time to time; and (c) with the delivery of each of the foregoing, a certificate of such Loan Party executed by an officer thereof certifying as to the accuracy and completeness of the foregoing.  If any of such records or reports of the Collateral are prepared by an accounting service or other agent, the Loan Parties hereby authorize such service or agent to deliver such records, reports, and related documents to the Agent, for distribution to the Lenders.

Section 6.9.Accounts.  (a)  Each Loan Party hereby represents and warrants to the Agent and the Lenders that:  (i) each existing Account represents, and each future Account will represent, a bona fide sale and delivery of goods by such Loan Party, or rendition of services by such Loan Party, in the ordinary course of such Loan Party’s business; (ii) each existing Account is, and each future Account will be, for a liquidated amount payable by the Account Debtor thereon on the terms set forth in the invoice therefor or in the schedule thereof delivered to the Agent, except for any offset, deduction, defense, or counterclaim known to such Loan Party and disclosed to the Agent and the Lenders pursuant to this Agreement; (iii) each copy of an invoice delivered to the Agent, if any, by such or any other Loan Party will be a genuine copy of the original invoice sent to the Account Debtor named therein; and (iv) all goods described in each invoice, if any, will have been delivered to the Account Debtor and all services of such Loan Party described in each invoice will have been performed.

(b)No Loan Party shall re-date any invoice or sale or make sales on extended dating beyond that customary in such Loan Party’s business or extend or modify any Account other than in a manner customary in its business or consistent with its historical practice.  If a Loan Party becomes aware of any matter materially and adversely affecting the collectability of any Account or Account Debtor involving an amount greater than $100,000, including

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information regarding the Account Debtor’s creditworthiness, such Loan Party will promptly so advise the Agent.

(c)No Loan Party shall accept any note or other instrument (except a check or other instrument for the immediate payment of money) with respect to any Account without the Agent’s prior written consent, which shall not be unreasonably withheld or delayed.  If the Agent consents to the acceptance of any such instrument (except a check or other instrument for the immediate payment of money), it shall be considered as evidence of the Account and not payment thereof and such Loan Party will promptly deliver such instrument to the Agent, endorsed by such Loan Party to the Agent in a manner reasonably satisfactory in form and substance to the Agent.

(d)Each Loan Party shall notify the Agent promptly of all disputes and claims with respect to Accounts in excess of $100,000 individually, or $250,000 in the aggregate, with any Account Debtor, and agrees to settle, contest, or adjust such dispute or claim at no expense to the Agent or any Lender.  No discount, credit or allowance shall be granted to any such Account Debtor without the Agent’s prior written consent, except for discounts, credits and allowances made or given in the ordinary course of a Loan Party’s business when no Event of Default exists hereunder.  Each Loan Party shall send the Agent a copy of each credit memorandum in excess of $100,000 as soon as issued.  The Agent may, and at the direction of the Majority Lenders shall, at all times when an Event of Default exists hereunder, settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which the Agent or the Majority Lenders, as applicable, shall consider advisable and, in all cases, the Agent will credit the applicable Loan Party’s Loan Account with only the net amounts received by the Agent in payment of any Accounts owing to such Loan Party.

Section 6.10.Collection of Accounts; Payments.  (a)  Each Loan Party shall make collection of all Accounts and other Collateral for the Agent, shall receive all payments as the Agent’s trustee, and shall promptly (but in no event later than one Business Day after such receipt) deliver all payments in their original form duly endorsed in blank (or otherwise cause the deposit of all such payments (in a manner consistent with past practices)) into either (i) a Payment Account established for the account of a Loan Party at ASB (or with the prior written consent of the Agent, at another bank acceptable to the Agent (Wells Fargo Bank, N.A. being deemed acceptable to the Agent) and subject to documentation acceptable to Agent) or (ii) to the Concentration Account; provided, however, after giving effect to the foregoing delivery (or deposit) into a Payment Account or the Concentration Account, in no event shall the balance in any account that is not subject to the “control” (as defined in the UCC) of the Agent exceed $10,000.  On or prior to the date hereof, New World shall enter into a restricted account agreement with Wells Fargo Bank, N.A. in respect of the Concentration Account, pursuant to documentation and otherwise in form and substance satisfactory to the Agent.  Each Loan Party shall instruct all Account Debtors to make all payments directly to the address established for such service.  If, notwithstanding such instructions, a Loan Party receives any proceeds of Accounts, it shall receive such payments as the Agent’s trustee, and shall immediately deliver such payments to the Agent in their original form duly endorsed in blank or deposit them into a Payment Account, as the Agent may direct.  All collections received in any such restricted

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account or Payment Account or directly by a Loan Party or the Agent, and all funds in any Payment Account or other account to which such collections are deposited shall upon the request of the Agent be remitted to the Agent to be applied to the payment of the Obligations (or if the restricted account and/or Payment Account is maintained at a bank other than ASB, such service and/or Payment Account, as appropriate, shall be subject to blocked account arrangements acceptable to the Agent, which will provide that upon the request of the Agent all collections shall be remitted to the Agent for application to the payment of the Obligations).  The Agent or the Agent’s designee may, at any time during the continuation of an Event of Default, notify Account Debtors that the Accounts have been assigned to the Agent and of the Agent’s security interest therein, and may collect them directly and charge the collection costs and expenses to any one or more Loan Party’s Loan Accounts as a Revolving Loan.  So long as an Event of Default has occurred and is continuing, each Loan Party, at the Agent’s request, shall execute and deliver to the Agent such documents as the Agent shall require to grant the Agent access to any post office box in which collections of Accounts are received.

(b)If sales of Inventory are made or services are rendered for cash, each Loan Party shall promptly (but in any event no later than one Business Day thereafter) deliver to the Agent or deposit into a Payment Account any cash which such Loan Party receives.

(c)All payments, including immediately available funds received by the Agent at a bank designated by it, received by the Agent on account of Accounts or as proceeds of other Collateral will be the Agent’s sole property for its benefit and the benefit of the Agent and the Lenders and will be credited to the applicable Loan Party’s Loan Account (conditional upon final collection) upon the date of receipt by the Agent if received prior to 2:00 p.m. New York City time and on the Business Day following receipt by the Agent if received after 2:00 p.m. New York City time.

Section 6.11.Inventory.  Each Loan Party represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that all of the Inventory owned by such Loan Party is and will be held for sale in the ordinary course of such Loan Party’s business, and is and will be fit for such purposes (except for damaged or defective Inventory arising in the ordinary course of business of such Loan Party).  Each Loan Party will keep its Inventory in good and marketable condition (except for damaged or defective Inventory arising in the ordinary course of business of such Loan Party), at its own expense.  Each Loan Party will not, without the prior written consent of the Agent, acquire or accept any Inventory on consignment or approval. Each Loan Party agrees that all Inventory produced in the United States by such Loan Party will be produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations, and orders thereunder.  Each Loan Party will maintain a perpetual inventory reporting system at all times.

Section 6.12.Equipment.  (a)  All of the Equipment owned by such Loan Party is and will be used or held for use in such Loan Party’s business, and is and will be fit for such purposes (ordinary wear and tear excepted).  Each Loan Party shall keep and maintain its Equipment in good operating condition and repair subject to ordinary wear and tear.

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(b)Each Loan Party shall promptly inform the Agent of any material additions to or deletions from the Equipment owned by such Loan Party.  Each Loan Party shall not permit any Equipment owned by such Loan Party to become a fixture with respect to real property or to become an accession with respect to other personal property with respect to which real or personal property the Agent does not have a Lien.  Each Loan Party will not, without the Agent’s prior written consent, alter or remove any identifying symbol or number on any of such Loan Party’s Equipment constituting Collateral.

(c)Each Loan Party shall not, without the Majority Lenders’ prior written consent, sell, lease as a lessor, or otherwise dispose of any of such Loan Party’s Equipment or other assets; provided, however, that the Loan Parties may dispose of (A) any or all obsolete or no longer used or useful Equipment or other assets or (B) any other Equipment or other assets having a fair market value not to exceed (i) $500,000 in the aggregate for all Loan Parties in any Fiscal Year and (ii) $1,500,000 in the aggregate for all Loan Parties during the term of this Agreement, without the Majority Lenders’ consent.  In the event any asset having a fair market value in excess of $10,000 is sold, transferred or otherwise disposed of pursuant to clause (B) of the proviso contained in the immediately preceding sentence, (1) if such sale, transfer or disposition is effected without replacement of or commitment to replace such assets with like assets or other assets used or useful in the business of such Loan Party, or such asset is replaced by an asset leased by a Loan Party or by assets purchased by a Loan Party subject to a Lien, then, if required by the provisions of Section 4.3, the applicable Loan Party shall deliver all of the net cash proceeds of any such sale, transfer or disposition to the Agent, which proceeds shall be applied to the reduction of the Revolving Loans in the manner set forth in Section 4.3(a) (and which may thereafter be reborrowed, subject to the borrowing limitations set forth herein), or (2) if such sale, transfer or disposition is made in connection with the purchase by a Loan Party of replacement or other assets, then such Loan Party shall use the proceeds of such sale, transfer or disposition to purchase such replacement or other assets and shall deliver to the Agent written evidence of the use of the proceeds for such purchase.  All replacement or other assets purchased by any Loan Party shall be free and clear of all Liens except Permitted Liens.

Section 6.13.[Intentionally Omitted.]

Section 6.14.Documents, Instruments, and Chattel Paper.  Each Loan Party represents and warrants to the Agent and the Lenders that (a) all Documents, Instruments and Chattel Paper owned by such Loan Party describing, evidencing, or constituting Collateral, and, to the best of such Loan Party’s knowledge, all signatures and endorsements thereon, are and will be complete, valid, and genuine, and (b) all goods evidenced by such Documents, Instruments and Chattel Paper owned by such Loan Party are and will be owned by such Loan Party, free and clear of all Liens other than Permitted Liens.

Section 6.15.Right to Cure.  Upon prior notice to the applicable Loan Party (such notice not being required if an Event of Default is continuing), the Agent may, in its discretion, and shall, at the direction of the Majority Lenders, pay any amount or do any act required of a Loan Party hereunder or under any other Loan Document in order to preserve, protect, maintain or enforce the Obligations, the Collateral or the Agent’s Liens therein, and

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which such Loan Party fails to pay or do, including, without limitation, payment of any judgment against such Loan Party, any insurance premium, any warehouse charge, any finishing or processing charge, any landlord’s claim, and any other Lien upon or with respect to the Collateral.  All payments that the Agent makes under this Section 6.15 and all out-of-pocket costs and expenses that the Agent pays or incurs in connection with any action taken by it hereunder shall be charged to the applicable Loan Party’s Loan Account (or if such Loan Party is not a Borrower, to the Loan Account of New World) as a Revolving Loan.  Any payment made or other action taken by the Agent under this Section 6.15 shall be without prejudice to any right to assert an Event of Default hereunder and to proceed thereafter as herein provided.

Section 6.16.Power of Attorney.  Each Loan Party hereby appoints the Agent and the Agent’s designee as such Loan Party’s attorney:  (a) to endorse such Loan Party’s name on any checks, notes, acceptances, money orders, or other forms of payment or security that come into the Agent’s or any Lender’s possession; (b) to sign such Loan Party’s name on any invoice, bill of lading, warehouse receipt or other document of title relating to any Collateral, on drafts against customers, on assignments of Accounts, on notices of assignment, financing statements and other public records and to file any such financing statements by electronic means with or without a signature as authorized or required by applicable law or filing procedure; (c) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys, due or to become due under or with respect to any of the Collateral; (d) so long as any Event of Default has occurred and is continuing, to notify the post office authorities to change the address for delivery of such Loan Party’s mail to an address designated by the Agent and to receive, open and dispose of all mail addressed to such Loan Party; (e) to send requests for verification of Accounts to customers or Account Debtors; (f) to complete in such Loan Party’s name or the Agent’s name, any order, sale or transaction, obtain the necessary Documents in connection therewith, and collect the proceeds thereof; (g) to clear Inventory, the purchase of which was financed with Letters of Credit, through customs in such Loan Party’s name, the Agent’s name or the name of the Agent’s designee, and to sign and deliver to customs officials powers of attorney in such Loan Party’s name for such purpose; and (h) to do all things reasonably necessary to carry out this Agreement.  Each Loan Party ratifies and approves all acts of such attorney.  None of the Lenders or the Agent nor their attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law.  This power, being coupled with an interest, is irrevocable until this Agreement has been terminated and the Obligations have been fully satisfied.

Section 6.17.The Agent’s and Lenders’ Rights, Duties and Liabilities.  Each Loan Party assumes all responsibility and liability arising from or relating to the use, sale or other disposition of the Collateral.  The Obligations shall not be affected by any failure of the Agent or any Lender to take any steps to perfect the Agent’s Liens or to collect or realize upon the Collateral, nor shall loss of or damage to the Collateral release any Loan Party from any of the Obligations.  Following the occurrence and continuation of an Event of Default, the Agent may (but shall not be required to), and at the direction of the Majority Lenders shall, without notice to or consent from any of the Loan Parties, sue upon or otherwise collect, extend the time for payment of, modify or amend the terms of, compromise or settle for cash, credit, or otherwise upon any terms, grant other indulgences, extensions, renewals, compositions, or releases, and

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take or omit to take any other action with respect to the Collateral, any security therefor, any agreement relating thereto, any insurance applicable thereto, or any Person liable directly or indirectly in connection with any of the foregoing, without discharging or otherwise affecting the liability of the Loan Parties for the Obligations or under this Agreement or any other agreement now or hereafter existing between the Agent and/or any Lender and any Loan Party.

ARTICLE VII

BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

Section 7.1.Books and Records.  Each Loan Party shall maintain, at all times, correct and complete books, records and accounts in which complete, correct and timely entries are made of its transactions in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 7.2(a).  Each Loan Party shall, by means of appropriate entries, reflect in such accounts and in all Financial Statements proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of property and bad debts, all in accordance with GAAP.  Each Loan Party shall maintain at all times books and records pertaining to the Collateral in such detail, form and scope as the Agent or any Lender shall reasonably require, including, but not limited to, records of (a) all payments received and all credits and extensions granted with respect to the Accounts; (b) the return, rejection, repossession, stoppage in transit, loss, damage, or destruction of any Inventory; and (c) all other dealings affecting the Collateral.

Section 7.2.Financial Information.  Each Loan Party shall promptly furnish to each Lender all such financial information as the Agent or any Lender shall reasonably request, and notify its auditors and accountants that the Agent, on behalf of the Lenders, is authorized to obtain such information directly from them.  Without limiting the foregoing, each Loan Party will furnish (or cause to be furnished) to the Agent, in sufficient copies for distribution by the Agent to each Lender, in such detail as the Agent or the Lenders shall reasonably request, the following:

(a)As soon as available, but in any event not later than 120 days after the close of each Fiscal Year, consolidated audited and consolidating audited balance sheets, and statements of income and expense, cash flow and of stockholders’ equity for New World and its Subsidiaries for such Fiscal Year and figures from the Latest Projections, and the accompanying notes thereto, setting forth in each case in comparative form figures for the previous Fiscal Year and figures from the Latest Projections, all in reasonable detail, fairly presenting the financial position and the results of operations of New World and its Subsidiaries as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP consistently applied. Such statements shall be examined in accordance with generally accepted auditing standards by and, in the case of such statements performed on a consolidated basis, accompanied by an unqualified report thereon of independent certified public accountants selected by New World and reasonably satisfactory to the Agent.

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(b)As soon as available, but in any event not later than 45 days after the end of each fiscal month (including, without limitation, in the case of any month that is also a fiscal quarter end) of New World, consolidated and consolidating unaudited balance sheets of New World and its Subsidiaries as at the end of such month, and consolidated and consolidating unaudited statements of income and expense and cash flow for New World and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form figures from the Latest Projections together with an analysis and reconciliation of material variances, all in reasonable detail, fairly presenting the financial position and results of operations of New World and its Subsidiaries as at the date thereof and for such periods, and prepared in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 7.2(a) with such changes as may be required by GAAP.  New World shall certify by a certificate signed on behalf of New World by a Responsible Officer that all such statements have been prepared in accordance with GAAP and present fairly, subject to year-end adjustments in accordance with GAAP and the lack of footnote disclosure, each Loan Party’s financial position and New World’s consolidated financial position, as at the dates thereof, and its results of operations for the periods then ended.

(c)As soon as available, but in any event not later than 45 days after the close of each fiscal quarter, consolidated and consolidating unaudited balance sheets of New World and its consolidated and consolidating Subsidiaries as at the end of such quarter, and consolidated and consolidating unaudited statements of income and expense and statement of cash flows for New World and its Subsidiaries for such quarter and for the period from the beginning of the then current Fiscal Year to the end of such quarter, setting forth in each case in comparative form figures from the Latest Projections together with an analysis and presentation of material variances, all in reasonable detail, fairly presenting the financial position and results of operation of New World and its Subsidiaries as at the date thereof and for such periods, prepared in accordance with GAAP consistent with the audited Financial Statements required to be delivered pursuant to Section 7.2(a) with such changes as may be required by GAAP.  The Loan Parties shall certify by a certificate signed on their behalf by a Responsible Officer of each such Person that all such statements have been prepared in accordance with GAAP and present fairly, subject to normal year-end adjustments and the lack of footnote disclosure, each Loan Party’s financial position and New World’s consolidated financial position, as at the dates thereof, and its results of operations for the periods then ended.

(d)With each of the audited Financial Statements delivered pursuant to Section 7.2(a), a certificate of the independent certified public accountants that examined such statement to the effect that they have reviewed and are familiar with this Agreement and that, in examining such Financial Statements, they did not become aware of any fact or condition which then constituted a Default or Event of Default with respect to a financial covenant, except for those, if any, described in reasonable detail in such certificate.

(e)With each of the annual audited Financial Statements delivered pursuant to Section 7.2(a), and within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year, a certificate of the chief financial officer of each Loan Party

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(i) setting forth in reasonable detail the calculations required to establish that the Loan Parties were in compliance with the covenants set forth in Sections 9.24, 9.25 (if applicable) and 9.26 as at the end of the applicable Test Period, (ii) commencing with the first Margin Adjustment Test Period, setting forth in reasonable detail the calculation of the Fixed Charge Coverage Ratio for the Test Period ended on the last day of the Fiscal Year or fiscal quarter for which such certificate is being delivered and (iii) stating that, except as explained in reasonable detail in such certificate, (A) all of the representations and warranties of the Borrowers contained in this Agreement and the other Loan Documents are correct and complete in all material respects as at the date of such certificate as if made at such time (except to the extent such representations and warranties specifically relate solely to an earlier date), (B) the Borrowers are, at the date of such certificate, in compliance in all material respects with all of their respective covenants and agreements in this Agreement and the other Loan Documents, (C) no Default or Event of Default then exists or existed during the period covered by such Financial Statements, (D) describing and analyzing in reasonable detail all material trends, changes, and developments in each and all Financial Statements; and (E) explaining the material variances of the figures in the corresponding budgets and prior Fiscal Year financial statements.  If such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not been complied with (other than financial covenants), a Default or Event of Default existed or exists, such certificate shall set forth what action New World has taken or proposes to take with respect thereto, if any.

(f)No later than December 31st of each year (commencing December 31, 2003), a budget which has been approved by New World’s Board of Directors (to include consolidated and consolidating balance sheets, statements of income and expenses and statement of cash flow) for New World and its Subsidiaries on a combined basis as at the end of and for each month of such Fiscal Year, together with forecasts prepared by management of each of the Borrowers, in form and substance satisfactory to Agent, including balance sheets, income statements and cash flow statements of a quarterly basis for the following Fiscal Year together with a five year financial model of New World and its Subsidiaries based on a fiscal year ended on the last day of each December, including, without limitation, monthly projections for the next two years and other financial information, in substantially the form delivered at or prior to the Closing Date pursuant to Section 10.1(x).

(g)Promptly upon the filing thereof, copies of all reports, if any, to or other documents filed by New World or any of its Subsidiaries with the Securities and Exchange Commission under the Exchange Act, and promptly upon the receipt or sending thereof, as applicable, copies of all reports, notices, or statements sent or received by New World or any of its Subsidiaries to or from the holders of any Debt or Equity Interests of New World or any of its Subsidiaries or to or from the trustee under any indenture under which the same is issued.

(h)As soon as available, but in any event not later than 15 days after any Loan Party’s receipt thereof, a copy of all management reports and management letters prepared for New World or any of its Subsidiaries by any independent certified public accountants of New World or any of its Subsidiaries.

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(i)Promptly after their preparation, copies of any and all proxy statements and financial statements which New World or any of its Subsidiaries makes available to its shareholders.

(j)Upon request by the Agent, a copy of each tax return filed by New World or by any of its Subsidiaries.

(k)Promptly after their receipt or delivery, all notices, financial statements and other reporting requirements received pursuant to the Senior Secured Debt Documents to the extent not otherwise delivered hereunder or under the Intercreditor Agreement.

(l)As soon as available, in any event not later than 30 days after the end of each fiscal quarter of the Borrowers, detailed reports, in form and substance satisfactory to the Agent, regarding the Borrowers’ aggregate Committed Capital Expenditures associated with future store openings and purchases of Fixed Assets, in each case, as of the end of such quarter.

(m)Such additional information as the Agent and/or any Lender may from time to time reasonably request regarding the financial and business affairs of New World or any of its Subsidiaries.

Section 7.3.Notices to the Lenders.  Each Loan Party shall notify the Agent in writing of the following matters at the following times:

(a)Immediately after becoming aware of any Default or Event of Default.

(b)Immediately after becoming aware of the assertion by the holder of any capital stock or Debt of New World or of any Subsidiary thereof that a default exists with respect thereto or that New World or any Subsidiary thereof is not in compliance with the terms thereof, or the threat or commencement by such holder of any enforcement action because of such asserted default or non-compliance.

(c)Immediately after becoming aware of the occurrence of a Material Adverse Effect.

(d)Immediately after becoming aware of any pending or threatened action, suit, proceeding or counterclaim by any Person, or any pending or threatened investigation by a Governmental Authority, which would reasonably be expected to have a Material Adverse Effect.

(e)Immediately after becoming aware of any pending or threatened strike, work stoppage, unfair labor practice claim, or other labor dispute affecting New World or any of its Subsidiaries in a manner which would reasonably be expected to have a Material Adverse Effect.

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(f)Immediately after becoming aware of any violation of any law, statute, regulation, or ordinance of a Governmental Authority affecting New World or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect.

(g)Immediately after receipt of any notice from a Governmental Authority of any violation by New World or any of its Subsidiaries of any Environmental Law which could reasonably be expected to result in liability in excess of $200,000 or that any Governmental Authority has asserted in writing that New World or any Subsidiary thereof is not in compliance with any Environmental Law, where the subject noncompliance would reasonably be expected to result in liability in excess of $200,000.

(h)Immediately after receipt of any written notice that New World or any of its Subsidiaries is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant or that New World or any Subsidiary is subject to investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to the Release or threatened Release of any Contaminant which, in either case, is reasonably likely to give rise to liability in excess of $200,000.

(i)Immediately promptly after receipt of any written notice of the imposition of any Environmental Lien against any property of New World or any of its Subsidiaries.

(j)Any change in a Loan Party’s name, state of organization, or form of organization, trade names or styles under which a Loan Party will sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, in each case at least thirty (30) days prior thereto.

(k)Within ten (10) Business Days after any Loan Party or any ERISA Affiliate knows or has reason to know of the occurrence of (i) an ERISA Event, or (ii) a non-exempt prohibited transaction (as defined in Section 406 of ERISA and 4975 of the Code) that could reasonably be expected to subject any Loan Party to a material excise tax, and (promptly after any Loan Party is notified in writing or otherwise, of) any action taken or threatened by the IRS, the DOL or the PBGC with respect thereto.

(l)Upon request, or, in the event that such filing reflects a significant adverse change with respect to the matters covered thereby, within three (3) Business Days after the filing thereof with the PBGC, the DOL or the IRS, as applicable, copies of the following:  (i) each annual report (Form 5500 Series), including Schedule B thereto, filed with the PBGC, DOL or the IRS with respect to each Pension Plan, (ii) a copy of each funding waiver request filed with the PBGC, the DOL or the IRS with respect to any Pension Plan and all communications received by any Loan Party or any ERISA Affiliate from the PBGC, the DOL or the IRS with respect to such request, and (iii) a copy of each other filing or notice filed with the PBGC, the DOL or the IRS, with respect to each Pension Plan of any Loan Party or any ERISA Affiliate.

(m)Upon request, copies of each actuarial report for any Pension Plan or Multi-employer Plan and annual report for any Multi-employer Plan (to the extent such Multi-

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employer Plan documents are reasonably available to a Loan Party or ERISA Affiliate); and within three (3) days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of the following:  (i) any notices of the PBGC’s intention to terminate a Pension Plan or to have a trustee appointed to administer such Pension Plan pursuant to Section 4042 of ERISA; (ii) any unfavorable determination letter from the IRS regarding the qualification of a Pension Plan under Section 401(a) of the Code; or (iii) any notice from a Multi-employer Plan regarding the imposition of withdrawal liability.

(n)Within three (3) Business Days after the occurrence thereof:  (i) any changes in the benefits of any existing Pension Plan which increase any Loan Party’s annual contributions with respect thereto by an amount in excess of $200,000, or the establishment of any new Pension Plan or the commencement of contributions to any Pension Plan or Multi-employer Plan to which any Loan Party or any ERISA Affiliate was not previously contributing, which results in an increase in the annual contributions of any Loan Party to all Pension Plans in excess of $200,000; or (ii) any failure by any Loan Party or any ERISA Affiliate to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment provided that, if any such failure would result in a Lien being placed upon any assets of any Loan Party or any ERISA Affiliate, notice shall be given within three (3) Business Days after any Loan Party or any ERISA Affiliate knows that such installment or other required payment will not be made.

(o)Within three (3) Business Days after any Loan Party or any ERISA Affiliate knows that any of the following events has or will occur:  (i) a Multi-employer Plan has been or will be terminated; or (ii) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.

(p)Not later than the last day of each month, a list of all store locations that (i) were closed or otherwise ceased operations or (ii) relocated or opened, in each case, during such month.

Each notice given under this Section shall describe the subject matter thereof in reasonable detail, and shall set forth the action that the applicable Loan Party or any ERISA Affiliate, as applicable, has taken or proposes to take with respect thereto.

ARTICLE VIII

GENERAL WARRANTIES AND REPRESENTATIONS

Each Loan Party, jointly and severally, warrants and represents to the Agent and the Lenders that except as hereafter disclosed to and accepted by the Agent and the Majority Lenders in writing:

Section 8.1.Authorization, Validity, and Enforceability of this Agreement and the Other Transaction Documents.  Such Loan Party has the corporate power and authority to

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execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party, to incur or guaranty, as applicable, the Obligations, and to grant to the Agent Liens upon and security interests in the Collateral in which it has an interest.  Such Loan Party has taken all necessary corporate (including without limitation, obtaining approval of its stockholders if necessary) to authorize its execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party.  No consent, approval, or authorization of, or declaration or filing with, any Governmental Authority, and no consent of any other Person, is required in connection with such Loan Party’s execution, delivery and performance of this Agreement or any of the other Transaction Documents to which it is a party except for those already duly obtained or made and which are in full force and effect.  This Agreement and the other Transaction Documents to which such Loan Party is a party have been duly executed and delivered by such Loan Party, and constitute the legal, valid and binding obligations of such Loan Party, enforceable against it in accordance with their respective terms without defense, setoff or counterclaim.  Such Loan Party’s execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party do not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of such Loan Party or any of its Subsidiaries by reason of the terms of (a) any material contract, mortgage, Lien, lease, agreement, indenture, or instrument to which such Loan Party or any Subsidiary is a party or which is binding upon it (other than pursuant to the Loan Documents and the Senior Secured Debt Documents), (b) any Requirement of Law applicable to such Loan Party or any of its Subsidiaries, or (c) the certificate or articles of incorporation or by-laws of such Loan Party or any of its Subsidiaries.

Section 8.2.Validity and Priority of Security Interest.  The provisions of this Agreement, the Patent and Trademark Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Agent, for the ratable benefit of the Agent and the Lenders, and when (a) financing statements in appropriate form are filed in the appropriate offices, (b) any Mortgage is filed in the land records of the appropriate registry office, (c) the Patent and Trademark Agreement (or any assignments required thereunder) are filed and recorded with the United States Patent and Trademark Office, (d) the Agent has possession of Collateral which can be perfected by possession only and (e) the Agent has “control” (as defined in the UCC) of any Collateral which can be perfected by “control” (as defined in the UCC) only, such Liens shall constitute perfected and continuing Liens on all the Collateral, having priority over all other Liens on such Collateral (except, with respect to Fixed Assets, for those Liens identified in clauses (c), (d), (e), (g), (h) and (k) (but only to the extent set forth in the related financial institution account agreement or blocked account agreement) of the definition of Permitted Liens), securing all the Obligations, and enforceable against the Loan Parties and all third parties.

Section 8.3.Organization and Qualification.  Such Loan Party (a) is duly organized and validly existing in good standing under the laws of the state of its organization, (b) is qualified to do business as a foreign corporation and is in good standing in the jurisdictions set forth on Schedule 8.3 which are the only jurisdictions in which qualification is necessary in order for it to own or lease its property and conduct its business except where the failure to so

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qualify could not reasonably be expected to result in a Material Adverse Effect and (c) has all requisite power and authority to conduct its business and to own its property.

Section 8.4.Corporate Name; Prior Transactions.  Except as set forth on Schedule 8.4, such Loan Party has not, during the past five (5) years from the date hereof, been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property outside of the ordinary course of business.

Section 8.5.Subsidiaries.  Schedule 8.5 is a correct and complete list of the name and relationship to each Loan Party of each and all of such Loan Party’s Subsidiaries.  No Activation Event has occurred or exists with respect to any Non-Restricted Subsidiary.

Section 8.6.Financial Statements and Projections.  (a)  The Loan Parties have delivered to the Agent and the Lenders consolidated and consolidating audited financial statements of New World for the fiscal year ended December 31, 2002.  Such financial statements are attached hereto as Exhibit B.  All such financial statements have been prepared in accordance with GAAP and present fairly in all material respects the results of operations and financial position of New World and its Subsidiaries for the periods then ended and at the end of such periods.

(b)The Latest Projections when submitted to the Lenders as required herein represent the Loan Parties’ reasonable estimate as of the date submitted of the future financial performance of New World and its Subsidiaries for the periods set forth therein.  The Latest Projections have been prepared on the basis of the assumptions set forth therein, which each Loan Party believes are fair and reasonable in light of current and reasonably foreseeable business conditions at the time submitted to the Lenders.  It is understood that (i) any projections furnished to the Agent or any Lender are subject to significant uncertainties and contingencies, which may be beyond each Borrower’s and its Subsidiaries’ control, (ii) no assurance is given by a Borrower and its Subsidiaries that such projections will be realized, and (iii) the actual results may differ from such projections and such differences may be material.

(c)The Loan Parties have delivered to the Agent and the Lenders a copy of the unaudited quarterly balance sheets and income statements of New World and its Subsidiaries for the fiscal quarter ended March 31, 2003, which present, fairly, in all material respects, New World’s and its Subsidiaries financial condition as at such date, and has been prepared in accordance with GAAP (except for footnote disclosures and year-end adjustments in accordance with GAAP).

Section 8.7.Capitalization.  Schedule 8.7 is a correct and complete description of the capitalization of each of the Loan Parties, and, such Schedule 8.7 sets forth the number of authorized, issued and outstanding shares of stock or other Equity Interests in each such Loan Party.  All issued and outstanding shares of stock or other Equity Interests are fully paid and non-assessable and are owned beneficially and of record by the Persons set forth on such Schedule 8.7.

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Section 8.8.Solvency.  (a)  The Loan Parties taken as a whole are Solvent prior to and after giving effect to the making of each Revolving Loan and the issuance of each Letter of Credit.

(b)Such Loan Party is Solvent prior to and after giving effect to the making of the Revolving Loans to be made on the Closing Date and the issuance of any Letters of Credit to be issued on the Closing Date, and shall remain Solvent during the term of this Agreement, in each case, without giving effect to any intercompany liabilities among Loan Parties and after giving effect to any right of contribution with respect to any debt under which it is a joint and several obligor with another Loan Party.

Section 8.9.Debt.  After giving effect to the making of the Revolving Loans to be made on the Closing Date, such Loan Party and its Subsidiaries will have no Debt, except (a) the Obligations, (b) the Senior Secured Debt, (c) trade payables and other contractual obligations arising in the ordinary course of business and (d) Debt described on Schedule 9.12.

Section 8.10.Title to Property.  Such Loan Party has good and marketable title in fee simple to its real property listed on Schedule 8.10 hereto, and such Loan Party has good, indefeasible and merchantable title to all of its other property, free of all Liens except Permitted Liens.

Section 8.11.Real Estate; Leases.  Schedule 8.11 sets forth, as of the Closing Date, a correct and complete list of all real property owned by such Loan Party, and all leases and subleases of real or personal property by such Loan Party as lessee or sublessee (other than leases of personal property as to which such Loan Party is lessee or sublessee for which the value of such personal property is less than $50,000 individually or $100,000 in the aggregate), and all leases and subleases of real or personal property by such Loan Party as lessor or sublessor.  To the knowledge of such Loan Party, each of such leases and subleases is valid and enforceable in accordance with its terms and is in full force and effect, and no default by any party to any such lease or sublease exists except for those defaults which could not reasonably be expected to have a Material Adverse Effect.

Section 8.12.Proprietary Rights.  Schedule 8.12 sets forth a correct and complete list of all of such Loan Party’s Proprietary Rights.  None of the Proprietary Rights is subject to any licensing agreement or similar arrangement except as set forth on Schedule 8.12. To the best of such Loan Party’s knowledge, none of the Proprietary Rights infringes on or conflicts with any other Person’s property, and no other Person’s property infringes on or conflicts with the Proprietary Rights.  The Proprietary Rights described on Schedule 8.12 constitute all of the property of such type necessary to the current and anticipated future conduct of such Loan Party’s business.

Section 8.13.Trade Names.  All trade names or styles under which such Loan Party will sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made payable, are listed on Schedule 8.13.

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Section 8.14.Litigation.  There is no pending or threatened action, suit, proceeding, or counterclaim by any Person or investigation by any Governmental Authority, or any basis for any of the foregoing, which could reasonably be expected to have a Material Adverse Effect.

Section 8.15.Restrictive Agreements.  Such Loan Party is not a party to any contract or agreement, or subject to any charter or other corporate restriction, which affects its ability to execute, deliver, and perform the Loan Documents or any other Transaction Documents to which it is a party and repay the Obligations or which materially and adversely affects or, insofar as such Loan Party can reasonably foresee, could reasonably be expected to have a Material Adverse Effect.

Section 8.16.Labor Disputes.  (a) There is no collective bargaining agreement or other labor contract covering employees of such Loan Party, (b) no such collective bargaining agreement or other labor contract is scheduled to expire during the term of this Agreement, (c)  no union or other labor organization is seeking to organize, or to be recognized as, a collective bargaining unit of employees of such Loan Party or for any similar purpose, and (d) there is no pending or (to the best of such Loan Party’s knowledge) threatened, strike, work stoppage, unfair labor practice claim, or other labor dispute against or affecting such Loan Party or its employees.

Section 8.17.Environmental Laws.  Except as could not be reasonably likely to have a Material Adverse Effect:  (a)  Such Loan Party is and has complied with all Environmental Laws applicable to its Real Estate and business, and neither such Loan Party nor any of its present Real Estate or operations nor its past property or operations, is subject to any written enforcement order from or liability agreement with any Governmental Authority or private Person respecting (i) non-compliance with any Environmental Law or (ii) any potential liabilities and costs or remedial action arising from the Release or threatened Release of a Contaminant.

(b)Such Loan Party has obtained or applied for all permits necessary for its current operations under Environmental Laws, and all such applications and permits are in good standing and such Loan Party is in compliance with all terms and conditions of such permits.

(c)Neither such Loan Party nor, to the best of such Loan Party’s knowledge, any of its predecessors-in-interest, has stored, treated or disposed of any hazardous waste on any Real Estate, so as to require a hazardous waste treatment, storage or disposal facility permit pursuant to 40 C.F.R. Part 261 or any equivalent Environmental Law.

(d)Such Loan Party has not received any summons, complaint, order or similar written notice that it is not currently in compliance with, or that any Governmental Authority is investigating its compliance with, any Environmental Laws or that it is or may be liable to any other Person as a result of a Release or threatened Release of a Contaminant.

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(e)To such Loan Party’s knowledge, none of the present or past operations of such Loan Party is the subject of any investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to a Release or threatened Release of a Contaminant.

(f)There is not now, nor to the best of such Loan Party’s knowledge has there ever been, on or in any of the Real Estate:

(i)any underground storage tanks or surface impoundments,

(ii)any asbestos-containing material, or

(iii)any polychlorinated biphenyls (PCB’s) used in hydraulic oils, electrical transformers or other equipment.

(g)Such Loan Party has not filed any notice under any requirement of Environmental Law reporting a spill or accidental and unpermitted release or discharge of a Contaminant into the environment.

(h)Such Loan Party has not entered into any settlement agreements with any Person (including, without limitation, the prior owner of its property) imposing obligations or liabilities on such Loan Party with respect to any remedial action in response to the Release of a Contaminant or environmentally related claim.

(i)No Environmental Lien has attached to any Real Estate of such Loan Party.

Section 8.18.No Violation of Law.  Such Loan Party is not in violation of any law, statute, regulation, ordinance, judgment, order, or decree applicable to it which violation could reasonably be expected to have a Material Adverse Effect.

Section 8.19.No Default.  Such Loan Party is not in default with respect to any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which such Loan Party or any of its Subsidiaries is a party or by which it is bound, which default could reasonably be expected to have a Material Adverse Effect.

Section 8.20.ERISA Compliance.  (a)  (i) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable federal or state law; (ii) each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and, to the best knowledge of such Loan Party, nothing has occurred which would cause the loss of such Plan’s qualification; and (iii) each Loan Party and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

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(b)There are no pending or, to the knowledge of such Loan Party, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)(i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability in excess of $250,000; (iii) no Loan Party or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Loan Party or ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan; and (v) no Loan Party or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

Section 8.21.Tax Filings.  Such Loan Party has filed all federal, state income and other tax returns and reports required to be filed, and have paid all federal, state income and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those being contested in good faith by appropriate proceedings.

Section 8.22.Regulated Entities.  None of such Loan Party, any Person controlling such Loan Party, or any Subsidiary thereof, is an “Investment Company” within the meaning of the Investment Company Act of 1940.  Neither such Loan Party nor any Subsidiary thereof is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur indebtedness.

Section 8.23.Use of Proceeds; Margin Regulations.  The proceeds of Revolving Loans are to be used for working capital and other general business purposes of the Loan Parties permitted hereunder.  Such Loan Party is not engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

Section 8.24.Copyrights, Patents, Trademarks and Licenses, etc.  Such Loan Party owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of its businesses, without conflict with the rights of any other Person.  To the best knowledge of such Loan Party, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by such Loan Party infringes upon any rights held by any other Person.  No claim or litigation regarding any of the foregoing is ending or threatened, and no patent, invention, device, application, principle or any statue, law, rule, regulation, standard or code is

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pending or, to the knowledge of such Loan Party, proposed, which, in any case, could reasonably be expected to have a Material Adverse Effect.

Section 8.25.No Material Adverse Change.  No Material Adverse Effect has occurred since December 31, 2002.

Section 8.26.Full Disclosure.  None of the representations or warranties made by such Loan Party in any of the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of such Loan Party in connection with any of the Loan Documents (including the offering and disclosure materials delivered by or on behalf of such Loan Party to the Lenders prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered.

Section 8.27.Material Agreements.  Schedule 8.27 hereto sets forth all material agreements and contracts to which such Loan Party is a party or is bound as of the date hereof.

Section 8.28.Bank Accounts. Schedule 8.28  contains a complete and accurate list of all bank accounts maintained by such Loan Party with any bank or other financial institution.

Section 8.29.Governmental Authorization.  No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, such Loan Party of this Agreement or any other Loan Document.

Section 8.30.Restructuring.  The transactions contemplated by the Senior Secured Debt Documents have been duly and validly consummated, without any material modification, amendment or waiver (except as reasonably approved in writing by the Majority Lenders), in accordance with the terms, conditions and provisions of such agreement. Each of the representations and warranties made by any Loan Party in the Senior Secured Debt Documents is true and correct in all material respects. To the best of the Loan Parties’ knowledge, each of the representations and warranties made by any party (other than a Loan Party) to the Senior Secured Debt Documents is true and correct in all material respects. Neither the transactions contemplated by this Agreement and the other Loan Documents nor the Senior Secured Debt Documents shall result in a breach of any of the representations and warranties contained in any of the Transaction Documents.

Section 8.31.Subordinated Lien.  The Liens granted pursuant to the Senior Secured Debt Documents are effectively subordinated to the Agent’s Liens, other than certain liens in favor of The Bank of New York, as Subordinated Creditor Collateral Agent under, and as set forth in, the Intercreditor Agreement.

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Section 8.32.Distributions.  Since the Closing Date, no Distribution has been declared, paid, or made upon or in respect of any capital stock or other securities of such Loan Party or any of its Subsidiaries, other than Distributions permitted to be made pursuant to Section 9.9.

Section 8.33.Franchises.  Each franchise agreement to which any Loan Party is party constitutes the valid, binding and enforceable obligation of each party thereto. There is no pending or threatened action or suit by any of the Loan Parties’ franchisees involving any of the Loan Parties.

ARTICLE IX

AFFIRMATIVE AND NEGATIVE COVENANTS

Each Loan Party covenants to the Agent and each Lender that, so long as any of the Obligations remain outstanding or this Agreement is in effect:

Section 9.1.Taxes and Other Obligations.  Such Loan Party shall, and shall cause each of its Subsidiaries to, (a) file when due all federal, state income and other tax returns and other reports which it is required to file; (b) pay, or provide for the payment, when due, of all taxes (including, without limitation, sales tax), fees, assessments and other governmental charges against it or upon its property, income and franchises, make all required withholding and other tax deposits, and establish adequate reserves for the payment of all such items, and provide to the Agent and the Lenders, upon request, satisfactory evidence of its timely compliance with the foregoing; and (c) pay when due all Debt owed by it and all claims of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons, and all other indebtedness owed by it and perform and discharge in a timely manner all other obligations undertaken by it; provided, however, so long as such Loan Party has notified the Agent in writing, neither such Loan Party nor any of its Subsidiaries need pay any such amount (i) that it is contesting in good faith by appropriate proceedings diligently pursued, (ii) with respect to which such Loan Party or its Subsidiary, as the case may be, has established proper reserves for as provided in GAAP, and (iii) for which no Lien (other than a Permitted Lien) results from such non-payment.

Section 9.2.Corporate Existence and Good Standing.  Such Loan Party shall maintain its corporate existence, its rights, privileges and franchises necessary in the ordinary conduct of its business and its qualification and good standing in all jurisdictions in which the failure to maintain such qualification or good standing could reasonably be expected to have a Material Adverse Effect.

Section 9.3.Compliance with Law and Agreements; Maintenance of Licenses.  Such Loan Party shall comply in all material respects with (i) all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act) and (ii) the terms of its obligations under all material agreements to which it is a party. Such Loan Party shall obtain and maintain all licenses, permits, franchises, and

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governmental authorizations necessary to own its property and to conduct its business, except where the failure to so obtain or maintain the foregoing could not reasonably be expected to have a Material Adverse Effect. Such Loan Party shall not modify, amend or alter its certificate or article of incorporation other than in a manner which could not reasonably be expected to adversely affect the rights of the Lenders or the Agent (in their capacity as such).

Section 9.4.Maintenance of Property.  Such Loan Party shall maintain all of its property necessary in the conduct of its business as currently conducted, in good operating condition and repair, ordinary wear and tear excepted.

Section 9.5.Insurance.  (a) Such Loan Party shall maintain, with financially sound and reputable insurers having a rating of at least A-VII or better by Best Rating Guide, insurance against loss or damage by fire with extended coverage; theft, burglary, pilferage and loss in transit; public liability and third party property damage; larceny, embezzlement or other criminal liability; business interruption; public liability and third party property damage; and such other hazards or of such other types as is customary for Persons engaged in the same or similar business, as the Agent, in its discretion, or acting at the direction of the Majority Lenders, shall specify, in amounts, and under policies acceptable to the Agent and the Majority Lenders. Without limiting the foregoing, such Loan Party shall also maintain flood insurance, in the event of a designation of the area in which any Real Estate covered by the Mortgages and any of the Equipment and Inventory located on such Real Estate is located as “flood prone” or a “flood risk area,” (hereinafter “SFHA”) as defined by the Flood Disaster Protection Act of 1973, as amended, in an amount to be reasonably determined by the Agent, and shall comply with the additional requirements of the National Flood Insurance Program as set forth in said Act. Upon the Majority Lenders’ request, such Loan Party shall maintain flood insurance for its Inventory and Equipment which is, at any time, located in a SFHA.

(b)Such Loan Party shall cause the Agent, for the benefit of the Agent and the Lenders, to be named in each such policy as secured party or mortgagee and sole loss payee or additional insured in a manner reasonably acceptable to the Agent. Each policy of insurance shall contain a clause or endorsement requiring the insurer to give not less than thirty (30) days’ prior written notice to the Agent in the event of cancellation of the policy for any reason whatsoever and a clause or endorsement stating that the interest of the Agent shall not be impaired or invalidated by any act or neglect of any Loan Party or the owner of any premises for purposes more hazardous than are permitted by such policy. All premiums for such insurance shall be paid by such Loan Party when due, and certificates of insurance and, if requested by the Agent or any Lender, photocopies of the policies, shall be delivered to the Agent, in each case in sufficient quantity for distribution by the Agent to each of the Lenders. If a Loan Party fails to procure such insurance or to pay the premiums therefor when due, the Agent may, and at the direction of the Majority Lenders shall, do so from the proceeds of Revolving Loans.

(c)Such Loan Party shall promptly notify the Agent and the Lenders of any loss, damage, or destruction to the Collateral having a value greater than $250,000 in the aggregate for all Loan Parties, whether or not covered by insurance. Such Loan Party shall, immediately upon learning of the institution of any proceeding for the condemnation or other

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taking of any of its property, notify the Agent of the pendency of such proceeding, and agrees that the Agent may participate in any such proceeding, and such Loan Party from time to time will deliver to the Agent all instruments reasonably requested by the Agent to permit such participation. The Agent is hereby authorized to collect all insurance and/or condemnation proceeds in respect of the Collateral or other property of such Loan Party directly, and to apply or remit them as follows:

(i)With respect to insurance and/or condemnation proceeds less than $250,000 in the aggregate in any Fiscal Year relating to property other than Collateral, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall promptly remit to the applicable Loan Party such proceeds. With respect to insurance and/or condemnation proceeds greater than or equal to $250,000 in the aggregate in any Fiscal Year relating to property other than Collateral, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall apply such proceeds to the reduction of the Loans as if such proceeds constituted proceeds of asset sales.

(ii)With respect to insurance and/or condemnation proceeds relating to Collateral other than Fixed Assets, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall apply such proceeds, ratably, to the reduction of the Obligations.

(iii)With respect to insurance and/or condemnation proceeds relating to Collateral consisting of Fixed Assets, after deducting from such proceeds the reasonable expenses, if any, incurred by the Agent in the collection or handling thereof, the Agent shall apply such proceeds to the reduction of the Loans as if such proceeds constituted proceeds of asset sales, or at the option of the Majority Lenders, may permit or require the applicable Loan Party to use such money, or any part thereof, to replace, repair, restore or rebuild the relevant Fixed Assets in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage, destruction or condemnation; provided, however, that so long as there does not then exist any Default or Event of Default, such Loan Party shall be permitted to use insurance or condemnation proceeds relating to Collateral consisting of Fixed Assets in an aggregate amount not to exceed $250,000 with respect to any occurrence, to replace, repair, restore or rebuild the relevant Fixed Assets in the manner set forth in this sentence; and loss, damage, destruction or condemnation or purchase other Collateral used or useful in its business; provided, that such Loan Party first (x) provides the Agent and the Majority Lenders with plans and specifications for any such repair or restoration which shall be reasonably satisfactory to the Agent and the Majority Lenders and (y) demonstrates to the reasonable satisfaction of the Agent and the Majority Lenders that the funds available to it will be sufficient to complete such project in the manner provided therein.

Section 9.6.Environmental Laws.  (a) Such Loan Party shall conduct its business in material compliance with all Environmental Laws applicable to it, including, without limitation, those relating to the generation, handling, use, storage, and disposal of any Contaminant, except for such non-compliances for which the aggregate liability of the Loan

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Parties for all currently pending non-compliances is not reasonably likely to exceed $250,000. Such Loan Party shall take prompt and appropriate action to respond to any non-compliance with Environmental Laws, and shall regularly report to the Agent on such response, except for such non-compliances for which the aggregate liability of the Loan Parties for all such non-compliances is not reasonably likely to exceed $250,000.

(b)Without limiting the generality of the foregoing, each Loan Party shall submit to the Agent and the Lenders annually, commencing on the first Anniversary Date, and on each Anniversary Date thereafter, an update of the status of each environmental compliance or environmental liability issue which is reasonably likely to result in liability in excess of $250,000. The Agent or any Lender may request copies of technical reports prepared by any Loan Party and its communications with any Governmental Authority to determine whether such Loan Party or any of its Subsidiaries is proceeding reasonably to correct, cure or contest in good faith any alleged non-compliance or environmental liability as required hereunder. Each Loan Party shall, at the Agent’s or the Majority Lenders’ reasonable written request and at such Loan Party’s expense, (i) retain an independent environmental engineer reasonably acceptable to the Agent to evaluate such non-compliance or liability matters and prepare and deliver to the Agent, in sufficient quantity for distribution by the Agent to the Lenders, a report setting forth the results of such evaluation and, if required by Environmental Law, a proposed plan for responding to such non-compliance or liability matter described therein, and an estimate of the costs thereof, and (ii) provide to the Agent and the Lenders a supplemental report of such engineer whenever the scope of the environmental problems, or the response thereto or the estimated costs thereof, shall change in any material respect.

Section 9.7.Compliance with ERISA.  Such Loan Party shall, and shall cause each of its Subsidiaries to: (a) maintain each Plan in material compliance with the applicable provisions of ERISA, the Code and other applicable law; (b) make all required contributions to any Plan subject to Section 412 of the Code; (c) not engage in a transaction that reasonably could be expected to be subject to Section 4069 or 4212(c) of ERISA; and (d) promptly file the annual report (IRS Form 5500) for all Plans.

Section 9.8.Mergers, Consolidations or Sales.  Such Loan Party shall not enter into any transaction of merger, reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or any part of its property, or wind up, liquidate or dissolve, or agree to do any of the foregoing, except (a) for sales of Inventory in the ordinary course of its business; (b) for sales or other dispositions of assets as and to the extent permitted by Section 6.12 and Section 4.3; (c) for licenses of Proprietary Rights in the ordinary course of business, provided that no such sales or licenses could reasonably be expected to have a Material Adverse Effect; (d) any Subsidiary of a Loan Party may merge into or consolidate with a Loan Party so long as no Default or Event of Default is existing and the resulting merger or consolidation would not have a Material Adverse Effect; (e) any Asset Sale with respect to which the Loan Parties receive aggregate consideration of less than $1,000,000 (so long as no Default or Event of Default then exists or would result therefrom); (f) any Asset Sale with respect to which the Loan Parties receive aggregate consideration of $1,000,000 or more pursuant to which (i) such Loan Party receives consideration at the time of such Asset Sale at least equal to the fair market value

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(evidenced by a resolution of the board of directors of New World set forth in an officers’ certificate delivered to the Agent) of the assets or properties issued or sold or otherwise disposed of and (ii) at least 85% of the consideration therefor received by such Loan Party is in the form of cash or cash equivalents (provided that the amount of (x) any liabilities (as shown on such Loan Party’s most recent balance sheet) of such Loan Party (other than contingent liabilities and liabilities that are by their terms subordinated to the Obligations) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases such Loan Party from further liability and (y) any notes or other obligations received by such Loan Party from such transferee that are converted by such Loan Party into cash within 360 days of the closing of such Asset Sale (to the extent of the cash received) shall be deemed to be cash for purposes of this provisions) (so long as no Default or Event of Default then exists or would result therefrom); and (g) a Primary Offering of Capital Stock of Einstein (as long as (i) no Default or Event of Default then exists or would result therefrom and (ii) Einstein remains a Guarantor). The inclusion of proceeds in the definition of Collateral shall not be deemed to constitute the Agent’s or any Lender’s consent to any sale or other disposition of the Collateral except as expressly permitted herein.

Section 9.9.Distributions; Capital Change; Restricted Investments.  Neither such Loan Party nor any of its Subsidiaries shall (a) directly or indirectly declare or make, or incur any liability to make, any Distribution, except Permitted Distributions, (b) make any change in its capital structure which could reasonably be expected to have a Material Adverse Effect or (c) make any Restricted Investment, except (x) for loans to franchisees and area developers in an amount not to exceed $250,000 in the aggregate for all Loan Parties in any Fiscal Year and (y) the existing loans to franchisees set forth on Schedule 9.9 hereto. Notwithstanding the foregoing, New World may (x) consummate a Qualified Recapitalization or (y) redeem Series Z Preferred Stock to be issued pursuant to a Qualified Recapitalization; provided that in the case of each of the foregoing (i) no Default or Event of Default then exists or would result therefrom and (ii) after giving effect thereto the Total Exposure will not exceed $5,000,000.

Section 9.10.Transactions Affecting Collateral or Obligations.  Neither such Loan Party nor any of its Subsidiaries shall enter into any transaction which would be reasonably expected to have a Material Adverse Effect.

Section 9.11.Guaranties.  Neither such Loan Party nor any of its Subsidiaries shall make, issue, or become liable on any Guaranty, except Guaranties of the Obligations in favor of the Agent and Guaranties of obligations under the Senior Secured Debt Documents.

Section 9.12.Debt.  Neither such Loan Party nor any of its Subsidiaries shall incur or maintain any Debt, other than without duplication: (a) the Obligations; (b) the Senior Secured Debt other than in connection with the issuance of any “Additional Notes” pursuant to (and as defined in) the Senior Secured Debt Documents; (c) other Debt existing on the Closing Date and described on Schedule 9.12; (d) in the case of the Borrowers and their Subsidiaries, Purchase Money Obligations in an aggregate principal amount for all Loan Parties not to exceed $3,000,000 at any time outstanding during the term of this Agreement; (e) Debt between and

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among Loan Parties (which Debt shall be subordinated to the Obligations on terms and conditions satisfactory to the Agent and which shall be pledged under the Pledge Agreement); (f) trade payables and contractual obligations to suppliers and customers incurred in the ordinary course of business; (g) renewals, extensions or refinancings of Debt referred to in clauses (b), (c) and (f), provided that such renewals, extensions or refinancings (i) do not result in an increase in the outstanding principal balances thereof, (ii) are on terms which are not less favorable to the Loan Parties than those in effect prior to such renewal, extension or refinancing and (iii) are otherwise on terms reasonably acceptable to the Agent; (h) Guaranties permitted pursuant to Section 9.11; (i) Capital Leases of Fixed Assets; provided, that (x) Liens securing the same attach only to the Fixed Assets acquired with the proceeds of such Debt, (y) the acquisition of any Fixed Asset that is financed pursuant to a Capital Lease is otherwise permitted hereunder, and (z) the aggregate amount of Debt permitted by this clause (i) shall not exceed $3,000,000; (j) interest rate swap obligations (to the extent such obligations arise in connection with interest rate or similar agreements permitted pursuant to clause (i) of the definition of Restricted Investment); (k) the issuance of Disqualified Stock in connection with a Qualified Recapitalization; and (l) other unsecured Debt in an aggregate principal amount not exceeding $2,000,000 at any time outstanding.

Section 9.13.Prepayment.  Neither such Loan Party nor any of its Subsidiaries shall voluntarily prepay, redeem or acquire any Debt other than pursuant to a refinancing thereof, permitted under Section 9.12 of this Agreement, except the prepayment of the Obligations in accordance with the terms of this Agreement.  No Loan Party shall make any principal or interest payment on account of any Senior Secured Debt, or acquire any Senior Secured Debt, except for payments of scheduled interest on the dates set forth therefor in the Senior Secured Debt Documents.

Section 9.14.Transactions with Affiliates.  Except as set forth below, no Loan Party shall sell, transfer, distribute, or pay any money or property, including, but not limited to, any fees or expenses of any nature (including, but not limited to, any fees or expenses for management services), to any Affiliate, or lend or advance money or property to any Affiliate, or invest in (by capital contribution or otherwise) or purchase or repurchase any stock or indebtedness, or any property, of any Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or other obligations of any Affiliate.  Notwithstanding the foregoing, while no Default or Event of Default has occurred and is continuing a Loan Party may engage in transactions with Affiliates in the ordinary course of business, in amounts and upon terms fully disclosed to the Agent and the Lenders, and no less favorable to such Loan Party than would be obtained in a comparable arm’s-length transaction with a third party who is not an Affiliate, and may consummate the transactions contemplated by the Equity Restructuring Agreement (so long as no Default or Event of Default shall result therefrom).

Section 9.15.Investment Banking and Finder’s Fees.  Such Loan Party shall not pay or agree to pay, or reimburse any other party with respect to, any investment banking or similar or related fee, underwriter’s fee, finder’s fee, or broker’s fee to any Person in connection with this Agreement.  Each Loan Party shall defend and indemnify the Agent and the Lenders against and hold them harmless from all claims of any Person that the Agent or any Lender is

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obligated to pay for any such fees, and all costs and expenses (including without limitation, attorneys’ fees) incurred by the Agent and/or any Lender in connection therewith.

Section 9.16.Negative Pledge.  Such Loan Party shall not enter into an agreement with any Person other than the Agent and the Lenders pursuant to which such Loan Party is not permitted to grant a Lien to the Agent on all of its then owned and thereafter acquired assets.

Section 9.17.Business Conducted.  Such Loan Party shall not engage, directly or indirectly, in any line of business other than the businesses in which such Loan Party is engaged on the Closing Date and other businesses reasonably related thereto.

Section 9.18.Liens.  Such Loan Party shall not create, incur, assume or permit to exist any Lien on any property now owned or hereafter acquired by any of them, except Permitted Liens.

Section 9.19.Sale and Leaseback Transactions.  Such Loan Party shall not, directly or indirectly, enter into any arrangement with any Person providing for such Loan Party to lease or rent property that such Loan Party has sold or will sell or otherwise transfer to such Person other than any such transaction permitted by Section 9.8(e).

Section 9.20.New Subsidiaries; Activation Event.  (a)  The Loan Parties shall (i) inform the Agent within three (3) Business Days of the creation or acquisition of any direct or indirect Subsidiary (provided, that nothing in this Section 9.20 shall be deemed to permit any Loan Party to create or acquire any Subsidiary in contravention of Section 9.9), (ii) cause each direct or indirect Subsidiary not in existence on the date hereof (other than a Non-Restricted Subsidiary) to execute and deliver to the Agent an addendum, in the form of Exhibit E hereto (an “Addendum”), pursuant to which such Subsidiary shall become a Guarantor and pledge all of its assets as security for its Obligations hereunder and under the other Loan Documents, (iii) cause such Subsidiary to execute the Pledge Agreement, as a pledgor, and (iv) cause the direct parent of each such Subsidiary to pledge all of the Equity Interests of such Subsidiary pursuant to the Pledge Agreement.  In connection therewith, the Loan Parties or any applicable Subsidiary shall provide such resolutions, certificates and opinions of counsel as shall be reasonably requested by the Agent.

(b)The Loan Parties shall (i) inform the Agent within three (3) Business Days of the occurrence of an Activation Event with respect to any Non-Restricted Subsidiary, (ii) cause such Subsidiary to execute and deliver to the Agent an Addendum, pursuant to which such Subsidiary shall become a Guarantor and pledge all of its assets as security for its Obligations hereunder and under the other Loan Documents, (iii) cause such Subsidiary to execute the Pledge Agreement, as a pledgor, and (iv) cause the direct parent of each such Subsidiary to pledge all of the Equity Interests of such Subsidiary pursuant to the Pledge Agreement.  In connection therewith, the Loan Parties or any applicable Subsidiary shall provide such resolutions, certificates and opinions of counsel as shall be reasonably requested by the Agent.

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Section 9.21.Fiscal Year.  Such Loan Party shall not change its Fiscal Year.  All Loan Parties shall maintain the same Fiscal Year end (which shall be December 31 of each year), fiscal quarter end and fiscal month end.

Section 9.22.Capital Expenditures.  The aggregate amount of the Borrowers’ Committed Capital Expenditures at any time shall not exceed the greater of (x) $15,000,000 and (y) 35% of New World’s and its Subsidiaries’ EBITDA for the most recent Test Period.

Section 9.23.Operating Lease Obligations.  Such Loan Party shall not enter into, or suffer to exist, any lease of real or personal property as lessee or sublessee (other than a Capital Lease, but in any event including such Loan Party’s operating leases in existence on the Closing Date with respect to its office and manufacturing space and equipment), provided that such Loan Party may do so if, after giving effect thereto, the aggregate amount of Rentals (as hereinafter defined) payable by the Borrowers and their Subsidiaries in any Fiscal Year in respect of such lease and all other such leases would not exceed $40,000,000 (such amount being referred to herein as “Permitted Rentals”).  The term “Rentals” means all payments due from the lessee or sublessee under a lease, including, without limitation, basic rent, percentage rent, property taxes, utility or maintenance costs, and insurance premiums.

Section 9.24.Minimum EBITDA.  New World and its Subsidiaries will maintain EBITDA for each Test Period ended at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2003 of not less than $33,000,000.

Section 9.25.Operating Cash Flow Coverage Ratio.  New World and its consolidated Subsidiaries will maintain an Operating Cash Flow Coverage Ratio (i) of not less than 1.0:1 for the Test Period ended at the end of the fiscal quarter immediately preceding any fiscal quarter in which Total Exposure is $10,000,000 or more at any time (such immediately preceding fiscal quarter being an “OCF Test Period”) and (ii) of not less than 1.1:1 for each Test Period ended at the end of each fiscal quarter thereafter; provided, however, if Total Exposure is $7,500,000 or less for any 60 consecutive calendar day period following an OCF Test Period, then the provisions of this Section 9.25 shall not apply as of the Test Period ended at the end of the fiscal quarter in which such 60 day period ends and thereafter (unless and until another OCF Test Period occurs, in which case the provisions set forth in Section 9.25 shall apply).

Section 9.26.Minimum Net Worth.  To the extent that the net worth of New World and its Subsidiaries is reduced in any Fiscal Year (or the period June 30, 2003 through December 31, 2003) from the amount of net worth from the prior Fiscal Year, the amount of any such reduction shall not exceed $5,000,000 (the following non-cash charges in net worth calculation shall be excluded: deemed dividends, non-cash interest, write-offs of goodwill, cumulative change in derivatives, extinguishments of Debt, impairments and reorganization provisions); provided, however, if the net worth of New World and its Subsidiaries declines during any Fiscal Year (or the period June 30, 2003 through December 31, 2003) (excluding write-offs of goodwill and debt origination costs), the write-off of net property, plant and equipment will not exceed $10,000,000 in such Fiscal Year.

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Section 9.27.Use of Proceeds.  Such Loan Party shall not use any portion of the Loan proceeds, directly or indirectly, (a) to purchase or carry Margin Stock, (b) to repay or otherwise refinance indebtedness of a Loan Party or others incurred to purchase or carry Margin Stock, (c) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (d) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act.

Section 9.28.Amendments.  Such Loan Party shall not, directly or indirectly, amend, modify, supplement, terminate, waive compliance with, or assent to non-compliance with, any material term or provision of (a) such Loan Party’s certificate of incorporation or by-laws in a manner that materially affects the Loan Parties or the Lenders and (b) any of the Senior Secured Debt Documents, except (x) in connection with any transaction otherwise permitted by this Agreement or (y) for any such amendment, modification, supplement, waiver or assent to any term or provision of any Senior Secured Debt Document which would not have the effect of (i) increasing the principal amount or applicable interest rate (payable in cash or otherwise) or advancing the maturity date or any payment date of any Senior Secured Debt or changing any pay-in-kind interest provisions, (ii) changing any provisions therein relating to the subordination of the Senior Secured Debt, (iii) imposing any additional event of default, right of acceleration, obligation, restriction, covenant or condition upon any Loan Party, (iv) changing in a manner more adverse to any Loan Party than that existing on the Closing Date, or adding, any event of default, covenant, restriction or condition, (v) further restricting the ability of any Loan Party to amend, modify, supplement, waive compliance with or assent to noncompliance with any term, provision or condition of any Loan Document or (vi) otherwise materially adversely affecting the Loan Parties or the Lenders.

Section 9.29.Maintain Operating Accounts.  Such Loan Party shall maintain all of its operating accounts and cash management arrangements with the Agent or with other financial institutions approved by the Agent and on terms (which shall include obtaining lockbox and blocked account agreements) satisfactory to the Agent in its reasonable discretion.

Section 9.30.Further Assurances.  Such Loan Party shall execute and deliver, or cause to be executed and delivered, to the Agent and/or the Lenders such documents and agreements, and shall take or cause to be taken such actions, as the Agent or any Lender may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents.

Section 9.31.Post-Closing.  Within 60 days of the Closing Date, the Loan Parties shall cause the filings in the United States Patent and Trademark Office listed on Schedule 9.31 to be terminated (and the Loan Parties hereby represent and warrant that there is no Debt or other obligation owing by any Loan Party to any of the Persons identified in such filings as “assignee” or “secured party”).

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ARTICLE X

CONDITIONS OF LENDING

Section 10.1.Conditions Precedent to Making of Loans on the Closing Date. The obligation of the Lenders to make the initial Revolving Loans on the Closing Date, and the obligation of the Agent to cause to be issued or provide Credit Support for any Letter of Credit on the Closing Date and the obligation of the Lenders to participate in Letters of Credit issued on the Closing Date or in Credit Support for any such Letters of Credit, are subject to the following conditions precedent having been satisfied in a manner satisfactory to the Agent and each Lender:

(a)This Agreement and the other Loan Documents have been executed by each party thereto and the Loan Parties shall have performed and complied with, in all respects, all covenants, agreements and conditions contained herein and in the other Loan Documents which are required to be performed or complied with by the Loan Parties before or on such Closing Date.

(b)All representations and warranties made by the Loan Parties hereunder and in the other Transaction Documents shall be true and correct as of the Closing Date as if made on such date.

(c)Upon making the Revolving Loans on the Closing Date (including such Revolving Loans made to finance all fees or otherwise, pursuant to Section 4.7, as reimbursement for fees, costs and expenses then payable under this Agreement and the other Loan Documents) and with all of its obligations current, after giving effect to the consummation of the transactions contemplated by the Transaction Documents on the Closing Date, the Borrowers would have not more than $4,000,000 in Revolving Loans outstanding.

(d)Upon the issuance of the Letters of Credit or Credit Support on the Closing Date, the Borrowers would have not more than $2,500,000 in Letter of Credit Exposure.

(e)No Default or Event of Default shall exist on the Closing Date, or would exist after giving effect to the Loans to be made on such date or the Letters of Credit or Credit Support to be issued on such date.

(f)The Agent and the Lenders shall have received customary opinions of counsel for the Loan Parties and their Subsidiaries, each such opinion to be in a form, scope and substance reasonably satisfactory to the Agent, the Lenders and their respective counsel.

(g)The Agent shall have received:

(i)acknowledgment copies of proper UCC financing statements, duly filed on or prior to the Closing Date, under the UCC of all jurisdictions that the Agent may reasonably deem necessary or desirable in order to perfect the Agent’s Lien and evidence

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satisfactory to the Agent of compliance with the Federal Assignment of Claims Act, if applicable;

(ii)UCC-3 Termination Statements and such other instruments, in form and substance satisfactory to the Agent, to evidence the repayment in full of, or the existence of arrangements satisfactory to the Agent for the repayment in full of, existing credit arrangements to the extent necessary to terminate all Liens on the Collateral and the termination of all commitments to lend thereunder to the Borrowers, and the termination of all security interests on the Collateral securing such indebtedness;

(iii)evidence of filing and recording of the Patent and Trademark Agreement; and

(iv)evidence that each other document required by law or requested by the Agent to be filed, registered or recorded in order to create in favor of the Agent (for its own benefit and for the benefit of the Lenders) a first priority perfected Lien in the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested.

(h)All Equity Interests of New World’s Subsidiaries shall be owned by New World or one or more of New World’s Subsidiaries, in each case free and clear of any Lien, charge or encumbrance (other than the Liens granted pursuant to the Senior Secured Debt Documents); the Agent, on behalf of itself and the Lenders, shall have a valid and perfected first priority lien and security interest in such Equity Interests and in the other Collateral.  All filings, recordations and searches necessary or desirable in connection with such Liens and security interests shall have been duly made; and all filings and recording fees and taxes in respect thereof shall have been duly paid.  Without limiting the generality of the foregoing, the Agent shall have received favorable title or search reports, prepared by one or more nationally recognized title insurance companies and covering such real properties of the Borrowers and their Subsidiaries as the Agent shall have requested, and with respect to such of the real properties of the Borrowers and their Subsidiaries, such other information as the Agent shall have requested and such consents and estoppel letters from lessors of leased property as the Agent shall have requested.

(i)The Agent shall have received:  (i) a copy of the certificate or articles of incorporation or constitutive documents, in each case amended to date, of each of the Loan Parties, certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization and dated as of a recent date; (ii) a certificate of the Secretary of each of the Loan Parties, dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of such Loan Party’s by-laws as in effect on the date of such certificate and at all times since a date prior to the date of the resolution described in item (B) below, (B) that attached thereto is a true and complete copy of a resolution adopted by such Loan Party’s Board of Directors authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and that such resolution has not been modified, rescinded or amended and is in full force and effect, (C) that such Loan Party’s certificate or articles of incorporation or constitutive documents has not been amended since the date of the last

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amendment thereto shown on the certificate of good standing furnished hereinabove, and (D) as to the incumbency and specimen signature of each of such Loan Party’s officers executing this Agreement or any other Loan Document delivered in connection herewith or therewith, as applicable; (iii) a certificate of another of such Loan Party’s officers as to incumbency and signature of its Secretary; and (iv) such other corporate resolutions, certificates and other documents as the Agent or any Lender may request.

(j)The Agent shall have received certificates of good standing, existence or its equivalent with respect to each Loan Party certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of organization and in each other jurisdiction in which qualification is necessary in order for such Loan Party to own or lease its property and conduct its business.

(k)The Agent shall have received and been satisfied with the results of the accounting review and due diligence report prepared by Freed Maxick relating to the Borrowers.

(l)The Borrowers shall have paid all fees and expenses of the Agent, and the Attorney Costs incurred in connection with any of the Loan Documents and the transactions contemplated thereby.

(m)The Agent shall be satisfied with the amount, type and terms and conditions of all insurance maintained by the Borrowers and their Subsidiaries, and the Agent shall have received endorsements naming the Agent, on behalf of itself and the other Lenders, as an additional insured or loss payee, as the case may be, under all insurance policies to be maintained with respect to the Collateral.

(n)The Agent shall be satisfied with the final terms and conditions of the Restructuring, including, without limitation, all legal and tax aspects thereof and all documentation with respect thereto shall be in form and substance reasonably satisfactory to the Agent.

(o)The Agent shall have received evidence satisfactory to it that New World shall have received no less than $155,000,000 in cash as proceeds from the issuance by New World of secured subordinated promissory notes (the greater of such amount and the actual proceeds from such issuance, the “Senior Secured Debt”) pursuant to the Senior Secured Debt Documents, on terms and conditions satisfactory to the Agent, including, but not limited to, the subordination provisions and a maximum coupon rate, which on a pro forma basis as of the Closing Date, will result in the ratio of EBITDA of New World and its Subsidiaries for the twelve month period ending April 30, 2003 to the total cash interest expense of New World and its Subsidiaries for such period being at least 1.5:1.0.

(p)The Agent shall have received evidence that New World and its Subsidiaries had, on a consolidated basis, EBITDA for the twelve consecutive calendar month period ended April 30, 2003 of not less than $37,500,000.

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(q)The Agent shall have completed and been satisfied with its assessment of the Loan Parties’ management team and with its site visits to the Loan Parties.

(r)The Agent and its counsel shall have completed a due diligence investigation of each Loan Party and any of their Subsidiaries in scope, and with results, satisfactory to the Agent and shall have been given such access to the management, records, books of account, contracts and properties of the Loan Parties and their respective Subsidiaries and shall have received such financial, business and other information regarding the Loan Parties and their respective Subsidiaries as they shall have requested, including, without limitation, information as to contingent liabilities (including without limitation actuarial dates relating to tax matters, environmental matters (including Phase I environmental reports, if applicable), obligations under ERISA and welfare plans, collective bargaining agreements and other arrangements with employees).

(s)All proceedings taken in connection with the execution of this Agreement and all other Transaction Documents and all documents and papers relating thereto shall be satisfactory in form, scope, and substance to the Agent.

(t)The Agent shall be reasonably satisfied with the corporate and legal structure and capitalization of the Borrowers and the other Loan Parties, including, without limitation, the charter and bylaws (or operating agreement, as the case may be) of the Borrowers and the other Loan Parties and each agreement and instrument relating thereto.

(u)There shall have occurred no Material Adverse Effect and all information provided by or on behalf of any Loan Party to the Agent or the Lenders shall be true and correct in all material aspects.  There shall have occurred no material adverse change in the capital markets (as determined by the Agent in its reasonable discretion).  There shall have occurred no material adverse change in the facts and information presented to the Agent or any Lender in connection with any Loan Party, any of the Collateral, any of the Transaction Documents or any of the transactions contemplated thereby or in the Agent’s or any Lender’s understanding of same.

(v)There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the Restructuring, any of the Loan Documents or other Transaction Documents or any of the transactions contemplated thereby in any material respect.

(w)All governmental, if any, and third party consents and approvals necessary in connection with the Loan Documents, the other Transaction Documents, the Restructuring and the other transactions contemplated by the Transaction Documents shall have been obtained and shall remain in effect; all applicable waiting periods shall have expired without any action being taken by any competent authority; and no law or regulation shall be applicable in the reasonable judgment of the Agent that restrains, prevents or imposes materially adverse conditions upon the

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Restructuring or any of the Transaction Documents or any of the transactions contemplated thereby.

(x)The Agent shall have received and been reasonably satisfied with the audited financial statements of New World and its Subsidiaries for the Fiscal Year ended December 31, 2002, as well as the interim monthly financial statements for the Borrowers dated the end of the most recent month and year-to-date periods for which financial statements are available and forecasts prepared by management of the Borrowers, in form and substance reasonably satisfactory to the Agent, including balance sheets, income statements and cash flow statements on a monthly basis for the first twelve calendar months following the Closing Date and on an annual basis for each Fiscal Year thereafter.

(y)The Borrowers shall have demonstrated to the Agent’s reasonable satisfaction (i) that the operations of the Borrowers and their respective Subsidiaries comply with applicable environmental, health and safety statutes and regulations; (ii) that such operations are not the subject of any federal, state or local investigation evaluating the need for remedial action, involving a material expenditure, to respond to a release or threatened release of any toxic or hazardous waste or substance in the environment; and (iii) that no Borrower has any contingent liability deemed material by the Agent in connection with any release or threatened release of any toxic or hazardous waste or substance into the environment.

(z)The Agent shall be reasonably satisfied that the Borrowers will be able to meet their obligations under all employee and retiree welfare plans, that each Borrower’s employee benefit plans are, in all material respects, funded in accordance with the minimum statutory requirements, that no material “reportable event” (as defined in ERISA, but excluding events for which reporting has been waived) has occurred as to any such employee benefit plan and that no termination of, or withdrawal from, any such employee benefit plan has occurred or is contemplated that could reasonably be expected to result in a material liability.

(aa)The Agent shall have received blocked account agreements, each in form and substance satisfactory to the Agent, with respect to such bank accounts of the Loan Parties as requested by the Agent.

(bb)The Agent shall have received the Intercreditor Agreement, duly executed by the parties thereto, and the Agent shall be satisfied with the terms and conditions thereof, including, but not limited to, the subordination provisions contained therein, whereby the security interests securing the Senior Secured Debt will be subordinated in right of priority and payment, in all circumstances, to the Agent’s Liens.

(cc)The Borrowers shall have satisfied such other conditions precedent reasonably requested by the Agent.

The acceptance by the Borrowers of any Revolving Loans made on the Closing Date or the issuance of any Letters of Credit or Credit Support on the Closing Date shall be deemed to be a representation and warranty made by each Borrower to the effect that all of the

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conditions precedent to the making of such Loans or the issuance of such Letters of Credit or Credit Support have been satisfied, with the same effect as delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of such Borrower, dated as of the Closing Date, to such effect.

Execution and delivery to the Agent by a Lender of a counterpart of this Agreement shall be deemed confirmation by such Lender that (i) all conditions precedent in this Section 10.1 have been fulfilled to the satisfaction of such Lender or waived by such Lender and (ii) the decision of such Lender to execute and deliver to the Agent an executed counterpart of this Agreement was made by such Lender independently and without reliance on any Agent or any other Lender as to the satisfaction of any condition precedent set forth in this Section 10.1.

Section 10.2.Conditions Precedent to Each Loan.  The obligation of the Lenders to make each Loan, including the initial Revolving Loans on the Closing Date, and the obligation of the Agent to cause to be issued or to provide Credit Support for any Letter of Credit, shall be subject to the further conditions precedent that on and as of the date of any such extension of credit:

(a)the following statements shall be true, and the acceptance by any Borrower of any extension of credit shall be deemed to be a statement to the effect set forth in clauses (i), (ii), (iii), (iv) and (v), with the same effect as the delivery to the Agent and the Lenders of a certificate signed on behalf of such Borrower by a Responsible Officer of such Borrower, dated the date of such extension of credit, stating that:

(i)the representations and warranties contained in this Agreement and the other Loan Documents are correct in all material respects on and as of the date of such extension of credit as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date; and

(ii)no Material Adverse Effect has occurred since December 31, 2002; and

(iii)no event has occurred and is continuing, or would result from such extension of credit, which constitutes a Default or an Event of Default; and

(iv)the aggregate Dollar amount that the Loan Parties are obligated to pay or have the right to receive under the Excluded Agreements does not exceed $1,000,000 on and as of the date of such extension of credit; and

(v)the aggregate Dollar amounts of the book value of the Coca-Cola Equipment does not exceed $200,000 on and as of the date of such extension of credit; and

(b)the amount of the Availability shall be sufficient to make such Revolving Loan or permit the issuance of such Letter of Credit or Credit Support without exceeding the Availability; provided, however, that the foregoing conditions precedent are not conditions to

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each Lender participating in or reimbursing ASB or the Agent for such Lenders’ Pro Rata Share of any ASB Loan or Agent Advance as provided in Sections 2.2(h), (i) and (j) or participating in any Letter of Credit or Credit Support as provided in Section 2.4(f).

ARTICLE XI

DEFAULT; REMEDIES

Section 11.1.Events of Default.  It shall constitute an event of default (“Event of Default”) if any one or more of the following shall occur for any reason:

(a)any failure to pay the principal of or interest or premium on any of the Obligations when due or any fees when due, whether upon demand or otherwise;

(b)any representation or warranty made or deemed made by any Loan Party in this Agreement or by any Loan Party in any of the other Loan Documents, any Financial Statement, or any certificate furnished by any Loan Party at any time to the Agent or any Lender shall prove to be untrue in any material respect as of the date on which made, or deemed made, or furnished;

(c)(i) any default shall occur in the observance or performance of any of the covenants and agreements contained in this Agreement any other Loan Document, or any other agreement entered into at any time to which any Borrower or any other Loan Party and the Agent or any Lender are party and such default shall continue for a period of 20 days after the earlier of knowledge thereof by a Loan Party or notice thereof having been given to any Loan Party by the Agent for all such covenants and agreements other than those contained in Article VII and Article IX (excluding Sections 9.1, 9.4 and the first sentence of Section 9.6(b), in which case such 20-day cure period shall apply) for which no grace period shall apply, or (ii) if any such agreement or document shall terminate (other than in accordance with its terms or the terms hereof or with the written consent of the Agent and the Majority Lenders) or become void or unenforceable, without the written consent of the Agent and the Majority Lenders;

(d)default shall occur with respect to any Debt (other than the Obligations) in an outstanding principal amount which exceeds $1,000,000 or under any agreement or instrument under or pursuant to which any such Debt may have been issued, created, assumed, or guaranteed by any Loan Party, and such default shall continue for more than the period of grace, if any, therein specified, if the effect thereof (with or without the giving of notice or further lapse of time or both) is to accelerate, or to permit the holders of any such Debt to accelerate, the maturity of any such Debt; or any such Debt shall be declared due and payable or be required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or any such Debt shall not be paid upon the scheduled maturity thereof;

(e)any Loan Party shall (i) file a voluntary petition in bankruptcy or file a voluntary petition or an answer or otherwise commence any action or proceeding seeking

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reorganization, arrangement or readjustment of its debts or for any other relief under the federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state, federal or foreign, now or hereafter existing, or consent to, approve of, or acquiesce in, any such petition, action or proceeding; (ii) apply for or acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator, custodian, monitor, trustee or similar officer for it or for all or any part of its property; (iii) make an assignment for the benefit of creditors; or (iv) be unable generally to pay its debts as they become due;

(f)an involuntary petition or proposal shall be filed or an action or proceeding otherwise commenced seeking reorganization, arrangement, consolidation or readjustment of the debts of any Loan Party or for any other relief under the federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state, federal or foreign, now or hereafter existing and either (i) such petition, proposal, action or proceeding shall not have been dismissed within a period of sixty (60) days after its commencement or (ii) an order for relief against such Loan Party shall have been entered in such proceeding;

(g)a receiver, assignee, liquidator, sequestrator, custodian, monitor, trustee or similar officer for any Loan Party or for all or any part of its property shall be appointed and shall continue undischarged for sixty (60) days or more; or a warrant of attachment, execution or similar process shall be issued against all or any part of the property of any Loan Party;

(h)any Loan Party shall file a certificate of dissolution under applicable state or foreign law or shall be liquidated, dissolved or wound-up or shall commence or have commenced against it any action or proceeding for dissolution, winding-up or liquidation, or shall take any corporate action in furtherance thereof;

(i)all or any material part of the property of any Loan Party shall be nationalized, expropriated or condemned, seized or otherwise appropriated, or custody or control of such property or of any Loan Party shall be assumed by any Governmental Authority or any court of competent jurisdiction at the instance of any Governmental Authority, except where contested in good faith by proper proceedings diligently pursued where a stay of enforcement is in effect;

(j)any guaranty of the Obligations shall be terminated, revoked or declared void or invalid;

(k)one or more judgments or orders for the payment of money aggregating in excess of $1,000,000, shall be rendered against any Loan Party (to the extent not covered by independent third party insurance as to which the insurer does not dispute coverage), and the same shall remain unsatisfied, unvacated or unstayed pending appeal for a period of sixty (60) days after the entry thereof;

(l)any loss, theft, damage or destruction of any item or items of Collateral or other property of any Loan Party occurs which (i) could reasonably be expected to cause a Material Adverse Effect or (ii) is material in amount and is not adequately covered by insurance;

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(m)there occurs a Material Adverse Effect;

(n)there is filed against any Loan Party any civil or criminal action, suit or proceeding under any federal, state or foreign racketeering statute (including, without limitation, the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit or proceeding (1) is not dismissed within sixty (60) days, and (2) could result in the confiscation or forfeiture of any material portion of the Collateral;

(o)for any reason other than the failure of the Agent to take any action available to it to maintain perfection of the Agent’s Liens, pursuant to the Loan Documents, any Loan Document ceases to be in full force and effect or any Lien with respect to any material portion of the Collateral intended to be secured thereby ceases to be, valid, perfected and prior to all other Liens (other than Permitted Liens) or is terminated, revoked or declared void;

(p)(i) an ERISA Event shall occur with respect to a Pension Plan or Multi-employer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multi-employer Plan or the PBGC (other than premiums due and not delinquent under Section 4007 of ERISA) in an aggregate amount in excess of $250,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $250,000; or (iii) any Loan Party or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multi-employer Plan in an aggregate amount in excess of $250,000;

(q)there occurs a Change of Control; or

(r)the subordination provisions of the Intercreditor Agreement or of any Senior Secured Debt shall for any reason be revoked or invalidated or the validity or enforceability thereof be contested in a court of law by appropriate proceedings or an event of default occurs under any agreement or instrument evidencing any Senior Secured Debt.

Section 11.2.Remedies.  (a)  If an Event of Default exists, the Agent may, in its discretion, and shall, at the direction of the Majority Lenders, do one or more of the following at any time or times and in any order, without notice to or demand on any Loan Party:  (i) reduce the Maximum Revolver Amount; (ii) restrict the amount of or refuse to make Revolving Loans; and (iii) restrict or refuse to arrange for or provide Letters of Credit or Credit Support.  If an Event of Default exists, the Agent shall, at the direction of the Majority Lenders, do one or more of the following, in addition to the actions described in the preceding sentence, at any time or times and in any order, without notice to or demand on any Loan Party:  (x) terminate the Revolving Commitments and this Agreement; (y) declare any or all Obligations to be immediately due and payable; provided, however, that upon the occurrence of any Event of Default described in Section 11.1(e), 11.1(f), 11.1(g) or 11.1(h), the Revolving Commitments shall automatically and immediately expire and all Obligations shall automatically become

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immediately due and payable without notice or demand of any kind; and (z) pursue its other rights and remedies under the Loan Documents and applicable law.

(b)If an Event of Default exists:  (i) the Agent shall have for the benefit of the Agent and the Lenders, in addition to all other rights of the Agent and the Lenders, the rights and remedies of a secured party under the UCC; (ii) the Agent may, at any time, take possession of the Collateral and keep it on any Loan Party’s premises, at no cost to the Agent or any Lender, or remove any part of it to such other place or places as the Agent may desire, or the Loan Parties shall, upon the Agent’s demand, at the Loan Parties’ cost, assemble the Collateral and make it available to the Agent at a place reasonably convenient to the Agent; and (iii) the Agent may sell and deliver any Collateral at public or private sales, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion, and may, if the Agent deems it reasonable, postpone or adjourn any sale of the Collateral by an announcement at the time and place of sale or of such postponed or adjourned sale without giving a new notice of sale.  Without in any way requiring notice to be given in the following manner, each Loan Party agrees that any notice by the Agent of sale, disposition or other intended action hereunder or in connection herewith, whether required by the UCC or otherwise, shall constitute reasonable notice to such Loan Party if such notice is mailed by registered or certified mail, return receipt requested, postage prepaid, or is delivered personally against receipt, at least ten (10) days prior to such action to such Loan Party’s address specified in or pursuant to Section 15.8.  If any Collateral is sold on terms other than payment in full at the time of sale, no credit shall be given against the Obligations until the Agent or the Lenders receive payment, and if the buyer defaults in payment, the Agent may resell the Collateral without further notice to the Loan Parties.  In the event the Agent seeks to take possession of all or any portion of the Collateral by judicial process, each Loan Party irrevocably waives:  (x) the posting of any bond, surety or security with respect thereto which might otherwise be required; (y) any demand for possession prior to the commencement of any suit or action to recover any or all of the Collateral; and (z) any requirement that the Agent retain possession and not dispose of any Collateral until after trial or final judgment.  Each Loan Party agrees that the Agent has no obligation to preserve rights to the Collateral or marshal any Collateral for the benefit of any Person.  Upon and during the continuance of an Event of Default, the Agent shall be granted a license or other right to use during an Event of Default, without charge, each Loan Party’s labels, patents, copyrights, name, trade secrets, trade names, trademarks, and advertising matter, or any similar property owned by such Loan Party, in completing production of, advertising or selling any Collateral, and each Loan Party’s rights under all licenses and all franchise agreements shall inure to the Agent’s benefit for such purpose.  The proceeds of sale shall be applied as set forth in Section 4.8.  Subject to the terms and provisions of the Intercreditor Agreement, the Agent will return any excess to the applicable Loan Parties and the Loan Parties shall remain liable, jointly and severally, for any deficiency.

(c)If an Event of Default occurs, each Loan Party hereby waives except as provided herein and except as prohibited by law, all rights to notice and hearing prior to the exercise by the Agent of the Agent’s rights to repossess the Collateral without judicial process or to replevy, attach or levy upon the Collateral without notice or hearing.

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ARTICLE XII

TERM AND TERMINATION

Section 12.1.Term and Termination.  The term of this Agreement shall end on the Stated Termination Date or earlier as herein provided and all Obligations owing with respect to the revolving line of credit shall be due and payable, and all outstanding Letters of Credit shall be cancelled, on the Stated Termination Date or such earlier date.  The Agent, upon direction from the Majority Lenders, may terminate this Agreement without notice upon the occurrence of an Event of Default.  Upon the effective date of termination of this Agreement for any reason whatsoever, all Obligations (including, without limitation, all unpaid principal, accrued interest and any early termination or prepayment fees or penalties) shall become due and payable and the Borrowers shall immediately arrange for the cancellation of all Letters of Credit then outstanding.  Notwithstanding the termination of this Agreement, until all Obligations are indefeasibly paid and performed in full in cash, the Loan Parties shall remain bound by the terms of this Agreement and shall not be relieved of any of the Obligations hereunder, and the Agent and the Lenders shall retain all their rights and remedies hereunder (including, without limitation, the Agent’s Liens in and all rights and remedies with respect to all then existing and after-arising Collateral).

ARTICLE XIII

AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS

Section 13.1.No Waivers; Cumulative Remedies.  No failure by the Agent or any Lender to exercise any right, remedy or option under this Agreement or any present or future supplement thereto, or in any other agreement between or among any Loan Party and the Agent and/or any Lender, or delay by the Agent or any Lender in exercising the same, will operate as a waiver thereof.  No waiver by the Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated.  No waiver by the Agent or the Lenders on any occasion shall affect or diminish the Agent’s and each Lender’s rights thereafter to require strict performance by the Loan Parties of any provision of this Agreement.  The Agent’s and each Lender’s rights under this Agreement will be cumulative and not exclusive of any other right or remedy which the Agent or any Lender may have.

Section 13.2.Amendments and Waivers.  No amendment or waiver of any provision of this Agreement, and no consent with respect to any departure by a Loan Party therefrom, shall be effective unless the same shall be in writing and signed by the Majority Lenders (or by the Agent at the written request of the Majority Lenders) and the Loan Parties and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment or consent shall, unless in writing and signed by all the Lenders and the Loan Parties and acknowledged by the Agent, do any of the following:

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(a)increase or extend the Revolving Commitment of any Lender or add an additional loan facility under this Agreement or add an additional Borrower hereunder;

(b)postpone or delay any date fixed by this Agreement for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document;

(c)reduce the principal of, or the rate of interest specified herein on, any Loan, or any fees or other amounts payable hereunder or under any other Loan Document;

(d)change the percentage of the Revolving Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder;

(e)amend this Section or any provision of this Agreement providing for consent or other action by all Lenders;

(f)release Collateral other than as permitted by Section 14.11 or release any Guaranty of the Obligations; or

(g)change the definition of “Majority Lenders”

and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent under this Agreement or any other Loan Document.

Section 13.3.Assignments; Participations.  (a)  Any Lender may, with the written consent of the Agent, assign and delegate to one or more Eligible Assignees (each an “Assignee”) all, or any ratable part of all, of the Loans, the Revolving Commitment and the other rights and obligations of such Lender hereunder, in a minimum amount of $1,000,000 or such lesser amount if (i) such assignment and delegation is of all of the Loans, the Revolving Commitment and other rights and obligations of such Lender hereunder or (ii) such assignment is to another Lender; provided, that the Borrowers and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (x) written notice of such assignment, together with payment instructions and addresses of such Assignee, such forms as may be required from the Assignee by Section 5.1(f) and related information with respect to the Assignee, shall have been given to the Borrowers and the Agent by such Lender and the Assignee (as applicable); (y) such Lender and its Assignee shall have delivered to the Borrowers and the Agent an Assignment and Acceptance in the form of Exhibit C (“Assignment and Acceptance”), which shall contain, among other things, a provision giving ASB the right to repurchase at anytime all of the Loans, the Revolving Commitment and other rights and obligations of the Assignee at par plus accrued interest and fees and (z) the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $5,000.

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(b)From and after the date that the Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations, including, but not limited to, the obligation to participate in Letters of Credit and Credit Support, have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

(c)By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows:  (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or any other Loan Party or the performance or observance by the Borrowers or any other Loan Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender.

(d)Immediately upon each Assignee’s making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Revolving Commitments arising therefrom.  The RevolvingCommitment allocated to each Assignee shall reduce such Revolving Commitments of the assigning Lender pro tanto.

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(e)Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of the Borrowers (a “Participant”) participating interests in any Loans, the Revolving Commitment of that Lender and the other interests of that Lender (the “originating Lender”) hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Loan Parties and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender’s rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document (except for any such amendment, consent or waiver that reduces or postpones any amounts payable in which such Participant is participating or releases all or substantially all of the Collateral), and all amounts payable by the Borrowers hereunder (including, without limitation, amounts payable under Section 5.1 and Section 5.3) shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement.

(f)Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

(g)The Agent shall maintain a register (the “Register”) showing each Lender of a Loan hereunder.

ARTICLE XIV

THE AGENT

Section 14.1.Appointment and Authorization.  Each Lender hereby designates and appoints AmSouth Bank as Agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto.  The Agent agrees to act as such on the express conditions contained in this Article XIV.  The provisions of this Article XIV are solely for the benefit of the Agent and the Lenders, and the Borrowers shall have no rights as a third party beneficiary of any of the provisions contained herein.

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Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent.  Without limiting the generality of the foregoing sentence, the use of the term “agent” in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law.  Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Except as expressly otherwise provided in this Agreement, the Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which the Agent is expressly entitled to take or assert under this Agreement and the other Loan Documents, including, without limitation, (a) the making of Agent Advances pursuant to Section 2.2(i), and (b) the exercise of remedies pursuant to Section 11.2, and any action so taken or not taken shall be deemed consented to by the Lenders.

Section 14.2.Delegation of Duties.  The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct.

Section 14.3.Liability of Agent.  None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any Subsidiary or Affiliate of the Borrowers, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder.  No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any of the Borrowers or any of the Borrower’s Subsidiaries or Affiliates.

Section 14.4.Reliance by Agent.  (a)  The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by

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the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Agent.  The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

(b)For purposes of determining compliance with the conditions specified in Section 10.1, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender.

Section 14.5.Notice of Default.  The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, unless the Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.”  The Agent will notify the Lenders of its receipt of any such notice.  The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Lenders in accordance with Article XI; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.

Section 14.6.Credit Decision.  Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of a Borrower, its Subsidiaries or any other Loan Party, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender.  Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers, their respective Subsidiaries and all other Loan Parties, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers.  Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers and the other Loan Parties.  Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent

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shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrowers or any other Loan Party which may come into the possession of any of the Agent-Related Persons.

Section 14.7.Indemnification.  Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrowers or any other Loan Party and without limiting the obligation of the Borrowers and other Loan Parties to do so), pro rata (giving effect to all Loans), from and against any and all Indemnified Liabilities as such term is defined in Section 15.11; provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person’s gross negligence or willful misconduct.  Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrowers or any other Loan Party.  The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent.

Section 14.8.Each Agent in Its Individual Capacity.  ASB and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each Borrower and its Subsidiaries and Affiliates as though ASB were not the Agent hereunder and without notice to or consent of the Lenders.  The Lenders acknowledge that, pursuant to such activities, ASB or its Affiliates may receive information regarding a Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that the Agent shall be under no obligation to provide such information to them.  With respect to its Loans, ASB shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent, and the terms “Lender” and “Lenders” include ASB in its individual capacity.

Section 14.9.Successor Agent.  The Agent may resign as Agent upon 30 days’ notice to the Lenders and the Borrowers.  If the Agent resigns under this Agreement, the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders.  If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and the Borrowers, a successor agent from among the Lenders.  Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term “Agent” shall mean such successor agent and the retiring Agent’s appointment, powers and duties as Agent shall be terminated. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Article XIV shall inure to its benefit as to any actions taken or omitted to be

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taken by it while it was Agent under this Agreement.  If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Lenders appoint a successor agent as provided for above.

Section 14.10.Administrative Agent.  AmSouth Capital Corp. as the Administrative Agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement.  Without limiting the foregoing, AmSouth Capital Corp. as the Administrative Agent shall not have or be deemed to have any fiduciary relationship with any Lender.  Each Lender acknowledges that it has not relied, and will not rely, on AmSouth Capital Corp. in deciding to enter into this Agreement or in taking or not taking action hereunder.

Section 14.11.Collateral Matters.  (a)  The Lenders hereby irrevocably authorize the Agent, at its option and in its sole discretion, to release, any Agent’s Lien upon any Collateral (i) upon the termination of the Revolving Commitments and payment and satisfaction in full by the Borrowers of all Loans and reimbursement obligations in respect of Letters of Credit and Credit Support, and the termination of all outstanding Letters of Credit (whether or not any of other Obligations are due) and all other Obligations (ii) constituting property being sold or disposed of if the Borrowers certify to the Agent that the sale or disposition is made in compliance with Section 9.8 (and the Agent may rely conclusively on any such certificate, without further inquiry); (ii) constituting property in which the Loan Parties owned no interest at the time the Lien was granted or at any time thereafter; or (iii) constituting property leased to a Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement.  Except as provided above, the Agent will not release any of the Agent’s Liens without the prior written authorization of the Lenders; provided that the Agent may, in its discretion, release the Agent’s Liens on Collateral valued in the aggregate not in excess of $500,000 without the prior written authorization of the Lenders.  Upon request by the Agent or a Borrower at any time, the Lenders will confirm in writing the Agent’s authority to release any Agent’s Liens upon particular types or items of Collateral pursuant to this Section 14.11.

(b)Upon receipt by the Agent of any authorization required pursuant to Section 14.12(a) from the Lenders of the Agent’s authority to release any Agent’s Liens upon particular types or items of Collateral, and upon at least five (5) Business Days’ prior written request by a Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Agent’s Liens upon such Collateral; provided, however, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent’s opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including (without limitation) the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

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(c)The Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by a Borrower or other applicable Loan Party or is cared for, protected or insured or has been encumbered, or that the Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion given the Agent’s own interest in the Collateral in its capacity as one of the Lenders and that the Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing.

Section 14.12.Restrictions on Actions by Lenders; Sharing of Payments.  (a)  Each of the Lenders agrees that it shall not, without the express consent of all Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of all Lenders, set off against the Obligations, any amounts owing by such Lender to any of the Loan Parties or any accounts of any of the Loan Parties now or hereafter maintained with such Lender.  Each of the Lenders further agrees that it shall not, unless specifically requested to do so by the Agent, take or cause to be taken any action to enforce its rights under this Agreement or against any of the Loan Parties, including, without limitation, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.

(b)If at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any payments with respect to the Obligations of a Loan Party to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from the Agent pursuant to the terms of this Agreement, or (ii) payments from the Agent in excess of such Lender’s ratable portion of all such distributions by the Agent, such Lender shall promptly (x) turn the same over to the Agent, in kind, and with such endorsements as may be required to negotiate the same to the Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (y) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment.

Section 14.13.Agency for Perfection.  Each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Lenders’ security interest in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession.  Should any Lender (other than the Agent) obtain possession of any such Collateral, such Lender shall notify the

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Agent thereof and, promptly upon the Agent’s request therefor, shall deliver such Collateral to the Agent or in accordance with the Agent’s instructions.

Section 14.14.Payments by Agent to Lenders.  All payments to be made by the Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds to:

if to the Agent:

AmSouth Bank

Clearing Account No. 00110245 - 0400100

Routing No. 062000019

Attn:  Becky Dempsey

Reference:  New World Restaurant

or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to the Agent.  Concurrently with each such payment, the Agent shall identify whether such payment (or any portion thereof) represents principal, premium or interest on the Revolving Loans or otherwise.

Section 14.15.Concerning the Collateral and the Related Loan Documents.  Each Lender authorizes and directs the Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the ratable benefit of the Agent and the Lenders.  Each Lender agrees that any action taken by the Agent or Majority Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral, and the exercise by the Agent or the Majority Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders.

Section 14.16.Field Audit and Examination Reports; Disclaimer by Lenders.  By signing this Agreement, each Lender:

(a)is deemed to have requested that the Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a “Report” and collectively, “Reports”) prepared by the Agent;

(b)expressly agrees and acknowledges that neither ASB nor the Agent (i) makes any representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any information contained in any Report;

(c)expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agent or other party performing any audit or examination will inspect only specific information regarding the Borrowers and other Loan Parties and will rely significantly upon each Loan Party’s books and records, as well as on representations of each Loan Party’s personnel;

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(d)agrees to keep all Reports confidential and strictly for its internal use, and not to distribute except to its participants or use any Report in any other manner; and

(e)without limiting the generality of any other indemnification provision contained in this Agreement, agrees:  (i) to hold the Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to any of the Borrowers, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or loans of any of the Borrowers; and (ii) to pay and protect, and indemnify, defend and hold the Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including, without limitation, Attorney Costs) incurred by the Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

Section 14.17.Relation Among Lenders.  The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agent) authorized to act for, any other Lender.

ARTICLE XV

MISCELLANEOUS

Section 15.1.Recourse to Collateral.  The enumeration herein of the Agent’s and each Lender’s rights and remedies is not intended to be exclusive, and such rights and remedies are in addition to and not by way of limitation of any other rights or remedies that the Agent and the Lenders may have under the UCC or other applicable law.  The Agent and the Lenders shall have the right, in their sole discretion, to determine which rights and remedies are to be exercised and in which order.  The exercise of one right or remedy shall not preclude the exercise of any others, all of which shall be cumulative.  The Agent and the Lenders may, without limitation, proceed directly against any Borrower or any other Loan Party to collect the Obligations without any prior recourse to the Collateral.  No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

Section 15.2.Severability.  The illegality or unenforceability of any provision of this Agreement or any other Loan Document or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement, any other Loan Document or any instrument or agreement required hereunder.

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Section 15.3.Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.  (a)  THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b)ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY, THE AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  EACH LOAN PARTY, THE AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.  NOTWITHSTANDING THE FOREGOING:  (i) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY LOAN PARTY OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (ii) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

(c)EACH LOAN PARTY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH LOAN PARTY AT ITS ADDRESS SET FORTH IN SECTION 15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS.  NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

Section 15.4.WAIVER OF JURY TRIAL.  EACH LOAN PARTY, EACH LENDER AND THE AGENT WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER

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LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH LOAN PARTY, EACH LENDER AND THE AGENT AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

Section 15.5.Survival of Representations and Warranties.  All of each Loan Party’s representations and warranties contained in this Agreement shall survive the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation by the Agent or the Lenders or their respective agents.

Section 15.6.Other Security and Guaranties.  The Agent may, without notice or demand and without affecting the Loan Parties’ obligations hereunder, from time to time: (a) take from any Person and hold collateral (other than the Collateral) for the payment of all or any part of the Obligations and exchange, enforce or release such collateral or any part thereof; and (b) accept and hold any endorsement or guaranty of payment of all or any part of the Obligations and release or substitute any such endorser or guarantor, or any Person who has given any Lien in any other collateral as security for the payment of all or any part of the Obligations, or any other Person in any way obligated to pay all or any part of the Obligations.

Section 15.7.Fees and Expenses.  Each Borrower agrees, jointly and severally, to pay to the Agent, for its benefit, on demand, all reasonable out of pocket costs and expenses that the Agent pays or incurs in connection with the negotiation, preparation, consummation, administration, syndication, enforcement, and termination of this Agreement or any of the other Loan Documents, including, without limitation:  (a) Attorney Costs with respect thereto; (b) reasonable out of pocket costs and expenses (including reasonable attorneys’ and paralegals’ fees and disbursements, which shall include the allocated cost of the Agent’s in-house counsel fees and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) costs and expenses of lien and title searches, title insurance and other due diligence; (d) taxes, fees and other charges for recording Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Agent’s Liens (including reasonable costs and expenses paid or incurred by the Agent in connection with the consummation of this Agreement); (e) to the extent herein provided, sums paid or incurred to pay any amount or take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; (f) costs of appraisals, inspections, and verifications of the Collateral, including, without limitation, travel, lodging, and meals for inspections of the Collateral and any Loan Party’s

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operations by the Agent plus the Agent’s then customary charge for field examinations and audits and the preparation of reports thereof (such charge is currently $800 per day (or portion thereof) for each agent or employee of the Agent with respect to each field examination or audit); of Collateral by the Agent shall be limited to two times each fiscal year (or as often as the Agent may request upon the occurrence and continuance of an Event of Default ; (g) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining Payment Accounts and lock boxes; (h) costs and expenses of preserving and protecting the Collateral; and (i) costs and expenses (including attorneys’ and paralegals’ fees and disbursements) paid or incurred to obtain payment of the Obligations, enforce the Agent’s Liens, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender arising out of the transactions contemplated hereby (including without limitation, preparations for and consultations concerning any such matters).  Each Borrower further agrees, jointly and severally, to pay each Lender on demand all costs and expenses that such Lender pays or incurs in connection with the enforcement or protection of such Lender’s rights under this Agreement or the other Loan Documents.  The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by the Borrowers.  All of the foregoing costs and expenses may, at the option of the Agent in its sole discretion, be charged to any one or more Loan Accounts of the Borrowers as Revolving Loans as described in Section 4.7.

Section 15.8.Notices.  Except as otherwise provided herein, all notices, demands and requests that any party is required or elects to give to any other shall be in writing, or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, but not limited to, delivery by overnight mail and courier service, (b) four (4) days after it shall have been mailed by United States mail, first class, certified or registered, with postage prepaid, or (c) in the case of notice by such a telecommunications device, when properly transmitted, in each case addressed to the party to be notified as follows:

If to the Agent:

AmSouth Bank

c/o AmSouth Capital Corp.

350 Park Avenue, 20th Floor

New York, New York  10022

Attention: Kevin Rogers

Telecopy No.:  (212) 935-7458

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with copies to:

Kaye Scholer LLP

425 Park Avenue

New York, New York  10022

Attention:  Albert Fenster, Esq.

Telecopy No.:  (212) 836-8689

If to ASB:

AmSouth Bank

c/o AmSouth Capital Corp.

350 Park Avenue, 20th Floor

New York, New York  10022

Attention: Kevin Rogers

Telecopy No.:  (212) 935-7458

with copies to:

Kaye Scholer LLP

425 Park Avenue

New York, New York  10022

Attention:  Albert Fenster, Esq.

Telecopy No.:  (212) 836-8689

If to any other Lender:  at such address for such Lender as set forth on the applicable Assignment and Acceptance pursuant to which such Assignee became a Lender.

If to any Loan Party:

c/o New World Restaurant Group, Inc.

1687 Cole Boulevard

Golden, Colorado  80401-3316

Attention:  Anthony Wedo

Telecopy No.:  (303) 568-8199

with copies to:

Proskauer Rose LLP

1585 Broadway

New York, New York  10036

Attention:  Julie Allen, Esq.

Telecopy No.:  (212) 969-2900

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or to such other address as each party may designate for itself by like notice.  Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall not adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication.

Section 15.9.Waiver of Notices.  Unless otherwise expressly provided herein, each Loan Party waives presentment, protest and notice of demand or dishonor and protest as to any instrument, notice of intent to accelerate the Obligations and notice of acceleration of the Obligations, as well as any and all other notices to which it might otherwise be entitled.  No notice to or demand on any Loan Party which the Agent or any Lender may elect to give shall entitle any Loan Party to any or further notice or demand in the same, similar or other circumstances.

Section 15.10.Binding Effect.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective representatives, successors and assigns of the parties hereto; provided, however, that no interest herein may be assigned by any Loan Party without prior written consent of the Agent and each Lender.  The rights and benefits of the Agent and the Lenders hereunder shall, if such Persons so agree, inure to any party acquiring any interest in the Obligations or any part thereof.

Section 15.11.Indemnity of the Agent and the Lenders by the Loan Parties.  Each Loan Party agrees, jointly and severally, to defend indemnify and hold the Agent-Related Persons, each Lender and its Affiliates and each of the foregoing Persons’ respective officers, directors, employees, Affiliates’ counsel, agents and attorneys-in-fact (each, an “Indemnified Person”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement, any other Transaction Document, any document contemplated by or referred to herein or therein, any of the transactions contemplated hereby or thereby, the Restructuring or any similar transaction or any acquisition or proposed acquisition or similar business combination by a Loan Party or any action taken or omitted by any Loan Party under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement, any other Transaction Document, the Loans, the use of the proceeds thereof or the actual or alleged presence of Contaminants on any Real Estate, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, that the Loan Parties shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities to the extent such Indemnified Liabilities result from the gross negligence or willful misconduct of any Indemnified Person.  The agreements in this Section shall survive payment of all other Obligations. The Loan Parties further agree that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Loan Parties or any of their

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Subsidiaries or to their respective security holders or creditors arising out of, related to or in connection with the Restructuring, except for direct, as opposed to consequential, damages determined in a final nonappealable judgement by a court of competent jurisdiction to have resulted from such Indemnified Person’s bad faith, gross negligence or willful misconduct.

Section 15.12.Limitation of Liability.  No claim may be made by any Loan Party, any Lender or other Person against the Agent, any Lender, or the affiliates, directors, officers, employees, or agents of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Loan Document, or any act, omission or event occurring in connection therewith, and each Loan Party and each Lender hereby waive, release and agree not to sue upon any claim for such damages, whether or not accrued and whether or not know or suspected to exist in its favor, and agree that the only liability therefor against the Agent, any Lender or the affiliates, directors, officers, employees or agents of any of them shall be for direct damages determined in a final nonappealable judgment by a court of competent jurisdiction to have resulted from such Person’s bad faith, gross negligence or willful misconduct.

Section 15.13.Final Agreement.  This Agreement, the Fee Letter and the other Loan Documents are intended by each Loan Party, the Agent and the Lenders to be the final, complete, and exclusive expression of the agreement between them.  This Agreement supersedes any and all prior oral or written agreements relating to the subject matter hereof.  No modification, rescission, waiver, release, or amendment of any provision of this Agreement or any other Loan Document shall be made, except by a written agreement signed by the Loan Parties and a duly authorized officer of each of the Agent and the requisite Lenders.

Section 15.14.Counterparts.  This Agreement may be executed in any number of counterparts, and by the Agent, the Administrative Agent, each Lender and each Loan Party in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement.

Section 15.15.Captions.  The captions contained in this Agreement are for convenience of reference only, are without substantive meaning and should not be construed to modify, enlarge, or restrict any provision.

Section 15.16.Right of Setoff.  In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to any Loan Party, any such notice being waived by the Loan Parties to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of any Loan Party against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured.  Each Lender agrees promptly to notify the Borrowers and the Agent

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after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.

NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT OF SET-OFF, BANKER’S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF ANY LOAN PARTY HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS.

Section 15.17.Joint and Several Liability.  The Borrowers shall be liable for all amounts due to the Agent and/or any Lender under this Agreement, regardless of which Borrower actually receives Loans or other extensions of credit hereunder or the amount of such Loans received or the manner in which the Agent and/or such Lender accounts for such Loans or other extensions of credit on its books and records.  Each Borrower’s Obligations with respect to Loans made to it, and each Borrower’s Obligations arising as a result of the joint and several liability of the Borrowers hereunder, with respect to Loans made to the other Borrower hereunder, shall be separate and distinct obligations, but all such Obligations shall be primary obligations of each Borrower.

A Borrower’s Obligations arising as a result of the joint and several liability of the Borrowers hereunder with respect to Loans or other extensions of credit made to the other Borrowers hereunder shall, to the fullest extent permitted by law, be unconditional irrespective of (i) the validity or enforceability, avoidance or subordination of the Obligations of any of the other Borrowers or of any promissory note or other document evidencing all or any part of the Obligations of any of the other Borrowers, (ii) the absence of any attempt to collect the Obligations from any other Borrower, any other guarantor, or any other security therefor, or the absence of any other action to enforce the same, (iii) the waiver, consent, extension, forbearance or granting of any indulgence by the Agent and/or any Lender with respect to any provision of any instrument evidencing the Obligations of any of the other Borrowers, or any part thereof, or any other agreement now or hereafter executed by any of the other Borrowers and delivered to the Agent and/or any Lender, (iv) the failure by the Agent and/or any Lender to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Obligations of any of the other Borrowers, (v) the Agent’s and/or any Lender’s election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by any of the other Borrowers, as debtors-in-possession under Section 364 of the Bankruptcy Code, (vii) the disallowance of all or any portion of the Agent’s and/or any Lender’s claim(s) for the repayment of the Obligations of any of the other Borrowers under Section 502 of the Bankruptcy Code, or (viii) any other circumstances which might constitute a legal or equitable discharge or defense of a guarantor or of any of the other Borrowers.  With respect to a Borrower’s Obligations arising as a result of the joint and several liability of the Borrowers hereunder with respect to Loans or other extensions of credit made to the other Borrowers hereunder, each Borrower waives, until the Obligations shall have been paid in full and this Agreement shall have been terminated, any right to enforce any right of subrogation or any remedy which the Agent and/or any Lender now has or may hereafter have against any Borrower, any endorser or any guarantor of all or any part of the Obligations, and any benefit of, and any right to participate in, any security or collateral

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given to the Agent and/or any Lender to secure payment of the Obligations or any other liability of any Borrower to the Agent and/or any Lender.

Upon any Event of Default, the Agent may proceed directly and at once, without notice, against any Borrower to collect and recover the full amount, or any portion of the Obligations, without first proceeding against any of the other Borrowers or any other Person, or against any security or collateral for the Obligations.  Each Borrower consents and agrees that the Agent shall not be under any obligation to marshal any assets in favor of any Borrower or against or in payment of any or all of the Obligations.

Section 15.18.Effectiveness; Ratification and Confirmation.  This Agreement shall become effective on the date on which (i) each of the Lenders, the Agent, the Administrative Agent, the Borrowers and the other Loan Parties shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Agent and (ii) the conditions contained in Article X are satisfied or waived.  Each of the Loan Parties hereby (i) ratifies and confirms its grant of security interests and liens in the Collateral in which it has rights and confirms and agrees that such Collateral secures any and all of the Obligations, including, without limitation, the Revolving Loans and (ii) ratifies and confirms its guarantee pursuant to this Agreement of any and all of the Obligations, including, without limitation, the Revolving Loans.

Section 15.19.Covenant Calculation.  The parties hereto hereby agree that the financial covenants under each of Sections 9.24, 9.25 and 9.26 and shall be calculated in a manner consistent with the calculation thereof on the Financial Covenant Calculation Worksheet attached hereto as Exhibit D.

ARTICLE XVI

GUARANTEES

Each Guarantor party hereto unconditionally guarantees, as a primary obligor and not merely as a surety, jointly and severally with each other Guarantor party hereto, the due and punctual payment of the principal of and interest on the Revolving Loans and of all other Obligations, when and as due, whether at maturity, by acceleration, by notice or prepayment or otherwise.  Each Guarantor party hereto further agrees that the Obligations may be extended and renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligations.

The Obligations of each Guarantor hereunder will be limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such Guarantor hereunder or pursuant to its contribution Obligations hereunder, will result in the Obligations of such Guarantor hereunder not constituting a fraudulent conveyance or fraudulent transfer under federal or state law.  The

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net worth of any Guarantor for the purposes of this Article XVI shall include any claim of such Guarantor against the Borrowers for reimbursement and any claim against any other Guarantor for contribution.

To the fullest extent permitted by law, each Guarantor party hereto waives presentment to, demand of payment from and protest to the Borrowers or any other Person of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment.  To the fullest extent permitted by law, the obligations of a Guarantor party hereto hereunder shall not be affected by (a) the failure of the Agent or any Lender to assert any claim or demand or to enforce any right or remedy against any Borrower or any other Guarantor under the provisions of this Agreement or any of the other Loan Documents or otherwise; (b) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement, any of the other Loan Documents, any guarantee or any other agreement; (c) the release of any security held by the Agent or any Lender for the Obligations or any of them; or (d) the failure of the Agent or any Lender to exercise any right or remedy against any other Guarantor of the Obligations.

Each Guarantor party hereto further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Agent or any Lender to any security (if any) held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Agent or any Lender in favor of any Borrower or any other Person.

To the fullest extent permitted by law, the obligations of each Guarantor party hereto hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise.  Without limiting the generality of the foregoing, to the fullest extent permitted by law, the obligations of each Guarantor party hereto hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Lender to assert any claim or demand or to enforce any remedy under this Agreement or under any other Loan Document, any guarantee or any other agreement, by any waiver or modification of any provision thereof, by any default, failure or delay, willful or otherwise, in the performance of any of the Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of such Guarantor or otherwise operate as a discharge of such Guarantor as a matter of law or equity.

Each Guarantor party hereto further agrees that its guarantee shall remain in full force and effect until the indefeasible payment and satisfaction in full of the Obligations and the termination of the Revolving Commitments and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal or of interest on any Obligation or of any other Obligation is rescinded or must otherwise be returned by the Agent or any Lender upon the bankruptcy or reorganization of any Borrower, Guarantor or otherwise.

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Each Guarantor party hereto hereby waives and releases all rights of subrogation against each Loan Party and its property and all rights of indemnification, contribution and reimbursement from each Loan Party and its property, in each case in connection with this guarantee and any payments made hereunder, and regardless of whether such rights arise by operation of law, pursuant to contract or otherwise.

The Guarantors hereby agree as among themselves that, if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor’s Contribution Share (as defined below) of such Excess Payment.  The payment obligations of any Guarantor under this paragraph shall be subordinate and subject in right of payment to the Obligations until such time as the Obligations have been paid in full and all Revolving Commitments have been terminated, and none of the Guarantors shall exercise any right or remedy under this paragraph against any other Guarantor until the Obligations have been paid in full and all Revolving Commitments have been terminated.  For purposes of this paragraph, (a) “Excess Payment” shall mean the amount paid by any Guarantor in excess of its Pro Rata Share of any Obligations; (b) “Pro Rata Share” shall mean, for any Guarantor in respect of any payment of Obligations by such Guarantor, the ratio (expressed as a percentage) as of the date of such payment of Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Guarantors hereunder) of the Guarantors; provided, however, that, for purpose of calculating the Pro Rata Shares of the Guarantors in respect of any payment of Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; and (c) “Contribution Share” shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Guarantors other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Guarantors hereunder) of the Guarantors other than the maker of such Excess Payment; provided, however, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment.

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(Signature pages to follow)

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IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written.

“BORROWERS” AND “GUARANTORS”
NEW WORLD RESTAURANT GROUP, INC.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO
MANHATTAN BAGEL COMPANY, INC.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO
CHESAPEAKE BAGEL FRANCHISE CORP.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO
WILLOUGHBY’S INCORPORATED
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO
EINSTEIN AND NOAH CORP.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO
EINSTEIN/NOAH BAGEL PARTNERS, INC.
By:	/s/ ANTHONY D. WEDO
	Name: Anthony D. Wedo
	Title: CEO

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	I. & J. BAGEL, INC.
	By:	/s/ ANTHONY D. WEDO
		Name: Anthony D. Wedo
		Title: CEO
	“AGENT”
	AMSOUTH BANK, as Agent
	By:	/s/ KEVIN R. ROGERS
		Name: Kevin R. Rogers
		Title: Attorney-in-fact
	“ADMINISTRATIVE AGENT”
	AMSOUTH CAPITAL CORP., as the Administrative Agent
	By:	/s/ MARK McNALLY
		Name: Mark McNally
		Title: Assistant Vice President
	“LENDERS”
Revolving Commitment:  $15,000,000	AMSOUTH BANK, as a Lender
	By:	/s/ MARK McNALLY
		Name: Mark McNally
		Title: Attorney-in-fact

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EX-10.57

Exhibit 10.57

SECURITY AGREEMENT AND MORTGAGE -
TRADEMARKS AND PATENTS

AGREEMENT made this 8th day of July, 2003 (as amended, modified or supplemented from time to time, this “Security Agreement”) among New World Restaurant Group, Inc., a Delaware corporation (“New World”), Manhattan Bagel Company, Inc., a New Jersey corporation (“MBC”), Chesapeake Bagel Franchise Corp., a New Jersey corporation (“Chesapeake”), Willoughby’s Incorporated, a Connecticut corporation (“Willoughby’s”), Einstein and Noah Corp., a Delaware corporation (“Einstein”), Einstein/Noah Bagels Partners, Inc., a Delaware corporation (“Einstein/Noah”), I. & J. Bagel, Inc., a California corporation (“I&J”and together with New World, MBC, Chesapeake, Willoughby’s, Einstein and Einstein/Noah, each a “Debtor” and, collectively, the “Debtors”) and AmSouth Bank, as agent (in its capacity as agent, together with any successor in such capacity, referred to herein as the “Secured Party”) for the financial institutions (the “Lenders”) now or hereafter being parties to the Loan and Security Agreement, dated as of the date hereof (as amended, restated, modified or supplemented from time to time in accordance with its terms, the “Loan Agreement”), among the Lenders, the Secured Party, AmSouth Capital Corp., as the administrative agent, the guarantors named therein and the Debtors;

WHEREAS, one or more of the Debtors has adopted the trademarks, terms and designs described in Schedule A annexed hereto and made a part hereof;

WHEREAS, one or more of the Debtors is the owner and holder of the patents and patent applications listed on Schedule B annexed hereto and made a part hereof;

WHEREAS, the Lenders have agreed to make Revolving Loans and issue or cause the issuance of Letters of Credit on behalf of the Debtors, in each case pursuant to, and subject to the terms and conditions of, the Loan Agreement; and

WHEREAS, as a condition to the Lenders making any Revolving Loans or issuing or causing the issuance of any Letters of Credit under the Loan Agreement, the Lenders and the Secured Party have required the execution and delivery of this Security Agreement by the Debtors;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Grant of Security.  As collateral security for the prompt and complete payment, performance and observance of (a) all present and future Obligations whether at stated maturity, by acceleration or otherwise (including, without limitation, all interest thereon, whether accruing prior or subsequent to the commencement of a bankruptcy or similar proceeding involving any Debtor as a

debtor and whether or not such interest is an allowed claim in any such proceeding) and (b) all present and future obligations of each of the Debtors under each of the Loan Documents whether at stated maturity, by acceleration or otherwise (all of the foregoing being herein referred to as the “Secured Obligations”), each Debtor hereby mortgages and pledges to the Secured Party for the benefit of the Secured Party and the Lenders, and grants to the Secured Party for the benefit of the Secured Party and the Lenders, a first priority security interest in, all of its right, title and interest in and to (i) each of the Trademarks (as hereinafter defined) of such Debtor, and the goodwill of the business symbolized by each such Trademark, all customer lists and other records of such Debtor relating to the distribution of products bearing the Trademarks of such Debtor and each of the registrations of such Debtor described in Schedule A annexed hereto and made a part hereof; (ii) each of the Patents (as hereinafter defined) of such Debtor and each of the Patent Applications (as hereinafter defined) of such Debtor listed on Schedule B annexed hereto and made a part hereof; and (iii) any and all proceeds of the foregoing, including, without limitation, any claims by such Debtor against third parties for infringement of the Trademarks or the Patents of such Debtor (collectively, the “Collateral”).

2.Certain Defined Terms.  Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to such terms in the Loan Agreement.  As used in this Security Agreement, unless the context otherwise requires:

“Patents” means, with respect to a Debtor, all of such Debtor’s right, title and interest in and to all United States and foreign patents and applications for letters patent throughout the world, including, but not limited to each patent and patent application referred to in Schedule B, all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations of any of the foregoing, all rights corresponding thereto throughout the world, the right to sue for past infringements of any of the foregoing, and all proceeds of the foregoing including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.

“Trademarks” means, with respect to a Debtor, all of such Debtor’s right, title and interest in and to all United States and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing, including, but not limited to the registrations and applications listed on Schedule A, all extensions or renewals of any of the foregoing, all of the goodwill of the business connected with the use of and symbolized by the foregoing, the right to sue for past infringement or dilution of any of the foregoing or for any injury to goodwill, and all proceeds of the foregoing, including, without limitation, license royalties, income, payments, claims, damages, and proceeds of suit.

3.Representations, Warranties and Covenants of each Debtor.  Each Debtor hereby represents, warrants, covenants and agrees as follows:

(a)Title to Trademarks.  Such Debtor has the sole, full and clear title (subject only to Liens permitted under clauses (b) and (j) of the definition of Permitted Liens) to any material

2

registered U.S. Trademarks of such Debtor for the goods and services covered by the registrations thereof and such registrations are valid and subsisting and in full force and effect.  Such Debtor shall cause the filings in the United States Patent and Trademark Office listed on Schedule 9.31 of the Loan Agreement applicable to such Debtor to be terminated within sixty (60) days of the Closing Date.

(b)Use of Trademarks.  Other than with respect to Trademarks that are no longer used or, in such Debtor’s reasonable business judgment, useful in such Debtor’s business and except to the extent that to do otherwise would not reasonably be expected to result in a Material Adverse Effect, such Debtor (either itself or through licensees) will continue to use its Trademarks on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain its Trademarks in full force free from any claim of abandonment for nonuse and such Debtor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark of such Debtor may become invalidated.

(c)Title to Patents; Etc.  Such Debtor has the sole, full and clear title to each of the Patents of such Debtor shown on Schedule B annexed hereto and made a part hereof.  As of the date hereof, none of the Patents of such Debtor has been abandoned or dedicated and, except with respect to Patents or Patent Applications that are no longer used or, in such Debtor’s reasonable business judgment, useful in such Debtor’s business and except to the extent that to do otherwise would not reasonably be expected to result in a Material Adverse Effect, such Debtor will not do any act, or knowingly omit to do any act, whereby the Patents or Patent Applications of such Debtor may become abandoned or dedicated.  Such Debtor shall notify the Secured Party promptly if it knows or has any reason to know that any application or registration may become abandoned or dedicated.

(d)Further Assurances.  Such Debtor will perform all acts and execute all documents, including, without limitation, assignments for security in form suitable for filing with the United States Patent and Trademark Office, substantially in the forms of Exhibits 1 and 2 hereof, respectively, requested by the Secured Party at any time to evidence, perfect, maintain, record and enforce the Secured Party’s interest in the Collateral in which such Debtor granted a security interest hereunder in favor of the Secured Party or otherwise in furtherance of the provisions of this Security Agreement, and such Debtor hereby authorizes the Secured Party to execute and file one or more financing statements (and similar documents) or copies thereof or of this Security Agreement with respect to the Collateral in which such Debtor granted a security interest hereunder in favor of the Secured Party signed only by the Secured Party.

(e)Costs and Expenses.  Such Debtor, jointly and severally with the other Debtors, shall be obligated to, upon demand, pay to the Secured Party the amount of any and all reasonable costs, sums and expenses which the Secured Party may pay or incur pursuant to the provisions of this Security Agreement or in enforcing the Secured Obligations, the Collateral or the security interests granted hereunder, including, but not limited to, all reasonable filing or recording fees, court costs, collection charges, travel expenses, computer fees, telephone fees, duplicating fees and reasonable attorneys’ fees and expenses, such expenses shall include, without limitation, any reasonable costs paid or incurred by the Secured Party in connection with any waivers, amendments,

3

modifications, extensions, renewals or renegotiations.  All of the foregoing, together with interest thereon at the rate applicable to Revolving Loans at such time pursuant to Section 3.1 of the Loan Agreement, shall be part of the Secured Obligations and shall be payable on demand.

(f)Pledge of Additional Patents and Trademarks.  In no event shall such Debtor, or such Debtor through any agent, employee, licensee or designee, (i) file an application for the registration of any Patent or Trademark of such Debtor with the United States Patent and Trademark Office or any similar office or agency of the United States, any State thereof, any other country or any political subdivision thereof or (ii) file any assignment of any patent or trademark, which such Debtor may acquire from a third party, with the United States Patent and Trademark Office or any similar office or agency of the United States of America, any State thereof, any other country or any political subdivision thereof, unless such Debtor shall, on or prior to the date of such filing, notify the Secured Party thereof, and, upon the request of the Secured Party, execute and deliver any and all assignments, agreements, instruments, documents and papers as the Secured Party may reasonably request to evidence the Secured Party’s interest in such Patent or Trademark and the goodwill and general intangibles of such Debtor relating thereto or represented thereby.

(g)Secured Party Appointed Attorney-in-Fact.  Such Debtor hereby constitutes and appoints the Secured Party its attorney-in-fact to execute and file, upon the occurrence and during the continuance of an Event of Default, all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Secured Obligations are paid in full, all Revolving Commitments have expired or been terminated and all Letters of Credit have been canceled.

(h)Debtor Authority; Etc.  Such Debtor has the right and power to make the assignment and to grant the security interest herein granted; and the Collateral of such Debtor is not now, and at all times hereafter will not be, subject to any liens, mortgages, assignments, security interests or encumbrances of any nature whatsoever, except in favor of the Secured Party or as permitted under clauses (f) and (j) of the definition of Permitted Liens, and such Debtor has not received any notice from any third party claiming any right or interest in and to any of the Collateral of such Debtor or that any of such Debtor’s use thereof infringes the rights of any third party.

(i)Negative Pledge.  Except to the extent permitted under the Loan Agreement or to the extent that Secured Party, upon prior written notice from such Debtor, shall consent, such Debtor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, encumber, grant an exclusive or non-exclusive license, or otherwise dispose of any of the Collateral of such Debtor, and nothing in this Security Agreement shall be deemed a consent by the Secured Party or any Lender to any such action except as expressly permitted herein.

(j)No Additional Patents or Trademarks.  As of the date hereof, neither such Debtor nor any Affiliate or Subsidiary thereof owns any Patents or Trademarks or has any Patents or Trademarks registered in, or the subject of pending applications in, the United States Patent and Trademark Office or any similar office or agency of the United States of America, any State thereof,

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any other country or any political subdivision thereof, other than those described in Schedules A  and B annexed hereto and made a part hereof.

(k)Additional Further Assurances.  Such Debtor will take all necessary and reasonable steps in any proceeding before the United States Patent and Trademark Office or any similar office or agency of the United States, any State thereof, any other country or any political subdivision thereof, to maintain each Patent and Trademark included within the Collateral in which such Debtor granted a security interest hereunder in favor of the Secured Party, including, without limitation, filing of renewals, affidavits of use, and opposition, interference and cancellation proceedings, except with respect to any Patent or Trademark that is no longer used or, in such Debtor’s reasonable business judgment, useful in such Debtor’s business and except to the extent that to do otherwise would not reasonably be expected to result in a Material Adverse Effect.

(l)Secured Party Not Liable.  Such Debtor assumes all responsibility and liability arising from the use of the Collateral in which such Debtor granted a security interest hereunder in favor of the Secured Party, and such Debtor hereby agrees to indemnify and hold the Secured Party and each Lender harmless from and against any claim, suit, loss, damage or reasonable expense (including reasonable attorneys’ fees) arising out of any alleged defect in any product manufactured, promoted or sold by such Debtor (or any Affiliate or Subsidiary thereof) in connection with any Collateral of such Debtor or out of the manufacture, promotion, labeling, sale or advertisement of any such product by such Debtor (or any Affiliate or Subsidiary thereof), except as caused by the gross negligence or willful misconduct of any Lender.  Such Debtor agrees that the Secured Party does not assume, and shall have no responsibility for, the payment of any sums due or to become due under any agreement or contract included in the Collateral in which such Debtor has granted a security interest hereunder in favor of the Secured Party or the performance of any obligations to be performed under or with respect to any such agreement or contract by such Debtor, and such Debtor hereby agrees to indemnify and hold the Secured Party and each Lender harmless with respect to any and all claims by any Person relating thereto.

(m)Secured Party’s Rights.  Secured Party may, in its reasonable discretion, pay any amount or do any act required of such Debtor hereunder or requested by the Secured Party to preserve, defend, protect, maintain, record or enforce such Debtors’ obligations contained herein, the Secured Obligations, the Collateral of such Debtor, or the right, title and interest granted the Secured Party herein, and which such Debtor fails to do or pay, and any such payment shall be deemed an advance by the Secured Party to such Debtor and shall be payable on demand together with interest at the highest rate then applicable to Revolving Loans under the Loan Agreement.

(n)Protection of Trademarks.  Such Debtor agrees that if it, or any Affiliate or Subsidiary thereof, learns of any use by any third party of any term or design likely to cause confusion with any Trademark of such Debtor, it shall promptly notify the Secured Party of such use and, if requested by Secured Party, shall join with the Secured Party, at its expense, in such action as the Secured Party, in its reasonable discretion may deem advisable for the protection of the Secured Party’s interest in and to such Trademarks, it  being understood that the foregoing shall not preclude

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such Debtor from bringing any action against a third-party for the protection of such Debtor’s interest in and to such Trademarks.

(o)Licenses of Trademarks and Patents.  All licenses of its Trademarks and Patents which such Debtor has granted to third parties are set forth in Schedule C annexed hereto and made a part hereof.

4.Remedies.  Upon the occurrence of and during the continuation of an Event of Default, in addition to all other rights and remedies of the Secured Party, whether under law, the Loan Agreement or otherwise (all such rights and remedies being cumulative), not exclusive and enforceable alternatively, successively or concurrently, without (except as provided herein) notice to, or consent by, any of the Debtors, the Secured Party shall have the following rights and remedies:

(a)immediately upon the Secured Party’s request, no Debtor shall make any further use of its Patents or the Trademarks or any mark similar thereto for any purpose;

(b)the Secured Party may, at any time and from time to time, license, whether general, special or otherwise, and whether on an exclusive or nonexclusive basis, any of the Patents or Trademarks of a Debtor, throughout the world for such term or terms, on such conditions, and in such manner, as the Secured Party shall in its sole discretion determine; provided, that the term of any such license shall automatically terminate if and when such Event of Default has been cured or waived, subject, in the case of Trademarks to sufficient rights to quality control and inspection in favor of such Debtor to avoid the risk of invalidation of said Trademarks;

(c)the Secured Party may (without assuming any obligations or liability thereunder), at any time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of the applicable Debtor in, to and under any one or more license agreements with respect to the Collateral in which such Debtor has granted a security interest hereunder in favor of the Secured Party, and take or refrain from taking any action under any thereof, and each Debtor hereby releases the Secured Party and each Lender from, and agrees to hold the Secured Party and each Lender free and harmless from and against any claims arising out of, any action taken or omitted to be taken with respect to any such license agreement (except to the extent such claims arise solely and directly from the gross negligence or willful misconduct of Secured Party or the Lenders);

(d)the Secured Party may, at any time and from time to time, assign, sell, or otherwise dispose of, the Collateral or any of it, either with or without special or other conditions or stipulations, with power to buy the Collateral or any part of it, and with power also to execute assurances, and do all other acts and things for completing the assignment, sale or disposition which the Secured Party shall, in its sole discretion, deem appropriate or proper; and

(e)in addition to the foregoing, in order to implement the assignment, sale or other disposal of any of the Collateral pursuant to paragraph 4(d) hereof, the Secured Party may, at any time, pursuant to the authority granted in the Powers of Attorney described in paragraph 5 hereof (such

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authority becoming effective upon the occurrence and remaining effective during the continuation as hereinabove provided of an Event of Default), execute and deliver on behalf of any Debtor, one or more instruments of assignment of the Patents or Trademarks of such Debtor (or any application or registration thereof), in form suitable for filing, recording or registration in any country.  The Debtors agree, jointly and severally, to pay when due all costs incurred in any such transfer of the Patents or Trademarks of a Debtor, including any taxes, fees and attorneys’ fees, and all such costs shall be added to the Secured Obligations.  The Secured Party may apply the proceeds actually received from any such license, assignment, sale or other disposition to the reasonable costs and expenses thereof, including, without limitation, reasonable attorneys’ fees and all legal, travel and other expenses which may be incurred by the Secured Party, and then to the Secured Obligations, in such order as to principal, interest and other amounts as set forth in the Loan Agreement; and the Debtors shall remain liable and will pay the Secured Party on demand any deficiency remaining, together with interest thereon at a rate equal to the highest rate then payable on the Secured Obligations pursuant to the Loan Agreement and the balance of any expenses unpaid.  Nothing herein contained shall be construed as requiring the Secured Party to take any such action at any time.  In the event of any such license, assignment, sale or other disposition of the Collateral, or any of it, after the occurrence or continuation as hereinabove provided of an Event of Default, each Debtor shall supply its know-how and expertise relating to the manufacture and sale of the products bearing or in connection with the Trademarks or Patents of such Debtor, and its customer lists and other records relating to the Trademarks or Patents of such Debtor and to the distribution of said products, to the Secured Party or its designee.

5.Delivery of Powers of Attorney.  Concurrently with the execution and delivery hereof, each Debtor is executing and delivering to the Secured Party, in the form of Exhibit 3 hereto, five originals of a Power of Attorney for the implementation of the assignment, sale or other disposal of the Trademarks and Patents of such Debtor pursuant to paragraphs 4(d) and 4(e) hereof and each Debtor hereby releases the Secured Party and each Lender from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Secured Party under the powers of attorney granted herein, other than actions taken or omitted to be taken through the gross negligence or willful misconduct of the Secured Party.

6.WAIVER OF JURY TRIAL AND SETOFF; CONSENT TO JURISDICTION; ETC.  (a)  In any litigation in any court with respect to, in connection with, or arising out of this Security Agreement, the Collateral, or any other Loan Document or any instrument or document delivered pursuant to this Security Agreement, or the validity, protection, interpretation, collection or enforcement thereof, or any other claim or dispute howsoever arising, between any Debtor on the one hand and any one or more of the Lenders or the Secured Party on the other hand, EACH DEBTOR, to the fullest extent it may effectively do so, (i) waives the right to interpose any setoff, recoupment, counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, recoupment, counterclaim or cross-claim, unless such setoff, recoupment, counterclaim or cross-claim could not, by reason of any applicable Federal or State procedural laws, be interposed, pleaded or alleged in any other action and (ii) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,

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PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  EACH DEBTOR AGREES THAT THIS PARAGRAPH 6 IS A SPECIFIC AND MATERIAL ASPECT OF THIS SECURITY AGREEMENT AND ACKNOWLEDGES THAT NO LENDER WOULD EXTEND ANY FINANCIAL ACCOMMODATIONS TO A DEBTOR UNDER THE LOAN AGREEMENT IF THIS PARAGRAPH 6 WERE NOT PART OF THIS SECURITY AGREEMENT.

(b)Each Debtor hereby irrevocably consents to the non-exclusive jurisdiction of the courts of the State of New York and of any Federal court located in the City of New York in connection with any action or proceeding arising out of or relating to this Security Agreement, the Collateral, any other Loan Document or any document or instrument delivered pursuant to this Security Agreement.  In any such litigation, each Debtor waives, to the fullest extent it may effectively do so, personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to such Debtor at its address for notice determined in accordance with paragraph 7 hereof.  Each Debtor hereby waives, to the fullest extent it may effectively do so, the defenses of forum non conveniens and improper venue.

7.Security Interest Absolute.  All rights of the Secured Party hereunder, the security interests granted to the Secured Party hereunder and all obligations of the Debtors hereunder, shall be absolute and unconditional irrespective of:

(i)any lack of validity or enforceability of the Loan Agreement, any other Loan Document, any other agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing;

(ii)any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or consent to any departure from the Loan Agreement, any other Loan Document or any other agreement or instrument;

(iii)any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations; or

(iv)any other circumstance which might otherwise constitute a defense available to, or discharge of, a Debtor or any other obligor in respect of the Secured Obligations or in respect of this Agreement.

If there is a conflict between the terms and conditions of the Loan Agreement and this Agreement, the terms and conditions of the Loan Agreement shall govern.

8.Continuing Security Interest.  This Security Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the later of (x) payment in full of the Secured Obligations, (y) the expiration of or termination of the Commitments and (z) the

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cancellation of all Letters of Credit, at which time the Secured Party shall, at the Debtors’ expense, execute and deliver to the applicable Debtors all Uniform Commercial Code termination statements, terminations of grants and similar documents which such Debtors shall reasonably request to evidence such termination, including documents in a form to be filed with the Patent and Trademark Office; provided, however, that all indemnities of the Debtors contained in this Agreement shall survive, and remain operative and in full force and effect regardless of, the termination of this Agreement. Notwithstanding the foregoing, except as provided otherwise in the Loan Agreement, upon any sale or other disposition by any Debtor of any Collateral in a transaction expressly permitted under the Loan Agreement and the receipt by the Secured Party of the proceeds of such sale or other disposition to the extent required by the Loan Agreement, the Lien and security interest created by this Security Agreement in and upon such Collateral shall be automatically released; and in connection with any such release, the Secured Party, at the request and expense of the applicable Debtor, will execute and deliver to such Debtor such documents and instruments evidencing such release or termination as such Debtor may reasonably request, without recourse and without representation or warranty.

9.No Waiver.  No failure on the part of the Secured Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Secured Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.  The Secured Party and the Lenders shall not be deemed to have waived any rights hereunder or under any other agreement or instrument unless such waiver shall be in writing and signed by such parties.

10.Binding Effect.  This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Debtor shall be permitted to assign this Agreement or any interest herein or in the Collateral of such Debtor, or any part thereof, or any cash or property held by the Secured Party as Collateral under this Agreement.

11.GOVERNING LAW.  THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK; PROVIDED THAT THE SECURED PARTY SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

12.Address for Notices.  All communications and notices hereunder shall be in writing and given as provided in the Loan Agreement.

13.Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable the remaining provisions contained herein shall not in any way be affected or impaired.

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14.Section Headings.  Section headings used herein are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

15.Counterparts.  This Security Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument.

16.Admissibility of Security Agreement.  Each Debtor agrees that any copy of this Security Agreement signed by such Debtor and transmitted by telecopier for delivery to the Secured Party shall be admissible in evidence as the original itself if any judicial or administrative proceeding, whether or not the original is in existence.

17.Schedules.  The Secured Party is authorized to annex hereto any schedules referred to herein.

18.Acknowledgment of Receipt.  Each Debtor acknowledges receipt of a copy of this Security Agreement.

19.Governance of Loan Agreement.  The parties hereto agree that to the extent any provisions herein conflict with the Loan Agreement, the provisions of the Loan Agreement shall control.

20.Intercreditor Agreement.  The Secured Party’s rights and remedies hereunder are subject to any applicable notice requirements set forth in the Intercreditor Agreement.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Debtors and the Secured Party have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written.

NEW WORLD RESTAURANT GROUP, INC.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer
MANHATTAN BAGEL COMPANY, INC.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer
CHESAPEAKE BAGEL FRANCHISE CORP.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer
WILLOUGHBY’S INCORPORATED
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer
EINSTEIN AND NOAH CORP.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer

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EINSTEIN/NOAH BAGELS PARTNERS, INC.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer
I. & J. BAGEL, INC.
By:	/s/ ANTHONY D. WEDO
	Name:	Anthony Wedo
	Title:	Chief Executive Officer

Accepted and Agreed:

AMSOUTH BANK, as Secured Party

By:
	Name:
	Title:

12

Schedule A to Security Agreement

TRADEMARKS

Trademark	Reg. Date	Reg. No.
Servicemark
Tradenames
TRADEMARK APPLICATIONS
Trademark	Filing Date	Reg. No.

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Schedule B to Security Agreement

PATENTS

14

Schedule C to Security Agreement

LICENSES

15

Exhibit 1 to

Security Agreement

ASSIGNMENT FOR SECURITY

(PATENTS)

WHEREAS,                                                                                                                        (herein referred to as “Assignor”), owns the letters patent, and/or applications for letters patent, of the United States, more particularly described on Schedule 1-A annexed hereto as part hereof (the “Patents”);

WHEREAS, Assignor, certain affiliates thereof, certain financial institutions named therein (the “Lenders”), AmSouth Bank, as agent for the Lenders (in such capacity, together with any successor agent, “Assignee”), AmSouth Capital Corp., as administrative agent, and the guarantors named therein, are parties to the Loan and Security Agreement dated as of the date hereof, and Assignee and the Lenders are desirous of having a security interest and mortgage in favor of Assignee on the above-identified property in order to secure the payment of certain obligations of Assignor now or hereafter owing to Assignee and the Lenders;

WHEREAS, Assignor has entered into a Security Agreement and Mortgage-Trademarks and Patents dated the date hereof (as it may hereafter be amended, supplemented or otherwise modified from time to time, the “Agreement”) with Assignee;

WHEREAS, pursuant to the Agreement, Assignor has granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Patents, together with any reissue, continuation, continuation-in-part or extension thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof for the full term of the Patents (the “Collateral”), to secure the prompt payment, performance and observance of the Secured Obligations, as defined in the Agreement; and

WHEREAS, when the Secured Obligations have been paid and performed in full, the Commitments have been terminated and all outstanding Letters of Credit have been canceled or have expired, this Assignment for Security shall terminate and Assignee, at the expense of Assignor, will execute and deliver to Assignor all instruments reasonably requested by Assignor to acknowledge termination of this Assignment for Security and will release the Patents from the security interest created hereby and under the Agreement.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further grant to Assignee a security interest in, and mortgage on, the Collateral to secure the prompt payment, performance and observance of the Secured Obligations.

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Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the security interest in and mortgage on the Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein.

Assignee’s address is c/o AmSouth Capital Corp., 350 Park Avenue, 20th Floor, New York, New York 10022.

IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the           day of               , 200  .

[ASSIGNOR]
By:
	Name:
	Title:

2

SCHEDULE 1-A TO GRANT OF SECURITY

PATENTS

File Number Serial/Patent No. Status Title

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Exhibit 2 to
Security Agreement

ASSIGNMENT FOR SECURITY

(TRADEMARKS)

WHEREAS,                                                                                                                        (herein referred to as “Assignor”), has adopted, used and is using the trademarks listed on the annexed Schedule 2-A, which trademarks are registered or filed with the United States Patent and Trademark Office (the “Trademarks”);

WHEREAS, Assignor, certain affiliates thereof, certain financial institutions named therein (the “Lenders”), AmSouth Bank, as agent for the Lenders (in such capacity, together with any successor agent, “Assignee”), AmSouth Capital Corp., as administrative agent, and the guarantors named therein are parties to the Loan and Security Agreement dated as of the date hereof, and Assignee and the Lenders are desirous of having a security interest and mortgage in favor of Assignee on the above-identified property in order to secure the payment of certain obligations of Assignor now or hereafter owing to Assignee and the Lenders;

WHEREAS, Assignor has entered into a Security Agreement and Mortgage-Trademarks and Patents dated the date hereof (as it may be amended, supplemented, or otherwise modified from time to time, the “Agreement”) with Assignee;

WHEREAS, pursuant to the Agreement, Assignor has granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Trademarks, together with the goodwill of the business symbolized by the Trademarks and the applications and registrations thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof (the “Collateral”), to secure the payment, performance and observance of the Secured Obligations, as defined in the Agreement; and

WHEREAS, when the Secured Obligations have been indefeasibly paid and performed in full, the Commitments have been terminated and all outstanding Letters of Credit have been canceled or have expired, this Assignment for Security shall terminate and Assignee, at the expense of Assignor, will execute and deliver to Assignor all instruments reasonably requested by Assignor to acknowledge and evidence termination of this Assignment for Security and will release the Trademarks from the security interest created hereby and under the Agreement.

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NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further grant to Assignee a security interest in, and mortgage on, the Collateral to secure the prompt payment, performance and observance of the Secured Obligations.

Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the security interest in and mortgage on the Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein.

Assignee’s address is c/o AmSouth Capital Corp., 350 Park Avenue, 20th Floor, New York, New York 10022.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the          day of                , 200    .

[ASSIGNOR]
By:
	Name:
	Title:

3

SCHEDULE 2-A TO GRANT OF SECURITY

TRADEMARKS

Trademark Reg. Date Reg. No.

4

Exhibit 3 to
Security Agreement

SPECIAL POWER OF ATTORNEY

STATE OF NEW YORK	)
	)  ss.:
COUNTY OF NEW YORK	)

KNOW ALL MEN BY THESE PRESENTS, THAT                                     , a                          corporation, with its principal office at [                                        ], (hereinafter called the “Assignor”), hereby appoints and constitutes AmSouth Bank as agent (in its capacity as agent, together with any successor in such capacity, referred to herein as the “Assignee”) for the financial institutions (the “Lenders”), now or hereafter being parties to the Loan and Security Agreement, dated as of the date hereof (as amended, modified or supplemented from time to time in accordance with its terms, the “Loan Agreement”), among Assignor, certain affiliates of Assignor, the Lenders, the Assignee, AmSouth Capital Corp., as administrative agent, and the guarantors named therein, its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of the Assignor:

1.  For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of the Assignor in and to any letters patent of the United States or any other country or political subdivision thereof, and all registrations, recordings, reissues, continuations, continuations-in-part and extensions thereof, and all pending applications therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose;

2.  For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of the Assignor in and to any trademarks, trade names, trade styles and service marks, and all registrations, recordings, reissues, extensions and renewals thereof, and all pending applications therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose;

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3.  To execute any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as the Assignee may in its sole discretion determine.

This power of attorney is made pursuant to a Security Agreement and Mortgage - Trademarks and Patents, dated the date hereof, between the Assignor and the Assignee and takes effect solely for the purposes of paragraphs 4(d) and (e) thereof and is subject to the conditions thereof. This power of attorney may not be revoked until the payment in full of all “Secured Obligations” as defined in such Security Agreement and Mortgage and the expiration or termination of all of the Commitments (as defined in the Loan Agreement) of the Lenders under the Loan Agreement and the cancellation of all letters of credit issued pursuant to the Loan Agreement at which time this power of attorney shall automatically be revoked and terminated.

Dated:	, 200
		[ASSIGNOR]
[Corporate Seal]		By:
			Name:
			Title:

2

STATE OF	)
	)  ss.:
COUNTY OF	)

On this           day of           , 200    , before me personally appeared                                     , to me known, who, being by me duly sworn, did depose and say that such person resides at                                                                        and that such person is                                 of                                                                                                                                                              , the                      corporation described in and which executed the foregoing instrument; that such person knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was affixed pursuant to authority of the Board of Directors of said corporation, and that such person’s signature was affixed thereto pursuant to such authority.

Notary Public

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EX-10.58

Exhibit 10.58

PLEDGE AGREEMENT

PLEDGE AGREEMENT, dated as of July 8, 2003 (as amended, modified or supplemented from time to time, this “Pledge Agreement”), made by and among New World Restaurant Group, Inc., a Delaware corporation (“New World”), Manhattan Bagel Company, Inc., a New Jersey corporation (“MBC”), Chesapeake Bagel Franchise Corp., a New Jersey corporation (“Chesapeake”), Willoughby’s Incorporated, a Connecticut corporation (“Willoughby’s”), Einstein and Noah Corp., a Delaware corporation (“Einstein”), Einstein/Noah Bagels Partners, Inc., a Delaware corporation (“Einstein/Noah”), I. & J. Bagel, Inc., a California corporation (“I&J” and together with New World, MBC, Chesapeake, Willoughby’s, Einstein, Einstein/Noah and each Subsidiary that, after the date hereof, executes an addendum hereto substantially in the form of Exhibit A (a “Pledge Addendum”), each a “Pledgor” and, collectively, the “Pledgors”) and AmSouth Bank, in its capacity as agent (in such capacity, together with any successor in such capacity, the “Agent”) for the financial institutions (the “Lenders”) from time to time party to the Loan Agreement referred to below (the Lenders, together with the Agent, are collectively referred to herein as the “Secured Parties”).

WHEREAS, pursuant to that certain Loan and Security Agreement dated as of the date hereof (as from time to time amended, restated, supplemented or otherwise modified, the “Loan Agreement”; capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Loan Agreement) among the Lenders, the Agent, AmSouth Capital Corp., as the administrative agent, the guarantors named therein and the Borrowers named therein (including each of the Pledgors), the Lenders have agreed to make Revolving Loans and issue or cause the issuance of Letters of Credit on behalf of the Borrowers;

WHEREAS, as a condition to the Lenders making any Revolving Loans or issuing or causing the issuance of any Letters of Credit under the Loan Agreement, the Secured Parties have required the execution and delivery of this Pledge Agreement by the Pledgors;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Pledge.  As collateral security for the prompt and complete payment, performance and observance of (a) all present and future Obligations, whether at stated maturity, by acceleration or otherwise (including, without limitation, all interest thereon, whether accruing prior or subsequent to the commencement of a bankruptcy or similar proceeding involving any Pledgor as a debtor and whether or not such interest is an allowed claim in any such proceeding) and (b) all present and future obligations of each of the Pledgors under each of the Loan Documents, whether at stated maturity, by acceleration or otherwise (all of the foregoing being herein referred to as the “Secured Obligations”), each Pledgor hereby assigns, transfers and pledges to the Agent for the benefit of the

Secured Parties, and grants to the Agent for the benefit of the Secured Parties, a first priority security interest in the collateral of such Pledgor described in paragraph 2 below (collectively, the “Pledged Collateral”).

2.Description of Pledged Collateral.  (a)  The Pledged Collateral is described as follows and on any separate schedules at any time furnished by one or more of the Pledgors to the Agent (which schedules are hereby deemed part of this Pledge Agreement):

(i)all right, title and interest of each Pledgor (whether now or in the future) in and to the shares of capital stock or other Equity Interests owned by such Pledgor (excluding any Equity Interests of any Non-Restricted Subsidiary; provided that, if an Activation Event shall occur with respect to any such Subsidiary, the Equity Interests in such Subsidiary shall be Pledged Collateral hereunder and the applicable Pledgor shall comply with the provisions hereof (including, without limitation, Section 3 below)) which shares or other Equity Interests are listed on Schedule I annexed hereto next to such Pledgor’s name;

(ii)all right, title and interest of each Pledgor in and to all present and future payments, proceeds, dividends, distributions, instruments, compensation, property, assets, interests and rights in connection with or related to the Pledged Collateral of such Pledgor, and all monies due or to become due and payable to such Pledgor in connection with or related to the Pledged Collateral of such Pledgor or otherwise paid, issued or distributed from time to time in respect of or in exchange therefor, and any certificate, instrument or other document evidencing or representing the same (including, without limitation, all proceeds of dissolution or liquidation);

(iii)all instruments of indebtedness (whether now existing or hereafter arising) by any of the issuers listed in Schedule I hereto which name any Pledgor as payee thereunder (the “Pledged Debt”); and

(iv)all proceeds of every kind and nature, including proceeds of proceeds, of any and all of the foregoing (including, without limitation, proceeds which constitute property of the type described above) and to the extent not otherwise included, all money and cash.

(b)The shares of stock, certificates, instruments or other documents evidencing or representing the foregoing shall be collectively referred to herein as the “Pledged Securities”.

3.Delivery of Certificates, Instruments, Etc.; Pledgors Remain Liable.  (a)  Each Pledgor shall deliver to the Agent:

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(i)all original shares of stock, certificates, instruments and other documents evidencing or representing the initial Pledged Collateral of such Pledgor concurrently with the execution and delivery of this Pledge Agreement, and

(ii)the original shares of stock, certificates, instruments or other documents evidencing or representing all other Pledged Collateral of such Pledgor (except for such Pledged Collateral which this Pledge Agreement specifically permits such Pledgor to retain) within two (2) days after such Pledgor’s receipt thereof.  Each delivery of Pledged Collateral shall be accompanied by a schedule showing a description of the collateral theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule I and made a part hereof.  Each schedule so delivered shall supersede any prior schedules so delivered.

(b)All Pledged Collateral which are certificated securities shall be in bearer form or, if in registered form, shall be issued in the name of the Agent or endorsed to the Agent or accompanied by undated blank stock or equity interest powers, note power, endorsement or other necessary instruments of transfer, registration or assignment, duly executed in blank and in form and substance satisfactory to the Agent.

(c)If any Pledged Securities are “uncertificated securities” within the meaning of the UCC or are otherwise not evidenced by any certificate or instrument, the applicable Pledgor will promptly notify the Agent thereof and will promptly take and cause to be taken, and will (if the issuer of such uncertificated securities is a person other than a subsidiary of a Pledgor) use its best efforts to cause the issuer to take, all actions required under Articles 8 and 9 of the UCC and any other applicable law, to enable the Agent to acquire “control” (within the meaning of such term under Section 8-106 (or its successor provision) of the UCC) of such uncertificated securities and as may be otherwise necessary or deemed appropriate by the Agent to perfect the security interest of the Agent therein.  If any Pledged Securities represent interests in a limited partnership or a limited liability company, the applicable Pledgor will cause the issuer thereof not to take any action that would cause such Pledged Securities to become a “security” within the meaning of Section 8-102 of the UCC unless such Pledgor complies with the provisions of paragraph 3(a) above (in the case of certificated securities) or this paragraph 3(c) (in the case of “uncertificated security”), as the case maybe.

(d)Anything herein to the contrary notwithstanding, (i) each Pledgor shall remain liable under the contracts and agreements included in the Pledged Collateral of such Pledgor to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Pledge Agreement had not been executed, (ii) the exercise by the Agent of any of the rights hereunder shall not release any Pledgor from any of its duties or obligations under the contracts and agreements included in the Pledged Collateral of such Pledgor, except to the extent that such duties and obligations may have been terminated by reason of a sale, transfer or other disposition of such Pledged Collateral as provided in paragraph 11 hereof, and (iii) neither the Agent nor any other Secured Party shall have any obligation or liability under the contracts and agreements included in the Pledged Collateral by reason of this Pledge Agreement, nor shall the Agent or any Secured Party be obligated to perform any of the

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obligations or duties of any Pledgor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

4.Registration.  At any time and from time to time for so long as an Event of Default is continuing, the Agent may cause all or any of the Pledged Securities of a Pledgor to be transferred to or registered in the Agent’s name or the name of its nominee or nominees.

5.Representations, Warranties and Covenants of the Pledgor.  Each Pledgor hereby represents, warrants and covenants that:

(a)Pledged Collateral.  Set forth on Schedule I hereto is a complete and accurate list and description of all of the Pledged Collateral in which such Pledgor has granted a security interest hereunder in favor of the Agent and such Pledgor is the sole holder of record and the sole beneficial owner of such Pledged Collateral free and clear of any Lien thereon, except the Lien created hereunder, under the Loan Agreement, and, subject to the Intercreditor Agreement, the Liens securing Debt of such Pledgor under the Senior Secured Debt Documents.

(b)Chief Executive Office; Records; Etc.  The address of the chief executive office and principal place of business of such Pledgor, and the location of the books and records relating to the Pledged Collateral of such Pledgor, are set forth below its signature hereto, and such Pledgor will not change said address or location, or merge or consolidate with any Person or change its name, except as otherwise expressly permitted by the Loan Agreement.

(c)Sale or Other Disposition of Pledged Collateral.  Such Pledgor will not assign (by operation of law or otherwise), sell, lease, transfer, pledge or grant a security interest in or otherwise dispose of or abandon, nor will it suffer or permit any of the same to occur with respect to, any Pledged Collateral of such Pledgor, except as permitted under the Loan Agreement, and the inclusion of “proceeds” of the Pledged Collateral under the security interest granted herein shall not be deemed a consent by the Agent or any other Secured Party to any sale or other disposition of any Pledged Collateral of such Pledgor.

(d)Percentage of Outstanding Equity.  The Pledged Securities in which such Pledgor has granted a security interest hereunder to the Agent constitute, and until payment in full of the Secured Obligations and the expiration or termination of the Revolving Commitments and cancellation of all Letters of Credit (or the cash collateralization or backing up by a letter of credit pursuant to the requirements of Section 2.4(j) of the Loan Agreement) will continue to constitute, the percentage of the outstanding equity of each such issuer as indicated on Schedule I hereto.

(e)All of Such Pledgor’s Interests.  The Pledged Securities of such Pledgor constitutes, and until payment in full of the Secured Obligations and the expiration or termination of the Revolving Commitments and cancellation of all Letters of Credit will continue to constitute, all of the Equity Interests held by such Pledgor in any of the issuers listed on Schedule I hereto.

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(f)Due Authorization, Etc., of Stock.  The Pledged Securities listed on Schedule I next to the name of such Pledgor have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to any options to purchase or similar rights of any Person.

(g)Required Consents.  Except as may be required in connection with any disposition of any portion of the Pledged Securities of such Pledgor by laws affecting the offering and sale of securities generally, no consent of any Person (including, without limitation, the shareholders, partners or creditors of such Pledgor) and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing (other than the filing of financing statements under the UCC in order to perfect a security interest in that portion of the Pledged Collateral of such Pledgor constituting general intangibles) or declaration with any governmental instrumentality is required in connection with (i) the execution, delivery or performance by or enforceability of this Pledge Agreement, (ii) the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest) or (iii) the exercise by the Agent of the voting or other rights provided for in this Pledge Agreement.  By its signature to this Pledge Agreement, such Pledgor consents to the other Pledgors’ pledge and assignment of their respective interests in the Pledged Collateral and agrees, notwithstanding anything contained in any agreement or document with respect to any of the Pledged Collateral, that there shall be no restriction on the Agent as to any transfer of any Pledged Collateral of such Pledgor as a result of the exercise of any of its rights hereunder (and such Pledgor hereby consents to any such transfer by the Agent).  Such Pledgor further agrees that it will not, directly or indirectly, amend, modify or waive any provisions contained in any agreement or document with respect to any Pledged Collateral of such Pledgor which would have the effect of restricting the ability of the Agent to transfer such Pledged Collateral  as a result of the exercise of any of the Agent’s rights hereunder.

(h)Nature of Security Interest.  Upon the delivery of the Pledged Collateral of such Pledgor to the Agent (in the case of capital stock, instruments or certificated limited liability company interests) or the filing of appropriate UCC financing statements, the pledge of the Pledged Collateral of such Pledgor pursuant to this Pledge Agreement creates a valid and perfected first priority, security interest in the Pledged Collateral of such Pledgor in favor of the Agent, securing the prompt and complete payment, performance and observance of the Secured Obligations.

(i)Modification of Agreements.  Such Pledgor will not, without the prior written consent of the Agent, (a) modify, amend or alter in any respect the terms and conditions of any agreement included in the Pledged Collateral of such Pledgor (including, without limitation, any Pledged Debt), nor forgive any indebtedness evidenced by any Pledged Collateral, except that such Pledgor may forgive, in the ordinary course of business, loans to franchisees permitted under Section 9.9(c) of the Loan Agreement, provided, that no Default or Event of Default exists or would result therefrom, or (b) execute any document or instrument or, without limitation of paragraph 6 hereof, take any other action of any kind which may, in the judgment of the Agent, impair the value of the Pledged Collateral of such Pledgor.

(j)Further Assurances.  Such Pledgor will, at its sole cost and expense, perform all acts and execute all documents requested by the Agent from time to time to evidence, perfect, maintain or

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enforce the Agent’s first priority security interest granted herein or otherwise in furtherance of the provisions of this Pledge Agreement.  To the maximum extent permitted by applicable law, such Pledgor authorizes the Agent to execute any documents in the Pledgor’s name and authorizes the Agent to file such financing statements in any appropriate filing office to evidence, perfect, maintain or enforce the Agent’s first priority security interest granted herein or otherwise in furtherance of the provisions of this Pledge Agreement.

6.Voting Rights and Certain Payments Prior to Default.  So long as no Event of Default shall have occurred and be continuing, each Pledgor shall be entitled:

(a)to exercise, in a manner not inconsistent with the terms hereof or of the other Loan Documents or the Secured Obligations, the voting power with respect to the Pledged Securities of such Pledgor, and for that purpose the Agent shall (if any Pledged Securities of such Pledgor shall be registered in the name of the Agent or its nominee) execute or cause to be executed from time to time, at the expense of such Pledgor, such proxies or other instruments in favor of such Pledgor or its nominee, in such form and for such purposes as shall be reasonably required by such Pledgor and shall be specified in a written request therefor, to enable it to exercise such voting power with respect to such Pledged Securities; provided, however, that such Pledgor shall not exercise or shall refrain from exercising any such voting power if it has been notified by the Agent that, in the Agent’s judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof; and

(b)except as otherwise provided in paragraphs 7 and  8 hereof, to receive and retain for its own account any and all payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights to the extent such are permitted pursuant to the terms of the Loan Agreement, other than (i) stock or liquidating dividends or distributions or returns of capital or (ii) extraordinary dividends or distributions and dividends or distributions or other amounts payable under or in connection with any recapitalization, restructuring or other non-ordinary course event (the dividends, distributions and amounts in this clause (ii) being “Extraordinary Payments”), paid, issued or distributed from time to time in respect of the Pledged Collateral of such Pledgor.

7.Extraordinary Payments and Distributions.  (a)  In case, upon the dissolution or liquidation (in whole or in part) of any issuer of any Pledged Collateral, any sum shall be paid or payable as a liquidating dividend or distribution or return of capital or otherwise upon or with respect to any of the Pledged Securities of a Pledgor or, in the event any other Extraordinary Payment is paid or payable, then and in any such event, such sum shall be paid over to the Agent promptly, and in any event within two (2) Business Days after receipt thereof, to be held by the Agent as additional collateral hereunder.

(b)In case any stock dividend or distribution payable in additional Pledged Collateral shall be declared with respect to any of the Pledged Collateral, or any shares of stock or fractions thereof or other Equity Interests shall be issued pursuant to any stock split or other transaction involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, or any

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shares, partnership interests, obligations or other property shall be distributed upon or with respect to any of the Pledged Collateral, in each case pursuant to a recapitalization or reclassification of the capital of the issuer thereof, or pursuant to the dissolution, liquidation (in whole or in part), bankruptcy or reorganization of such issuer, or to the merger or consolidation of such issuer with or into another entity, the shares, obligations or other property so distributed shall be delivered to the Agent promptly, and in any event within two (2) Business Days after receipt thereof, to be held by the Agent as additional collateral hereunder subject to the terms of this Pledge Agreement, and all of the same shall constitute Pledged Collateral for all purposes hereof.

8.Voting Rights and Certain Payments After an Event of Default.  (a)  Except with respect to Distributions permitted by Section 9.9(a) of the Loan Agreement, upon the occurrence and for so long as an Event of Default is continuing, all rights of any Pledgor to exercise or refrain from exercising the voting, managerial and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph 6(a) hereof and to receive the payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights which it would otherwise be authorized to receive and retain pursuant to paragraph 6(b) shall cease, and thereupon the Agent shall be entitled to exercise all voting power and other rights, powers and privileges with respect to the Pledged Securities and the other Pledged Collateral of such Pledgor and to receive and retain, as additional collateral hereunder, any and all payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights at any time declared or paid upon or in respect of any of the Pledged Collateral of such Pledgor.  The failure on the part of Agent to give any notice to a Pledgor prior to the exercise of any voting power or other rights, powers or privileges with respect to the Pledged Collateral of such Pledgor shall not affect the Agent’s rights under this paragraph 8.

(b)All payments, proceeds, dividends, distributions, monies, property, assets, instruments or rights which are received by a Pledgor contrary to the provisions of subparagraph (a) above shall be received and held in trust for the benefit of the Agent, shall be segregated by such Pledgor from other funds of such Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement).

9.Application of Cash Collateral.  (a)  Subject to paragraph 6(b) hereof, any payments made in respect of the Pledged Debt shall be and become part of the Pledged Collateral, and, if received by any Pledgor, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Agent and the Secured Parties and shall be forthwith delivered to the Agent in the same form as so received.

(b)Any cash received and retained by the Agent as additional collateral hereunder pursuant to the foregoing provisions may, at any time and from time to time, be applied by the Agent to the payment of the Secured Obligations as provided for in the Loan Agreement (or if not so provided for, as the Agent shall determine in its sole discretion).

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10.Expenses.  The Pledgors will upon demand, jointly and severally, pay the Agent for any and all out-of-pocket costs, sums, and expenses which the Agent may pay or incur pursuant to the provisions of this Pledge Agreement or in enforcing the Secured Obligations, the Pledged Collateral or the security interest granted hereunder, including, but not limited to, all filing or recording fees, court costs, collection charges, travel expenses, computer fees, telephone fees, duplicating fees and reasonable attorneys’ fees and expenses.  Such expenses shall include, without limitation, any such costs paid or incurred by the Agent in connection with any waivers, amendments, modifications, extensions, renewals or renegotiations.  All of the foregoing, together with interest thereon as specified in paragraph 22 hereof, shall be part of the Secured Obligations and be payable within one (1) Business Day after demand therefor.

11.Remedies.  (a)  Upon the occurrence and for so long as an Event of Default is continuing, the Agent may exercise in respect of any of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC in effect in the State of New York at that time (whether or not applicable to the affected Pledged Collateral) and may also, without obligation to resort to other security, at any time and from time to time sell, resell, assign and deliver, in its sole discretion, all or any of the Pledged Collateral, in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, on any securities exchange on which any Pledged Collateral may be listed, or at public or private sale, for cash, upon credit or for future delivery, and in connection therewith the Agent may grant options, each Pledgor hereby waiving and releasing any and all equity and right of redemption.

(b)If any of the Pledged Collateral is sold by the Agent upon credit or for future delivery, the Agent shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, the Agent may resell such Pledged Collateral.  In no event shall a Pledgor be credited with any part of the proceeds of sale of any Pledged Collateral of such Pledgor until cash payment thereof has actually been received by the Agent.

(c)The Agent or any other Secured Party may purchase any Pledged Collateral at any public sale and, if any Pledged Collateral is of a type customarily sold in a recognized market or is of the type which is the subject of widely distributed standard price quotations, the Agent or any other Secured Party may purchase such Pledged Collateral at a private sale, free from any right of redemption, which is hereby waived and released to the extent permitted by applicable law, and in each case may make payment therefor by any means, including, without limitation, by release or discharge of Secured Obligations in lieu of cash payment.

(d)The Agent may apply the cash proceeds actually received from any sale or other disposition of any of the Pledged Collateral of a Pledgor to the payment of the Secured Obligations as provided in the Loan Agreement (or if not so provided for, as the Agent shall determine in its sole discretion).  The Pledgors, jointly and severally, shall remain liable for any deficiency with respect to the Secured Obligations, which shall bear interest and be payable at the interest rate applicable to such Secured Obligations at such time as provided in paragraph 22.  The right of a Pledgor to receive any

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surplus, if any, shall be subject to any duty of the Agent imposed by law to the holder of any subordinate security interest in the Pledged Collateral of such Pledgor known to the Agent.  Nothing contained herein shall be construed as requiring the Agent to take any such action at any time.

(e)Each Pledgor recognizes that the Agent may be unable to effect a public sale of all or part of the Pledged Collateral of such Pledgor consisting of securities by reason of certain prohibitions contained in the Securities Act of 1933, or in applicable Blue Sky or other state securities laws, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof.  Each Pledgor agrees that any such Pledged Collateral sold at any such private sale may be sold at a price and upon other terms less favorable to the seller than if sold at public sale and that each such private sale shall be deemed to have been made in a commercially reasonable manner.  The Agent shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities, even if such issuer would agree to register such securities for public sale under the Securities Act of 1933.  Each Pledgor agrees that private sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner.

(f)No demand, advertisement or notice, all of which are hereby expressly waived, shall be required in connection with any sale or other disposition of any part of the Pledged Collateral which threatens to decline speedily in value or which is of a type customarily sold on a recognized market; otherwise the Agent shall give the applicable Pledgor at least ten days’ prior notice of the time and place of any public sale and of the time after which any private sale or other disposition is to be made, which notice each Pledgor agrees is reasonable, all other demands, advertisements and notices being hereby waived.

(g)The Agent shall not be obligated to make any sale of Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale may have been given.  The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.

(h)The remedies provided herein in favor of the Agent shall not be deemed exclusive, but shall be cumulative, and shall be in addition to all other remedies in favor of the Agent existing at law or in equity.

12.Agent Appointed Attorney-in-Fact.  (a)  To effectuate the terms and provisions hereof, each Pledgor hereby appoints the Agent as its attorney-in-fact for the purpose, from and after the occurrence and for so long as an Event of Default is continuing, of carrying out the provisions of this Pledge Agreement and taking any action and executing any instrument which the Agent may deem necessary or advisable to accomplish the purposes hereof.  Without limiting the generality of the foregoing, the Agent shall, from and after the occurrence and for so long as an Event of Default is continuing, have the right and power to:

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(i)receive, endorse and collect all checks and other orders for the payment of money made payable to a Pledgor representing any interest or dividend or other distribution or amount payable in respect of the Pledged Collateral of such Pledgor or any part thereof and to give full discharge for the same, and

(ii)execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral and to exercise all rights and privileges of (or on behalf of) the owner of any Pledged Collateral, including, without limitation, all voting rights with respect to the Pledged Securities.

(b)All acts done under the foregoing authorization are hereby ratified and approved by each Pledgor and neither the Agent, any other Secured Party nor any designee or agent thereof shall be liable for any acts of commission or omission, for any error of judgment or for any mistake of fact or law except for acts of gross negligence or willful misconduct.

(c)This power of attorney, being coupled with an interest, is irrevocable until the payment or performance in full of all Secured Obligations and the expiration or termination of all Revolving Commitments and the cancellation of all Letters of Credit (or such letters of credit being cash collateralized or backed up by Letters of Credit pursuant to the requirements of Section 2.4(j) of the Loan Agreement).

13.Agent’s Duties; Reasonable Care.  (a)  The Agent shall have the duty to exercise reasonable care in the custody and preservation of any Pledged Collateral in its possession, which duty shall be fully satisfied if the Agent maintains safe custody of such Pledged Collateral and, with respect to any calls, conversions, exchanges, redemptions, offers, tenders or similar matters relating to any such Pledged Collateral (herein called “events”),

(i)the Agent exercises reasonable care to ascertain the occurrence and to give reasonable notice to the applicable Pledgor of any events applicable to any Pledged Securities of such Pledgor which are registered and held in the name of the Agent or its nominee,

(ii)the Agent gives the applicable Pledgor reasonable notice of the occurrence of any events, of which the Agent has received actual knowledge, as to any securities which are in bearer form or are not registered and held in the name of the Agent or its nominee (such Pledgor agreeing to give the Agent reasonable notice of the occurrence of any events applicable to any securities in the possession of the Agent of which such Pledgor has received knowledge), and

(iii)in the exercise of its sole discretion (x) the Agent endeavors to take such action with respect to any of the events as the applicable Pledgor may reasonably and specifically request in writing in sufficient time for such action to be evaluated and

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taken or (y) if the Agent determines that the action requested might adversely affect the value of the Pledged Collateral of such Pledgor as collateral, the collection of the Secured Obligations, or otherwise prejudice the interests of the Agent or any other Secured Party, the Agent gives notice to such Pledgor that any such requested action will not be taken and if the Agent makes such determination or if such Pledgor fails to make such timely request, the Agent takes such other action as it deems advisable in the circumstances.

(b)Except as hereinabove specifically set forth, the Agent shall have no further obligation to ascertain the occurrence of, or to notify any Pledgor with respect to, any events and shall not be deemed to assume any such further obligation as a result of the establishment by the Agent of any internal procedures with respect to any securities in its possession, nor shall the Agent be deemed to assume any other responsibility for, or obligation or duty with respect to, any Pledged Collateral, or its use, of any nature or kind, or any matter or proceedings arising out of or relating thereto, including, without limitation, any obligation or duty to take any action to collect, preserve or protect its or the applicable Pledgor’s rights in the Pledged Collateral of such Pledgor or against any prior parties thereto, but the same shall be at such Pledgor’s sole risk and responsibility at all times.

(c)Each Pledgor hereby releases the Agent and the other Secured Parties from any claims, causes of action and demands at any time arising out of or with respect to this Pledge Agreement, the Pledged Collateral of such Pledgor and/or any actions taken or omitted to be taken by the Agent or the other Secured Parties with respect thereto (except such claims, causes of action and demands arising from the gross negligence or willful misconduct of the Agent or the other Secured Parties) and each Pledgor hereby agrees to hold the Agent and the other Secured Parties harmless from and with respect to any and all such claims, causes of action and demands (except such claims, causes of action and demands arising from the gross negligence or willful misconduct of the Agent or the other Secured Parties).

14.Rights and Remedies Not Waived.  The Agent’s prior recourse to any Pledged Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of the Secured Obligations.  No act, omission or delay by the Agent or any other Secured Party shall constitute a waiver of its rights and remedies hereunder or otherwise.  No single or partial waiver by the Agent of any default hereunder or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion.

15.Agent May Perform.  If any Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgors pursuant to the terms of paragraph 10 hereof.

16.SETOFF; WAIVER OF JURY TRIAL AND SETOFF; CONSENT TO JURISDICTION, ETC.  (a)  IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT  OF THIS PLEDGE

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AGREEMENT, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS PLEDGE AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN ONE OR MORE PLEDGORS ON THE ONE HAND AND ANY ONE OR MORE OF THE SECURED PARTIES ON THE OTHER HAND, EACH SUCH PLEDGOR HEREBY, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, (i) WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LEGAL ACTION OR PROCEEDING, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION AND (ii) WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LEGAL ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES (AND ONLY ACTUAL DAMAGES IF AND TO THE EXTENT DETERMINED IN A FINAL NONAPPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH SECURED PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT).

(b)ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY ITS EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT, EACH PLEDGOR CONSENTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  EACH PLEDGOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING:  (1) THE AGENT SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY PLEDGOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON ANY SECURITY FOR THE SECURED OBLIGATIONS AND (2) EACH PLEDGOR ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

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(c)EACH PLEDGOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH PLEDGOR AT ITS ADDRESS SET FORTH IN SECTION 18 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS.  NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

(d)NO PROVISION OF THIS PLEDGE AGREEMENT SHALL LIMIT THE RIGHT OF THE AGENT TO EXERCISE SELF-HELP REMEDIES SUCH AS SETOFF OR OBTAINING PROVISIONAL OR ANCILLARY REMEDIES FROM A COURT OF COMPETENT JURISDICTION BEFORE, AFTER, OR DURING THE PENDENCY OF ANY ARBITRATION OR OTHER PROCEEDING.  THE EXERCISE OF A REMEDY DOES NOT WAIVE THE RIGHT OF ANY PARTY TO RESORT TO ARBITRATION OR REFERENCE.

(e)EACH PLEDGOR HEREBY WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.  EACH PLEDGOR HEREBY AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT LIMITING THE FOREGOING, EACH PLEDGOR HEREBY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS PLEDGE AGREEMENT OR ANY PROVISION HEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS PLEDGE AGREEMENT.

(f)EACH PLEDGOR AGREES THAT THIS PARAGRAPH 16 IS A SPECIFIC AND MATERIAL ASPECT OF THIS PLEDGE AGREEMENT AND ACKNOWLEDGES THAT THE SECURED PARTIES WOULD NOT EXTEND TO THE BORROWERS ANY FINANCIAL ACCOMMODATIONS UNDER THE LOAN AGREEMENT IF THIS PARAGRAPH 16 WERE NOT PART OF THIS PLEDGE AGREEMENT.

17.Admissibility of Pledge Agreement.  Each Pledgor agrees that any copy of this Pledge Agreement signed by such Pledgor and transmitted by telecopier for delivery to the Agent shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence.

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18.Address for Notices.  All notices, requests, demands and other communications provided for hereunder shall be in writing (unless otherwise expressly provided herein) and mailed, telegraphed, telexed, telecopied, cabled or delivered, if to a Pledgor, at the address specified below its signature below and if to the Agent, at its address specified below its signature below or, at such other address as shall be designated by any party in a written notice to the other parties hereto.  All notices and communications given by a telecommunications device shall be capable of creating a written record of confirmation receipt.  All such notices and communications shall be mailed, telegraphed, telexed, telecopied or cabled or sent by overnight courier or personal delivery, and shall be effective when received.

19.Terms.  All terms defined in the UCC and used herein shall have the meanings as defined in the UCC, unless the context otherwise requires.

20.Amendments and Modification.  No provision hereof shall be modified, altered, waived or limited except by written instrument expressly referring to this Pledge Agreement and to such provision, and executed by the party to be charged.

21.Continuing Security Interest; Assignments.  This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the later of (x) payment in full of the Secured Obligations, (y) the expiration or termination of the Revolving Commitments and (z) the cancellation of all Letters of Credit (or such Letters of Credit being cash collateralized or backed up by letters of credit pursuant to the requirements of Section 2.4(j) of the Loan Agreement), (ii) be binding upon and inure to the benefit of, and be enforceable by, each Pledgor and its successors and assigns, and (iii) be binding upon and inure to the benefit of, and be enforceable by, the Agent and its successors, transferees and assigns.  Upon the later of (i) the payment in full of the Secured Obligations, (ii) the expiration or termination of the Revolving Commitments and (iii) the cancellation of all Letters of Credit (or such Letters of Credit being cash collateralized or backed up by letters of credit pursuant to the requirements of Section 2.4(j) of the Loan Agreement), the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the applicable Pledgors.  Upon any such termination, the Agent will, at Pledgors’ expense, execute and deliver to the Pledgors such documents as the Pledgors shall reasonably request to evidence such termination and will assign, transfer and deliver to the Pledgors, without recourse and without representation or warranty, such of the Pledged Collateral as may then be in possession of the Agent. Except as provided otherwise in the Loan Agreement, upon any sale or other disposition by any Pledgor of any Pledged Collateral in a transaction expressly permitted under the Loan Agreement and the receipt by the Agent of the proceeds of such sale or other disposition if and as required by the Loan Agreement, the Lien and security interest created by this Pledge Agreement in and upon such Pledged Collateral shall be automatically released; and in connection with any such release, the Agent, at the request and expense of the applicable Pledgor, will execute and deliver to such Pledgor such documents and instruments evidencing such release or termination as such Pledgor may reasonably request and will assign, transfer, and deliver to such Pledgor, without recourse and without representation or warranty, such of the Pledged Collateral so being released as may then be in the possession of the Agent.

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22.Interest.  All amounts payable from time to time by the Pledgors hereunder shall constitute part of the Secured Obligations and shall bear interest and be payable at the interest rate applicable to Revolving Loans at such time under Section 3.1 of the Loan Agreement.

23.Governance of Loan Agreement:  The parties hereto agree that to the extent any provisions herein conflict with the Loan Agreement, the provisions of the Loan Agreement shall control.

24.Counterparts.  This Pledge Agreement may be executed by the parties hereto individually or in any combination, in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same agreement.

25.Captions; Separability.  The captions of the various sections and paragraphs of this Pledge Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Pledge Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Pledge Agreement.

26.Security Interest Absolute.  All rights of the Agent and security interests hereunder, and all of the obligations of each Pledgor hereunder, shall be absolute and unconditional, irrespective of:

(i)any lack of validity or enforceability of any Loan Document, any Secured Obligations or any other agreement or instrument relating thereto;

(ii)any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document;

(iii)any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; or

(iv)any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Pledgor or a third party grantor of a security interest or Lien.

27.GOVERNING LAW.  THIS PLEDGE AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

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28.Additional Pledgors.  Each Pledgor recognizes that the provisions of the Loan Agreement require persons that become subsidiaries of the Loan Parties, and that are not already parties hereto, to execute and deliver a Pledge Addendum, whereupon each such Person shall become a Pledgor hereunder with the same force and effect as if originally a Pledgor hereunder on the date hereof, and agrees that its obligations hereunder shall not be discharged, limited or otherwise affected by reason of the same, or by reason of the Agent’s actions in effecting the same or in releasing any Pledgor hereunder, in each case without the necessity of giving notice to or obtaining the consent of such Pledgor or any other Pledgor.

29.Schedules.  The Agent is authorized to annex hereto any schedules referred to herein.

30.Acknowledgment of Receipt.  Each Pledgor acknowledges receipt of a copy of this Pledge Agreement.

31.Intercreditor Agreement.  The Agent’s rights and remedies hereunder are subject to any applicable notice requirements set forth in the Intercreditor Agreement.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, each Pledgor has duly executed or caused this Pledge Agreement to be duly executed in the State of New York as of the date first above set forth.

NEW WORLD RESTAURANT GROUP, INC.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039
MANHATTAN BAGEL COMPANY, INC.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039

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EINSTEIN AND NOAH CORP.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039
CHESAPEAKE BAGEL FRANCHISE CORP.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039

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WILLOUGHBY’S INCORPORATED
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039
EINSTEIN/NOAH BAGEL PARTNERS, INC.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039

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I. & J. BAGEL, INC.
By:	/s/ ANTHONY D. WEDO
	Name:
	Title:
Address for Notices:
c/o New World Restaurant Group, Inc.
1687 Cole Blvd.
Golden, CO  80401-3316
Attention:  Anthony Wedo
Telecopy No.: (303) 568-8039

Accepted and Agreed:

AMSOUTH BANK, as Agent

By:
	Name:
	Title:

Address for Notices:

AmSouth Bank
c/o AmSouth Capital Corp.
350 Park Avenue, 20th Floor
New York, New York  10022
Attention: Kevin Rogers
Telecopy No.: (212) 935-7458

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Schedule I to Pledge Agreement

List and Description of Pledged Securities and other Equity Interests

Pledgor Issuer of
Equity
Interest Class
of
Equity Certificate
No(s). Percentage
of
outstanding
Shares or
other Equity
Interests Total
Number
of Shares
or other
Equity
Interests Jurisdiction of
Organization/
Incorporation
of Issuer

[To be provided by Proskauer]

List and Description of Pledged Debt

Debt Issuer Description of Debt Maturity Date Original Principal
Amount

[To be provided by Proskauer]

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Exhibit A

PLEDGE ADDENDUM

THIS PLEDGE ADDENDUM, dated as of                     , 200  , is delivered by [NAME OF PLEDGOR] (the “Pledgor”) pursuant to the Pledge Agreement referred to hereinbelow.  The Pledgor hereby agrees that this Pledge Addendum may be attached to the Pledge Agreement, dated as of July 8, 2003, made by the Pledgor and certain other pledgors named therein in favor of AmSouth Bank, as Agent (as amended, restated, modified or supplemented from time to time, the “Pledge Agreement”; capitalized terms defined therein being used herein as therein defined), and that the Equity Interests and Pledged Debt listed on Annex A to this Pledge Addendum shall be deemed to be part of the Equity Interests and Pledged Debt within the meaning of the Pledge Agreement and shall become part of the Pledged Collateral and shall secure all of the Secured Obligations as provided in the Pledge Agreement.  This Pledge Addendum and its attachments are hereby incorporated into the Pledge Agreement and made a part thereof.

[NAME OF PLEDGOR]

By:

Title:

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Annex A

List and Description of Equity Interests

Issuer of Equity
Interest Class of
Equity Certificate
No(s). Percentage of
outstanding
Shares or other
Equity Interests Total
Number of
Shares or
other Equity
Interests Jurisdiction of
Organization/
Incorporation of
Issuer

List and Description of Pledged Debt

Debt Issuer Description of Debt Maturity Date Original Principal
Amount

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EX-10.59

EXHIBIT 10.59

EXECUTION COPY

INTERCREDITOR AGREEMENT

among

AMSOUTH BANK,

As Agent and Lender,

THE BANK OF NEW YORK,

As Trustee and Subordinated Creditor

AMSOUTH BANK,

as Lender Collateral Agent

THE BANK OF NEW YORK,

as Subordinated Creditor Collateral Agent,

and, solely for the purposes stated on the signature pages herein,

NEW WORLD RESTAURANT GROUP, INC.

and certain of its SUBSIDIARIES,

as Borrower and Active Subsidiaries

Dated as of July 8, 2003

INTERCREDITOR AGREEMENT

THIS INTERCREDITOR AGREEMENT dated as of July 8, 2003 (this “Agreement”) is made by and among (i) AmSouth Bank, in its capacity as senior secured lender (together with any future holder of any Senior Liabilities (as hereinafter defined), the “Lender”) under and pursuant to the Lender Credit Agreement (as hereinafter defined); (ii) The Bank of New York, solely in its capacity as trustee (together with any successor trustee, the “Subordinated Creditor”) under and pursuant to the Subordinated Creditor Indenture (as hereinafter defined); (iii) AmSouth Bank, in its capacity as agent for the Lender (together with any successor agent, the “Lender Collateral Agent”) under and pursuant to the Lender Credit Agreement; (iv) The Bank of New York, in its capacity as Trustee, as collateral agent (together with any successor collateral agent, the “Subordinated Creditor Collateral Agent”) under one or more of the Subordinated Creditor Loan Documents (as hereinafter defined); and (v) solely for the purposes stated on the signature pages herein, New World Restaurant Group, Inc., a Delaware corporation (the “Borrower”), and those certain subsidiaries of the Borrower party hereto (together with any future subsidiaries of the Borrower that are not “Non-Restricted Subsidiaries” (as defined in the Lender Credit Agreement (as hereinafter defined)), the “Active Subsidiaries”).

RECITALS

A.            Simultaneously with the execution and delivery of this Agreement, Borrower, Active Subsidiaries and the Subordinated Creditor have entered into an Indenture, dated as of July 8, 2003 (as amended, modified, supplemented, extended, renewed, refunded or refinanced from time to time, the “Subordinated Creditor Indenture”), pursuant to which and upon the terms and conditions stated therein indebtedness is being incurred by the Borrower (together with all other “Secured Obligations” as defined in the Security Agreement (defined below), the “Subordinated Indenture Indebtedness”), the repayment of which is secured by security interests in and liens on the assets and properties (the “Collateral”) described in the Pledge and Security Agreement (the “Security Agreement”) and certain real property mortgages (each a “Mortgage” and together with the Subordinated Creditor Indenture and the Security Agreement the “Subordinated Indenture Agreements”) in favor of the Subordinated Creditor Collateral Agent.

B.Simultaneously with the execution and delivery of this Agreement, the Borrower, the Active Subsidiaries existing on the date hereof (as additional borrowers), the Lender, the Lender Collateral Agent and AmSouth Capital Corp., as administrative agent, have entered into a Loan and Security Agreement (as amended, modified, supplemented, extended, renewed, refunded or refinanced from time to time, the “Lender Credit Agreement”) pursuant to which the Lender or the Lender Collateral Agent, as the case may be, has agreed, upon the terms and conditions stated therein, to make loans and advances to and to issue or cause to be issued letters of credit on account of the Borrower

and the Active Subsidiaries in an aggregate principal amount and face amount, as the case may be, not to exceed in the aggregate $15,000,000 (such aggregate principal and face amount, together with all interest and fees and expenses payable thereon or with respect thereto, and all other “Obligations” as defined in the Lender Credit Agreement being the “Senior Loan Indebtedness”), secured by security interests in and liens on the Collateral pursuant to the Lender Credit Agreement and the collateral security documents executed and delivered in connection therewith, including, without limitation, the “blocked account agreements”, the “Mortgages”, the “Patent and Trademark Agreement” and the “Pledge Agreement” ( all as defined in the Lender Credit Agreement and all such collateral security documents referred to herein collectively as the “Senior Security Agreements” and together with the Lender Credit Agreement, the “Senior Loan Agreements”) in favor of the Lender Collateral Agent.

C.The Borrower and the Active Subsidiaries have entered into the Security Agreement and, to the extent applicable, the Mortgages, pursuant to which the Borrower and the Active Subsidiaries have granted to the Subordinated Creditor Collateral Agent for the benefit of the Subordinated Creditor and the other “Secured Parties” (as defined in the Security Agreement) a security interest in and lien upon the Collateral and the Borrower and the Active Subsidiaries have entered into the Senior Loan Agreements pursuant to which the Borrowers and the Active Subsidiaries have granted to the Lender Collateral Agent for the benefit of the Lender a security interest in and lien upon the Lender Collateral (as hereinafter defined).

D.One of the conditions of the Lender Credit Agreement is that the priority of the security interests in and liens on the Lender Collateral securing the Senior Liabilities be senior to the security interests in and liens on the Collateral securing the Subordinated Liabilities (except to the limited extent of the Subordinated Creditor Pari-Passu Liens (as hereinafter defined)), in the manner and to the extent provided in this Agreement.

E.The Lender, the Subordinated Creditor, the Lender Collateral Agent and the Subordinated Creditor Collateral Agent desire to enter into this Agreement concerning the respective rights of the Lender, the Subordinated Creditor, the Lender Collateral Agent and the Subordinated Creditor Collateral Agent with respect to the priority of their respective security interests in and liens on the Lender Collateral.

F.The terms of Section 10.02 of the Subordinated Creditor Indenture and Section 10.1 of the Lender Credit Agreement contemplate the execution and delivery of this Agreement.

G.In order to induce the Lender to extend credit to the Borrower and the Active Subsidiaries and for purposes of certain conditions precedent and covenants of the Senior Loan Agreements, the Subordinated Creditor and the Subordinated Creditor Collateral Agent hereby agree with the Lender and the Lender Collateral Agent, and in order to induce the Subordinated Creditor to approve the Senior Loan Indebtedness and

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the Lender’s and the Lender Collateral Agent’s security interests in and liens on the Lender Collateral for purposes of certain conditions precedent and covenants of the Subordinated Indenture Agreements, the Lender, the Subordinated Creditor, the Lender Collateral Agent and the Subordinated Creditor Collateral Agent hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01Terms Defined Above and in the Recitals.  As used in this Agreement, the following terms shall have the respective meanings indicated in the opening paragraph hereof and in the above Recitals:

“Agreement”

“Borrower”

“Collateral”

“Lender”

“Lender Credit Agreement”

“Senior Loan Indebtedness”

“Senior Security Agreements”

“Senior Loan Agreements”

“Subordinated Creditor”

“Subordinated Creditor Indenture”

“Subordinated Indenture Indebtedness”

“Subordinated Indenture Agreements”

Section 1.02Lender Credit Agreement Definitions.  All capitalized terms which are used but not defined herein shall have the same meaning as in the Lender Credit Agreement.

Section 1.03Other Definitions.  As used in this Agreement, the following terms shall have the meanings set forth below:

“Collateral Agent” shall mean each of the Subordinated Creditor Collateral Agent and the Lender Collateral Agent.

“Contingent Indemnification Obligation” shall mean, as of the relevant date of determination, any contingent indemnification obligation of the Borrower or any Active Subsidiary under any Lender Loan Document with respect to any event, act or condition that is not known to Lender or Lender Collateral Agent to exist or have occurred as of such date of determination.

“Enforcement Action” shall mean the taking of any one or more of the following actions by the Lender, Lender Collateral Agent, Subordinated Creditor or Subordinated Creditor Collateral Agent, as the case may be: (a) the commencement or maintenance of

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any receivership or foreclosure proceeding against, or any other sale, collection or disposition of, any Lender Collateral or any Proceeds thereof or the commencement of an Insolvency Proceeding; (b) the notification of any third party account debtors that such account debtor shall make payment directly to it or any of its agents or other Persons acting on its behalf; or (c) the exercise of  any other default rights or remedies otherwise available to it under any of the Lender Loan Documents or Subordinated Creditor Loan Documents, as the case may be.

“Fully Paid” shall mean the payment in cash in full of all Senior Liabilities at such time when there shall no longer be any obligation of the Lender to make advances or issue letters of credit and there shall no longer be any letter of credit outstanding thereunder or such letter of credit shall have been cash collateralized in the amounts required by, and in accordance with the terms of, the Lender Credit Agreement; provided that for purposes of this defined term only, Senior Liabilities shall exclude all Contingent Indemnification Obligations owing by the Borrower or any Active Subsidiary on the date all requirements of this defined term (other than the payment of such Contingent Indemnification Obligations) have been satisfied.

“Insolvency Proceeding” shall mean any proceeding for the purposes of dissolution, winding up, liquidation, arrangement or reorganization of the Borrower, any Active Subsidiary or their successors or assigns, whether in bankruptcy, insolvency, arrangement, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Borrower, any Active Subsidiary or their successors or assigns, including, without limitation, the filing of a petition by or against Borrower or any Active Subsidiary under Title 11 of the U.S.C.

“Lender Collateral” shall mean all of Borrower’s and each Active Subsidiary’s right, title and interest in, to, and under all real and personal property and assets of the Borrower and each Active Subsidiary, including without limitation, all Collateral, all “Collateral” ( as defined in the Lender Credit Agreement), all “Pledged Collateral” (as defined in the Pledge Agreement), all “Collateral” (as defined in the Patent and Trademark Agreement and all Proceeds and products of any of the foregoing.

“Lender Collateral Agent” shall mean AmSouth Bank in its capacity as agent under the Lender Credit Agreement and any successor or replacement Lender Collateral Agent appointed pursuant to the terms of the Lender Credit Agreement.

“Lender Loan Documents” shall mean the Senior Loan Agreements, the “Loan Documents” as defined in the Lender Credit Agreement, the collateral documents and instruments executed and delivered in connection therewith, and such other agreements, instruments and certificates as defined or referred to in the Lender Credit Agreement, as any or all of the same may be amended or supplemented from time to time.

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“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction, excluding true lease and consignment filings).

“Lien Priority” shall mean with respect to any Lien of the Lender Collateral Agent or the Subordinated Creditor Collateral Agent in the Lender Collateral, the order of priority of such Lien as specified in Section 2.01.

“Loan Documents” shall mean the Lender Loan Documents and the Subordinated Creditor Loan Documents.

“Maximum Aggregate Principal Amount” shall mean a principal amount of Senior Liabilities equal to the greater of (x) $15 million and (y) the maximum aggregate principal amount permitted to be incurred under clause (i) of the defined term “Permitted Indebtedness” (as defined in the Subordinated Creditor Indenture as in effect on the date of execution thereof).

“Notice of Trigger Event” shall mean a notice given by the Requisite Party to the Collateral Agents, stating that a Trigger Event has occurred.  A Notice of Trigger Event shall be deemed to have been given when the notice referred to in the preceding sentence has actually been received by a Collateral Agent and to have been rescinded when such Collateral Agent has actually received from the notifying party a notice withdrawing such notice.  A Notice of Trigger Event shall be deemed to be outstanding at all times after such notice has been given until such time, if any, as such notice has been rescinded.  The Requisite Party may rescind a Notice of Trigger Event during an Insolvency Proceeding.

“Pari-Passu Lien Recovery Allocation Percentage” shall mean, at any time, a fraction (expressed as a percentage), the numerator of which is the lesser of (x) the aggregate amount of unpaid fees and expenses (including attorneys’ fees) of the Subordinated Creditor and the Subordinated Creditor Collateral Agent owing under the Subordinated Creditor Loan Documents at such time and (y) that amount (not less than zero) which is the excess of $40,000 over the aggregate of all amounts paid to or for the benefit of the Subordinated Creditor or the Subordinated Creditor Collateral Agent prior to such time from the realization, collection or recovery of any Lender Collateral, and the denominator of which is the sum of (x) the above numerator and (y) the outstanding Senior Liabilities at such time.

“Pari-Passu Maximum Recovery Amount” shall mean, at any time, that amount set forth in the numerator of the defined term Pari-Passu Lien Recovery Allocation Percentage at such time.

“Party” shall mean any signatory to this Agreement.

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“Pledged Collateral” shall mean any tangible property in the possession of the Lender Collateral Agent (or its agents or bailees) in which a security interest is perfected solely by such possession, including, without limitation, stock certificates.

“Proceeds” shall mean (i) all “Proceeds” as defined in Article 9 of the Uniform Commercial Code, (ii) whatever is recoverable or recovered when Lender Collateral is sold, exchanged, collected, or disposed of, whether voluntarily or involuntarily and (iii) all cash and cash equivalents or non-cash distributions collected or generated by or from any Lender Collateral in whole or in part in the operation of, recapitalization or reorganization of the business of Borrower or any Active Subsidiary.

“Requisite Party” shall mean AmSouth Bank, as agent, or its successors or assigns from time to time or any future Lender Collateral Agent, until such time as all of the Senior Liabilities shall have been indefeasibly and fully paid and/or performed in full by the Borrower and the Active Subsidiaries and all commitments to lend under the Lender Credit Agreement are terminated and, thereafter, shall mean the Subordinated Creditor.

“Secured Obligations” shall mean collectively, the Senior Liabilities and the Subordinated Liabilities.

“Security Documents” shall mean any instrument or agreement pursuant to which a Lien in Lender Collateral is created or arises to secure the Senior Loan Indebtedness or the Subordinated Indenture Indebtedness.

“Senior Liabilities” shall mean all amounts owed to Lender and/or the Lender Collateral Agent under the Lender Loan Documents or this Agreement consisting of all Senior Loan Indebtedness, contingent or otherwise, of the Borrower and the Active Subsidiaries to the Lender and/or the Lender Collateral Agent, including interest, early termination fees or penalties, fees (including, without limitation, attorneys fees), indemnification obligations, costs and expenses both prior to and after the initiation of any Insolvency Proceeding, and including the claims of the Lender and/or the Lender Collateral Agent in respect of the Lender Collateral in any Insolvency Proceeding whether or not allowed or allowable in any Insolvency Proceeding.

“Subordinated Creditor Collateral Agent” shall mean The Bank of New York, in its capacity as Trustee, as collateral agent under the Subordinated Creditor Indenture and any successor or replacement Subordinated Creditor Collateral Agent appointed pursuant to the terms of the Subordinated Creditor Indenture.

“Subordinated Creditor Enforcement Event” shall mean the occurrence and continuance of an “Event of Default’ under Section 6.01 of the Subordinated Creditor Indenture.

“Subordinated Creditor Loan Documents” shall mean the Subordinated Indenture Agreements, the Collateral Agreements (as defined in the Subordinated Creditor

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Indenture), the Subordinated Creditor Notes, the real property mortgages referred to in the Subordinated Creditor Indenture (now existing or hereafter negotiated, executed, delivered and recorded), and such other agreements, instruments and certificates as defined or referred to in the Subordinated Creditor Indenture, as any or all of the same may be amended or supplemented from time to time.

“Subordinated Creditor Notes” shall mean the Notes issued to the holders thereof pursuant to the Subordinated Creditor Indenture.

“Subordinated Creditor Pari-Passu Liens” shall mean Liens of the Subordinated Creditor and the Subordinated Creditor Collateral Agent in the Lender Collateral that shall secure solely that portion (and only that portion) of the Subordinated Liabilities that constitute fees and expenses (including attorneys’ fees) of the Subordinated Creditor and the Subordinated Creditor Collateral Agent owing under the Subordinated Creditor Loan Documents in an aggregate amount not to exceed at any time the lesser of  $40,000 and the Pari-Passu Maximum Recovery Amount at such time (it being understood, acknowledged and agreed that (x) the Liens of the Subordinated Creditor and the Subordinated Creditor Collateral Agent in the Lender Collateral securing any other Subordinated Liabilities (including, without limitation, any and all Subordinated Liabilities evidenced by the Subordinated Creditor Notes and any portion of any fees and expenses (including attorneys’ fees) of the Subordinated Creditor and the Subordinated Creditor Collateral Agent owing under the Subordinated Creditor Loan Documents in an aggregate amount in excess of the lesser of $40,000 and the Pari-Passu Maximum Recovery Amount at the relevant time) shall be subject and subordinate to the Liens of the Lender and Lender Collateral Agent in the Lender Collateral and shall not constitute Subordinated Creditor Pari-Passu Liens and (y) the maximum aggregate recovery by the Subordinated Creditor and the Subordinated Creditor Collateral Agent from the realization of the Subordinated Creditor Pari-Passu Liens at any time shall be the lesser of $40,000 and the Pari-Passu Maximum Recovery Amount at such time).

“Subordinated Liabilities” shall mean all Subordinated Indenture Indebtedness, contingent or otherwise, of the Borrower and the Active Subsidiaries to the Subordinated Creditor, the Subordinated Creditor Collateral Agent and the holders of the Subordinated Creditor Notes, including interest, premiums, indemnities, fees (including, without limitation, attorneys fees), costs and expenses both before and after the initiation of any Insolvency Proceeding, and including the claims of the Subordinated Creditor in respect of the Lender Collateral whether accrued or incurred before or after any Insolvency Proceeding regardless of whether or not allowed or allowable in any Insolvency Proceeding.

“Trigger Event” shall mean any of (a) the acceleration of or demand for payment on the Lender Loan Documents by the Lender following the occurrence of an Event of Default under the applicable section of the Lender Loan Documents pursuant to the applicable section of the Lender Credit Agreement, (b) the commencement of any action

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by the Lender or Lender Collateral Agent, whether judicial or otherwise, for the enforcement of the Lender’s or Lender Collateral Agent’s rights and remedies under any of the Loan Documents following the acceleration of or demand for payment of the Lender Loan Documents by the Lender, including (i) commencement of any receivership or foreclosure proceedings against or any other sale of, collection on or disposition of any Lender Collateral, including any notification to third parties to make payment directly to the Lender or Lender Collateral Agent, (ii) exercise of any right of set-off, and (iii) the commencement of any action or proceeding against the Borrower or any Active Subsidiary to recover all or any part of the Senior Liabilities or (c) commencement of any Insolvency Proceeding.

Section 1.04Singular and Plural.  All definitions herein (whether set forth herein directly or by reference to definitions in other documents) shall be equally applicable to both the singular and the plural forms of the terms defined.

Section 1.05Miscellaneous.  The words “hereof,” “herein” or “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  Article and section references are to articles and sections of this Agreement unless otherwise specified.  The term “including,” shall mean “including, without limitation.”

ARTICLE II

LIEN PRIORITY

Section 2.01Agreement to Subordinate.  Each of the Subordinated Creditor Collateral Agent and the Subordinated Creditor hereby agrees that the Liens of the Subordinated Creditor and the Subordinated Creditor Collateral Agent in the Lender Collateral are and shall be subordinate in priority of Lien to the Lender’s and the Lender Collateral Agent’s Liens in the Lender Collateral to secure Senior Liabilities up to and not exceeding the Maximum Aggregate Principal Amount plus the amount of all interest, early termination fees or penalties, fees (including attorneys fees), indemnification obligations, costs and expenses thereof whether accrued or incurred before or after an Insolvency Proceeding and regardless of whether or not allowed or allowable in any Insolvency Proceeding; provided that the Subordinated Creditor Pari-Passu Liens (which Liens shall secure solely Subordinated Liabilities that constitute fees and expenses (including attorneys’ fees) of the Subordinated Creditor and the Subordinated Creditor Collateral Agent owing under the Subordinated Creditor Loan Documents up to an aggregate amount not to exceed  the lesser of $40,000 and the Pari-Passu Maximum Recovery Amount at the relevant time) shall be pari passu in priority with the Liens of the Lender and the Lender Collateral Agent in the Lender Collateral (it being understood, acknowledged and agreed that the Liens of the Subordinated Creditor and the Subordinated Creditor Collateral Agent in the Lender Collateral securing any other Subordinated Liabilities (including, without limitation, any and all Subordinated

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Liabilities evidenced by the Subordinated Creditor Notes and any portion of any fees and expenses (including attorneys’ fees) of the Subordinated Creditor and the Subordinated Creditor Collateral Agent owing under the Subordinated Creditor Loan Documents in an aggregate amount in excess of the lesser of $40,000 and the Pari-Passu Maximum Recovery Amount at such time) shall be subject and subordinate to the Liens of the Lender and Lender Collateral Agent in the Lender Collateral).  The subordination of Liens in favor of the Lender and Lender Collateral Agent herein shall not be deemed to subordinate the Subordinated Creditor’s Liens to the Liens of any other Person. It is the intent  and the agreement of the parties hereto that (i) except as expressly provided in the last sentence of this Section 2.01, before the Subordinated Liabilities are paid from the Lender Collateral, the Senior Liabilities shall be Fully Paid (or in a manner otherwise satisfactory to the Lender in its sole and absolute discretion), (ii) if the Lender or Lender Collateral Agent receives any non-cash distributions or Proceeds in respect of the Lender Collateral, then, unless the Senior Loan Agreements expressly provide to the contrary, the Lender or Lender Collateral Agent shall hold such non-cash distributions and Proceeds as Lender Collateral upon the terms of this Agreement until converted to cash and thereupon distributed in accordance with this Section 2.01, (iii) except as expressly provided in the last sentence of this Section 2.01, if the Subordinated Creditor or Subordinated Creditor Collateral Agent receives any cash or property as Proceeds of or otherwise attributable to the Lender Collateral, then all Lender Collateral received by the Subordinated Creditor or the Subordinated Creditor Collateral Agent shall be turned over to the Lender Collateral Agent to be applied to the Senior Liabilities until Fully Paid and thereafter shall be turned over to the Subordinated Creditor Collateral Agent to be applied to the Subordinated Liabilities until Fully Paid, and (iv) the Lien Priority established pursuant to this Agreement shall be applicable irrespective of the time, order or method of attachment or perfection of the security interests of the Lender or the Lender Collateral Agent for the benefit of the Lender or the Subordinated Creditor or the Subordinated Creditor Collateral Agent for the benefit of the Subordinated Creditor and holders of Subordinated Creditor Notes, the time or order of filing or recording financing statements or other Liens or security interests with respect to the Lender Collateral, or whether the Liens of the Lender, the Lender Collateral Agent, the Subordinated Creditor or the Subordinated Creditor Collateral Agent or any holder of any Secured Obligations are filed, recorded, or otherwise perfected or perfectable in any manner.  The Lender, the Lender Collateral Agent, the Subordinated Creditor and the Subordinated Creditor Collateral Agent agree that in the event any such Party shall foreclose or realize on any Lender Collateral (subject in any case to the standstill and other provisions of this Agreement), then (i) until such time as the Subordinated Creditor and the Subordinated Creditor Collateral Agent receive in the aggregate from all such foreclosures and realizations on Lender Collateral an amount equal to the lesser of $40,000 and the Pari-Passu Maximum Recovery Amount at such time, the Subordinated Creditor and the Subordinated Creditor Collateral Agent collectively shall be entitled to receive and retain from the Proceeds of such foreclosure or realization that portion of the Proceeds thereof equal to the product of (x) the Pari-Passu Lien Recovery Allocation Percentage at the time of such foreclosure or realization and (y) the amount of such Proceeds and the

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Lender and the Lender Collateral Agent shall be entitled to receive and retain the remaining Proceeds of such foreclosure or realization until all Senior Liabilities are Fully Paid  (provided that in any event the aggregate maximum amount of Lender Collateral or Proceeds that the Subordinated Creditor or the Subordinated Creditor Collateral Agent shall be entitled to receive and retain until the Senior Liabilities are Fully Paid is $40,000) and (ii) at all times after clause (i) is not applicable, the Lender and the Lender Collateral Agent shall be entitled to receive and retain all the Lender Collateral and Proceeds until all Senior Liabilities are Fully Paid.

Section 2.02Standstill Period.  If a Subordinated Creditor Enforcement Event has occurred and is continuing and the Subordinated Creditor has accelerated or demanded payment of the Subordinated Indenture Indebtedness in accordance with the terms of the Subordinated Creditor Indenture, the Subordinated Creditor may give the Lender and Lender Collateral Agent written notice thereof, specifying the nature of the Subordinated Creditor Enforcement Event in reasonable detail.  If such Subordinated Creditor Enforcement Event is continuing for more than 30 days after the delivery of such notice, and if the Lender or Lender Collateral Agent has not prior to the expiration of such 30-day period notified the Subordinated Creditor that the Lender or Lender Collateral Agent has commenced one or more Enforcement Actions, then (and only then) the Subordinated Creditor and Subordinated Creditor Collateral Agent may, subject to the Lien Priority and prior application of the Lender Collateral to the Senior Liabilities (except to the extent expressly provided otherwise in the last sentence of Section 2.01), as provided herein, take one or more Enforcement Actions.  If Lender or Lender Collateral Agent has taken or commenced any such Enforcement Action within such period and thereafter discontinues such Enforcement Action and no other Enforcement Action is then being taken by the Lender or Lender Collateral Agent, and such Subordinated Creditor Enforcement Event is then continuing, then the Subordinated Creditor and Subordinated Creditor Collateral Agent may, subject to the Lien Priority and prior application of the Lender Collateral to the Senior Liabilities (except to the extent expressly provided otherwise in the last sentence of Section 2.01), as provided herein, take one or more Enforcement Actions.

Section 2.03Exercise of Rights.

(a)Nothing herein shall be deemed to restrict the right of the Subordinated Creditor to accelerate or demand payment of the Subordinated Indenture Indebtedness in accordance with the terms of the Subordinated Creditor Indenture.

(b)The Subordinated Creditor may make such demands or file such claims in respect of the Subordinated Liabilities as may be necessary to prevent the waiver or bar of such claims under applicable statutes of limitations or other statutes, court orders or rules of procedure, but except as provided in this Section 2.03, the Subordinated Creditor shall not take any actions restricted by Article 3 in respect of such claims until the Senior Liabilities are Fully Paid.

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Section 2.04Priority of Liens.  Irrespective of the order of recording of mortgages, financing statements, security agreements or other instruments, and irrespective of the descriptions of the Lender Collateral contained in the Loan Documents, including any financing statements, the Parties agree among themselves that their respective liens and security interests in the Lender Collateral and the Proceeds shall be governed by the Lien Priority, which shall be controlling in the event of any conflict between this Agreement and any of the Loan Documents.

Section 2.05Notice of Trigger Event.  The Lender agrees that it will notify the other Parties hereto if it (i) receives actual notice of the occurrence of a Trigger Event or (ii) has actual knowledge of a Trigger Event arising out of the failure to pay principal, premium, interest or reimbursement obligations, in each case not later than 30 days after the date of any such occurrence, in accordance with Section 8.06.  The Subordinated Creditor agrees that it will notify the other Parties hereto if it receives actual notice of the occurrence of a Subordinated Creditor Enforcement Event not later than 30 days after the date of any such occurrence, in accordance with Section 8.06.

Section 2.06Bailee for Perfection.

(a)The Lender Collateral Agent agrees to hold the Pledged Collateral in its possession or control (or in the possession or control of its agents or bailees) as bailee for the Subordinated Creditor Collateral Agent solely for the purpose of perfecting the security interest granted in such Pledged Collateral pursuant to the Security Agreement, subject to the terms and conditions of this Section and the other provisions of this Agreement.

(b)Until the Senior Liabilities are Fully Paid, the Lender Collateral Agent shall be entitled to deal with the Pledged Collateral in accordance with the terms of the Lender Loan Documents as if the Lien of the Subordinated Creditor and the Subordinated Creditor Collateral Agent under the Security Agreement and all other Subordinated Creditor Loan Documents did not exist.  The rights of the Subordinated Creditor Collateral Agent and Subordinated Creditor shall at all times be subject to the terms of this Agreement.

(c)The Lender Collateral Agent shall have no obligation whatsoever to the Subordinated Creditor Collateral Agent or the Subordinated Creditor to assure that the Pledged Collateral is genuine or owned by the Borrower or any Active Subsidiary or to preserve rights or benefits of any Person except as expressly set forth in this Section.  The duties or responsibilities of the Lender Collateral Agent under this Section shall be limited solely to holding the Pledged Collateral as bailee for the Subordinated Creditor Collateral Agent for purposes of perfecting the Lien held by the Subordinated Creditor Collateral Agent.

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(d)The Lender Collateral Agent shall not have by reason of the Security Agreement or this Agreement or any other document a fiduciary relationship in respect of the Subordinated Creditor Collateral Agent or the Subordinated Creditor.

(e)Once the Senior Liabilities are Fully Paid, the Lender Collateral Agent shall, to the extent permitted by applicable law, deliver to the Subordinated Creditor Collateral Agent the Pledged Collateral together with any necessary endorsements or as a court of competent jurisdiction may otherwise direct.

Section 2.07Certain Cash Delivered to Subordinated Creditor.  This Agreement is not intended to govern, and shall not govern, the right of the Subordinated Creditor to retain payments of cash it receives from the Borrower to pay, when due, scheduled payments of interest and principal on the Subordinated Creditor Notes and fees owing to the Subordinated Creditor under the Subordinated Creditor Indenture or to reimburse the Subordinated Creditor for costs and expenses incurred by the Subordinated Creditor in the ordinary course of business pursuant to the terms of the Subordinated Creditor Indenture, in each instance, so long as such payment does not constitute Proceeds from (x) the liquidation, foreclosure, collection or other realization on any Lender Collateral or (y) the sale, transfer, lease or other disposition by the Borrower or any Active Subsidiary of Lender Collateral the Proceeds of which sale, transfer, lease or other disposition are required, pursuant to the terms of any of the Lender Loan Documents, to be paid or remitted to the Lender or the Lender Collateral Agent.

Section 2.08Liquidation. Dissolution. Bankruptcy.  In the event of any Insolvency Proceeding involving the Borrower or any Active Subsidiary:

(a)Each of Lender and the Lender Collateral Agent agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Subordinated Liabilities or any liens and security interests securing the Subordinated Liabilities other than to enforce the terms of this Agreement. Each of the Subordinated Creditor Collateral Agent and the Subordinated Creditor agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Liabilities or any liens and security interests securing the Senior Liabilities other than to enforce the terms of this Agreement.

(b)Each of the Subordinated Creditor Collateral Agent and the Subordinated Creditor agrees that Lender and the Lender Collateral Agent may consent to the use of cash collateral or provide financing to the Borrower and/or any one or more Active Subsidiaries on such terms and conditions and in such amounts as Lender and Lender Collateral Agent, in their sole discretion, may decide and, in connection therewith, the Borrower and one or more of the Active Subsidiaries may grant to Lender and the Lender Collateral Agent liens and security interests upon any or all of the property of the Borrower and such Active Subsidiaries, which liens and security interests (i) shall secure payment of financing provided by Lender during such Insolvency

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Proceeding and (ii) shall be superior in priority to the liens and security interests, if any, in favor of Subordinated Creditor and Subordinated Creditor Collateral Agent on the property of the Borrower and such Active Subsidiaries; provided however, that (x) such agreement of the Subordinated Creditor Collateral Agent and the Subordinated Creditor shall only be applicable if the aggregate maximum outstanding principal amount of all such loans and other financing provided by Lender secured by liens and security interests superior in priority to the liens and security interests in favor of Subordinated Creditor and Subordinated Creditor Collateral Agent shall not exceed $25,000,000 and (y) to the extent such loans and other financing comply with the above requirements, each of Subordinated Creditor and Subordinated Creditor Collateral Agent  waives any claim or objection it may now or hereafter have arising out of Lender’s provision of such financing or consent to such use of cash collateral.  Notwithstanding anything herein to the contrary, Subordinated Creditor and Subordinated Creditor Collateral Agent may assert, and neither Lender nor Lender Collateral Agent shall oppose, any claim by Subordinated Creditor or Subordinated Creditor Collateral Agent for “adequate protection” of its interest under the Subordinated Liabilities in any Lender Collateral in any Insolvency Proceeding due to diminution of value of the Subordinated Creditor’s and Subordinated Creditor Collateral Agent’s interest in the Lender Collateral, provided that the adequate protection sought is limited to (x) replacement liens subject to the same priorities as set forth at subsection 2.01 hereof and (y) administrative priority claims under Section 507(a) of the Bankruptcy Code; provided further that any failure of Subordinated Creditor and Subordinated Creditor Collateral Agent to obtain any or all of the foregoing forms of adequate protection shall not impair Lender and the Lender Collateral Agent’s rights hereunder, or create any liability to Lender or the Lender Collateral Agent with respect to such failure.  Notwithstanding anything herein to the contrary, the Lender and the Lender Collateral Agent may assert and bring, and neither the Subordinated Creditor nor the Subordinated Creditor Collateral Agent shall oppose, any motion, application, action, defense, claim or proceeding by or approved by the Lender or the Lender Collateral Agent regarding the modification or lifting of the automatic stay, the use of cash or the grant of adequate protection necessary to prevent any diminution in the value of the Lender’s or Lender Collateral Agent’s interest in the Lender Collateral or similar rights or relief under the Bankruptcy Code with respect to the Lender Collateral.  Nothing contained in this Section 2.08 shall constitute a commitment or agreement of the Lender or the Lender Collateral Agent to provide any financing to the Borrower or any Active Subsidiary during an Insolvency Proceeding.

(c)In an Insolvency Proceeding involving the Borrower or any Active Subsidiary, with respect to the approval of any plan of reorganization (a “Plan”) proposed during such Insolvency Proceeding, Subordinated Creditor and Subordinated Creditor Collateral Agent shall be entitled to vote their claims under the Subordinate Liabilities (the “Subordinate Claims”) in connection with any such Plan.  Subordinated Creditor and Subordinate Creditor Collateral Agent shall be entitled to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Claims in connection with any such Insolvency Proceeding.

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ARTICLE III

ACTIONS OF THE PARTIES

Section 3.01Limitation on Certain Actions.  Subject to Section 2.02, so long as any of the Senior Liabilities are not Fully Paid or any commitments under the Senior Loan Agreements remain outstanding, neither the Subordinated Creditor nor the Subordinated Creditor Collateral Agent will, without the consent of the Lender, take any Enforcement Actions.

Section 3.02Notices.  The Lender Collateral Agent shall provide the Subordinated Creditor with written notice (a) not later than 15 days prior to the Lender Collateral Agent’s disposition of Lender Collateral pursuant to foreclosure remedies with respect to the Lender Collateral, and (b) not later than 10 days prior to the filing by the Lender or Lender Collateral Agent of an involuntary bankruptcy petition with respect to the Borrower or any of its Active Subsidiaries.

Section 3.03Release of Liens Upon Request.  Upon the request of the Lender or the Lender Collateral Agent, each of the Subordinated Creditor and the Subordinated Creditor Collateral Agent shall promptly release or otherwise terminate its Lien in the Lender Collateral or any part thereof to the extent that such Lender Collateral or any part thereof is sold or otherwise disposed of by the Lender or the Lender Collateral Agent in accordance with the terms of the Lender Loan Documents, and Lender and Lender Collateral Agent agree to release or otherwise terminate their liens on the Lender Collateral so sold or otherwise disposed of upon the consummation of such sale or other disposition, and each of the Subordinated Creditor and the Subordinated Creditor Collateral Agent will promptly execute, without recourse or representation and warranty of any kind, such release documents as the Lender or the Lender Collateral Agent may reasonably request in connection therewith at the sole cost and expense of the Borrower or the Active Subsidiary, as applicable.

Section 3.04Release of Liens Under Certain Cases.  If the Borrower or any Active Subsidiary sells, transfers or otherwise disposes of a portion of the Lender Collateral and either (x) such sale, transfer or other disposition is permitted by the terms of the Subordinated Creditor Indenture or (y) the consideration for such sale, transfer or other disposition satisfies the “fair market value” requirement in clause (i) of the first paragraph of Section 4.15 of the Subordinated Creditor Indenture, the net cash proceeds of such sale, transfer or other disposition are applied to the payment of the Senior Liabilities and the commitments to lend under the Lender Credit Agreement are permanently reduced by the amount of such payment, and, in either instance under clause (x) or clause (y), the Lender and Lender Collateral Agent each agrees to release its Lien on the Lender Collateral to be sold, transferred or otherwise disposed of upon the consummation of such sale, transfer or other disposition, then the Subordinated Creditor and the Subordinated Creditor Collateral Agent, notwithstanding anything to the contrary

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contained in the Loan Documents, each agrees to release its Lien on such Lender Collateral and shall thereupon execute at the request of the Borrower or any such Active Subsidiary termination statements or other Lien releases reasonably necessary to release its Liens upon such Lender Collateral.

ARTICLE IV

ENFORCEMENT OF PRIORITIES

Section 4.01In Furtherance of Lien Priorities.  The Lender Collateral Agent, the Lender, the Subordinated Creditor Collateral Agent and the Subordinated Creditor agree as follows:

(a)Upon any distribution of all or any of the assets of the Borrower or any Active Subsidiary (whether in cash, securities or other property) in connection with any Insolvency Proceeding or which otherwise would be payable or deliverable upon or with respect to the Lender Collateral securing the Subordinated Liabilities and the Senior Liabilities, the parties hereto agree that such assets shall be paid or delivered by the Subordinated Creditor Collateral Agent and/or Subordinated Creditor directly to the Lender Collateral Agent (or may be retained by the Lender or Lender Collateral Agent) for application (in the case of cash) to or as collateral (in the case of securities or other non-cash property) to the payment or prepayment of the Senior Liabilities until the Maximum Aggregate Principal Amount plus the amount of all interest, early termination fees or penalties, fees (including attorney fees), indemnification obligations, costs and expenses thereof whether accrued or incurred before or after an Insolvency Proceeding and regardless of whether or not allowed or allowable in any Insolvency Proceeding shall have been Fully Paid.  In addition, the Lender Collateral Agent shall be permitted to retain an amount equal to the amount of obligations (including attorneys’ fees), expense reimbursements and indemnities which the Lender Collateral Agent in good faith estimates will become due from the Borrower and/or the Active Subsidiaries in the future; provided that, upon the Senior Liabilities being Fully Paid, all such retained amounts that remain unspent shall, to the extent permitted by applicable law, be turned over to the Subordinated Creditor.

(b)If any Insolvency Proceeding is commenced by or against the Borrower or any Active Subsidiary, the Subordinated Creditor and the Subordinated Creditor Collateral Agent, to the extent either has commenced any action permitted hereunder, shall use their commercially reasonable efforts, at the expense of the Borrower and Active Subsidiaries, to duly and promptly take such action as the Lender or the Lender Collateral Agent may reasonably request (i) to collect the Proceeds of Lender Collateral securing the Subordinated Liabilities and the Senior Liabilities for the account of the Lender and to file appropriate claims or proofs of claim in respect of the Subordinated Liabilities and the Senior Liabilities and (ii) to collect and receive any and all payments or distributions which may be payable or deliverable upon or with respect to

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the Lender Collateral and the Proceeds securing the Subordinated Liabilities and the Senior Liabilities and to hold such payments or distributions in trust for the Lender to the extent set forth herein; provided, however, the Subordinated Creditor and the Subordinated Creditor Collateral Agent shall have no liability to the Lender or the Lender Collateral Agent regarding the adequacy of any such Proceeds or for any such action.

(c)All payments or distributions upon or with respect to the Subordinated Liabilities which are received by the Subordinated Creditor or Subordinated Creditor Collateral Agent contrary to the provisions of this Agreement shall be segregated from other funds and property held by the Subordinated Creditor or Subordinated Creditor Collateral Agent and shall be held for the Lender and shall be forthwith paid over to the Lender Collateral Agent in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as Lender Collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Liabilities in accordance with the terms of the Lender Credit Agreement; provided, however, after such application of Proceeds so that the Senior Liabilities are Fully Paid to the extent of the maximum amount set forth herein (including the Lender Collateral Agent’s holding of cash and other property as set forth in the last sentence of Section 4.01(a)), the Lender and Lender Collateral Agent shall segregate any remaining payments and distributions from the Lender’s and Lender Collateral Agent’s other funds and properties and shall hold such payments and distributions in trust for the Subordinated Creditor and shall be forthwith paid over to the Subordinated Creditor Collateral Agent in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as Collateral (in the case of non-cash property or securities) for the payment or prepayment of the Subordinated Liabilities in accordance with the terms of the Subordinated Creditor Indenture, as further provided in Section 8.14.

(d)Each of (x) the Lender, the Lender Collateral Agent, the Subordinated Creditor and the Subordinated Creditor Collateral Agent, and (y) additionally with respect to the obligations in favor of the Borrower and the Active Subsidiaries under Section 3.04 hereof, the Borrower and each Active Subsidiary, is hereby authorized to demand specific performance of this Agreement, whether or not the Borrower or any Active Subsidiary shall have complied with any of the provisions hereof applicable to it, at any time when any other Party shall have failed to comply with any of the provisions of this Agreement applicable to it.  Each of the Lender, the Lender Collateral Agent, the Subordinated Creditor and the Subordinated Creditor Collateral Agent hereby irrevocably waives any defense based on the adequacy of a remedy at law, which might be asserted as a bar to such remedy of specific performance.

(e)This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Liabilities is rescinded or must otherwise be returned by the Lender or the Lender Collateral Agent upon the

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insolvency, bankruptcy or reorganization of the Borrower or any Active Subsidiary or otherwise, all as though such payment had not been made.

ARTICLE V

CONCERNING THE COLLATERAL AGENTS

Section 5.01[Intentionally omitted]

Section 5.02Recourse of Secured Parties; Other Collateral.

(a)Each of the Lender and the Subordinated Creditor acknowledges and agrees that except as provided in part (b) of this Section 5.02, (i) it shall only have recourse to the Lender Collateral and the Proceeds through its respective Collateral Agent and that it shall have no independent recourse to the Lender Collateral and the Proceeds and (ii) its respective Collateral Agent shall have no obligation to take any action, or refrain from taking any action, except upon written instructions from the Requisite Party in accordance with Section 5.03 hereof.

(b)Nothing contained herein shall restrict (i) the Lender’s right to exercise the right of setoff, (ii) the Lender’s right to give notice under the Senior Loan Agreements, and to apply all amounts received from the depository accounts covered by the Senior Loan Agreements to payment of the Senior Liabilities or (iii) except as expressly set forth herein, the Lender’s and the Subordinated Creditor’s rights to pursue remedies, by proceedings in law and equity, to collect principal of or interest on the Senior Liabilities or, as the case may be, the Subordinated Liabilities or to enforce the performance of and provisions of the Senior Liabilities or, as the case may be, the Subordinated Liabilities as against the Borrower or any Active Subsidiary to the extent that such remedies do not (1) seek recovery from the Lender Collateral; (2) interfere with the Collateral Agents’ rights to take action hereunder or under the Senior Loan Agreements and Subordinated Indenture Agreements, respectively, or (3) contravene the written instructions of the Requisite Party.

Section 5.03Acts of Secured Parties.  Any request, demand, authorization, direction, notice, consent, waiver or other action permitted or required by this Agreement to be given or taken by the Requisite Party, may be and, at the request of the relevant Collateral Agent, shall be embodied in and evidenced by one or more instruments reasonably satisfactory in form to such Collateral Agent and signed by or on behalf of the Requisite Party and, except as otherwise expressly provided in any such instrument, any such action shall become effective when such instrument or instruments shall have been delivered to such Collateral Agent.  The instrument or instruments evidencing any action (and the action embodied therein and evidenced thereby) are sometimes referred to herein as an “Act” of the persons signing such instrument or instruments.   Each Collateral Agent shall be entitled to rely absolutely upon an Act of the Requisite Party if such Act purports to be taken by or on behalf of the Requisite Party.

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Section 5.04Notices.  Each Collateral Agent shall within five (5) business days following receipt thereof furnish to each of the Lender, Subordinated Creditor and the Borrower:

(a)a copy of each Notice of Trigger Event received by such Collateral Agent;

(b)a copy of each certificate received by such Collateral Agent rescinding a Notice of Trigger Event; and

(c)written notice of any release or subordination by such Collateral Agent of any Lender Collateral.

Section 5.05Actions Under Security Documents.  Each Collateral Agent shall take any reasonable action under or with respect to its Security Documents which is requested by the Requisite Party and which request does not contravene the provisions of this Agreement.  Each Collateral Agent shall exercise or refrain from exercising all such rights, powers and remedies as shall be available to it under its Security Documents or any of them in accordance with any written instructions received from the Requisite Party.  In the absence of written instructions (which may relate to the exercise of specific remedies or to the exercise of remedies in general) from the Requisite Party, neither Collateral Agent shall exercise remedies available to it under any of its Security Documents with respect to the Lender Collateral and the Proceeds or any part thereof.

Section 5.06Limitations on Responsibility of Collateral Agents.  Neither Collateral Agent shall be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein or in any Loan Document, except for those made by it herein.  Neither Collateral Agent makes any representation as to the value or condition of the Lender Collateral or any part thereof, as to the title of the Borrower or any Active Subsidiary to the Lender Collateral, as to the security afforded by this Agreement or any Loan Document or, except as set forth in Article VI, as to the validity, execution, enforceability, legality or sufficiency of this Agreement or any Loan Document, and neither Collateral Agent shall incur any liability or responsibility in respect of any such matters.  Neither Collateral Agent shall be responsible for insuring the Lender Collateral, for the payment of taxes, charges, assessments or liens upon the Lender Collateral or otherwise as to the maintenance of the Lender Collateral, except as provided in the immediately following sentence when such Collateral Agent has possession of the Lender Collateral.  Neither Collateral Agent shall have any duty to the Borrower or to any Active Subsidiary or to the holders of any of the Secured Obligations as to any Lender Collateral in its possession or control or in the possession or control of any agent or nominee of such Collateral Agent or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except the duty to accord such of the Lender Collateral as may be in its possession substantially the same care as it accords its own assets, the duty to account for monies received by it and any other duties contained in its respective Loan

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Documents.  Neither Collateral Agent shall be responsible for any loss suffered with respect to any investment permitted to be made under this Agreement or its Loan Documents and shall not be responsible for the consequences of any oversight or error of judgment whatsoever, except that such Collateral Agent shall be liable for losses due to its willful misconduct or gross negligence.  Neither Collateral Agent shall be required to ascertain or inquire as to the performance by the Borrower  or any Active Subsidiary of any of the covenants or agreements contained herein or in any of the Loan Documents except for such person’s own gross negligence or willful misconduct or breach of the express terms of this Agreement or as provided by its respective Loan Documents.  Neither Collateral Agent nor any officer, agent or representative of either of them shall be personally liable for any action taken or omitted to be taken by any such person in connection with this Agreement or any Loan Document, except as may be provided by the respective Loan Documents.  Neither Collateral Agent nor any officer, agent or representative of either of them shall be personally liable for any action taken by any such person in accordance with any notice given by the Requisite Party pursuant to the terms of this Agreement.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall either Collateral Agent, the Lender or the Subordinated Creditor be liable for special, consequential or punitive damages.

Section 5.07Reliance by Collateral Agent; Etc.

(a)Whenever in the performance of its duties under this Agreement either Collateral Agent shall deem it necessary or desirable that a matter be proved or established with respect to any Person in connection with the taking, suffering or omitting of any action hereunder by such Collateral Agent, such matter may be conclusively deemed to be proved or established by a certificate executed by an officer of such Person, and absent gross negligence or willful misconduct, such Collateral Agent shall have no liability with respect to any action taken, suffered or omitted in reliance thereon.

(b)Each Collateral Agent may consult with counsel and shall be fully protected in taking any action hereunder in accordance with any advice of such counsel.  Each Collateral Agent shall have the right but not the obligation at any time to seek instructions concerning the administration of this Agreement, the duties created hereunder, or any of the Lender Collateral from any court of competent jurisdiction.

(c)Each Collateral Agent shall be fully protected in relying upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order or other paper or document which it reasonably believes to be genuine and to have been signed or presented by the proper party or parties.  In the absence of its gross negligence or willful misconduct, each Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions furnished to such Collateral Agent in connection with this Agreement.

(d)Neither Collateral Agent shall be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Trigger

19

Event unless and until such Collateral Agent shall have received a Notice of Trigger Event.  Neither Collateral Agent shall have any obligation whatsoever either prior to or after receiving such a Notice of Trigger Event to inquire whether a Trigger Event has, in fact, occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any certificate so furnished to it and shall have no obligation, absent written instructions from the Requisite Party, to take or omit to take any action with respect to such Notice of Trigger Event.

Section 5.08Resignation or Replacement of the Collateral Agent.  Each Collateral Agent may at any time resign in accordance with the terms of its respective Loan Documents.  Upon the acceptance of any appointment as a Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder and under its respective Loan Documents.  After any retiring Collateral Agent’s resignation or removal, the provisions of this Agreement and the Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent and any successor Collateral Agent appointed in accordance with the respective Loan Documents shall be a “Collateral Agent” for all purposes under this Agreement entitled to all rights, privileges and benefits and subject to all of the duties and obligations of such Collateral Agent hereunder.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

Each of the Lender Collateral Agent, the Subordinated Creditor Collateral Agent, the Subordinated Creditor, the Borrower, the Lender and each Active Subsidiary represents and warrants to the other parties hereto that (a) the execution, delivery and performance of this Agreement (i) have been duly authorized by all requisite corporate action on its part and (ii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which it is subject or any judgment, order, writ, injunction, license or permit applicable to it and will not conflict with any provision of its corporate charter or bylaws or any agreement or other instrument binding upon it; and (b) this Agreement (i) has been duly executed and delivered by it, (ii) constitutes its legal, valid and binding obligation, and (iii) is enforceable against it in accordance with its terms.  The Subordinated Creditor represents and warrants to the other parties hereto that the holders of Subordinated Creditor Notes have agreed in the Subordinated Creditor Indenture to be bound by the terms of this Agreement.

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ARTICLE VII

CERTAIN INTERCREDITOR ARRANGEMENTS

If the Subordinated Creditor or Subordinated Creditor Collateral Agent acquires custody, control or possession of any Lender Collateral, other than pursuant to the terms of this Agreement, the Subordinated Creditor or Subordinated Creditor Collateral Agent, as the case may be, shall promptly cause such Lender Collateral or Proceeds to be delivered to or put in the custody, possession or control of the Lender Collateral Agent or, if the Lender Collateral Agent shall so designate, an agent of the Lender Collateral Agent (which agent may be a branch or affiliate of the Lender Collateral Agent) in the same form of payment received, with appropriate endorsements, in the country in which such Lender Collateral is held, for distribution in accordance with the provisions of Article IV.  Until such time as the provisions of the immediately preceding sentence have been complied with, such party shall be deemed to hold such Lender Collateral and Proceeds in trust for the Lender Collateral Agent.  Notwithstanding the foregoing, if the Requisite Party receives payments or Proceeds of Lender Collateral in the form of cash, the Requisite Party may apply such amounts to the payment of the Senior Liabilities (until the Senior Liabilities shall have been Fully Paid) or the Subordinated Liabilities (after the Senior Liabilities shall have been Fully Paid).

ARTICLE VIII

MISCELLANEOUS

Section 8.01Rights of Subrogation.  The Subordinated Creditor and Subordinated Creditor Collateral Agent each agrees that no payment or distribution to the Lender or Lender Collateral Agent pursuant to the provisions of this Agreement shall entitle such Party to exercise any rights of subrogation in respect thereof until the Senior Liabilities shall have been Fully Paid.

Section 8.02Further Assurances.  The Parties will, at their own expense and at any time and from time to time, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that any Party may reasonably request, in order to protect any right or interest granted or purported to be granted hereby or to enable either Collateral Agent or the Lender or the Subordinated Creditor to exercise and enforce its rights and remedies hereunder; provided, however, that no Party shall be required to pay over any payment or distribution, execute any instruments or documents, or take any other action referred to in this Section 8.02 to the extent that such action would contravene any law, order or other legal requirement, and in the event of a controversy or dispute, such Party may interplead any payment or distribution in any court of competent jurisdiction, without further responsibility in respect of such payment or distribution under this Section 8.02.

Section 8.03Defenses Similar to Suretyship Defenses.  All rights and interests of the Lender and the Lender Collateral Agent hereunder, and all agreements and obligations of the Subordinated Creditor and Subordinated Creditor Collateral Agent under this Agreement, shall remain in full force and effect irrespective of:

21

(a)any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Liabilities, or any other amendment or waiver of or any consent to departure from the Senior Loan Agreements, provided, however, that this clause (a) shall not apply to, and the Subordinated Creditor Collateral Agent’s liens and security interests in the Lender Collateral shall not be subordinated in priority by virtue of this Agreement to the Lender Collateral Agent’s liens and security interests therein to the extent that the principal amount of Senior Loan Indebtedness (exclusive of interest, early termination fees or penalties, fees (including attorneys’ fees), indemnification obligations and costs and expenses) is increased by virtue of any amendment to an amount in excess of the Maximum Aggregate Principal Amount, without the express written consent of the Subordinated Creditor; or

(b)any exchange or release of any Lender Collateral, or any release, amendment or waiver of or consent to departure from any guaranty, for all or any of the Senior Liabilities.

Section 8.04Waiver.  Except as otherwise provided herein, the Subordinated Creditor and Subordinated Creditor Collateral Agent each hereby waives, with respect to the Lender Collateral and the Proceeds to which the Lien Priority hereunder relates (i) any failure, omission, delay or lack on the part of the Lender or Lender Collateral Agent to enforce, assert or exercise any right, power or remedy conferred on the Lender or Lender Collateral Agent in any of the Lender Loan Documents or this Agreement or the inability of the Lender or Lender Collateral Agent to enforce any provision of the Lender Loan Documents or this Agreement, and (ii) without limiting the generality of the foregoing, any requirement that the Lender or Lender Collateral Agent protect or insure any Liens or other lien or any property subject thereto or exhaust any right or take any action against the Borrower or any Active Subsidiary or any other Person or any Lender Collateral.

Section 8.05Amendments, Etc.  No amendment or waiver of any provision of this Agreement nor consent to any departure by any Party hereto shall in any event be effective unless the same shall be in writing and signed by the other Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 8.06Addresses for Notices.  All demands, notices and other communications provided for hereunder shall be in writing and, if to the Subordinated Creditor, mailed or sent by telecopy or delivered to it, addressed to it as follows:

The Bank of New York

101 Barclay Street – 8W

New York, NY  10286

Attention: Corporate Trust Division/New World Restaurant

Telephone:  (212) 815-5733

Facsimile:  (212) 815-5707

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if to the Subordinated Creditor Collateral Agent, mailed, sent or delivered thereto, addressed to it as follows:

The Bank of New York

101 Barclay Street – 8W

New York, NY  10286

Attention: Corporate Trust Division/New World Restaurant

Telephone:  (212) 815-5733

Facsimile:  (212) 815-5707

With copies to:

Winston & Strawn

200 Park Avenue

New York, NY  10166

Attention: Jeffrey Elkin

Telephone:  (212) 294-6711

Facsimile:  (212) 294-4700

if to the Lender, mailed, sent or delivered thereto, addressed to it as follows:

AmSouth Bank

c/o AmSouth Capital Corp.

350 Park Avenue, 20^th  Floor

New York, New York 10022

Attention: 

Facsimile:  (212) 935-7458

With copies to:

Kaye Scholer LLP

425 Park Avenue

New York, New York 10022

Attention:  Albert Fenster, Esq.

Facsimile:  (212) 836-8689

if to the Lender Collateral Agent, mailed, sent or delivered thereto, addressed to it as follows:

AmSouth Bank

c/o AmSouth Capital Corp.

350 Park Avenue, 20^th  Floor

New York, New York 10022

Attention: 

Facsimile:  (212) 935-7458

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With copies to:

Kaye Scholer LLP

425 Park Avenue

New York, New York 10022

Attention:  Albert Fenster, Esq.

Facsimile:  (212) 836-8689

if to Borrower or any Active Subsidiary, mailed, sent or delivered thereto, addressed to any of them as follows:

New World Restaurant Group, Inc.

1687 Cole Blvd

Golden, CO 80401-3316

Attention:  Anthony Wedo

Facsimile:  (303) 568-8199

With copies to:

Proskauer Rose LLP

1585 Broadway

New York, NY 10036-8299

Attention:  Julie Allen, Esq.

Facsimile:  (212) 969-2900

or as to any Party at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section 8.06.  All such demands, notices and other communications shall be effective, when mailed, two business days after deposit in the mails, postage prepaid, when sent by telecopy, when receipt is acknowledged by the receiving telecopy equipment (or at the opening of the next business day if receipt is after normal business hours), or when delivered, as the case may be, addressed as aforesaid; provided, however, that notices to the Subordinated Creditor or the Subordinated Creditor Collateral Agent shall not be deemed to have been given until actually received by the Subordinated Creditor or the Subordinated Creditor Collateral Agent.

Section 8.07No Waiver, Remedies.  No failure on the part of any Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 8.08Continuing Agreement, Transfer of Senior Loan Agreements.  This Agreement is a continuing agreement and shall (i) remain in full force and effect until the Senior Liabilities and, solely for the purposes of Section 8.14, the Subordinated

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Liabilities shall have been Fully Paid, (ii) be binding upon the Parties and their successors and assigns, and (iii) inure to the benefit of and be enforceable by the Parties (in the case of the Borrower or any Active Subsidiary, only Section 3.04 shall inure to and be enforceable by it) and their respective successors, transferees and assigns.  Without limiting the generality of the foregoing clause (iii), the Lender or the Subordinated Creditor may assign or otherwise transfer its Senior Liabilities (in accordance with the terms of the Senior Loan Agreements) or Subordinated Liabilities (in accordance with the terms of the Subordinated Creditor Loan Documents) to any other Person (other than Borrower or any Active Subsidiary or any affiliate of Borrower and any Active Subsidiary), and such other Person shall thereupon become vested with all the rights and obligations in respect thereof granted to the Lender or Subordinated Creditor, as the case may be, herein or otherwise.

Section 8.09Governing Law: Entire Agreement.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York except as otherwise preempted by applicable federal law.  This Agreement constitutes the entire agreement and understanding among the Parties with respect to the subject matter hereof and supersedes any prior agreements, written or oral, with respect thereto.

Section 8.10Counterparts.  This Agreement maybe executed in any number of counterparts, and it is not necessary that the signatures of all Parties be contained on any one counterpart hereof, each counterpart will be deemed to be an original, and all together shall constitute one and the same document.

Section 8.11No Third Party Beneficiary.  This Agreement is solely for the benefit of the Lender, the Lender Collateral Agent, the Subordinated Creditor, the Subordinated Creditor Collateral Agent and, as to Section 3.04 only, the Borrower and each Active Subsidiary (and their permitted assignees).  No other Person shall be deemed to be a third-party beneficiary of this Agreement.

Section 8.12Headings.  The headings of the articles and sections of this Agreement are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof

Section 8.13Severability.  If any of the provisions in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and shall not invalidate the Lien Priority or any other priority set forth in this Agreement.

Section 8.14Payment in Full of Senior Liabilities.  From and after the Senior Liabilities being Fully Paid up to the Maximum Aggregate Principal Amount plus all interest, early termination fees or penalties, fees (including, attorneys fees), indemnification obligations (other than Contingent Indemnification Obligations then owing), costs and expenses thereof whether accrued or incurred before or after an Insolvency Proceeding and regardless of whether or not allowed or allowable in any

25

Insolvency Proceeding, and the Lender Collateral Agent having received any amounts required pursuant to the last sentence of Section 4.01(a):

(a)All payments or distributions from the Borrower or any Active Subsidiary or with respect to the Lender Collateral and the Proceeds received by the Lender or Lender Collateral Agent shall be segregated from other funds and property held by the Lender or Lender Collateral Agent and held in trust by the Lender or Lender Collateral Agent for the Subordinated Creditor and Subordinated Creditor Collateral Agent and shall be promptly paid over to the Subordinated Creditor Collateral Agent in the same form as received (with any necessary endorsement without recourse or warranty) to be applied to or held for the payment or prepayment of the Subordinated Liabilities in accordance with the terms of the Subordinated Creditor Indenture; and

(b)The Lender and Lender Collateral Agent will promptly execute and deliver all further instruments and documents, and take all further acts that may be necessary or desirable, or that the Subordinated Creditor or Subordinated Creditor Collateral Agent may reasonably request, at the Subordinated Creditor’s cost, to permit the Subordinated Creditor Collateral Agent to enforce the Subordinated Liabilities or recover any Proceeds of the Lender Collateral, provided, however, that the Lender and Lender Collateral Agent shall not be required to pay over any payment or distribution, execute any instruments or documents, or take any other action referred to in this Section 8.14 to the extent that such action would contravene any law, order or other legal requirement, and in the event of a controversy or dispute, the Lender and Lender Collateral Agent may interplead any payment or distribution in any court of competent jurisdiction, without further responsibility in respect of such payment or distribution under this Section 8.14.

Section 8.15Subordinated Creditor Trustee Status.  It is acknowledged that the subordination and related agreements set forth herein by the Subordinated Creditor and the Subordinated Creditor Collateral Agent are made solely in its capacity as Trustee and as Collateral Agent under the Subordinated Creditor Indenture and with respect to the Subordinated Creditor Notes (and not in its individual capacity), and that the Subordinated Creditor and the Subordinated Creditor Collateral Agent have entered into this Agreement at the direction of the holders of the Subordinated Creditor Notes.

Section 8.16Amendments to Loan Documents.  Each of the Lender, the Lender Collateral Agent, the Subordinated Creditor and the Subordinated Creditor Collateral Agent agree to provide each other with copies of any amendments to the Loan Documents.

Section 8.17VENUE; JURY TRIAL WAIVER.

(a)THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS

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LOCATED IN THE CITY OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY LENDER COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER COLLATERAL AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER COLLATERAL AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH LENDER COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH PARTY HERETO WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8.17.

(b)EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY HERETO REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

Section 8.18No Marshaling.  The Subordinated Creditor and Subordinated Creditor Collateral Agent hereby agree not to assert and hereby waive, to the fullest extent permitted by law, any right to demand, request, plead or otherwise claim the benefit of any marshaling, appraisal, valuation or other similar doctrine or right that may otherwise be available under applicable law or any other similar rights a junior secured creditor might have under applicable law.

Section 8.19Certain Conflicts.  In the event of any conflict between the terms of this Agreement and the terms of any Loan Document in respect of the rights and obligations of either Collateral Agent, the terms of this Agreement shall control.

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IN WITNESS WHEREOF, the Lender, the Subordinated Creditor, the Lender Collateral Agent and the Subordinated Creditor Collateral Agent have caused this Agreement to be duly executed and delivered as of the date first above written.

LENDER:	AMSOUTH BANK,
	solely in its capacity as Lender
	By:	/s/ MARK McNALLY
	Name: Mark McNally
	Title: Attorney-in-fact

SUBORDINATED CREDITOR:	THE BANK OF NEW YORK, solely in its capacity as Trustee (and not individually)
	By:	/s/ MARGARET CIESMELEWSKI
	Name: Margaret Ciesmelewski
	Title: Vice President

SUBORDINATED CREDITOR COLLATERAL AGENT:	THE BANK OF NEW YORK, solely in its capacity as Subordinated Creditor Collateral Agent (and not individually)
	By:	/s/ MARGARET CIESMELEWSKI
	Name: Margaret Ciesmelewski
	Title: Vice President

LENDER COLLATERAL AGENT:	AMSOUTH BANK, solely in its capacity as Lender Collateral Agent (and not individually)
	By:	/s/ MARK McNALLY
	Name: Mark McNally
	Title: Attorney-in-fact

Each of the undersigned hereby (1) acknowledges that it has received a copy of this Agreement and consents thereto, and agrees to recognize all rights granted thereby to the Lender, the Lender Collateral Agent, the Subordinated Creditor, the Subordinated Creditor Collateral Agent and the Requisite Party, and will not do any act or perform any obligation which is not in accordance with the agreements set forth in such Agreement, (2) agrees to comply with its obligations under Sections 3.03 and 4.01(b), and (3) makes the representations and warranties applicable to it in Article VI.

BORROWER:	NEW WORLD RESTAURANT GROUP, INC.
	By:	/s/ ANTHONY D. WEDO
	Anthony Wedo
	Chief Executive Officer

ACTIVE SUBSIDIARIES:	MANHATTAN BAGEL COMPANY, INC.
	By:	/s/ ANTHONY D. WEDO
	Anthony Wedo
	Chief Executive Officer

CHESAPEAKE BAGEL FRANCHISE CORP.
By:	/s/ ANTHONY D. WEDO
Anthony Wedo
Chief Executive Officer

WILLOUHGBY’S INCORPORATED
By:	/s/ ANTHONY D. WEDO
Anthony Wedo
Chief Executive Officer

EINSTEIN AND NOAH CORP.
By:	/s/ ANTHONY D. WEDO
Anthony Wedo
Chief Executive Officer

EINSTEIN/NOAH BAGEL PARTNERS, INC.
By:	/s/ ANTHONY D. WEDO
Anthony Wedo
Chief Executive Officer

I. & J. BAGEL, INC.
By:	/s/ ANTHONY D. WEDO
Anthony Wedo
Chief Executive Officer

EX-12.1

Exhibit 12.1

	For the Fiscal Year Ended													For the Six-Month Period Ended
	December 27, 1998			December 26, 1999	December 31, 2000			January 1, 2002			December 31, 2002
														July 2, 2002			July 1, 2003
	(In thousands)
Fixed Charges:
Interest expensed and capitalized		925		1,636		2,076			47,104			42,883			24,604			18,271
Estimate of interest within rental expense		785		855		757			5,407			9,192			4,578			4,680
Dividends		—		—		2,373			58,520			27,594			13,529			14,424
Calculated Fixed Charges		1,710		2,491		5,206			111,031			79,669			42,711			37,375
Earnings:
Pretax income (loss) from continuing operations		(7,492	)	2,399		(6,538	)		(18,533	)		(40,107	)		(27,352	)		(20,427	)
Add: Fixed charges		1,710		2,491		2,833			52,511			52,075			42,711			37,375
Subtract: Dividends		—		—		2,373			58,520			27,594			13,529			14,424
Calculated Earnings		(5,782	)	4,890		(2,705	)		33,978			11,968			1,830			2,524
Ratio of Earning to Fixed Charges				1.96
Amount by which earning were insufficient to cover fixed charges	$	7,492			$	7,911		$	77,053		$	67,701		$	40,881		$	34,851

EX-23.1

EXHIBIT 23.1

Consent of Independent Certified Public Accountants

                We have issued our report dated March 26, 2003 (except for Note 18, as to which the date is July 8, 2003) accompanying the consolidated financial statements and schedule of New World Restaurant Group, Inc. contained in the Registration Statement and Prospectus.  We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/ GRANT THORNTON LLP

Denver, Colorado

September 19, 2003

EX-25.1

Exhibit 25.1

FORM T-1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)           ý

THE BANK OF NEW YORK

(Exact name of trustee as specified in its charter)

New York (State of incorporation if not a U.S. national bank)	13-5160382 (I.R.S. employer identification no.)
One Wall Street, New York, N.Y. (Address of principal executive offices)	10286 (Zip code)

New World Restaurant Group, Inc.
(Exact name of obligor as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 13-3690261
(I.R.S. employer
identification no.)

Manhattan Bagel Company, Inc.	New Jersey	22-2981535
Chesapeake Franchise Corp.	New Jersey	22-3677845
Willoughby’s Incorporated	Connecticut	06-1136128
Einstein and Noah Corp.	Delaware	22-3807874
Einstein/Noah Bagel Partners, Inc.	California	94-3137875
I.& J. Bagel, Inc.	California	95-2481915

The above subsidiaries of New World Restaurant Group, Inc. are deemed to be Registrants.

1687 Cole Boulevard
Golden, Colorado
(Address of principal executive offices)
80401
(Zip Code)

13% Senior Secured Notes due 2008
(Title of the indenture securities)

1.General information.  Furnish the following information as to the Trustee:

(a)Name and address of each examining or supervising authority to which it is subject.

Name	Address
Superintendent of Banks of the State of New York	2 Rector Street, New York, N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York	33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation	Washington, D.C. 20429
New York Clearing House Association	New York, New York 10005

(b)Whether it is authorized to exercise corporate trust powers.

Yes.

2.Affiliations with Obligor.

If the obligor is an affiliate of the trustee, describe each such affiliation.

None.

16.List of Exhibits.

Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the “Act”) and 17 C.F.R. 229.10(d).

1.A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers.  (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)

4.A copy of the existing By-laws of the Trustee.  (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.)

6.The consent of the Trustee required by Section 321(b) of the Act.  (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)

7.A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.

2

SIGNATURE

Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 21st day of July, 2003.

THE BANK OF NEW YORK
By:	/s/ MARGARET CIESMELEWSKI
	Name:	Margaret Ciesmelewski
	Title:	Vice President

3

Exhibit 7

Consolidated Report of Condition of

THE BANK OF NEW YORK

of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,

a member of the Federal Reserve System, at the close of business June 30, 2003, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.

ASSETS	Dollar Amounts In Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin		$	4,257,371
Interest-bearing balances		6,048,782
Securities:
Held-to-maturity securities		373,479
Available-for-sale securities		18,918,169
Federal funds sold in domestic offices		6,689,000
Securities purchased under agreements to resell		5,293,789
Loans and lease financing receivables:
Loans and leases held for sale		616,186
Loans and leases, net of unearned income	38,342,282
LESS: Allowance for loan and lease losses	819,982
Loans and leases, net of unearned income and allowance	37,522,300
Trading Assets		5,741,193
Premises and fixed assets (including capitalized leases)		958,273
Other real estate owned		441
Investments in unconsolidated subsidiaries and associated companies		257,626
Customers’ liability to this bank on acceptances outstanding		159,995
Intangible assets
Goodwill		2,554,921
Other intangible assets		805,938
Other assets		6,285,971
Total assets		$	96,483,434

4

LIABILITIES
Deposits:
In domestic offices		$	37,264,787
Noninterest-bearing	15,357,289
Interest-bearing	21,907,498
In foreign offices, Edge and Agreement subsidiaries, and IBFs		28,018,241
Noninterest-bearing	1,026,601
Interest-bearing	26,991,640
Federal funds purchased in domestic offices		739,736
Securities sold under agreements to repurchase		465,594
Trading liabilities		2,456,565
Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases).		8,994,708
Bank’s liability on acceptances executed and outstanding		163,277
Subordinated notes and debentures		2,400,000
Other liabilities		7,446,726
Total liabilities		$	87,949,634
Minority interest in consolidated subsidiaries		519,472
EQUITY CAPITAL
Perpetual preferred stock and related surplus		0
Common stock		1,135,284
Surplus		2,056,273
Retained earnings		4,694,161
Accumulated other comprehensive income		128,610
Other equity capital components		0
Total equity capital		8,014,328
Total liabilities minority interest and equity capital		$	96,483,434

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I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief.

Thomas J. Mastro,
Senior Vice President and Comptroller

We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct.

Thomas A. Renyi
Gerald L. Hassell
Alan R. Griffith Directors

6

EX-99.1

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Exhibit 99.1

FORM OF LETTER OF TRANSMITTAL

for

$160,000,000
13% Senior Secured Notes Due 2008

of

NEW WORLD RESTAURANT GROUP, INC.

        THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON            , 2003 (THE "EXPIRATION DATE") UNLESS EXTENDED BY NEW WORLD RESTAURANT GROUP, INC.

The Exchange Agent Is:

THE BANK OF NEW YORK

By Mail:

The Bank of New York
Reorganization Unit
101 Barclay Street—7 East
New York, NY 10286
Attention: Corporate Trust Operation

By Facsimile:

The Bank of New York
Attention: Corporate Trust Operation
(212) 298-1915
Confirm by Telephone:
(212) 815-5076

By Hand or Overnight Mail:

The Bank of New York
Reorganization Unit
101 Barclay Street
Lobby Level—Corp. Trust Operation
New York, NY 10286
Attention: Corporate Trust Operation

        DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

        The undersigned acknowledges receipt of the Prospectus dated            , 2003 (the "Prospectus"), of New World Restaurant Group, Inc. (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange its 13% Senior Secured Notes due 2008 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for each of its 13% Senior Secured Notes due 2008 (the "Original Notes" and, together with the Exchange Notes, the "Notes") from the holders thereof.

        The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are freely transferable by holders thereof (except as provided herein or in the Prospectus) and are not subject to any covenant regarding registration under the Securities Act.

        YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.

        The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer.

PLEASE READ THE ENTIRE
LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.

        List below the Original Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and aggregate principal amounts should be listed on a separate signed schedule affixed hereto.

DESCRIPTION OF ORIGINAL NOTES TENDERED
(1)    Name(s) and Address(es) of Registered Holder(s) (Please fill in)	(2)    Certificate Numbers*	(3) Aggregate Principal Amount Represented by Original Notes**	(4) Principal Amount Tendered (if less than all)**
Total:

*

Need not be completed by book-entry holders.

**

Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Original Notes. See Instruction 2.

2

        Holders of Original Notes whose Original Notes are not immediately available or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Original Notes according to the guaranteed delivery procedures set forth in the Prospectus.

        Unless the context otherwise requires, the term "holder" for purposes of this Letter of Transmittal means any person in whose name Original Notes are registered or any other person who has obtained a properly completed bond power from the registered holder or any person whose Original Notes are held of record by The Depository Trust Company ("DTC").

/

/    CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:

        Name of Registered Holder(s): 

        Name of Eligible Institution that Guaranteed Delivery: 

        Date of Execution of Notice of Guaranteed Delivery: 

        If Delivered by Book-Entry Transfer: 

        Name of Tendering Institution: 

        Account Number: 

        Transaction Code Number: 

/

/    CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON OTHER THAN THE PERSON SIGNING THIS LETTER OF TRANSMITTAL:

        Name 

        Address 

/

/    CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:

        Name 

        Address 

/

/    CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED ORIGINAL NOTES FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO:

        Name 

        Address 

        If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to Original Notes acquired other than as a result of market-making activities or other trading activities. Any holder who is an "affiliate" of the Company or who has an arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Original Notes from the Company to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act.

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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

        Ladies and Gentlemen:

        Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of the Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of all or any portion of the Original Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Original Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its true and lawful agent and attorney in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Company, in connection with the Exchange Offer) to cause the Original Notes to be assigned, transferred and exchanged.

        The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Original Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the tendered Original Notes or transfer ownership of such Original Notes on the account books maintained by the book-entry transfer facility. The undersigned further agrees that acceptance of any and all validly tendered Original Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement, dated as of July 8, 2003 (the "Registration Rights Agreement"), among the Company, the guarantors named therein and Jefferies & Company, Inc., and that the Company shall have no further obligations or liabilities thereunder except as provided in Section 4(a) of such agreement. The undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agrees to all terms of the Exchange Offer. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer—Conditions to the Exchange Offer." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Original Notes tendered hereby and, in such event, the Original Notes not exchanged will be returned to the undersigned at the address shown below unless indicated otherwise above, promptly following the expiration or termination of the Exchange Offer. In addition, the Company may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set under "The Exchange Offer—Conditions to the Exchange Offer" occur.

        The undersigned understands that tenders of Original Notes pursuant to any one of the procedures described in the Prospectus and in the instructions attached hereto will, upon the Company's acceptance for exchange of such tendered Original Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Original Notes.

        By tendering Original Notes and executing this Letter of Transmittal, the undersigned represents that Exchange Notes acquired in the exchange will be obtained in the ordinary course of business of the undersigned, that the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Notes, that the

4

undersigned is not an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act and that if the undersigned or the person receiving such Exchange Notes, whether or not such person is the undersigned, is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned or the person receiving such Exchange Notes, whether or not such person is the undersigned, is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        Any holder of Original Notes using the Exchange Offer to participate in a distribution of the Exchange Notes (i) cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar interpretive letters and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction.

        All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Original Notes may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. Except as stated in the Prospectus, this tender is irrevocable.

        Certificates for all Exchange Notes delivered in exchange for tendered Original Notes and any Original Notes delivered herewith but not exchanged, and registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned.

        The undersigned, by completing the box entitled "Description of Original Notes Tendered Herewith" above and signing this letter, will be deemed to have tendered the Original Notes as set forth in such box.

5

TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)

        Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Original Notes hereby tendered or in whose name Original Notes are registered on the books of DTC or one of its participants, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith. if signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person. See Instruction 3.

(Signature(s) of Holder(s))

Date

Name(s)

(Please Print)

Capacity (full title)

Address

(Including Zip Code)

Daytime Area Code and Telephone No.

Taxpayer Identification No.

GUARANTEE OF SIGNATURE(S)
(If Required—See Instruction 3)

Authorized Signature

Date

Name(s)

Title

Name of Firm

Address

(Include Zip Code)

Area Code and Telephone No.

6

SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)

            To be completed ONLY if Exchange Notes or Original Notes not tendered are to be issued in the name of someone other than the registered holder of the Original Notes whose name(s) appear(s) above.

Issue:	o	Original Notes not tendered to:
	o	Exchange Notes to:

Name(s):

(Please Print)

Address:

(Include Zip Code)

Daytime Area Code and

Telephone No.:

Tax Identification No.

SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)

            To be completed ONLY if Exchange Notes or Original Notes not tendered are to be sent to someone other than the registered holder of the Original Notes whose name(s) appear(s) above, or such registered holder(s) at an address other than that shown above.

Mail:	o	Original Notes not tendered to:
	o	Exchange Notes to:

Name(s):

(Please Print)

Address:

(Include Zip Code)

Area Code and

Telephone No.:

7

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

        1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. A holder of Original Notes may tender the same by (i) properly completing and signing this Letter of Transmittal or a facsimile hereof (all references in the Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates, if applicable, representing the Original Notes being tendered and any required signature guarantees and any other documents required by this Letter of Transmittal, to the Exchange Agent at its address set forth above on or prior to the Expiration Date, or (ii) complying with the procedure for book-entry transfer described below, or (iii) complying with the guaranteed delivery procedures described below.

        Holders of Original Notes may tender Original Notes by book-entry transfer by crediting the Original Notes to the Exchange Agent's account at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will then send a computer-generated message (an "Agent's Message") to the Exchange Agent for its acceptance in which the holder of the Original Notes acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, this Letter of Transmittal, the DTC participant confirms on behalf of itself and the beneficial owners of such Original Notes all provisions of this Letter of Transmittal (including any representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent.

        DELIVERY OF THE AGENT'S MESSAGE BY DTC WILL SATISFY THE TERMS OF THE EXCHANGE OFFER AS TO EXECUTION AND DELIVERY OF A LETTER OF TRANSMITTAL BY THE PARTICIPANT IDENTIFIED IN THE AGENT'S MESSAGE. DTC PARTICIPANTS MAY ALSO ACCEPT THE EXCHANGE OFFER BY SUBMITTING A NOTICE OF GUARANTEED DELIVERY THROUGH ATOP.

        THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE ORIGINAL NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. NO ORIGINAL NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.

        Holders whose Original Notes are not immediately available or who cannot deliver their Original Notes and all other required documents to the Exchange Agent on or prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Original Notes pursuant to the guaranteed delivery procedure set forth in the Prospectus. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) on or prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution a letter, telegram or facsimile transmission (receipt confirmed by telephone andan original delivered by guaranteed overnight courier) setting forth the name and address of the tendering holder, the names in which such Original Notes are registered, and, if applicable, the certificate numbers of the Original

8

Notes to be tendered; and (iii) all tendered Original Notes (or a confirmation of any book-entry transfer of such Original Notes into the Exchange Agent's account at a book-entry transfer facility) as well as this Letter of Transmittal and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission, all as provided in the Prospectus.

        No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Original Notes for exchange.

        2.    PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of Original Notes evidenced by a submitted certificate is tendered, the tendering holder must fill in the aggregate principal amount of Original Notes tendered in the box entitled "Description of Original Notes Tendered Herewith." A newly issued certificate for the Original Notes submitted but not tendered will be sent to such holder as soon as practicable after the Expiration Date. All Original Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise clearly indicated.

        If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date.

        To be effective with respect to the tender of Original Notes, a written notice of withdrawal must: (i) be received by the Exchange Agent at one of the addresses for the Exchange Agent set forth above before the Company notifies the Exchange Agent that it has accepted the tender of Original Notes Pursuant to the Exchange Offer, (ii) specify the name of the person who tendered the Original Notes to be withdrawn; (iii) identify the Original Notes to be withdrawn (including the principal amount of such Original Notes, or, if applicable, the certificate numbers shown on the particular certificates evidencing such Original Notes and the principal amount of Original Notes represented by such certificates); (iv) include a statement that such holder is withdrawing its election to have such Original Notes exchanged; and (v) be signed by the holder in the same manner as the original signature on this Letter of Transmittal (including any required signature guarantee). The Exchange Agent will return the properly withdrawn Original Notes promptly following receipt of a notice of withdrawal. If Original Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Original Notes or otherwise comply with the book-entry transfer facility's procedures. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company, and such determination will be final and binding on all parties.

        Any Original Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Original Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such Original Notes will be credited to an account with such book-entry transfer facility specified by the holder) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Notes may be retendered by following one of the procedures described under the caption "The Exchange Offer—Procedures for Tendering" in the Prospectus at any time prior to the Expiration Date.

        3.    SIGNATURES ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND ENDORSEMENTS; GUARANTEES OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Original Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever.

9

        If any of the Original Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal.

        If a number of Original Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Original Notes.

        When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include the book-entry transfer facility whose name appears on a security listing as the owner of the Original Notes) of Original Notes listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required.

        If this Letter of Transmittal is signed by a person other than the registered holder or holders of the Original Notes listed, such Original Notes must be endorsed or accompanied by separate written instruments of transfer or exchange in form satisfactory to the Company and duly executed by the registered holder, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the Original Notes.

        If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when, signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted.

        Endorsements on certificates or signatures on separate written instruments of transfer or exchange required by this Instruction 3 must be guaranteed by an Eligible Institution.

        Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution, unless Original Notes are tendered: (i) by a holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal; or (ii) for the account of an Eligible Institution (as defined below). In the event that the signatures in this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of a firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible Institution"). If Original Notes are registered in the name of a person other than the signer of this Letter of Transmittal, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution.

        4.    SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, as applicable, the name and address to which the Exchange Notes or certificates for Original Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the book-entry transfer facility as such holder may designate.

        5.    TRANSFER TAXES. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Original Notes to it or its order pursuant to the Exchange Offer, except in the case of deliveries of certificates for Original Notes for Exchange Notes that are to be registered or issued in the name of any person other than the holder of Original Notes tendered thereby. If a transfer tax is imposed for any reason other than the transfer and exchange of Original Notes to the

10

Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exception therefrom is not submitted herewith the amount of such transfer taxes will be billed directly to such tendering holder.

        6.    WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus.

        7.    MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES. Any holder whose Original Notes have been mutilated, lost, stolen or destroyed, should contact the Exchange Agent at the address indicated below for further instructions.

        8.    REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number indicated above.

        If backup withholding applies, the Exchange Agent is required to withhold 28% of any payments to be made to the holder of Original Notes. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained by filing a tax return with the Internal Revenue Service. The Exchange Agent cannot refund amounts withheld by reason of backup withholding.

        9.    IRREGULARITIES. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of Letters of Transmittal or Original Notes will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all Letters of Transmittal or tenders that are not in proper form or the acceptance of which would, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to the particular Original Notes covered by any Letter of Transmittal or tendered pursuant to such Letter of Transmittal. Neither the Company, the Exchange Agent nor any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Company's interpretation of the terms and conditions of the Exchange Offer shall be final and binding.

        IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF (TOGETHER WITH CERTIFICATES OF ORIGINAL NOTES OR CONFORMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.

IMPORTANT TAX INFORMATION

        Under U.S. federal income tax law, a holder of Original Notes whose Original Notes are accepted for exchange may be subject to backup withholding unless the holder provides The Bank of New York, as Paying Agent (the "Paying Agent"), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying (A) that the TIN provided on Substitute Form W-9 is correct (or that such holder of Original Notes is awaiting a TIN), (B) that the holder of Original Notes is not subject to backup withholding because (x) such holder of Original Notes is exempt from backup withholding, (y) such holder of Original Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (z) the Internal Revenue Service has

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notified the holder of Original Notes that he or she is no longer subject to backup withholding and (C) that the holder of Original Notes is a U.S. person (including a U.S. resident alien); or (ii) an adequate basis for exemption from backup withholding. If such holder of Original Notes is an individual, the TIN is such holder's social security number. If the Paying Agent is not provided with the correct TIN, the holder of Original Notes may also be subject to certain penalties imposed by the Internal Revenue Service.

        Certain holders of Original Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. However, exempt holders of Original Notes should indicate their exempt status on Substitute Form W-9. For example, a corporation should complete the Substitute Form W-9, providing its TIN and indicating that it is exempt from backup withholding. In order for a foreign individual to qualify as an exempt recipient, the holder must submit a Form W-8BEN, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8BEN can be obtained from the Paying Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions.

        If backup withholding applies, the Paying Agent is required to withhold 28% of any payments made to the holder of Original Notes or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service, provided the required information is furnished.

        The box in Part 3 of the Substitute Form W-9 may be checked if the surrendering holder of Original Notes has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder of Original Notes or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Paying Agent will withhold 28% of all payments made prior to the time a properly certified TIN is provided to the Paying Agent and, if the Paying Agent is not provided with a TIN within 60 days, such amounts will be paid over to the Internal Revenue Service.

        The holder of Original Notes is required to give the Paying Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Original Notes. If the Original Notes are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report.

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PAYER'S NAME: THE BANK OF NEW YORK
SUBSTITUTE FORM W-9 Department of the Treasury Internal Revenue Service	Part 1—PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW	Part 3—Social Security Number or Employer Identification Number
		Awaiting TIN    o
	Part 2—Check the box if you are not subject to backup withholding under the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of a failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding.    o
Payor's Request for Taxpayer Identification Number ("TIN")	Certification: Under the penalties of perjury, I certify that the information provided on this form is true, correct and complete.

Signature Date , 2003

NOTE:	FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
	YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER

            I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 28% of all reportable payments made to me thereafter will be withheld until I provide a number.

Signature Date , 2003

QuickLinks

PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
TENDERING HOLDER(S) SIGN HERE (Complete accompanying substitute Form W-9)
INSTRUCTIONS
IMPORTANT TAX INFORMATION

EX-99.2

Exhibit 99.2

FORM OF NOTICE OF GUARANTEED DELIVERY

for

Tender of All Outstanding
13% Senior Secured Notes due 2008
in Exchange for
New 13% Senior Secured Notes due 2008

of

NEW WORLD RESTAURANT GROUP, INC.

        Registered holders of outstanding 13% Senior Secured Notes due 2008 (the "Original Notes") who wish to tender their Original Notes in exchange for a like principal amount of new 13% Senior Secured Notes due 2008 (the "Exchange Notes") and whose Original Notes are not immediately available or who cannot deliver their Original Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to The Bank of New York (the "Exchange Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or mail to the Exchange Agent. See "The Exchange Offer—Procedures for Tendering Original Notes" in the Prospectus.

The Exchange Agent for the Exchange Offer is:

THE BANK OF NEW YORK

By Mail:
The Bank of New York
Reorganization Unit
101 Barclay Street—7 East
New York, NY 10286
Attention: Corporate Trust Operation

By Facsimile:
The Bank of New York
Attention: Corporate Trust Operation
(212) 298-1915
Confirm by Telephone:
(212) 815-5076

By Hand or Overnight Mail:
The Bank of New York
Reorganization Unit
101 Barclay Street
Lobby Level—Corp. Trust Operation
New York, NY 10286
Attention: Corporate Trust Operation

        DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

        This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an eligible institution (as defined in the Letter of Transmittal), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures.

Ladies and Gentlemen:

        The undersigned hereby tenders the principal amount of Original Notes indicated below, upon the terms and subject to the conditions contained in the Prospectus dated September     , 2003 of New World Restaurant Group, Inc. (the "Prospectus"), receipt of which is hereby acknowledged.

DESCRIPTION OF ORIGINAL NOTES TENDERED
(1) Name of Tendering Holder	(2) Name(s) and Address(es) of Registered Holder(s) as it Appears on the Original Notes (Please print)	(3)   Certificate Number of Original Notes Tendered (or Account Number at Book-Entry Facility)	(4) Principal Amount Original Notes Tendered

SIGN HERE

Name of Registered or Acting Holder:

Signature(s):

Name(s) (Please Print):

Address:

Telephone Number:

Date:

IF ORIGINAL NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION:

DTC Account Number:

Date:

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THE FOLLOWING GUARANTEE MUST BE COMPLETED

GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)

        The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth on the reverse hereof, the certificates representing the Original Notes (or a confirmation of book-entry transfer of such Original Notes into the Exchange Agent's account at the book-entry transfer facility), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three New York Stock Exchange trading days after the Expiration date (as defined in the Letter of Transmittal).

Name of Firm:
	(authorized signature)
Address:	Title:
	Name:
(zip code)	(please type or print)
Area Code and Telephone No.:
	Date:

NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ORIGINAL NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.

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