EINSTEIN BROTHERS BAGELS - FDD UFOC ITEM 7 Detail

ITEM 7

ESTIMATED INITIAL INVESTMENT

YOUR ESTIMATED INITIAL INVESTMENT

Notes to Item 7 Table:

Please note that we do not offer direct or indirect financing to you for any items. The availability and terms of financing from other sources will likely depend on factors such as the availability of financing generally, your creditworthiness, and the policies of lending institutions.

1.                   CONSTRUCTION. You will need to construct improvements, or "build out," the premises at which you will operate the Restaurant. Generally, you will take the premises in "vanilla box" condition (that is, primed drywall ready to be painted, but without improvements). Among other things, you will need to arrange for proper wiring and plumbing, floor covering, wall covering, partitions, heat, air conditioning, lighting installation, storefront modifications, painting, cabinetry, bathroom facilities, etc. You will need to hire an architect and licensed builder. Costs are likely to vary and may be much higher if you wish to establish your Restaurant in an area where special requirements of any kind will apply (such as historical, architectural, or preservation requirements). Landlords sometimes provide tenant improvement allowances. Tenant improvement allowances are not included in the Item 7 chart because if they are offered, the terms vary widely. (Our own experience in constructing prototype units of our new image differs from these estimates, and was more expensive. This is attributable to various factors, such as the size of the units that we built out (approx. 3,000-3,300 sq. ft., larger than our prototype), as well as the fact that they were located in urban settings where the cost of construction and rental was higher than you might anticipate elsewhere.) Licensees that develop an institutional Restaurant may experience different construction costs that range well outside our bottom and top ranges, depending on the site, landlord requirements, other related and unrelated construction done at the same time, and the size of the premises occupied. Some projects developed at municipal or government facilities (and elsewhere) may require compliance with labor standards that could increase your costs.

2.                   KITCHEN/COMPUTER EQUIPMENT AND LIGHTING. The estimate is for the equipment you will need to operate the Restaurant, such as baking equipment, proofers, refrigeration, freezers, sandwich lines, a point-of-sale (POS) system, software and lighting. You will need to obtain these items of equipment and other fixed assets from sources of your own choosing, so long as the items you purchase meet our specifications and are from approved or designated vendors (where there are approved or designated vendors). The amount spent for equipment and other fixed assets will vary for each Restaurant depending upon the Restaurant''s size, style, and the volume of products to be offered in the Restaurant. You will pay suppliers directly for equipment and other fixed assets. Licensees that develop an institutional Restaurant may experience costs outside the stated range because while they are not required to use our POS or software, their landlords often impose different (and sometimes more costly) requirements, and may also require the installation of different lighting fixtures than those that we ordinarily would approve.

3.                   FURNITURE. FIXTURES & MILLWORK. The estimate is for the furniture, fixtures and millwork you will need to operate the Restaurant. You will need to obtain these items and other fixed assets from sources that we designate as approved or designated vendors (where there are designated vendors). The amount spent for furniture, fixtures and millwork will vary for each Restaurant depending upon the Restaurant''s size, style, and the volume of products to be offered in the Restaurant. You will pay suppliers directly for these items.

4.                   SIGNAGE & GRAPHICS. The cost of signage and graphics will vary from location to location depending on lease requirements, local ordinances and restrictions, store frontage, and related factors.�� In addition, other considerations - such as zoning ordinances, as well as historical and architectural design standards - may affect your costs (both in terms of materials as well as professional fees that you will incur to get approval of your proposed signs). We will assist you in designing your signs, and the final proposed design must be submitted to us for our review and prior written approval. You will pay suppliers directly for these items. Licensees that are developing an institutional Restaurant may experience different signage costs, especially if they are not able, do not need, or are not permitted to install exterior signage.

5.                   PROFESSIONAL FEES. The estimate is for legal, accounting, administrative, permitting, traffic studies, demographic studies, brokerage and miscellaneous other professional fees that you may incur before you open for business, including (among other things) to assist you in reviewing the Franchise Agreement. Your actual costs may vary, for example, depending on the degree to which you rely upon your advisors.

6.                   INITIAL FRANCHISE FEE. These amounts are discussed in detail in Item 5. The franchise fee must be paid when the Franchise Agreement is signed. Please see the information provided above in Item 5 regarding the Deposit Agreement and the Development Agreement. If you have also signed a Development Agreement, and you are in compliance with your obligations under the Development Agreement and all of your Franchise Agreements, then we will apply a credit from your development fee toward the initial franchise fee. The amount of the credit will be $10,000 for each Restaurant, so long as the total amount of the credits that we extend to you does not exceed the amount that you paid us as a development fee under the Development Agreement. See Item 5 for more details.

7.                   REAL ESTATE LEASING. If you do not own a location for your Restaurant, you must purchase or lease a space approved by us. You will probably need to lease a space at least four months in advance; however, you may attempt to negotiate an abatement from the landlord. In general, we attempt to negotiate the payment of our leases to coincide with the start of operations so no material pre-opening occupancy expenses are incurred. However, in some cases it may be necessary to begin lease payments before opening in order to secure a particular location, or to accommodate the optimal timing of a new store opening. Restaurant locations and sizes vary. Locations for a Restaurant are those that are typically described as "prime retail." While Restaurant sizes vary from 2,300 square feet to 2,700 square feet, 2,500 square feet is optimal. We have recently developed some new company-owned Restaurants that are larger in size (one is as large as 3,300 sq. ft.) and that were, as a result, more expensive than the chart notes.

The figures in the estimate are calculated on the following assumptions: (a) you will have to pay six months'' rent (made up of one month''s rent before you open, three months'' rent after you open, one month''s rent as a security deposit, as well as payment of the last month''s rent); (b) for space in the range of 2,300-2,700 sq. ft.; (c) at $25 to $45 per square foot per year. If the site you choose is larger, has a higher rental cost, or if you cannot negotiate a pre-opening abatement of rent down to one month, then your costs will be higher than those in the chart.

Rent varies considerably from market to market, and from location to location within each market. Rents may vary beyond the range that we have provided, based on factors such as market conditions in the relevant area, the type and nature of improvements needed to the premises, the size of the Restaurant, the terms of the lease, and the desirability of the location. If you decide to purchase the property for the location of your Restaurant, you will incur additional costs that we cannot estimate.

ENC - REDUNE FDD (39)

8.                   OPENING INVENTORY. SMALLWARES & SUPPLIES. Items of Inventory, smallwares and supplies which you are required to obtain from us or from our designated sources of supply are paid for at standard prices and terms. All items of inventory which you obtain from sources of your own choosing are paid for directly to the supplier of those inventory items at prices agreed upon by you and the supplier. Start-up inventory of products, smallwares and supplies will vary based on expected volume of business and size of storage areas in the building. This estimate is for the initial inventory only.

9.                   INITIAL MARKETING AND PROMOTION. We will assist you in tailoring a Marketing plan appropriate to your market. The amount in the table is for the initial promotion and marketing efforts you are required to make under the Franchise Agreement. Additional details regarding marketing and promotion can be found in Item 11, under the subheading "Marketing."

10.               INSURANCE. The estimate is for the annual premium for the policies required under the Franchise Agreement. Insurance costs will vary depending upon factors such as the size and location of the Restaurant. You must obtain general liability insurance and product liability insurance with minimum limits of $1 million per occurrence, and an umbrella liability policy with minimum limits of $5 million per occurrence, as well as workers'' compensation insurance as required by local and state laws, all of which you will have to obtain through third parties such as your own insurance agent. Your insurance obligations are more fully described in Item 8.

11.               TRAINING EXPENSES. For the initial training period, the "low" estimate assumes that you are located within commuting distance of our training facilities and that you do not incur per diem expenses. The "high" estimate assumes travel, meals, auto and lodging for two individuals, for eight weeks. The cost you incur will vary depending upon factors such as the distance traveled, mode of transportation, travel preferences (such as air travel or ground transportation), nature of accommodations, per diem expenses actually incurred, and the number of persons who will attend training. If you send more than two persons to attend training, we estimate that the additional cost, on a per person basis, will range from $400 to $7,000 per person. Licensees developing institutional Restaurants may experience different training expenses because while we typically require less training (3-4 weeks), the landlord may impose different requirements of its own.

12.               MISCELLANEOUS OPENING COSTS. These include things such as office supplies, first aid kits, fire extinguishers, and similar items.

13.               BUSINESS LICENSES. Local, municipal, county, and state regulations vary on what licenses and permits are required by you to operate. These fees are paid to governmental authorities before starting business.

14.               SECURITY DEPOSITS. The figure is the estimated cost of telephone and utility deposits.

15.               ADDITIONAL FUNDS. You will need additional capital to support on-going expenses, such as payroll and utilities, to the extent that these costs are not covered by sales revenue. New businesses often generate a negative cash flow. We estimate that the amount given will be sufficient to cover on-going expenses for the start-up phase of the business, which we calculate to be three months. This is only an estimate, however, and there is no assurance that additional working capital will not be necessary during this start-up phase or after. Our estimate is based on our experience with company-owned Restaurants.

Your credit history could impact the amount (and cost) of funds needed during the start-up phase. If you have no credit history or a weak credit history suppliers may give you less favorable lending and payment terms, which might increase the amount of funds you will need during this period. You will need to have staff on-hand before opening to prepare the Restaurant for opening, for training, orientation, and related purposes. The estimate assumes that you will need approximately 500 hours of staff time, at $7.00 per hour (or more, if the minimum wage is higher in your state), to get ready for your opening.

The figures in the chart and the explanatory notes are only estimates. Your actual costs may vary considerably, depending, for example, on factors such as: local economic conditions; the local market for the Restaurant; the prevailing wage rate; competition; the sales level achieved during the initial period of operation; and your management and training experience, skill, and business acumen.

You should review these figures carefully on your own with a business advisor of your choosing before making any decision to purchase the franchise. You should take into account the cash outlays and probable losses that you may incur while you are trying to get established. Extensive start-up costs may be involved, depending upon your circumstances.

16.���� TOTAL. We relied on our own experience when preparing these figures.