UFOC

Sample UFOC

INFORMATION FOR PROSPECTIVE FRANCHISEES REQUIRED BY THE FEDERAL TRADE COMMISSION

To protect you, we've required your franchisor to give you this information. We havent checked it and dont know if it's correct. It should help you make up your mind. Study it carefully. While it includes some information about your contract, dont rely on it alone to understand your contract. Read all of your contract carefully. Buying a franchise is a complicated investment. Take your time to decide. If possible, show your contract and this information to an advisor like a lawyer or an accountant. If you find anything you think may be wrong or anything important that's been left out, you should let us know about it. It may be against the law.

There may also be laws on franchising in your state. Ask your state agencies about them.

Federal Trade Commission Washington, D.C. 20580

THIS OFFERING CIRCULAR WAS ISSUED ON MARCH 31, 2006 IN ORDER TO MEET THE REQUIREMENTS OF THE FEDERAL TRADE COMMISSION. THE STATES OF CALIFORNIA, MARYLAND, NEW YORK, AND RHODE ISLAND REQUIRE FRANCHISORS TO MAKE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. IF APPLICABLE, THESE ADDITIONAL DISCLOSURES WILL BE FURNISHED TO YOU IN AN ADDENDUM TO THIS OFFERING CIRCULAR, AND WILL BE EFFECTIVE IN THOSE STATES AS OF THE DATE LISTED IN EXHIBIT A.

FRANCHISE OFFERING CIRCULAR

Manhattan Bagel Company, Inc.

A New Jersey corporation

1687 Cole Blvd. Golden, Colo. 80401

(303) 568-8000

www. manhattanbagel. com

A "Manhattan Bagel" franchisee will operate a business (a "Manhattan Bagel Restaurant") that specializes in the sale of fresh-baked bagels, muffins, cookies, cream cheese and other spreads, specialty coffees and teas, and creative soups, salads and sandwiches, among other things.

Development Agreement. We offer to enter into area development agreements with qualified parties to establish and operate an agreed-upon number of Manhattan Bagel restaurants at specific locations under the terms of a separate franchise agreement for each location. The development fee will be $5,000 for each restaurant to be developed (which means that the development fee will vary depending on the number of restaurants to be developed), although the fee may be credited toward the franchise fee if the development schedule is satisfied.

Franchise Agreement. The initial franchise fee is $25,000 for a single, full producing Manhattan Bagel Restaurant. Your initial purchase of opening inventory (from us or our affiliate) is estimated to range from $10,000 to $20,000. The initial investment for a restaurant is estimated to range from $251,500 to $604,500. Please refer to Items 5, 6 and 7 in this offering circular for details.

Deposit Agreement. If you enter into a Deposit Agreement, you will be asked to provide a deposit in the amount of $10,000. Unless you terminate the Deposit Agreement or it expires, this amount will be credited to your initial franchise fee if you sign a franchise agreement.

Risk factors:

*1. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE TO LITIGATE ONLY IN

COLORADO. OUT OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO LITIGATE WITH THE FRANCHISOR IN COLORADO THAN IN YOUR HOME STATE.

*2. THE FRANCHISE AGREEMENT STATES THAT THE LAW OF COLORADO GOVERNS

THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.

*3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.

LOCAL LAW MAY SUPERSEDE THESE FRANCHISE AGREEMENT PROVISIONS. CERTAIN STATES REQUIRE THE SUPERSEDING PROVISIONS TO APPEAR IN AN ADDENDUM IN THIS OFFERING CIRCULAR.

Information about comparisons of franchisors is available. Call the state administrators listed in Exhibit F or your public library for sources of information.

Registration of this franchise with the state does not mean that the state recommends it or has verified the information in this offering circular. If you learn that anything in this offering circular is untrue, contact the Federal Trade Commission and the state administrators listed in Exhibit F.

This offering circular was issued on March 31, 2006 to meet the requirements of the Federal Trade Commission. Certain states require franchisors to make additional disclosures related to the information contained in this offering circular. If applicable, these additional disclosures will be furnished to you in an addendum, effective as of the date shown in Exhibit A.

Manhattan Bagel Company, Inc. Offering Circular 3671595.32 (March 31, 2006)

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MANHATTAN BAGEL COMPANY, INC. UNIFORM FRANCHISE OFFERING CIRCULAR

TABLE OF CONTENTS

ITEM 1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES................................1

ITEM 2 BUSINESS EXPERIENCE........................................................................................6

ITEM 3 LITIGATION..............................................................................................................8

ITEM 4 -BANKRUPTCY........................................................................................................17

ITEM 5 INITIAL FRANCHISE FEE.......................................................................................17

ITEM 6 OTHER FEES.........................................................................................................19

ITEM 7 INITIAL INVESTMENT............................................................................................22

ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES.......................27

ITEM 9 FRANCHISEE'S OBLIGATIONS.............................................................................31

ITEM 10 FINANCING.............................................................................................................33

ITEM 11 FRANCHISOR'S OBLIGATIONS.............................................................................33

ITEM 12 TERRITORY............................................................................................................41

ITEM 13 TRADEMARKS, SERVICE MARKS, TRADE NAMES,

LOGOTYPES, AND COMMERCIAL SYMBOLS......................................................44

ITEM 14 PATENTS, COPYRIGHTS, AND PROPRIETARY INFORMATION.........................45

ITEM 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL

OPERATION OF THE FRANCHISED BUSINESS...................................................46

ITEM 16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL..................................47

ITEM 17 RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION..............48

ITEM 18 PUBLIC FIGURES...................................................................................................51

ITEM 19 EARNINGS CLAIMS...............................................................................................51

ITEM 20 LIST OF OUTLETS.................................................................................................52

ITEM 21 FINANCIAL STATEMENTS.....................................................................................53

ITEM 22 CONTRACTS.........................................................................................................53

ITEM 23 RECEIPT.............................................................................................54, Last Pages

Exhibits

A Effective Dates I List of Company-Owned Manhattan Bagel

B Franchise Agreement and Exhibits Restaurants

C Development Agreement J NWR's Financial Statements

D Deposit Agreement K Table of Contents for Manual

E Software License Agreement L State-specific Disclosures

F List of State Administrators ^M State-specific Agreement Amendments

G Agents for Service of Process N Franchise Compliance Certification

H List of Current and Former Manhattan O General Release Language

Bagel Franchisees P Receipts (2 copies)

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ITEM1 THE FRANCHISOR. ITS PREDECESSORS AND AFFILIATES

The Franchisor

Manhattan Bagel Company, Inc. ("us", "our" or "we") is the franchisor. We maintain our principal place of business at 1687 Cole Boulevard Golden, Colorado 80401 (303.568.8000). We do not maintain sales offices at any location other than our principal place of business. We do not use any sales brokers or other sales organizations.

We are a New Jersey corporation, and were originally incorporated in 1987. We conduct business under the names and marks "Manhattan Bagel Company, Inc." and "Manhattan Bagel," and do not conduct business under any other name.

We franchise the right to operate a "Manhattan Bagel" restaurant (the "Restaurant"). We began to offer these franchises in 1991. We have operated company-owned "Manhattan Bagel" restaurants since 1987. We or our affiliates also produce bagels which are sold to our franchised restaurants and which may be sold to our affiliates and their franchisees (see below). We do not offer any franchise other than as described in this offering circular, and, except for the manufacture of bagels described above, we do not engage in any business activity other than the franchising and operation of restaurants using the "Manhattan Bagel" names and marks. As of January 3, 2006, we had 109 franchised "Manhattan Bagel" restaurants, but we did not operate any "Manhattan Bagel" restaurants.

Our corporate parent company is New World Restaurant Group, Inc. ("NWR"), a Delaware corporation, whose principal place of business is also at 1687 Cole Boulevard Golden, Colorado 80401 (303.568.8000). NWR was incorporated on October 21,1992 as New World Coffee, Inc. Later, NWR's name was changed to New World Coffee & Bagels, Inc., then to New World Coffee-Manhattan Bagel, Inc., and, lastly, to New World Restaurant Group, Inc.

Our agents for service of process are listed in Exhibit G to this offering circular.

Predecessors and History of Operations

We have no predecessors.

On November 19, 1997, we filed a petition to reorganize under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. We emerged from bankruptcy on November 25,1998, when we were purchased by NWR.

On May 12, 2000 NWR acquired 17 New York Bagel Enterprises, Inc. ("NY Bagel") company-owned stores located in Oklahoma and Kansas in a Chapter 11 Bankruptcy sale. The acquisition included the rights to the franchise agreements for 13 existing NY Bagel franchises, but NWR does not intend to exercise its rights regarding the franchises. On July 12, 2000, NWR acquired 6 Lots' A Bagels, Inc. ("LAB") stores, an affiliate of NY Bagel. NWR has closed these stores. NWR will not sell franchises or open any new stores under the NY Bagel or LAB names.

Manhattan Bagel Company, Inc. Offering Circular 3671595.32 (March 31, 2006)

Pagel

Our Corporate Parent

In addition to owning our company, our corporate parent, NWR also owns and operates other bagel and coffee-based manufacturing operations, products and retail restaurant systems. Its-retail locations operate under tradenames and trademarks other than ours, including "Einstein Bros.," "Noah's New York Bagels," "Chesapeake Bagel Bakery," and "New World Coffee." As mentioned below, NWR operates, and has offered franchises to others to operate restaurants since 1992. NWR will sell coffee to you.

As of January 3, 2006, there were 67 licensed and 360 company-owned "Einstein Bros." retail stores, 3 licensed and 73 company-owned "Noah's New York Bagels" or "Noah's Bagels" retail stores, 8 franchised and no company-owned "Chesapeake Bagel Bakery" or "Chesapeake Bagel" restaurants, and 4 franchised and 2 company-owned "New World Coffee" stores. (This offering circular does not provide for the offer of franchises under those names, marks, and franchise systems. Information about those systems, to the extent that they are currently engaged in the offer and sale of franchises, can be found in other offering circulars that we will make available to you upon request.) In addition, NWR may directly and indirectly sell products under the names "Manhattan Bagel", "Chesapeake Bagels", "Einstein Bros.", "New World Coffee", and "Noah's" in other settings such as supermarkets and over the internet. Until October 2004, NWR also owned and operated four Willoughby's Coffee & Tea restaurants in Connecticut; NWR discontinued operating those units in October 2004.

Our Affiliates

Our affiliates are described below. Except for "Einstein Bros." and "Noah's New York Bagels," which operate from our corporate office in Golden, Colorado (and through a satellite office in Walnut Creek, California for the "Noah's New York Bagels" system), all of these affiliates operate out of our satellite office at 100 Horizon Center Blvd., Hamilton, New Jersey 08691 (800.859.3090). We do not offer franchises for our affiliates' other concepts under this offering circular (additional information concerning those systems may be available from NWR's corporate offices or through a separate offering circular).

Einstein and Noah Corp.

NWR owns all of the stock of Einstein and Noah Corp. ("ENC"), a Delaware corporation. ENC in turn owns and franchises restaurants under the "Einstein Bros." and "Noah's New York Bagels" marks and franchise system.

NWR formed ENC on May 11, 2001 (as "Einstein Acquisition Corp".) and an affiliated entity, Greenlight New World, LLC, for the purpose of seeking to acquire the Einstein and Noah Restaurant System from Einstein/Noah Bagel Corp. ("ENBC") and its affiliates, Einstein/Noah Bagel Partners, L.P. ("ENBP") and Einstein/Noah Bagel Partners, Inc. ("ENBPI"), the predecessor entities that owned the marks and restaurants that operated using the "Einstein Bros.", "Noah's New York Bagels" and "Noah's Bagels" names (together, the "Einstein and Noah Restaurant System"). As part of the Acquisition, described below, Greenlight New World, LLC, assigned to ENC all of its acquisition-related rights regarding the Einstein and Noah Restaurant System.

On June 19, 2001, Einstein Acquisition Corp. successfully completed its acquisition of the Einstein and Noah Restaurant System (the "Acquisition"). As explained above, ENC (Einstein

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Acquisition Corp.) changed its name to "Einstein and Noah Corp." on November 2, 2001. ENC has operated the restaurants comprising the Einstein and Noah Restaurant System since the date of the Acquisition, June 19, 2001, and ENC is not currently franchising "Einstein Bros." or "Noah's New York Bagels" restaurants.

Noah's New York Bagels

As discussed above, ENC also operates restaurants under the "Noah's New York Bagels" and "Noah's Bagels" marks and system.

Chesapeake Bagel Franchise Corp.

NWR owns all of the stock of Chesapeake Bagel Franchise Corp. ("CBFC"), formerly known as CBB Acquisition Corp. CBB Acquisition Corp., a New Jersey corporation, was formed on July 16, 1999 for the purpose of acquiring from AFC Enterprises, Inc. ("AFC") the "Chesapeake Bagel" marks and franchise system. Through CBB Acquisition Corp., now known as CBFC, NWR acquired the Chesapeake Bagel marks and franchise system from AFC on August 31, 1999. AFC operated, and offered franchises to others to operate, "Chesapeake Bagel" restaurants from May 1997 to August 1999. CBFC has operated, and offered franchises to others to operate, "Chesapeake Bagel" restaurants since August 1999. "Chesapeake Bagel" restaurants feature bagels and cream cheese, coffee, and related menu items as part of their core menu offerings.

New World Coffee & Bagel

NWR operates, and has offered franchises to others to operate, "New World Coffee & Bagel" restaurants since 1992. "New World Coffee" and "New World Coffee & Bagel" restaurants feature coffee and related menu items as part of their core menu offerings.

The Franchise Offered

A Restaurant is operated in a building that bears our trade dress (interior, exterior, or both). A Restaurant specializes in the sale of Proprietary Items, including fresh-baked bagels, cream cheese and other spreads, specialty coffees and teas, muffins, and creative soups, salads and sandwiches, and other additional products as we may specify periodically, as well as nonproprietary Items such as sandwiches, salads, soups, and other beverage items for on-premises and carry-out consumption (collectively, the "Products").

Area Development Agreement

We offer to qualified companies (a "Developer" or "you") the right (and they accept the obligation) to develop an agreed-upon number of Restaurants within a specific geographic area ("Development Area") under our area development agreement (the "Area Development Agreement") (a copy can be found at Exhibit C to this offering circular). Under an Area Development Agreement, you will be required to establish an agreed-upon number of Restaurants within the Development Area, at specific locations (to be specified in separate Franchise Agreements)(as explained below). An important part of the Area Development Agreement is a development schedule (the "Development Schedule"), which spells out the number of Restaurants that you agree to have established by certain benchmark dates.

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Franchise Agreement

We offer to enter into franchise agreements ("Franchise Agreements") with qualified corporations and persons ("you") that wish to establish and operate Restaurants (a copy of the Franchise Agreement is attached as to this offering circular as Exhibit B). (In this offering circular, "you" means the person or legal entity with whom we enter into an agreement. The term "you" also refers to the direct and indirect owners of a corporation, partnership, limited liability company, or limited liability partnership that signs a Franchise Agreement as the "franchisee".) Under a Franchise Agreement, we will grant you the right (and you will accept the obligation) to operate a Restaurant at an agreed-upon specified location (the "Approved Location").

Deposit Agreement

Before we enter into a Franchise Agreement with you, we will ask you to enter into a Deposit Agreement and provide us with a deposit. Under a Deposit Agreement, we will agree with you on a specific area within which you can look for a site at which to develop a Restaurant. You will have to provide us with a $10,000 deposit, which we will fully credit against your initial franchise fee if and when you sign the Franchise Agreement. If we sign a Deposit Agreement, neither you nor we will be obligated to sign a Franchise Agreement. If, during the term of the Deposit Agreement, you do not find a site for the Restaurant that is acceptable to us, if for any other reason (other than our failure to evaluate a proposed site) you cannot find an approved site for a Restaurant, or if at any time you choose to terminate the Deposit Agreement and notify us in writing, then the Deposit Agreement will terminate, and we will refund the deposit to you less our actual out-of-pocket costs (up to $5,000). If, during the term of the Deposit Agreement, we terminate the Deposit Agreement for any reason, then the Deposit Agreement will terminate, and we will refund your entire deposit. The limited area that is described under the Deposit Agreement will not have any relationship to any protected territory that you may have under a Franchise Agreement.

Manhattan Bagel Restaurants

Restaurants are characterized by our system (the "System"). Some of the features of our System are a specially-designed building or facility, with specially developed equipment, equipment layouts, signage, distinctive interior and exterior design and accessories, Products, procedures for operations; quality and uniformity of products and services offered; procedures for management and inventory control; training and assistance; and advertising and promotional programs. We may periodically change and improve parts of the System.

You must operate your Restaurant in accordance with our standards and procedures, as set out in our Confidential Operating Manual (the "Manual"). We will lend you a copy of the Manual for the duration of the Franchise Agreement. In addition, we will grant you the right to use our marks, including the mark "Manhattan Bagel" and any other trade names and marks that we designate in writing for use with the System (the "Proprietary Marks").

Other (Discontinued) Programs

Previously, in some states, we offered a Master Franchise program. These "Master Franchisees" were sub-franchisors who sold franchises and performed certain obligations in their exclusive territories. We currently have no Master Franchisees and no longer offer the Master Franchisee program.

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In 1993, we offered franchises in a chicken concept known as "Broadway Chicken." We sold 5 of these franchises, none of which are currently operating. We no longer offer these franchises.

Industry-Specific Regulations

You must comply with all local, state, and federal laws that apply to your Restaurant operations, including for example health, sanitation, no-smoking, EEOC, OSHA, discrimination, employment, and sexual harassment laws. The Americans with Disability Act of 1990 requires readily accessible accommodation for disabled persons and therefore may affect your building construction, site elements, entrance ramps, doors, seating, bathrooms, drinking facilities, etc. For example, you must obtain real estate permits (e.g., zoning), real estate licenses, and operational licenses. There are also regulations that pertain to sanitation, labeling, food preparation, food handling, and food service. You will be required to comply with all applicable federal, state, and local laws and regulations during the operation of your Restaurant. You should consult with your attorney concerning those and other local laws and ordinances that may affect your Restaurant's operation.

Competition

You can expect to compete in your market with locally-owned businesses, as well as with national and regional chains, that offer bagels, coffee, breads, sandwiches, breakfast items, lunch items, and related products, which may compete with the products offered at a Restaurant. The market for these items is well-established and very highly competitive. Bagel and coffee restaurants, and breakfast and lunch businesses, compete on the basis of many factors, such as price, service, store location, product quality, and store promotions and marketing programs. These businesses are often affected by other factors as well, such as changes in consumer taste, economic conditions, seasonal population fluctuation, and travel patterns. To the extent that customers may be able to buy "Manhattan Bagel" brand products from other sources (for example, from other restaurants, our website, supermarkets), you may appear to, or actually, compete with other sellers of these branded products. In addition, to the extent that customers may be able to buy bagels, coffee, and other products under the "Einstein Bros.," "Noah's New York Bagels," "Chesapeake Bagel Bakery," and "New World Coffee" names, you may appear to, or actually, compete with these sellers of products.

Manhattan Bagel Company, Inc. Offering Circular 3671595.32 (March 31, 2006)

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ITEM 2 BUSINESS EXPERIENCE

The following is a list of directors, principal officers, and other executives who have management responsibility for the operation of our business concerning the franchises described in this offering circular. The principal occupation and business experience of each during the last five years, including the names and location of prior employers, are indicated in the table below.

Unless otherwise indicated, the location of the employer is Golden, Colorado. Also, unless otherwise explained, the individuals listed below also hold the same position and have the same responsibilities for us as they do for our parent, NWR and for our affiliates CBFC and ENC (starting when NWR acquired us in December 1998, CBFC in August 1999, and ENC in June 2001).

Chief Executive Officer:___________________________________________Paul Murphy III

Mr. Murphy is our Chief Executive Officer. He joined ENBC in December 1997 and has served us, thru the Acquisition, as our Chief Executive Office (since October 2003), our Chief Operating Officer (June 2002 until October 2003), our Executive Vice President - Operations (June 2001 until May 2002), ENBC's Executive Vice President of Operations (March 1998 through the date of the Acquisition), and as ENBC's Senior Vice President - Operations (December 1997 until March 1998). From July 1996 until December 1997, he was Chief Operating Officer of one of ENBC's former area developers in Boca Raton, Florida.

Chief Financial Officer:________________________________________Richard Dutkiewicz

Mr. Dutkiewicz joined us as our Chief Financial Officer in October 2003. He previously served Sirenza Microdevices, Inc. of Golden, Colorado as its as Vice President-Information Technology from May 2003 to October 2003, as the Chief Financial Officer of Vari-L Company, Inc. of Denver, Colorado from January 2001 to May 2003, and as the Chief Financial Officer of Coleman Natural Products, Inc., also of Denver, from April 1995 to January 2001.

Chief Operating Officer:______________________________________Daniel J. Dominguez

Mr. Dominguez was appointed to serve as our Chief Operating Officer in December 2005. He previously served our affiliate, Noah's Bagels, in Walnut Creek, California, from April 1998 to June 2002 as its Vice President of Operations and from June 2002 until December 2005 as its Senior Vice President.

General Counsel and Corporate Secretary:_______________________________Jill Sisson

Ms. Sisson joined us as our General Counsel and Corporate Secretary in December 2003. Before joining us, she served as the General Counsel and Corporate Secretary for Graphic Packaging Corporation, also in Golden, Colorado, a position she held from September 1992 to August 2003.

Senior Vice President of Franchising:_________________________________Paul Carolan

Mr. Carolan has served as our Senior Vice President of Franchising since July 2005. From November 2000 to July 2005, he was a Regional Vice President for Aramark Corporation in Dallas, Texas.

Associate General Counsel:______________________________________Darden K. Coors

Ms. Coors join us as our Associate General Counsel in November 2004. Before joining us, she was a self-employed consultant in Arvada, Colorado from September 2003 until November

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2004. Ms. Coors was Legal Counsel at Graphic Packaging Corporation (f/k/a ACX Technologies, Inc.) from September 1998 to September 2003, in Golden, Colorado and Bow, New Hampshire.

Vice President of Marketing:_______________________________________David Ammons

Mr. Ammons has served as our Vice President of Marketing since April 2000. He also currently serves in the same capacity with NWR. From September 1996 to February 1999, Mr. Ammons was employed by Allied Domecq U.S. Retailing in Randolph, Massachusetts as a Director of Field Marketing for the Dunkin' Donuts, Baskin Robbins, and Togo's brands. From March 1999 to March 2000, Mr. Ammons acted as a restaurant consultant for Marketing, Advertising & Research Solutions, LLC, located in Yardley, Pennsylvania.

Vice President of Operations:___________________________________Gerardo Donatiello

Mr. Donatiello has served as Vice President of Operations since April 2005. From December 2003 to April 2005 Mr. Donatiello was our Director of Operations. From 2000 to December 2003, Mr. Donatiello owned and operated a manufacturing facility named Big G Foods located in Shrewsbury, New Jersey. From 1987 to 2000, Mr. Donatiello was employed by us in various capacities such as Store Opener, Franchise Consultant, Director of Operations and Distribution and Manufacturing.

Vice President - Construction/Facilities:________________________________Keith Isoldi

Mr. Isoldi has been our Vice President - Construction/Facilities since July 2002. He previously served with ENBC (and, after July 2001, ENC) and NWR from November 1998 to April 2002 as Senior Director - Facilities (November 1998 to September 2000) and Senior Director -Construction (September 2000 to April 2002). From April 2002 to June 2002, he was Director of Development for Chicken Out Restaurants in Gaithersburg, Maryland. He has served MBC as well since June 2001.

Vice President - Human Resources:_______________________________Masha Schricker

Ms. Schricker joined ENBC in April 1995. She served as Human Resource Manager for its Einstein Bros/Sunbelt Bagels/Progressive Bagel Concepts Incorporated group (in Salt Lake City) from April 1995 to January 2000, as Director of Human Resources from January 2000 to May 2002, Senior Director of Human Resources from May 2002 to November 2003, and since November 2003, as Vice President - Human Resources. She has served MBC as well since June 2001.

Vice President - Information Technology:______________________________Beth Briqgs

Ms. Briggs has served as our Vice President - Information Technology since October 2003. From March 1999 to October 2003, she served as ENBC's (and later, ENC's) Director of Information Technology. She previously held the position of Senior Manager, Information Technology Support for Metromedia Restaurants in Piano, Texas, from April 1985 to March 1999.

Vice President - Manufacturing:______________________________________Scott Harvey

Mr. Harvey joined MBC in January 1995. He has served as a Manager in Training (January 1995 to April 1995), Store Manager (April 1995 to May 1995), Commissary Manager (May 1995 to April 1996), Director of Commissary (April 1996 to June 1997), Director of HR/Training/Operations Support/Commissary (June 1997 to February 1998), Director of Commissary Operations - Northeast (February 1998 to June 1998), Director of Commissary Operations - National (June 1998 to February 2000), Senior Director of Commissary Operations - National (February 2000 to June 2001), and since June 2001 as its Vice President -

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Manufacturing. He has served MBC as well in that capacity since June 2001.

ITEM 3 LITIGATION

Litigation against us:

Overand v. Manhattan Bagel Co.. Inc. (U.S. District Court for the District of New Jersey, Case No. CV-96-9597). The named plaintiff (Overand) was a shareholder of MBC, and filed a class action suit claiming various securities laws violations involving the public sale in March 1996 of MBC stock, including failure to disclose material facts and violation of SEC Rule 10b-5. Overand sought damages in an unspecified amount. Overand filed a claim in MBC's Chapter 11 case (the "MBC Bankruptcy Proceeding"). The lawsuit and claim were consolidated with Copeland v. Grumet (described below) and was resolved as described below.

Copeland v. Grumet (U.S. District Court for the District of New Jersey, Case No. CV-96-3351). The named plaintiff (Copeland) in this case was a shareholder of MBC, and filed a class action suit claiming various securities laws violations involving the public sale in March 1996 of MBC's stock, including failure to disclose material facts and violation of SEC Rule 10b-5. The plaintiffs sought damages in an unspecified amount. This case was consolidated with Overand v. Manhattan Bagel Co.. Inc. (described above), and the claim was asserted in the MBC Bankruptcy Proceeding. The lawsuit and claim were settled on December 22, 2000 by NWR's indemnification obligation to former MBC officers by the issuance of approximately $200,000 of NWR's common stock.

C.P.R. Fashions. Inc. v. Broadway Chicken. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-830-96). On February 28, 1996 C.P.R. Fashions, Inc., the plaintiff, a former franchisee of Broadway Chicken, Inc., brought this action for breach of contract and violation of the New Jersey Consumer Fraud Act. The plaintiff claimed that services were not performed under the franchise agreement and sought damages in an unspecified amount. MBC (which had purchased Broadway Chicken, Inc.) counterclaimed for royalties and advertising monies owed and for construction monies due on work performed in building the store. The plaintiff filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The plaintiff's lawsuit was dismissed and its claim was denied.

Manhattan Industries, Inc. v. Manhattan Bagel Co.. Inc. and Karen Steamer (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-644-96). On February 15, 1996, Manhattan Industries, Inc. (the plaintiff), a franchisee of MBC, brought this action against MBC and MBC's Florida Master Franchisee, for breach of contract and misrepresentation. The plaintiff alleged breach of the franchise agreement and various untrue statements during the purchase of the franchise. The plaintiff sought damages in an unspecified amount, punitive damages, and rescission of the franchise agreement. In March 1996, MBC filed an answer that denied the allegations, and counterclaimed for fraud and misrepresentation, and also instituted a third party action against the plaintiff's principals for breach of contract and fraud. The plaintiff filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit was resolved through a settlement in the MBC Bankruptcy Proceeding on January 11, 1999, which included a requirement that the master franchisee relinquish its territory to MBC, and granted the plaintiff an unsecured claim of $125,000.

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Manhattan Bagel Co., Inc. v. Fleming Bagel LLC (U.S. District Court of New Jersey, CV-96-3123). In June 1996, MBC filed an action for a declaratory judgment against Fleming Bagel LLC, a former developer, asking the court to declare that defendants' master franchise rights in Texas and Louisiana were terminated, and seeking damages and other relief. The Court entered an order agreeing to terminate the master franchise rights but did not address MBC's other claims. The defendants filed a counterclaim alleging default by MBC under the contract. The defendants later filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit was resolved through a settlement in the MBC Bankruptcy Proceeding dated June 29, 1999, which included a requirement that the master franchisee relinquish its territory to MBC, and granted the plaintiff an unsecured claim of $15,000.

HalRob, Inc. v. Manhattan Bagel Co.. Inc. (Superior Court of New Jersey, Camden County, Chancery Division, C-16-97). In February 1997, HalRob Inc., the plaintiffs (who were franchisees of Specialty Bakeries, Inc., which MBC acquired in 1996) alleged violation of a restrictive covenant, and sought injunctive relief and other damages. This action was stayed and the plaintiffs were ordered to arbitrate their claims (see description below under Specialty Bakeries. Inc. v. HalRob. Inc.). The plaintiffs filed a claim in the MBC Bankruptcy Proceeding to which MBC objected. The lawsuit and claim was resolved through the MBC Bankruptcy Proceeding on July 17, 2001 by the allowance of an unsecured claim of $335,000 against the MBC bankruptcy estate, and payment of an administrative claim of $7,500.

Specialty Bakeries. Inc. v. HalRob. Inc. (U.S. District Court for the Eastern District of Pennsylvania, Case No. CV-97-1057). In February 1997, MBC sought an order from the federal court requiring HalRob, Inc., the defendants (franchisees of Specialty Bakeries, Inc.) to arbitrate the claims they asserted in the Superior Court of New Jersey (see description above under HalRob. Inc. v Manhattan Bagel Co.. Inc.). In March 1997, the court ordered the defendants to arbitrate their claims and in April 1997, the court enjoined the defendants from proceeding with the lawsuit filed in the Superior Court of New Jersey. The arbitration proceeding was stayed by the filing by MBC of its Chapter 11 bankruptcy proceeding in November 1997. In November 1997, the U.S. Court of Appeals for the Third Circuit affirmed the District Court's orders. The lawsuit was resolved through the MBC Bankruptcy Proceeding as described above.

Naphtalie Deutsch. as Trustee of the JMB Irrevocable Trust dated June 4. 1979 v. Manhattan Bagel Co.. Inc. (U.S. District Court for the District of Central California, Case No. CV97-0276-RAP (ANX)). Naphtalie Deutsch, the plaintiff, filed a claim alleging that MBC failed to comply with contractual obligations under an Agreement and Plan of Merger dated as of May 10, 1995, as amended, which was entered into by MBC, DAB Acquisition Corp., DAB Industries, Inc., and Allen Boren, regarding the obligations to register shares owned by the plaintiffs for public sale by them all as part of MBC's acquisition of the "I'N Joy Bagel" system in 1995. The plaintiffs filed a claim in the MBC Bankruptcy Proceeding, to which MBC objected. The lawsuit and claim were resolved through allowance of an unsecured claim against the MBC bankruptcy estate.

Monticito Market Place Assoc, v. Bay Area Bagel. Inc.. (Superior Court of California, Marin County, Docket No. 171501). In August 1997, Monticito Market Place Assoc, the plaintiff, filed a lawsuit alleging breach of contract, conspiracy to induce breach of contract, fraud, breach of fiduciary duty and other allegations based on a lease agreement with Bay Area Bagel, Inc., a subsidiary of MBC. MBC filed an Answer to the Complaint denying the allegations. The plaintiff dismissed its complaint with prejudice on June 2,1999.

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In re Manhattan Bagel Co., Inc., Wha Dong and Boo Young Kim v. Manhattan Bagel Co.. Inc. (U.S. Bankruptcy Court, District of New Jersey, Adversary Proceeding No. 98-3599). In November 1998, Wha Dong and Boo Young Kim, the plaintiffs, started an adversary proceeding in the MBC Bankruptcy Proceeding, alleging breach of contract, breach of covenant not to compete, intentional interference with economic advantage and violations of the New Jersey Unfair Trade Practices and Consumer Protection Law by MBC. The plaintiffs also filed a claim in the MBC Bankruptcy Proceedings. MBC filed an answer and objected to the plaintiffs' claim. The lawsuit and claim were resolved in the MBC Bankruptcy Proceeding on March 20, 2000 by granting them an unsecured claim against the MBC bankruptcy estate.

Q.E.D. Ventures. Inc., Patricia Maher Wangsness. and David S. Wangsness v. Manhattan Bagel Co.. Inc. and Sanford Nacht, (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-5354-99). This complaint was filed November 1999 by a Manhattan Bagel franchisee in Virginia alleging violation of the franchise agreement because NWR acquired the Chesapeake Bagel Bakery chain in August 1999. This lawsuit also named as a defendant Sanford Nacht, in both his individual capacity and as President and Chief Operating Officer of MBC (at the time of filing). MBC filed counterclaims. The matter was settled on November 30, 2000 by the payment of $22,500 to the plaintiffs.

Manhattan Bagel Co.. Inc. v. Osborn. (American Arbitration Association, New Jersey, Case No. 18-E-114-00428-99) This arbitration was begun in July 1999 by MBC against Albert J. and Lisa J. Osborn, franchisees of a Manhattan Bagel franchised store in Williamsville, New York, seeking termination of franchisee's franchise agreement and collection of overdue royalties and other charges in the amount of $13,090. The Osborns filed a counterclaim seeking rescission of the franchise agreement, damages of $49,200, and attorneys' fees. After the Bankruptcy Court granted MBC's motion for summary judgment, the matter was settled on December 28, 2000 by the Osborns' payment to MBC in the amount of $16,471.

Manhattan Bagel Co.. Inc. v. Benfante. (American Arbitration Association, New Jersey, Case No. 18-E-114-00015-00). This arbitration was begun in August 1999 by MBC against Patrick Benfante and Rocco Cupolo, franchisees of a Manhattan Bagel franchised store in Rochester, New York, seeking termination of franchisee's franchise agreement and collection of overdue royalties and other charges in the sum of $13,807. The franchisee counterclaimed, seeking rescission of the franchise agreement. After the Bankruptcy Court granted MBC's motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee's payment to MBC in the amount of $17,565.

Manhattan Bagel Co.. Inc. v. Benfante (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-4350-99). MBC filed this complaint in August 1999 against Patrick Benfante and Rocco Cupolo, who were also franchisees of a Manhattan Bagel franchised store in Rochester, New York, seeking termination of franchisee's franchise agreement and collection of overdue royalties and other charges in the sum of $12,250. After the Bankruptcy Court granted MBC's motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee's payment to MBC in the amount of $15,792.

Manhattan Bagel Co.. Inc. v. W.I.P.P. Enterprises. Inc. (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-3477099). MBC filed this complaint in July 1999 against W.I.P.P. Enterprises, Inc., the franchisee of a Manhattan Bagel franchised store in West Seneca, New York, seeking termination of the franchisee's franchise agreement and collection of royalty arrearages and other charges in the sum of $12,503.37. The franchisee counterclaimed, seeking rescission of the franchise agreement, attorneys' fees, and $50,000 in

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damages. After the Bankruptcy Court granted MBC's motion for summary judgment, the matter was settled on December 28, 2000 by the franchisee's payment to MBC in the amount of $18,315.

Manhattan Bagel Co.. Inc. v. Klein (Superior Court of New Jersey, Monmouth County, Law Division, Case No. MON-L-3478-99). MBC filed this complaint in July 1999 against Kevin and Susan Klein, who were franchisees of a Manhattan Bagel franchised store in Hamburg, New York, seeking termination of the Klein's franchise agreement and collection of overdue royalties and other charges in the sum of $9,236. The Kleins counterclaimed, seeking rescission of the franchise agreement, attorneys' fees, and $50,000 in damages. The Kleins have appealed the final order entered in March 2002, denying franchisee's cross-motion for summary judgment. MBC will continue pursuit of its claims against these franchisees.

John W. Manqan. Ill, and The Manqan Group f/k/a MBSE. Inc.. v. Manhattan Bagel Co.. Inc.. and New World Coffee-Manhattan Bagel. Inc. (North Carolina Superior Court, Mecklenburg County, No. 01-CVSA-13874). The plaintiff in this action (which was filed on July 16, 2001) was a former Manhattan Bagel master franchisee and its principal owner. The plaintiffs sought payment on a consulting agreement and other amounts due as part of a settlement agreement involving MBC's recapture of the master franchise territory. The action was settled through MBC's completion of its compliance under the October 24, 2001 settlement agreement, under which MBC agreed to pay approximately $314,000 in damages and fees.

Hiqgs v. Manhattan Bagel Co.. Inc., John/Jane Does # 1-10; and ABC Corporations #1-10 (Superior Court of New Jersey, Case No. MON-C- 40-02). In February 2001, Robert Higgs, a franchisee of Manhattan Bagel stores at Route 37 East, Toms River, New Jersey and Eric Plaza Shopping Center, Forked River, New Jersey, filed a complaint against MBC and its officers, agents and related corporations for breach of contract, breach of fiduciary duties, tortious interference, and violations of the New Jersey franchise law. Higgs did not seek any specified amount of damages, but requested punitive damages, costs, and attorneys' fees. The matter was settled on July 23, 2003 by the payment of $40,000 to the plaintiff.

Litigation against ENC:

Goldstein v. Einstein and Noah Corp. (Superior Court for the State of California, County of San Francisco, Case No. CGC-02-410967A). On July 31, 2002, Tristan Goldstein, a former store manager, and Valerie Bankhordar, a current store manager, filed a putative class action against ENC. The plaintiffs allege that ENC failed to pay overtime wages to managers and assistant managers of ENC's California stores, whom it is alleged were improperly designated as exempt employees in violation of California wage and hour laws and Business Profession Code Section 17200. In a mediation conducted on April 7, 2004, the parties agreed to a settlement of $1 million. The agreement was approved by the court in January 2006 and the settlement was paid in February 2006.

Litigation against ENBC or ENBP:

Ron Benit. Simi Weiss and Thomas Griner v. Einstein/Noah Bagel Corp.. Mark R. Goldston. Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1614). Messrs. Benit, Weiss, and Griner, the plaintiffs in this case, are former ENBC shareholders. The plaintiffs filed this lawsuit on July 25,1997, alleging that ENBC and the other defendants (former ENBC executives) disseminated or approved press releases and financial reports that contained misrepresentations and material omissions, and also concealed

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materially adverse financial information. The plaintiffs claimed that ENBC should not have treated its former area developers as separate legal entities and that ENBC should have consolidated its own financial results with those of the area developers. The plaintiffs alleged that the failure to consolidate the financial results made ENBC's financial reports untrue and misleading, violating Sections 11 and 12(2) of the Securities Act of 1933 (because the alleged violations occurred in the context of ENBC's initial public offering.) The plaintiffs asserted an additional claim against defendants Goldston, Carlborg, and Beck on the grounds that they acted as controlling persons of ENBC within the meaning of Section 15 of the Securities Act. The plaintiffs alleged that by reason of their positions as directors or officers of ENBC, these individuals (defendants Goldston, Carlborg, and Beck) had the power and authority to cause ENBC to engage in the wrongful conduct alleged in the complaint. In addition, the complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as claims arising under the Colorado Securities Act against all defendants. Plaintiffs sought the following relief: (a) certification of the complaint as a class action for all persons who purchased or otherwise acquired the common stock of ENBC between August 2, 1996 and July 15, 1997; (b) an award of compensatory damages, interest and costs to all members of the class; and (c) equitable relief available under federal and state law.

In addition to the Benit case described above, six other complaints were filed in the U.S. District Court for the District of Colorado between August 8-29, 1997. Each of these complaints alleged substantially the same claims and causes of action arising under federal or Colorado state securities laws the plaintiffs in the Benit case. The cases are:

Meduri v. Einstein/Noah Bagel Corp.. Mark R. Goldston, Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1712). Filed August 8, 1997.

Drake v. Einstein/Noah Bagel Corp.. Mark R. Goldston, Eric Carlborg and Scott A. Beck (U.S. District Court for the District of Colorado, Case No. 97-N-1713). Filed August 8, 1997.

Eisenfeld v. Einstein/Noah Bagel Corp., Mark R. Goldston. Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-1823). Filed August 21, 1997.

Montova v. Einstein/Noah Bagel Corp.. Mark R. Goldston. Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-2318). Filed August

27, 1997.

Snvdman v. Einstein/Noah Bagel Corp.. Mark R. Goldston. Eric Carlborg and Scott A. Beck. (U.S. District Court for District of Colorado, Case No. 97-N-1877). Filed August

28, 1997.

Kenneth Naish as custodian for Brian Naish and Jennifer Naish v. Einstein/Noah Bagel Corp.. (U.S. District Court for District of Colorado, Case No. 97-N-1894). Filed August

29, 1997.

These actions were consolidated as In re Einstein/Noah Bagel Corp. Securities Litigation (U.S. District Court for District of Colorado, Case No. 97-N-1614). The plaintiffs later amended the complaint to change the alleged class period to the period from August 2, 1996 to October 29, 1997. In addition to the cases described above, Drake v. Einstein/Noah Bagel Corp.. Mark R.

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Goldston, W. Eric Carlborg and Scott A. Beck (Division 5, Jefferson County District Court, State of Colorado, Case No. 97-CV-2697), was filed in Colorado state court on September 19,1997. The complaint alleged substantially the same claims and causes of action arising under Colorado state securities laws as the plaintiffs in the Benit case, but this case was not consolidated in the others. In February 1999, ENBC and the individual defendants in all of the cases described above entered into a settlement agreement under which ENBC paid (in the aggregate) $8.5 million and all parties signed mutual releases and dismissed all claims with prejudice. ENBC funded the settlement with proceeds of director and officer liability insurance policies. The U.S. District Court for the District of Colorado approved the settlement in June 1999.

Brownell v. Einstein/Noah Bagel Corp. (Superior Court of the State of California, Alameda County, Case No. 797600-5). Edwin Brownell, the plaintiff, is a former employee of MBC who filed this lawsuit on June 15, 1998. He alleged that ENBC breached an oral promise to employ him in California until his youngest son graduated from high school (which would have been in 2002). The complaint also alleged that ENBC breached a covenant of good faith and fair dealing, that the plaintiff was fraudulently induced to relocate from Kansas City to California, that ENBC made false representations under Section 970 of the California Labor Code, and that Brownell was fraudulently induced to invest $100,000 in a former area developer of ENBC. Brownell alleged that his damages include lost salary, benefits and bonuses in the amount of $350,000 per year through 2002, lost stock options, expenses of relocation from Kansas City to California, amounts for promised income tax reimbursement, loss of his $100,000 investment, loss of reputation and emotional distress. The complaint sought damages, prejudgment interest and costs of suit, as well as punitive damages and a doubling of compensatory damages under Section 970 of the California Labor Code. In December 1999 the court granted ENBC's motion for summary judgment to dismiss the claims for breach of contract and implied covenant of good faith and fair dealing, and certain of the claims for fraud and negligent misrepresentation regarding plaintiffs $100,000 investment. The court denied ENBC's motion for summary judgment on the other claims. As a consequence of the Chapter 11 bankruptcy filing made by ENBC and ENBP on April 27, 2000, the claims arising under this Complaint became subject to the jurisdiction of the United States Bankruptcy Court, District of Arizona. On March 15, 2002, the Administrator of the ENBC and ENBP bankruptcy estates entered into a settlement with Brownell, allowing the assertion of an unsecured claim against the ENBP bankruptcy estate in the amount of $400,000.

Butler v. Einstein/Noah Bagel Corp. (Superior Court of the State of Arizona, Maricopa County, Case No. CV-98-16651; case removed to U.S. District Court for the District of Arizona, Case No. CIV-99-239-PHX-EHC). Butler, who filed this lawsuit on January 8, 1999, is a former store general manager for one of ENBC's former area developers. Butler alleges that ENBC breached an oral contract to make him an "owner/operator" of the Einstein Bros. Bagels restaurants in the Phoenix area, under which he claims he would have earned between $240,000 and $400,000 per year. The complaint alleges breach of contract, breach of implied covenant of good faith and fair dealing, promissory estoppel, fraud, negligent misrepresentation and intentional infliction of emotional distress. The complaint sought damages in an unspecified amount, interest and attorney's fees and costs. As a consequence of the Chapter 11 bankruptcy filing made by ENBC and ENBP on April 27, 2000, the claims arising under this complaint became subject to the jurisdiction of the United States Bankruptcy Court, District of Arizona. On June 25, 2002, the Administrator of the ENBC and ENBP bankruptcy estates entered into a settlement with Butler, allowing the assertion of an unsecured claim of $250,000 against the ENBP bankruptcy estate.

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Litigation Against NWR:

Sarqente v. New World Coffee & Bagels, Inc.. Ramin Kamfar and Jerold Novack, (American Arbitration Association, New York, Case No. 13-114-01091-99) This arbitration was initiated in December 1999 by Valerie Sargente, the franchisee of a New World Coffee store located at 1159 Third Avenue, New York, New York, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the Franchise Agreement, damages of $500,000, and attorneys' fees against NWR. The New York franchise law claims were also asserted against R. Ramin Kamfar and Jerold E. Novack in their individual capacities (Messrs. Kamfar and Novack are former officers of our company and of NWR). NWR filed a counterclaim against the franchisee for amounts owed for royalties, product purchases, rent obligations, and loan obligations in the sum of $275,000. After completion of the plaintiffs case in the arbitration, all of the defendants moved to dismiss the demand for arbitration. The Arbitrator granted the motion to dismiss filed by Messrs. Kamfar and Novack, and substantially granted NWR's motion to dismiss. This case was settled on November 30, 2001. Under the settlement, NWR is to pay Sargente approximately $90,000 over time. In addition, NWR paid a $50,000 guaranty NWR executed for a loan given to Sargente (see the Commercial Capital Corp. case below).

Commercial Capital Corp. v. VM Sarqente, Inc., Valerie Sarqente and New World Coffee-Manhattan Bagel. Inc. (N.Y. Supreme Court, New York County, No. 601421/00). This action was filed in May 2000 against NWR by Commercial Capital Corp., the bank that issued a loan to former franchisee Valerie Sargente (see Valerie Sargente v. New World Coffee & Bagels, Inc.. et al. above) in an effort to collect on NWR's $50,000 guaranty of the franchisee's loan. The bank also asserted a claim that NWR fraudulently procured the loan and Sargente asserted a cross-claim against NWR for contribution and indemnification. This matter was settled in October 2001. Under the settlement, NWR paid its $50,000 guaranty of Sargente's loan, as was already required under NWR's guaranty of the bank loan.

New World Coffee & Bagels. Inc. v. Abrams (American Arbitration Association, New York, Case No. 13-114-00854-99). This arbitration was begun by NWR in September 1999 against Lidia Abrams, the former franchisee of a New World Coffee store in Chatham, New Jersey, seeking damages for breach of the franchise agreement, as well as recovery from Abrams of unpaid fees and other charges in the sum of $166,954. Abrams filed a counterclaim alleging fraudulent inducement, breach of contract and violations of the New York franchise law, and also seeking rescission of the franchise agreement, damages of $1.0 million, and attorneys' fees. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. Upon a motion filed by NWR and Messrs. Kamfar and Novack, the arbitrator issued an Order dismissing most of Abrams' claims. The arbitrator later denied Abrams' motion for reconsideration. This matter was settled on December 8, 2001. Under the settlement, NWR paid Abrams approximately $10,000.

Benjamin A. Allen and Allen Foods. Inc. v. New World Coffee, Inc.. et al. (U.S. District Court for the Southern District of New York, Case No. 00-CIV-2610). In April 2000, the plaintiffs, the former franchisee of a New World Coffee store in New Brunswick, New Jersey, and its principal owner, filed a complaint alleging fraudulent inducement and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The plaintiffs also sought injunctive relief, declaratory relief, damages in the amount of $750,000, and attorneys' fees. The plaintiffs' claims were also asserted against Ramin Kamfar, Jerold Novack and Collin Gaffney in their individual capacities. The defendants filed a motion to dismiss the RICO claims and the court granted that motion. The plaintiffs later filed an amended complaint. The defendants moved to

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dismiss all of the claims in the amended complaint. The court granted defendants' motion, dismissing the plaintiffs' RICO claims with prejudice and the plaintiffs' other claims without prejudice.

New World Coffee of Forest Hills. Inc. v. New World Coffee & Bagels, Inc., (American Arbitration Association, New York, Case No. 13-114-00237-00). This arbitration was begun in February 2000 by New World Coffee of Forest Hills, Inc., the former franchisee of a New World Coffee store located at 107-24 Continental Avenue, Forest Hills, New York, alleging fraudulent inducement, violations of the New York franchise law, and seeking damages of $750,000 plus interest and costs. NWR asserted a counterclaim seeking unpaid rent and overdue amounts for royalties, product purchases, and advertising fees in an amount of approximately $200,000. The parties settled all disputes in the arbitration, and to settle the matter, NWR agreed not to enforce its judgment for $222,981 against Forest Hills, and NWR reimbursed Forest Hills $15,000.

Three Beans & Bagel Corp. v. New World Coffee & Bagels, Inc.. Ramin Kamfar and Jerold Novack. (American Arbitration Association, New York, Case No. 13-114-00389-00). This arbitration was begun in April 2000 by Three Beans & Bagel Corp., the franchisee of a New World Coffee store at 102 Westwood Avenue, Westwood, New Jersey, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the franchise agreement, damages of $500,000, and attorneys' fees against NWR. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. NWR asserted a counterclaim for collection of royalties and other overdue charges in an amount of approximately $12,000. This matter was settled in June 2001. Under the settlement, NWR is to pay the franchisee approximately $60,000, over time, including stock and royalty and product discounts.

Noureddine Solhi and Hadria. Inc. v. New World Coffee & Bagels. Inc.. Ramin Kamfar and Jerold Novack (American Arbitration Association, New York, Case No. 13-114-00389-00). This arbitration was begun in September 2000 by Noureddine Solhi and Hadria, Inc., the franchisees of a New World Coffee store at 126 Rockland Plaza, Nanuet, New York, alleging fraudulent inducement, violations of the New York franchise law, and breach of contract, and also seeking rescission of the franchise agreement, damages of $140,000, and attorneys' fees against NWR. The New York franchise law claims were also asserted against Ramin Kamfar and Jerold Novack in their individual capacities. NWR asserted a counterclaim for unpaid royalties, payment for product purchases, and rent in an amount equal to approximately $40,000. This matter was settled on July 24, 2001. Under the settlement, NWR is to pay the franchisee $35,000 over time.

Jason Gennusa. Andrew Gennusa. and Zebu Fomo Enters., LLC v. New World Restaurant Group. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1164-03, filed March 17, 2003). In this matter, the plaintiffs were the two original owners of the Manhattan Bagel system and their new company. They brought an action seeking a declaratory judgment that they: (a) had not actually sold us the recipes when they sold us the Manhattan Bagel system and the stock of our company in 1998; (b) were free to solicit business from Manhattan Bagel franchisees; and (c) were entitled to use the original Manhattan Bagel recipe to produce bagels and sell them to Manhattan Bagel franchisees. We filed a counterclaim, asserting that the Gennusas had violated their confidentiality agreement by producing bagels using the recipes that they sold to us (along with the sale of the company) in 1998, and that the Gennusas were also tortiously interfering in our contractual relationships with our franchisees. In July 2003, we reached a settlement under which the Gennusas and their

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company abandoned all of their claims, agreed to do all of the things that we asked for in our counterclaim, and in which we compensated the Gennusas a certain amount to defray some of the cost of transitioning their company's business so that it no longer sold bagels to our franchisees.

Related to the Gennusa action, above, was another action encaptioned Kaufman v. New World Restaurant Group, Inc. (Superior Court of New Jersey, Monmouth County, Chancery Division, No. MON-C-158-03, filed June 2, 2003). This action was joined with the Gennusa lawsuit, noted above. This action was filed by four franchisees seeking the right to buy bagels from the Gennusas' company, and alleged breach of contract, fraud, violation of the New Jersey Franchise Practices Act, and constructive termination. We responded and sought a dismissal of the complaints. Before the court could hold a hearing, the plaintiffs dismissed all of their claims with prejudice.

Manhattan Bagel of Northeast, Inc. and Ellen Fishlevich v. Manhattan Bagel Company. Inc. and New World Restaurant Group. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3166-04, filed August 11, 2004). This is a lawsuit filed by former franchisee (who was a plaintiff in the Kaufman case, above, and whose claims were dismissed with prejudice in that action) who later claimed that MBC engaged in fraud by not disclosing changes to its product formulation. We filed a motion to stay their action pending arbitration, and the plaintiffs counsel consented. Although the case (including our claims seeking to recover $150,000 that the plaintiff owes to us) is pending in the arbitration proceeding, the plaintiffs have since sought protection under the U.S. Bankruptcy Code, and the arbitration proceeding has been stayed pending the outcome of those bankruptcy proceedings.

Industrial Way. LLC, v. New World Restaurant Group. Inc.. and Manhattan Bagel Company. Inc. (Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1202-03). Industrial Way, LLC, the owner of premises leased by MBC, filed this lawsuit against NWR and MBC on March 18, 2003. In its amended complaint dated May 5, 2003, the plaintiff alleged causes of action for related to the lease of an office and manufacturing facility in New Jersey. The landlord's claims included wrongful conversion of personal property (consisting of fixtures and equipment), damage to leasehold property, and breach of the lease. The landlord sought compensatory damages in an unspecified amount, amounts relating to rent the landlord claimed were outstanding, acceleration of rent through the balance of the term, interest, costs to repair the premises, and related expenses. The landlord also raised an alternative theory of damages based on diminution in value of the building in which the premises are located. On June 19,

2003, NWR and MBC filed their answer to the amended complaint and counterclaim. On August 15, 2003, the court disqualified the plaintiffs attorney from this matter ruling that a conflict of interest existed because of that attorney's prior representation of NWR. On April 22,

2004, a settlement agreement was signed in which NWR agreed to pay the landlord $3 million to cover the remaining rents and other costs.

New World Restaurant Group. Inc. v. Jasbir Jassal. (Civil Court, New York City and County: Housing Division, Index No. L&T 078354/05, filed June 28, 2005). NWR filed an action against a former New World Coffee franchisee (who is also a subtenant of certain retail space) seeking possession of the sublet premises and a money judgment against the respondent for $425,353.01. Shortly after NWR filed this action, the defendant filed a separate lawsuit, alleging that in 1998, NWR committed fraud and misrepresentation in his original purchase of the franchise (that lawsuit is captioned Jasbir Jassal v. New World Coffee and Bagels. Inc.. and is now pending in the U.S. District Court for the Eastern District of New York, Docket No. 1:05-cv-

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03803 (FB)(RML) (the case was originally filed on August 4, 2005 in the Supreme Court of New York, County of Queens, Index No. 16412/05, and removed to U.S. District Court on August 10, 2005).. Both of these cases remain pending.

Other than these 36 actions, no litigation is required to be disclosed in this offering circular.

ITEM 4 BANKRUPTCY

On November 19, 1997, we filed a Chapter 11 bankruptcy petition (U.S. Bankr. Court for the District of New Jersey, Case 97-53360) and remained in possession of our assets as a Debtor in Possession. On November 20, 1998, the court confirmed our First Amended Joint Plan of Reorganization. Under the terms of the First Amended Joint Plan of Reorganization, NWR purchased us and our assets. Since then, NWR has owned and operated MBC as a wholly-owned subsidiary.

Before ENC's acquisition of the Einstein system, its predecessor, ENBC, filed a Chapter 11 bankruptcy petition on April 27, 2000. ENBP also filed a Chapter 11 bankruptcy petition. Both cases were filed in the United States Bankruptcy Court, District of Arizona. (U.S. Bankr. Court for the District of Arizona, jointly administered Case Nos. 00-04447-ECF-CGC and 00-4448-ECF-CGG). ENBC and ENBP remained in possession of their respective assets as Debtors in Possession. In February 2001, ENBC and ENBP filed a joint motion in their bankruptcy cases to sell substantially all of their assets, including the Einstein and Noah Restaurant System. On June 1, 2001, the Bankruptcy Court approved and entered an Order approving the sale to us of the Einstein and Noah Restaurant System and related assets that MBC and ENBP were selling through these proceedings. On June 19, 2001, ENBC and ENBP consummated a sale of substantially all of their assets (including 100% ownership of ENBPI) to ENC. On August 5, 2003, the U.S. Bankruptcy Court in Arizona granted the motion for entry of final decree closing the bankruptcy cases filed by ENBC and ENBP. The Chapter 11 cases were closed on August 20, 2003.

Other than these actions, no person previously identified in Item 1, or officer identified in Item 2, of this offering circular has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item.

ITEM 5 INITIAL FRANCHISE FEE

Initial Franchise Fee

When you sign the Franchise Agreement you must pay us an initial franchise fee. The amount of the initial franchise fee will vary depending on which kind of Restaurant you will operate, as follows:

For your first Restaurant..................................................................................................$25,000

For your second (and each additional) Restaurant...........................................................$15,000

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The initial franchise fee will be fully earned when paid, must be paid in one lump-sum amount (excluding any required deposits) and (except as described below under the heading 'Deposit') will not be refundable under any circumstances.

Deposit

In some instances, before we enter into a Franchise Agreement with you, and in order to conduct additional evaluation about your qualifications to become one of our franchisees, we may ask you to enter into a Deposit Agreement (a copy of which is attached as Exhibit D). We do not ask all franchisees to enter into a Deposit Agreement. Under a Deposit Agreement, you will have to provide us with a $10,000 deposit, which we will credit against your initial franchise fee when you sign the Franchise Agreement. If, during the term of the Deposit Agreement, you do not find a site for the Restaurant that is acceptable to us, if for any other reason (other than our failure to evaluate a proposed site) you cannot find an approved site for a Restaurant, or if at any time you choose to terminate the Deposit Agreement and notify us in writing, then the Deposit Agreement will terminate, and we will refund your deposit, less our actual out-of-pocket costs (up to $5,000) to compensate us (among other things) for our time and effort for your application, within 60 days. If, during the term of the Deposit Agreement, we terminate the Deposit Agreement for any reason, then the Deposit Agreement will terminate, and we will refund your entire deposit within 60 days. Your deposit is a sign of your good faith and will be used to cover some of our costs in evaluating you if you do not sign a Franchise Agreement, and other expenses that we will incur related to your application. The Deposit Agreement does not confer upon you any franchise or territorial rights.

Product Purchases

In addition to the fees described above, you must also purchase certain items from us or our affiliates, directly or indirectly (for example, through distributors). These include, among other things, your opening inventory of proprietary products and marketing materials. Your purchases of these items are likely to total approximately $10,000 to $20,000 (depending on the format and size of your Restaurant). There are additional items that you will have to buy as part of your initial outlays, as described in Item 7 below.

The range of initial franchise fees and pre-opening payments for each different type of unit are summarized in the following table:

	Initial Franchise Fee	Pre-opening Payments	Total
Full Producing Restaurant	$25,000	$10,000 to $20,000	$35,000 to $45,000
Second or Additional Full Producing Restaurant	$15,000	$10,000 to $20,000	$25,000 to $35,000

Application of Payments

Proceeds from the initial franchise fees go into our general fund and, in part, compensates us for the lost or deferred opportunity to franchise others and, in part, is used to pay or defray some

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of the costs we may incur as a result of: (1) advertising and recruiting new franchisees; (2) screening and approving prospective franchisees; (3) providing advice and assistance to franchisees; (4) incurring legal fees, accounting fees, and other costs to comply with the federal and state laws governing this offering; (5) developing, registering, and protecting the Proprietary Marks; (6) prior research and development under the System; (7) prior development of our training programs; new restaurant training, or on-going training; and (8) marketing and general administrative expenses.

ITEM 6 OTHER FEES

(Please review this table together with the notes that follow.)

Fee (Note 1)	Amount	Date Due	Remarks
Royalty	5% of Gross Sales	Each week, on or before the third business day, calculated on the Gross Sales for the prior week	Gross Sales means all revenue related to the Restaurant (excluding customer refunds, discounts, and sales taxes collected and remitted to the proper authorities). (Note 2)
Advertising Contrib'n	Up to 5% of Gross Sales (Note 3)	Same as Royalty	See the description of "Gross Sales" above.
Grand Opening Advertising Program	$5,000	Within 6 months of the opening of your Restaurant.	Spent to promote the grand opening of your restaurant. You must submit a marketing plan for our approval. We may require you to deposit the funds with us to distribute as necessary to conduct the Grand Opening Advertising Program.
Transfer Fee	Greater of $10,000 or 2% of the total selling price paid by transferee.	At time of transfer	Payable only if you make a transfer (as defined in the agreement), which includes the sale of your franchise or your company.
Interest on Overdue Amounts	1.5% per month on the underpayment (Note 4)	Upon demand	Only due if you don't pay us the amounts you owe on time. Interest will be charged only on overdue amounts and will start to accrue on the date when the payment was originally due.
Costs and Attorneys' Fees	Will vary under circumstances	Upon demand	Only if you are in default under the Franchise Agreement, in which case you must reimburse us for the expenses we incur (including reasonable attorneys' fees) as a result of your default and to enforce and terminate the agreement.

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Fee (Note 1)	Amount	Date Due	Remarks
Site Evaluation	Will vary	Upon demand, if incurred	Under the Area Development Agreement, we will conduct one on-site evaluation for each proposed Restaurant. If there are any additional on-site evaluations needed, you will have to reimburse us for our reasonable out-of-pocket expenses incurred in connection with those additional on-site evaluations (including for example the costs of travel, lodging, wages, and meals).
Supplier Testing	Will vary, but not more than $5,000	Upon demand, if incurred	If you propose a new supplier of products, and we inspect the supplier or test the supplier's products, we may charge you or the supplier for our costs in conducting those inspections or running those tests.
Audit Costs	All costs and expenses associated with the audit, reasonable accounting and legal costs.	Upon demand	Payable only if we audit because you did not submit sales statements or keep books and records, or if you underreport your sales or underpay your royalties by 2% or more. (You will also have to pay interest on the underpayment (see "interest" above and Note 4))
Indemnity	Will vary under circumstances	As incurred	You must indemnify us, and reimburse us for our costs (including our attorneys' fees): (a) if we are sued or held liable in any case having anything to do with your business operations; or (b) for any securities offering you propose or undertake.
Securities Offering Fee	$7,500 or our actual expenses, whichever is more	Upon demand	If you engage in a public or private securities offering, you must reimburse us for our reasonable costs and expenses (including legal and accounting fees) to evaluate your proposed offering and you also must indemnify us (see above).
Additional training (Note 5)	Our per-diem charges, plus our out-of-pocket costs	Upon demand	If you ask that we send trainers to your restaurant for additional training, and we do so, then you will have to pay our trainers' expenses and our then-current per diem charge for extra training. Our current per diem charge is $400 per trainer per day (we reserve the right to change our per diem rate in the future).

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Fee (Note 1)	Amount	Date Due	Remarks
Renewal Fee	50% of the then-current initial franchise or $10,000, whichever is more	Before renewal	Due only if you decide to renew the franchise on the terms that are described in the agreement. The renewal fee is instead of a new initial franchise fee.
Systems Support Fee	See Note 6	Upon demand, if requested	See Note 6.
Software Maintenance Fee	See Note 7	On the anniversary date of the Software License Agreement	See Note 7.
Mystery Shopper	The per-visit charge that we incur	Upon demand	Our current policy is not to ask you to pay more than $500 in any calendar year for mystery shoppers' services and reports.
ServSafe® Training	The current fee is $125	Upon demand, if requested.	You must take ServSafe® training. You can choose to contract with the National Restaurant Association Educational Foundation to obtain this training, or you can ask us to provide the training. We will charge a fee for this training and reserve the right to change the fee periodically.

Notes:

1. All fees are payable to us, and are non-refundable.

2. You must pay your royalties and advertising fund contributions us by the third business day of each week. For this purpose, the term "week" means the period beginning with the start of business on Monday and ending at the close of business on the following Sunday (or, if the Restaurant is not open on a Sunday, the immediately preceding business day). We have the right to designate in writing any other period of at least 7 days to be a "week" under the Franchise Agreement. We also have the right to require that you make these payments to us by EFT (electronic fund transfer).

3. We require different kinds of advertising and promotional efforts depending upon where you will operate your Restaurant (for example, in a city, a suburban area, or in a resort community). Additional details about the applicable advertising and promotional requirements can be found in Item 11, under the subheading "Advertising."

4. Interest starts to accrue when your payment was initially due. Interest rates will not exceed any maximum rate that may be imposed under applicable law.

5. This fee will be charged if, after we trained you and your original Restaurant Manager, you are unable to train replacement Restaurant Managers and other Restaurant

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personnel on your own. If that occurs, we will retrain you and train your new Restaurant Manager (or other Restaurant personnel), and you will have to pay us the fee indicated.

6. We do not currently charge a systems support fee, but we reserve the right to do so in the future. The cost per Restaurant per accounting period may fluctuate based upon the number of restaurants open and operating in the System, but we estimate that the system support fee will probably range between $275-400 for an "accounting period" (see below). The systems support fee will cover certain of the cost of operating our software help/support desk (which presently operates 7 days a week, 16 hours a day), as well as our remote installation to your computer of software upgrades that are provided by the vendor (as long as your computer conforms to our standards and that you meet our communication requirements so that we can do these things). An "accounting period" will be a four or five week period (or calendar month), as long as there are not more than 13 accounting periods in a given calendar year or 26 accounting periods over a two-year stretch.

7. As described in Item 11 below, you will have to purchase and use a specific POS system. In order to operate the POS system and to facilitate the transmission of information from the POS system to us, you also must enter into a software license agreement with us (the "Software License Agreement"). The current Software License Agreement is attached to this offering circular as Exhibit E. The software licensed to you under the Software License Agreement will be installed on the POS system prior to or at the same time the POS system is delivered to you. You are not required to pay us an initial fee under the Software License Agreement, but you are required to pay us an annual software maintenance fee, which is currently $322.40 a year.

ITEM 7 INITIAL INVESTMENT

	(Please review these tables together the notes that follow.)
Expenditures	Estimated Amount	When Payable	Method Of Payment	To Whom Paid
Development Costs
Construction/Lea sehold Improvements (Notel)	$75,000 to $200,000	Notel	Notel	Notel
Kitchen/Compute r Equipment & Lighting (Note 2)	$60,000 to $150,000	As incurred	As agreed	Outside Suppliers
Furniture, Fixtures & Millwork (Note 3)	$25,500 to $37,500	As incurred	As agreed	Outside Suppliers
Signage & Graphics (Note 4)	$12,000 to $18,000.	As incurred	As agreed	Outside Suppliers

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Expenditures	Estimated Amount	When Payable	Method Of Payment	To Whom Paid
Professional Fees (incl. architectural or engineering fees and permit and impact fees) (Note 5)	$16,500 to $25,000	As incurred	As agreed	Outside Suppliers
Sub-Total Development Costs	$89,000 to $430,500
Pre-Openinq Costs
Initial Franchise Fee (Note 6)	$25,000	Note 6	Note 6	Us
Real Estate Leasing (Note 7)	$0 to $54,000	Note 7	As agreed	Landlord
Opening Inventory, Smallwares and Supplies (Note 8)	$10,000 to $20,000	As incurred	As agreed	Us, Our Affiliates or Outside Suppliers
Grand Opening Advertising Promotion (Note 9)	$5,000	As incurred, within 6 months of opening	As agreed	Outside Suppliers
Insurance (Note 10)	$7,500 to $15,000	As incurred	As agreed	Outside Provider
Travel and Accommodations for Training (Note 11)	$1,000 to $10,000	As incurred	As agreed	Outside Suppliers
Legal & Accounting (Note 12)	$1,000 to $5,000	As incurred	As agreed	Outside Suppliers
Business Licenses (Note 13)	$500 to $5,000	As incurred	As incurred	Government Agencies
Security Deposits (Note 14)	$2,500 to $5,000	As incurred	As agreed	Utility Companies
Additional Funds (Three Months) (Note 15)	$10,000 to $30,000	As incurred	As agreed	Utilities, Wages, etc.
Sub-Total Pre-Opening Costs	$62,500 to $174,000
Total Estimated Initial Investment (Note 16)	$251,500 to $604,500

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None of the fees or costs estimated in this Item 7 are refundable except to the extent that you can negotiate with vendors, and except as otherwise described in Note 1.

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.

Notes:

1. CONSTRUCTION/LEASEHOLD IMPROVEMENTS. You will need to construct improvements, or "build out," the premises at which you will operate the Restaurant. Generally, you will take the premises from the landlord in "vanilla box" condition (e.g., primed drywall ready to be painted, but without improvements). Among other things, you will likely need to arrange for proper wiring and plumbing, floor covering, wall covering, partitions, heat, air conditioning, lighting, storefront modifications, painting, cabinetry, bathroom facilities, and the like. You will need to hire an architect and licensed contractor (who we must find acceptable). 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 (e.g., historical, architectural, or preservation requirements) will apply. Landlords often provide tenant improvement allowances for tenant improvements. Tenant improvement allowance figures are not included in the Item 7 chart because they can vary widely.

2. KITCHEN/COMPUTER EQUIPMENT & 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 and software, shelving and lighting. You will need to obtain these items of equipment, fixtures, and other fixed assets from sources of your own choosing, as 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 you will have to spend for equipment, fixtures, trade fixtures, and other fixed assets will vary depending upon the Restaurant's size, style, and the volume of products to be offered in the Restaurant. You will pay suppliers for equipment, fixtures, trade fixtures, and other fixed assets.

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 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 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 provide assistance to you in designing your signs; the final design must be submitted to us for our review and approval. You will pay suppliers directly for these items.

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APARTMENT OF CORPORATIONS

5. PROFESSIONAL FEES. The estimate is for legal, j^feeoj^tinQr^administcaJtlvei permitting, traffic studies, demographic studies, brokerage and miscellaneous. otner'profess'iDnah fees that you may incur before you open for business, including (amon^oiFre^ifilfig9)Qo^:Fa'Siist 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. The details of the initial franchise fee are described in Item 5, including the amount and the conditions under which the initial franchise fee is refundable. Please see the information provided above in Item 5 regarding the Deposit 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 $5,000 for each Restaurant, so long as the total amount of all 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. 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. Restaurant locations and sizes vary. Locations for a Restaurant are those that are typically described as "prime retail."

Restaurant sizes vary from 1,800 to 2,400 square feet (2,000 square feet is optimal) and satellite Restaurants typically range in size from 1,000 to 2,000 square feet (1,500 square feet is optimal).

The estimate provided assumes that you pay in a range from no security deposit, to a security deposit equal to 6 months of rent. The rent that we have used in preparing the estimates in the chart ranges from $20 to $45 per square foot per year.

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.

8. OPENING INVENTORY. SMALLWARES & SUPPLIES. Items of inventory, smallwares, uniforms 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. Terms vary from vendor to vendor, but are more typically paid for on the first delivery before you establish credit, although either we or other vendors may require that payment be made on a C.O.D. basis. Start-up inventory of products, smallwares, uniforms 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. GRAND OPENING ADVERTISING AND PROMOTION. We will assist you in tailoring an advertising plan appropriate to your market. The amount in the table is for the initial promotion and advertising efforts you are required to make under the Franchise Agreement.

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Additional details regarding advertising and promotion can be found in Item 11, under the subheading "Advertising."

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, 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. TRAVEL AND ACCOMMODATIONS FOR TRAINING. 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 $250 to $3,000 per person.

12. LEGAL AND ACCOUNTING. The estimate is for legal, accounting, administrative, traffic studies, demographic studies, 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.

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.

Your credit history could impact the amount (and cost) of funds needed during the startup 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. We estimate that you will need approximately 80 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;

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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.

ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

General

To insure that the highest degree of quality and service is maintained, you must operate the Restaurant in strict conformity with the methods, standards, and specifications as we may periodically prescribe in the Manual or otherwise in writing.

At all times during the term of the Franchise Agreement, you must:

- offer for sale only those Products for which we have given our written approval;

- sell or offer for sale all of the Products that we require;

- use the ingredients and employ only the preparation standards and techniques that we specify;

- not deviate from our standards and specifications, including our requirements concerning Product preparation, unless you have received our prior written consent; and

- stop selling and offering for sale any Products that we have later disapproved.

If you deviate (or propose to deviate) from our standards and specifications, whether or not we have approved, the deviation will become our exclusive property.

You must buy all Proprietary Items, Products, ingredients, supplies, materials, and other products used or offered for sale at the Restaurant only from suppliers (including manufacturers, distributors, and other sources) that we have approved in writing. When considering whether to approve any particular possible supplier, we will consider (among others) the following factors: whether the supplier can show, to our reasonable satisfaction, the ability to meet our then-current standards and specifications; whether the supplier has adequate quality controls and capacity to supply the System's needs promptly and reliably; and whether the supplier's approval would enable the System, in our sole opinion, to take advantage of marketplace efficiencies. You may not buy from any supplier that we have not yet approved in writing, and you must stop buying from any supplier who we approve, but later disapprove. As explained

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above, we have the right to designate only one supplier for certain items (such as distribution of products, soft drinks, etc.) in order to take advantage of marketplace efficiencies.

If you want to buy any Products or any other items (except for Proprietary Items, which are discussed below) from an unapproved supplier, you first must submit to us a written request asking for our approval to do so. You may not purchase from any proposed new supplier until we have reviewed and, if we think it is appropriate, approved in writing the proposed new supplier. Among other things, we will have the right to require that our representatives be permitted to inspect the proposed new supplier's facilities, and that samples from that supplier be delivered either to us or to an independent laboratory that we designate for testing. Either you or the proposed new supplier must pay us a charge (which will not exceed the reasonable cost of the inspection and the actual cost of the tests). We also may require that the proposed new supplier comply with certain other requirements that we may deem appropriate, including for example payment of reasonable continuing inspection fees and administrative costs, or other payment to us by the supplier on account of their dealings with you or other franchisees, for use, without restriction (unless otherwise instructed by the supplier) and for services that we may render to our suppliers. We reserve the right, at our option, to periodically re-inspect the facilities and products of any approved supplier and to revoke our approval if the supplier does not continue to meet any of our then-current criteria.

Although the Franchise Agreement does not obligate us to notify you of our approval or disapproval of a supplier within a specified time, we estimate that we will notify you of approval or disapproval within 30 days of our receipt of your written request. This is only an estimate, and the actual approval time may be shorter or longer than 30 days; in any event, we will notify you of supplier approval or disapproval within 90 days from our receipt of your written request. Similarly, we estimate that the charge associated with our approval of a proposed supplier will not exceed $1,000, and in any event will not exceed $5,000.

The Franchise Agreement also provides that you may not use any item bearing our trademarks without our prior written approval.

We may periodically establish food commissaries and distribution facilities, and we may designate these as approved (or required) manufacturers, suppliers, or distributors.

We estimate that your purchases from approved suppliers and in accordance with our specifications will represent approximately 100% of your total purchases in establishing the Restaurant, and approximately 100% in the continuing operation of the Restaurant. We also estimate that your purchases from designated suppliers will represent approximately 100% of your total purchases in establishing the Restaurant, and approximately 100% of your total purchases in the continuing operation of the Restaurant.

You must allow us or our agents, at any reasonable time, to remove samples of Products offered in your Restaurant, without payment, in amounts reasonably necessary for testing by us or an independent laboratory to determine whether those samples meet our then-current standards and specifications. We may require you to bear the cost of that testing if we did not previously approve in writing the supplier of the item or if the sample that we take from your Restaurant fails to conform to our specifications.

We also may designate an independent evaluation service to conduct a "mystery shopper" quality control and evaluation program for Restaurants that we, our affiliates, or franchisees own. You must participate in the mystery shopper program as we may require. We will have

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the right to require you to pay the then-current charges imposed by the evaluation service for Restaurant inspections, and you must promptly pay these charges. (See Item 6 for more details.)

You will not be permitted to offer or sell, or allow anyone else to offer or sell, beer, wine, or any form of liquor, unless we have given you our advance written approval (which we will have the right to withhold).

We may establish strategic alliances or preferred vendor programs with suppliers that are willing to supply some products or services to some or all of the Restaurants in our system. If we do establish those types of alliances or programs, we may limit the number of approved suppliers with whom you may deal, we may designate sources that you must use for some or all Products and other products and services, and we may refuse to approve proposals from franchisees to add new suppliers if we believe that action would be in the best interests of the System or the franchised network of Restaurants.

We reserve the right to collect and retain certain manufacturing allowances, marketing allowances, rebates, credits, monies, payments and benefits (collectively, "Allowances") offered to us or to our affiliates by manufacturers, suppliers and distributors based upon your purchases of Products and other goods and services. During our last fiscal year (FY2005), we did not retain any allowances.

Currently, there are no purchasing or distribution cooperatives in existence.

Proprietary Items

You must buy all of your requirements for bagels, muffins, cookies, cream cheese, cream cheese spreads, coffee, coffee beans, and paper goods bearing the Proprietary Marks ("Proprietary Items") only from us, our affiliate, our parent company, or from our designee(s), as described below. We will have the right to periodically introduce additional Proprietary Items. Proprietary Items are considered integral components of the Manhattan Bagel franchise and are inextricably interrelated with the Proprietary Marks and the System.

The Proprietary Items that are offered and sold in Restaurants are manufactured in accordance with the secret blends, standards, and specifications that we or our affiliates own. In order to maintain the high standards of quality, taste, and uniformity associated with Proprietary Items sold at all Restaurants in the System, you must purchase Proprietary Items only from us, our affiliate, our parent company, or our designees, and you may not offer or sell any Proprietary Item that has not been purchased from us, our affiliate, our parent company, or our designated supplier at or from the Restaurant. We estimate that your purchases of Proprietary Items will represent approximately 1.0% percent of your total purchases in establishing the Restaurant, and approximately 25% of your total purchases in the continuing operation of the Restaurant (on an average weekly basis). The prices charged for Proprietary Items may vary by geographic area.

During our fiscal year ended January 3, 2006, our revenue from the sale of Proprietary Items and Products, including sales to our franchisees and company-owned restaurants, was $5,467,626, or approximately 65% of our total revenues of $8,429,511.

Except as described in this Item 8, we do not provide any material benefits to you based on your use of designated or approved suppliers.

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Insurance

Under the Franchise Agreement, you must obtain and maintain the following insurance:

- coverage against direct physical loss or damage to real and personal property, including improvements and betterments, for all-risk perils, including flood and earthquake, if the relevant property is situated in a flood or earthquake zone, equal to at least 90% of the Restaurant's full insurable value;

- comprehensive general liability insurance, written on an occurrence basis, extended to include contractual liability, products and completed operations, and personal and advertising injury, with a combined bodily injury and property damage limit of at least $1,000,000 per occurrence;

- statutory workers' compensation insurance and employers' liability insurance as required by the law of the state in which the Restaurant is located, including statutory workers' compensation limits and employers' liability limits of at least $1,000,000;

business automobile insurance with a combined single bodily injury and property damage limit of at least $1,000,000 per occurrence;

business interruption insurance to cover at least your obligations for leases, royalties, advertising fund obligations, fixed costs, and other recurring expenses for a period at least six months after an interruption of business operations.

- commercial umbrella liability insurance with total liability limit of at least $5,000,000;

- products liability insurance with a limit of at least $1,000,000, which policy must be considered primary; and

- all other insurance that we require in the Manual or that is required by law or by the lease or sublease for the Restaurant.

Each insurance policy required under the Franchise Agreement must be issued by an issuer we approve, who must have a rating of at least "A -" in the most recent Key Rating Guide published by the A.M. Best Company (or another rating that we reasonably designate if A.M. Best Company no longer publishes the Key Rating Guide) and must be licensed to do business in the state in which the Restaurant is located. All liability and property damage policies must name us as additional insureds and must provide that each policy cannot be cancelled unless we are given thirty days' prior written notice. We may periodically increase required coverage limits or require additional or different coverage to reflect inflation, identification of new risks, changes in the law or standards of liability, higher damage awards and other relevant changes in circumstances. You must deliver to us (and in the future maintain on file with us) valid and current certificates of insurance showing that all required insurance is in full force and effect.

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ITEM 9 FRANCHISEE'S OBLIGATIONS

THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.

Obligation	Section in Agreement	ltem(s) in Offering Circular
a. Site selection and acquisition/lease	§ 1 in Franchise Agreement; §§ 5.1.1 and 5.1.2 in Area Development Agreement	8 and 11
b. Pre-opening purchases/leases	§ 5 in Franchise Agreement; none in Area Development Agreement	5, 7, and 8
c. Site development and other pre-opening requirements	§§ 3.2, 3.3, 5.2, 5.3, 5.4, 5.5, and 10.8 in Franchise Agreement; §§ 3,5.1.2, and Ex. A in Area Development Agreement	8 and 11
d. Initial and ongoing training	§§3.1, 5.5 and 13.5.7 in Franchise Agreement; none in Area Development Agreement	11
e. Opening	§§ 5.3 and 5.4 in Franchise Agreement; none in Area Development Agreement	11
f. Fees	§§ 2.2.6, 4,10.1, and 13.5.8 in Franchise Agreement; §§ 2 and 3.1.1 in Area Development Agreement; § 5 in Software License Agreement	5 and 6
g. Compliance with standards and policies/Operating Manual	§§ 1.4, 3.5, 5, 7, and 9 in Franchise Agreement; § 6.3 in Area Development Agreement	8, 11, and 14
h. Trademarks and proprietary information	§§1.1 and 6 in Franchise Agreement; § 1.6 in Area Development Agreement	13 and 14
1. Restrictions on products/services offered	§§ 1.4, 5.1 and 5.11 in Franchise Agreement; none in Area Development Agreement	5, 8, and 16
j. Warranty and customer service requirements	§ 5.7 in Franchise Agreement; none in Area Development Agreement	16
k. Territorial development	§ 1.3,1.4, and 1.6 in Franchise Agreement; § 1.1 in Area Development Agreement	12

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3671595.32 (March 31, 2006)

Obligation	Section in Agreement	ltem(s) in Offering Circular
1. Ongoing product/service purchases	§ 5 in Franchise Agreement; none in Area Development Agreement	8
m. Maintenance, appearance and remodeling requirements	§§ 2.2.2, 5, and 13.5.5 in Franchise Agreement; none in Area Development Agreement	8
n. Insurance	§ 12 in Franchise Agreement; none in Area Development Agreement	7 and 8
o. Advertising	§§ 5 and 10 in Franchise Agreement; none in Area Development Agreement	6, 8, and 11
p. Indemnification	§ 18.4 and Ex. A in Franchise Agreement; § 11 in Area Development Agreement; § 11 in Software License Agreement	None
q. Owner's participation/ management/staffing	§§ 5 and 16.1 in Franchise Agreement; § 5.2.5 in Area Development Agreement	15
r. Records/reports	§§ 4.2, 5 and 9 in Franchise Agreement; § 3.2 in Area Development Agreement	6
s. Inspection/audits	§§ 5 and 9 in Franchise Agreement; none in Area Development Agreement	6 and 11
t. Transfer	§§ 5.17.3 and 13 in Franchise Agreement; § 7 in Area Development Agreement; § 13 in Software License Agreement	17
u. Renewal	§ 2.2 in Franchise Agreement; none in Area Development Agreement	17
v. Post-termination obligations	§ 15 in Franchise Agreement; § 6.4 in Area Development Agreement; § 10 in Software License Agreement	17
w. Non-competition covenants	§ 16 in Franchise Agreement; § 8 in Area Development Agreement	17
x. Dispute resolution	§ 25 in Franchise Agreement; § 15.2 in Area Development Agreement	17
y. Taxes/permits	§§ 5.2.1 and 17 in Franchise Agreement; § 10 in Area Development Agreement	1

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3671595.32 (March 31, 2006)

ITEM 10 FINANCING

We do not offer direct or indirect financing. We will not guarantee your note, lease, or other obligations.

ITEM 11 FRANCHISOR'S OBLIGATIONS

Except as listed below, we need not provide any assistance to you.

Pre-openinq Obligations

We are required by the Franchise Agreement to provide certain assistance and service to you.

Franchise Agreement. Before you open your Restaurant:

(1) Before your Restaurant opens, we will provide to you (or to your designated principal), as well as the Restaurant's general manager, our standard initial training program at a location that we designate. We will also make this training available for up to an additional two Restaurant managers, if you want to send those persons to training. (Training is also discussed below in this Item 11 under the subheading Training.") We will provide ongoing training as we may periodically deem appropriate. We will be responsible for the cost of instruction and materials, subject to the terms stated in the Franchise Agreement. (Franchise Agreement, Sections 3.1, 5.5)

(2) We will provide, at no charge to you, prototype plans and specifications for the construction of the Restaurant and for the exterior and interior design and layout, fixtures, equipment, furnishings, and signs. You will be responsible for hiring your own architect to adapt the plans to your site, with our approval, and for hiring a contractor to build the Restaurant in accordance with those approved plans. You are also responsible for compliance with all local and other requirements for the plans, including for example, zoning, code, and compliance with the Americans with Disabilities Act. (Franchise Agreement, Section 3.2)

(3) We have the right to inspect and approve the Restaurant for opening before the initial opening. You may not start operation of your Restaurant until receiving our approval to do so. (Franchise Agreement, Section 3.10)

(4) We may provide a representative to be present at the Restaurant's initial opening. If we elect to do so, then you may not conduct the initial opening unless our representative is present. We will provide additional on-site pre-opening and opening supervision and assistance as we deem it advisable to do so. (Franchise Agreement, Section 3.3)

(5) We will lend you, for the duration of the Franchise Agreement, one copy of the Manual (which is more fully described in Item 14 below). (Franchise Agreement, Section 3.4)

(6) We will assist you in developing the Grand Opening Advertising Program (which is more fully described in Item 6 of this offering circular); you will be responsible for the cost of this program. (Franchise Agreement, Section 3.7)

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We are not required by the Franchise Agreement to furnish any other service or assistance to you before the opening of your Restaurant.

Continuing Obligations

We are required by the Franchise Agreement to provide certain assistance and service to you. During the operation of your Restaurant:

(1) We may conduct, as we deem advisable, periodic inspections of the Restaurant, and may evaluate the products sold and services rendered by your Restaurant. (Franchise Agreement, Section 5.15)

(2) We will make available additional training programs, as we deem appropriate. (Franchise Agreement, Section 5.5)

(3) We will give you periodic and continuing advisory assistance as to the operation and promotion of the Restaurant, as we deem advisable. (Franchise Agreement, Section 3.11)

(4) We will administer the NAF and Market Co-op Funds as stated in the Franchise Agreement and as described below in this Item 11. (Franchise Agreement, Section 3.6)

Neither the Franchise Agreement, nor any other agreement, requires us to provide any other assistance or services to you during the operation of the Restaurant.

Site Selection

There are no site selection requirements under a Franchise Agreement because the Franchise Agreement will be signed only after you have found a location for the Restaurant. We will approve a proposed location only if it meets our standards and is otherwise acceptable to us. However, you will be solely responsible for the choice of a location, and the fact that we approve a location will not mean that we have made any direct or implied promise or guarantee of your success at the location.

We estimate that the time period between the signing of the Franchise Agreement and the start of operations will be approximately three to six months. You must open the Restaurant within six months after securing the necessary authorization and approval for permits and certificates.

The factors we will evaluate in considering whether to approve a site include: general location and neighborhood; pedestrian traffic volume and patterns; demographic and traffic patterns, volume, and speed; size and ease of access to the proposed site; the proposed lease or sublease; utilities; and zoning issues.

Training

Before your Restaurant opens, you (or, if you are a corporation, partnership, limited liability company, or limited liability partnership, one of your principals who you designate to supervise the operation of the Restaurant, and who we have previously approved (the "Operating Partner")) and one full-time general manager (the "Restaurant Manager") must attend and successfully complete, to our satisfaction, the initial training program that we offer. For the purpose of the training paragraph, the "Operating Partner" must be a person who has an

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ownership interest in Franchisee, and who has signed the Guarantee, Indemnification and Acknowledgement that is attached to the Franchise Agreement.

In addition to attending our initial training program, the Operating Partner and the Restaurant Manager must have Sen/Safe® certification. You may obtain this certification by (i) contacting the National Restaurant Association Educational Foundation to schedule attendance at a ServSafe® Food Safety Training, or (ii) requesting that we provide you with course materials (for which we will charge you an additional fee) and the ServSafe® Food Safety Training course to be provided immediately after completion of the initial training program. All training requirements must be met before your restaurant opens.

The Restaurant must be under the active full-time management of either you or the Operating Partner who successfully completed (to our satisfaction) our initial training program.

If either of you (or the Operating Partner) or the Restaurant Manager (collectively, the "Highly Trained Personnel") cease active management or employment at the Restaurant, then you must enroll a qualified replacement (who must be reasonably acceptable to us) in our initial training program not more than 30 days after the end of the former person's full-time employment or management responsibilities. The replacement must attend and successfully complete the basic management training program, to our reasonable satisfaction, as soon as it is practical to do so.

We may require that any or all of the Highly Trained Personnel attend refresher courses, seminars, and other training programs periodically.

We will bear the cost of all training (instruction and required materials) (except for the cost of materials for the ServSafe® training if you ask that we provide that training to you). You will bear all other expenses incurred in attending training, such as the costs of transportation, lodging, meals, wages, and worker's compensation insurance (see Items 6 and 7 of this offering circular).

If you ask that we provide additional on-site training, and we are able to do so, then you will pay us our then-current per diem charges and out-of-pocket expenses. Our per diem charges will be specified in our Manual, and the current amount is described in Item 6 of this offering circular.

The subjects covered in the initial training program are described below.

Subject	Materials	Classroom Hours	OJT Hours
Orientation		5	2
Cash Register	Manuals, Handouts, Video	5	3
Budget, P&L, Inventory, Cost Control	u	4	2
Employee Development	H	4	0
Marketing	Marketing Tool Kit	3	0
Bagel Baking	Manuals, Handouts, Video	8	12

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Subject	Materials	Classroom Hours	OJT Hours
Customer Service	it	6	12
Equipment and Maintenance	u	2	0
Catering	u	2	2
Food Preparation	u	8	5
Breakfast and Lunch	u	4	6
Cleaning and Sanitation	u	5	3
Review and Testing	a	5	0
Security	a	2	0
Beverages	tt	3	2
Menu Objectives	a	2	0
Food Safety/Sanitation	u	3	5
Total		71	54

Training will be conducted over a three-week period at locations of our choosing (typically, but not always, this includes two and one-half weeks at a training facility that we designate -presently, we conduct training in Hamilton, New Jersey-and then one-half week at your Restaurant) before you open. Training is conducted as frequently as we determine it necessary to hold a training class.

All of our instructors are our employees. Our Director of Training is Larry Carter, and he is assisted by other members of our staff. Mr. Carter has been a training administrator and District Manager for us since April 1996 and has been conducting training classes since March 1997.

Advertising

As described in Item 6 above, for each week during the term of the Franchise Agreement, you will be required to make an Advertising Contribution. The Advertising Contribution will be in an amount not to exceed 5% of the Gross Sales of your Restaurant during the preceding week. (See Item 6, note 2, for the definition of the term "week.") We occasionally may lower the Advertising Contribution by giving you written notice of the amount and length of the reduction.

The Advertising Contribution will be allocated between the Manhattan Bagel National Advertising Fund (the "NAF") and a designated Market Ad Fund (the "MAF") for your region, in the proportions as we will have the right to designate periodically. We may also require you spend a proportion of the Advertising Contribution on Local Advertising and Promotion (the "Local Advertising Expenditure"). There are different advertising needs in different types of markets. For example, Restaurants that operate in resort or vacation areas may need a different kind and volume of advertising than do Restaurants that operate in suburban areas or in cities. We reserve the right, in certain markets, to suspend a portion of these requirements (for example, the MAF and local advertising and promotion requirements).

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We will determine how the Advertising Contribution will be allocated between: (1) the NAF; (2) a designated MAF; and (3) Local Advertising Expenditures. No matter how we determine to split your Advertising Contribution, the total amount you must pay or spend will not exceed the amount of the Advertising Contribution, and the portion that you will be required to pay to the NAF will not exceed 4% of the Gross Sales of your Restaurant. (Section 10.2 of Franchise Agreement).

None of the amounts collected or held by the NAF will be used for advertising that is principally a solicitation for the sale of franchises. We do not receive payment for providing goods or services to the NAF. A statement of the NAF's operations, as shown on our books, will be prepared annually, and that statement will be made available to you upon request. As described below, we are not required to spend any particular amount on advertising in the area where your Restaurant is located. As also described below, if amounts are unspent in the NAF at fiscal year-end, those amounts will be carried over by the Fund for expenditure in the following year(s).

During our last fiscal year ended January 3, 2006, the Advertising Contribution was spent as follows (all figures approximate):

60% Media Placement

30% Production of Advertisements

10% General and Administrative Expenses

The NAF

The NAF, and all contributions to and earnings from the NAF, will be used only (except as otherwise provided below) to meet any and all costs of maintaining, administering, directing, conducting, and preparing advertising, marketing, public relations and promotional programs and materials, and any other activities that we believe will enhance the image of the System. This includes, among other things, the costs of preparing and conducting media advertising campaigns; direct mail advertising; marketing surveys and other public relations activities; developing and maintaining our Website (except for the portion, if any, specifically for soliciting franchisees); employing advertising or public relations agencies; purchasing promotional items, conducting and administering visual merchandising, point of sale, and other merchandising programs; and providing promotional and other marketing materials and services to the Restaurants operated under the System. We may also use the NAF to provide rebates or incentives to franchisees for local expenditures on media or other promotional activities that we have approved in advance (we will have the right to determine which expenditures will appropriately promote general public awareness and favorable support for the System). We will have the sole right to decide how the NAF creates, places, and pays for advertising. We (or our designee, which might be a corporate subsidiary or an advertising agency) will maintain and administer the NAF, as follows:

(a) We (or our designee) will direct all advertising programs, with the sole right to decide the concepts, materials, and media used in these programs and the placement and allocation of the programs. The NAF is intended to maximize general public recognition, acceptance, and use of the System. Neither we nor our designee will be obligated to make expenditures for you that are equivalent or proportionate to your contribution, or to ensure that any particular franchisee benefits directly or pro rata from expenditures by the NAF.

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(b) The NAF, and all contributions to and earnings from the NAF, will be used exclusively to meet the costs of marketing and any other activities that we believe will enhance the System's image and, in our sole discretion, promote general public awareness of and favorable support for the System.

(c) You must contribute to the NAF by electronic fund transfer (EFT) by the third business day of each week (see also Item 6, note 2). All sums you pay to the NAF will be maintained in an account separate from our other monies.

(d) We will have the right to charge the NAF for the reasonable administrative costs and overhead that we incur in activities reasonably related to the direction and implementation of the NAF and advertising programs for you and the System (for example, costs of personnel for creating and implementing, associated overhead, advertising, merchandising, promotional and marketing programs). The NAF and its earnings will not otherwise inure to our benefit or be used to solicit the sale of franchises. We or our designee will maintain separate bookkeeping accounts for the NAF.

(e) The NAF is not and will not be our asset.

(f) Although the NAF is intended to be of perpetual duration, we maintain the right to terminate the NAF. The NAF will not be terminated, however, until all monies in the NAF have been spent for advertising or promotional purposes.

MAFs

We will have the right, as we see fit, to establish an MAF for your region. The purpose of an MAF is to conduct advertising campaigns for the Restaurants located in that region.

You will not be required to contribute to more than one MAF. The following provisions will apply to each MAF (if and when organized):

(a) MAF's will be established in the form and manner that we have approved in advance.

(b) MAF's will be for the exclusive purpose of executing regional and market-wide advertising programs and developing (subject to our approval) standardized promotional materials for use by the members in local advertising and promotion.

(c) MAF's may not use advertising, promotional plans, or materials without our prior written approval, as described below.

(d) You must submit your required contribution to the MAF by the third business day of each week, based on your Gross Sales for the preceding week. At the same time, you will have to submit the reports that we require. We may require you to submit this payment by EFT or by check. We also may require that your payments and reports to the MAF be made to us for distribution to the MAF.

(e) Although each MAF is intended to be of perpetual duration, we maintain the right to terminate any MAF. A MAF will not be terminated, however, until all monies in that MAF have been expended for advertising or promotional purposes. If all

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Restaurants contributing to a MAF are closed, any balance remaining in that MAF will be transferred to the NAF.

(f) We have the right to change or merge any MAF's.

Local Advertising and Promotion

We may or may not also require you spend a proportion of the Advertising Contribution (as a portion of your Gross Sales of your restaurant as we will periodically designate) during the preceding month on local advertising and promotion (the "Local Advertising Expenditure"). The Local Advertising Expenditure must be in a form that we approve, and we may require you to provide us with applicable receipts, copies of promotional materials, or other materials we may reasonably require to prove that you are complying with the Local Advertising Expenditure requirement.

Certain criteria will apply to any local advertising and promotion that you conduct. All of your local advertising and promotion must be dignified, must conform to our standards and requirements, and must be conducted in the media, type, and format that we have approved. You may not use any advertising or promotional plans that we have not approved in writing. You must submit to us samples of all proposed plans and materials (unless, within the previous six months, we prepared or already approved the plans or materials). You are not required to obtain our approval of the prices you intend to charge. We will ordinarily provide you with our response (whether approval or disapproval) to the proposed plans or materials within two months; but if we do not give our approval within fifteen days, we will have been deemed to disapprove the plans or materials.

All copyrights in and to advertising and promotional materials you develop (or that are developed for you) will become our sole property. You must sign the documents (and, if necessary, require your independent contractors to sign the documents) that we deem necessary to implement this provision. (The requirements in this paragraph, as well as in the previous paragraph, will also apply to any MAFs.)

As discussed in Item 7, in addition to (and not in place of) the Advertising Contribution, you must spend at least $5,000 on local advertising and promotion conducted for the Restaurant's grand opening advertising program (the "Grand Opening Advertising Program"), in accordance with our specifications for that program. You must complete the Grand Opening Advertising Program no later than six months after the Restaurant first opens for business. All materials used in the Grand Opening Advertising Program will be subject to our prior written approval, as described above. The Grand Opening Advertising Program is considered "local advertising and promotion" and is therefore subject to the restrictions described below. We will work with you to tailor your Grand Opening Advertising Program to your market. We reserve the right to require you to deposit with us the funds for the Grand Opening Advertising Program so that we may distribute the funds for the Grand Opening Advertising Program, and if so, and funds not spent within six months after your Restaurant opening will be deposited in the MAF for your area.

In addition to the plans and promotions that we otherwise provide to you under the Franchise Agreement, we will periodically make available to you, for purchase, certain advertising plans and promotional materials for your use in local advertising and promotion.

As used in the Franchise Agreement, the term "local advertising and promotion" refers to only the direct costs of purchasing and producing advertising materials (such as camera-ready

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advertising and point of sale materials), media (space or time), promotion, and your direct out-of-pocket expenses related to costs of advertising and sales promotion in your local market or area. Local advertising and promotion also includes associated advertising agency fees and expenses, postage, shipping, telephone, and photocopying costs. "Advertising and sales promotion" does not, however, include any of the following:

(a) Salaries, incentives or discounts offered to your employees, and your employees expenses;

(b) Charitable, political, or other contributions or donations;

(d) The cost of food items or promotional merchandise (i.e.. mugs).

Our current policy is to contribute to the NAF and any MAF's on the same basis as is required of our franchisees; however, we are not obligated to do so and reserve the right to change that policy. If we do establish company-owned Restaurants, and we contribute to a MAF's, we will have the same rights for our Restaurants as do our franchisees for their Restaurants.

Websites (as defined below) are considered as "advertising" under the Franchise Agreement, and are subject (among other things) to our review and prior written approval before they may be used (as described above). As used in the Franchise Agreement, the term "Website" means an interactive electronic document, contained in a network of computers linked by communications software, that you operate or authorize others to operate and that refers to the Restaurant, Proprietary Marks, us, or the System. The term Website includes, but is not limited to, Internet and World Wide Web home pages. For any Website, the Franchise Agreement provides that you may not establish a Website, nor may you offer, promote, or sell any products or services, or make any use of the Proprietary Mark, through the Internet without our prior written approval. As a condition to granting our consent, we will have the right to establish any requirement that we deem appropriate, including among other things a requirement that your only presence on the Internet will be through one or more webpages that we establish on our website.

Electronic Point-Of-Sale and Computer Systems

You are required to purchase and use the New World Restaurant Group Inc. approved point of sale (POS) and back office computer. This is a Microsoft Windows-based package that will generate on-line, real-time reports such as item sales, financial, department, hourly sales, time keeping and labor information for the Restaurant. The current approved POS system is the InFusion system from ParTech, Inc. This system will be purchased directly from ParTech Inc. We do not receive any financial payment from ParTech, Inc for the purchase of the POS system.

As described in Item 6 above, you must enter into the Software License Agreement in order to use the software that, among other things, will run the POS system and facilitate the transmission of information from the POS system to us. The Software License Agreement is attached to this offering circular as Exhibit E.

We reserve the right to download sales and other data from your computer. There is no contractual limitation on our right to receive this information. We reserve the right to require you

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to bring any computer hardware and software, related peripheral equipment, communications systems, as well as the POS and back office computer system, into conformity with our then-current standards for new Restaurants. We have no obligation to assist you in obtaining hardware, software or related services and there are no contractual limits on the frequency or cost of your obligations to obtain computer upgrades. (See Sections 2.2.2, and 11 of the Franchise Agreement.)

Vendor

Address

How the hardware or software will be used in your Restaurant, and the general type of data collected or generated

Length of time that we have made continuous use of the component or program

ParTech, Inc.

8383 Seneca Turnpike

New Hartford, New York 13413-4991

Point-of-sale system and data collection, processing and transmission

6 months

Manual

The table of contents of the Manual is attached as Exhibit K.

ITEM 12 TERRITORY

Franchise Agreement

During the term of the Franchise Agreement, and except as otherwise provided in that agreement, we will not establish or license anyone else to establish, another Manhattan Bagel Restaurant at any location within the "Protected Territory" that is designated in your Franchise Agreement. The Protected Territory will typically be a circle, the center of which will be the front door of the Restaurant, and that circle will have a radius that is specified in your Franchise Agreement (but which will be a minimum of one-half of a mile, except in dense urban centers). We (and our affiliates) retain all other rights. Accordingly, we will have the right (among other things), on any terms and conditions that we deem advisable, and without granting you any rights, to do any or all of the following:

- establish, and license others to establish, Restaurants at any location outside the Protected Territory despite their proximity to the Protected Territory or the Approved Location or its actual or threatened impact on sales at your Restaurant;

- establish, and license others to establish, Restaurants at any Institutional Facility or Co-Branded Location (as those terms are defined below) within or outside the Protected Territory, despite these Restaurants' proximity to the Approved Location or their actual or threatened impact on sales at your Restaurant;

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- establish, and license others to establish, restaurants under other systems or other proprietary marks, which restaurants may offer or sell products that are the same as, similar to, or different from the Products offered from the Restaurant, and which restaurants may be located within or outside the -Protected Territory, despite these restaurant's proximity to the Approved Location or their actual or threatened impact on sales at your Restaurant;

- acquire and operate any business or store of any kind, whether located within or outside the Protected Territory despite these business' or restaurant's proximity to the Approved Location or its actual or threatened impact on sales at your Restaurant; and

- sell and distribute, directly or indirectly, or license others to sell and distribute, directly or indirectly, any Products, from any location or to any purchaser (including, among other methods, to sales made at retail locations, supermarkets, gourmet shops, mail order, and on the Internet), as long as these sales are not conducted from a Restaurant operated from a location inside the Protected Territory (excluding an Institutional Facility).

The term "Co-Branded Location" includes, among other things, businesses of any sort within which a "Manhattan Bagel" facility is established and operated, including for example book stores, department stores, restaurants, and supermarkets. The term "Institutional Facility" includes, among other things: airports; bus stations; factories; federal, state or local government facilities (including military bases); hospitals and other health-care facilities; recreational facilities; schools, colleges and other academic facilities; seasonal facilities; shopping malls; theaters; train stations; and workplace cafeterias.

You may offer and sell Products only from the Restaurant, only in accordance with the requirements of the Franchise Agreement and the Manual, and only to: (a) retail customers for consumption on the Restaurant's premises or for personal, carry-out consumption; (b) delivery customers; and (c) wholesale customers. As used in the Franchise Agreement, the following terms are given the following definitions:

The term "delivery customers" means customers that are located within the Protected Territory that purchase products for delivery to (and consumption in) their home or office.

The term "wholesale customers" means customers that: (a) purchase products totaling $1,000 or more a month from you; (b) are not in the business of selling bagels; and (c) do not, in turn, use any of our Proprietary Marks for serving or reselling Products that they buy from you. If you make a written request to us asking that we waive some or all of the conditions in the preceding sentence for one or more proposed wholesale customers, we will have the right to grant or withhold consent, in writing, to that waiver.

Despite anything else in the Franchise Agreement: (a) you will have no rights regarding any other business that we (or our affiliates) operate, including for example Einstein Bros., Noah's New York Bagels, Chesapeake Bagel, and New World Coffee (the "Other Brands"); and (b) we will have the right to operate and license others to operate businesses under the Other Brands at any location, even though those businesses (such as restaurants) may be near the Approved Location of your Restaurant or within the Protected Territory under your Franchise Agreement,

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and even though those restaurants may appear to (or actually) have an impact on sales at your Restaurant.

Development Agreement

Under the Development Agreement, and as described in Item 1, if you sign a Development Agreement, you will receive a Development Area in which you must develop Restaurants. If you are in compliance with your obligations under the Development Agreement and all other Franchise Agreements between you and us, then we will not establish, nor license anyone other than you to establish, a Restaurant in the Development Area until the last date specified in the Development Schedule, except as otherwise provided below. We will retain all other rights, and therefore retain the right (among others), and without granting to you any rights, to:

- establish, and license others to establish, Restaurant at any location outside the Development Area notwithstanding their proximity to any Restaurants you may operate within the Development Area, or their actual or threatened impact on sales at those Restaurants;

- establish, and license others to establish, Restaurants at any Institutional Facility, Co-Branded Location, or non-traditional facility, within or outside the Development Area, notwithstanding such Restaurants' proximity to any Restaurant you operate;

- establish, and license others to establish, stores under other systems or other proprietary marks, which stores may offer or sell products that are the same as, similar to, or different from the Products offered from the Restaurant, and which stores may be located within or outside the Development Area, notwithstanding such stores' proximity to any Restaurant you operate;

- acquire and operate any business or store of any kind, whether located within or outside the Development Area (excluding Restaurants operated under the System within the Development Area), notwithstanding such the proximity of any such businesses or stores to any Restaurant you operate; and/or

- sell and distribute, directly or indirectly, or license others to sell and distribute, directly or indirectly, any Products from any location or to any purchaser (including, but not limited to, sales made at retail locations, supermarkets, gourmet shops, mail order, and on the Internet), so long as the sales are not conducted from a retail Restaurant operated from a location inside the Development Area.

Deposit Agreement

If you sign a deposit agreement, we will describe an area within which you can look for a site for a new restaurant. This area is not meant to be an "exclusive" area, and we will be able to pursue and engage in any business opportunities in the area.

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3671595.32 (March 31, 2006)

ITEM 13

TRADEMARKS, SERVICE MARKS. TRADE NAMES.

LOGOTYPES. AND COMMERCIAL SYMBOLS

We grant you the right to use certain Proprietary Marks under the Franchise Agreement. We have registered and own the following Proprietary Marks with the U.S. Patent and Trademark Office (the "USPTO") on its Principal Register:

Mark	Registration Number	Registration Date
MANHATTAN BAGEL COMPANY AND DESIGN	1,538,593	May 9, 1989
MANHATTAN BAGEL (word mark)	2,031,357	January 21,1997
MANHATTAN BAGEL LOGO	2,146,068	March 24,1998
MANHATTAN BAGEL LOGO	2,322,123	February 22, 2000

No affidavit or renewal filings are due yet for these registrations.

Your right to use the Proprietary Marks is limited to the uses that are authorized under the Franchise Agreement, and any unauthorized use of the Proprietary Marks will infringe upon our rights. You may not use any Proprietary Mark: (1)as part of any corporate name or other business name; (2) with any prefix, suffix, or other modifying words, terms, designs, or symbols, or in any modified form; (3) for performing or selling any unauthorized services or products; (4) as part of any domain name, electronic address or search engine or in any other manner for a Website without our prior written approval; or (5) in any other manner that we do not expressly authorize in writing. You must identify yourself as the independent owner and operator of your business and Restaurants in the manner we specify (such as on invoices, order forms, receipts, and contracts). You must also give the trademark registration notices that we designate, and obtain any assumed business name registrations that applicable law requires.

There are no currently effective material determinations of the USPTO, the Trademark Trial and Appeal Board, the trademark administrator of any state, or any court, and no pending infringement, opposition, or cancellation proceeding, or any pending material litigation, involving the Proprietary Marks. Based on a settlement with a prior user of the Manhattan Bagel name, we are not permitted to operate or franchise any Restaurants using the Proprietary Marks in Kentucky until 2045. Except as described above, no agreement significantly limits our rights to use or license the Proprietary Marks in any state in a manner material to the franchise, and we know of no superior prior rights or infringing uses that could materially affect your use of the Proprietary Marks in any state.

You must immediately notify us of any apparent infringement of or challenge to your use of any Proprietary Mark or any person's claim of any rights in any Proprietary Mark. You may not communicate with anyone except us and our counsel (and, if applicable, our licensor and its counsel) regarding any infringement, challenge or claim. We will have discretion to take any action we deem appropriate and the right to control exclusively any settlement, litigation, or administrative or other proceeding regarding any infringement, challenge or claim or otherwise regarding any Proprietary Mark. You must render the assistance we require to protect and maintain our interests in any litigation or proceeding or otherwise to protect and maintain our interests in the Proprietary Marks. We will reimburse you for the reasonable out-of-pocket expenses you incur and pay in complying with these requirements, except to the extent we recover money on your behalf in the action that exceeds your costs. In that case, you pay your

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own costs and share pro rata in our recovery up to the amount of your share of the recovery. We will defend and indemnify you for damages you incur in any claim, action or proceeding brought by any person claiming to have rights to the Proprietary Marks (other than a person's claims to prior common law trademark rights), but only if you complied with the Franchise Agreement and that Agreement is still in effect.

If it becomes advisable at any time in our sole judgment for you to modify or discontinue using any Proprietary Mark or for you and the Restaurant to use one or more additional or substitute trade or service marks, you will have to immediately comply with our directions. Neither we nor our affiliates will have any obligation to reimburse you for any expenditures you make because of any discontinuance or modification.

ITEM 14 PATENTS. COPYRIGHTS. AND PROPRIETARY INFORMATION

Patents

No patents are material to the operation of your Restaurant.

Copyrights

We claim copyright protection covering various materials used in our business and the development and operation of Manhattan Bagel Restaurants, including the Manual, advertising and promotional materials, and similar materials. We have not registered these materials with the United States Registrar of Copyrights but we are not required to do so.

There are no currently effective determinations of the United States Copyright Office or any court, nor any pending litigation or other proceedings, regarding any copyrighted materials. No agreement limits our rights to use or allow franchisees to use the copyrighted materials. We do not know of any superior prior rights or infringing uses that could materially affect your use of the copyrighted materials. No agreement requires us to protect or defend our copyrights or to indemnify you for any expenses or damages you incur in any judicial or administrative proceedings involving the copyrighted materials. No provision in the Franchise Agreement requires you to notify us of claims by others of rights to, or infringements of, the copyrighted materials. If we require, you must immediately modify or discontinue using the copyrighted materials. Neither we nor our affiliates will have any obligation to reimburse you for any expenditures you make because of any discontinuance or modification.

Confidential Information

Except for the purpose of operating the Restaurant under the Franchise Agreement, you may never (during Franchise Agreement's term or later) communicate, disclose, or use for any person's benefit any of the confidential information, knowledge, or know-how concerning the operation of the Restaurant that may be communicated to you or that you may learn by virtue of your operation of a Restaurant. You may divulge confidential information only to those of your employees who must have access to it in order to operate the Restaurant. Any and all information, knowledge, know-how, and techniques that we designate as confidential will be deemed confidential for purposes of the Franchise Agreement. However, this will not include information that you can show came to your attention before we disclosed it to you; or that at

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any time became a part of the public domain, through publication or communication by others having the right to do so.

In addition, we may require you, your Operating Partner and your Restaurant Manager to sign a Non-Disclosure and Non-Competition Agreement. Every one of these agreements must provide that the person signing will maintain the confidentiality of information that they receive in their employment or affiliation with you or the Restaurant. These agreements must be in a form that we find satisfactory, and must include, among other things, specific identification of our company as a third party beneficiary with the independent right to enforce the covenants. Our current form for this Non-Disclosure and Non-Competition Agreement is attached to the Franchise Agreement as Exhibit F.

Confidential Manual

In order to protect our reputation and goodwill and to maintain high standards of operation under our Proprietary Marks, you must conduct your business in accordance with the Manual. We will lend you one set of our Manual for the term of the Franchise Agreement.

You must always treat in a confidential manner the Manual, any other manuals we create (or that we approve) for use with the Restaurant, and the information contained in the Manual. You must use best efforts to maintain this information as secret and confidential. You may not copy, duplicate, record, or otherwise reproduce the Manual and the related materials, or any part (except for the parts of the Manual that are meant for you to copy, which we will clearly mark), nor may you otherwise let any unauthorized person have access to these materials. The Manual will always be our sole property. You must always keep the Manual in a secure place at the Restaurant's premises.

We may periodically revise the contents of the Manual, and you must make corresponding revisions to your copy of the Manual and comply with each new or changed standard. If there is ever a dispute as to the contents of the Manual, our master copy of the Manual (maintained at our home office) will be controlling.

ITEM 15

OBLIGATION TO PARTICIPATE IN THE

ACTUAL OPERATION OF THE FRANCHISED BUSINESS

The Franchise Agreement requires that you or your Operating Partner devote full time, energy, and best efforts to the management of the Restaurant.

The Operating Partner must supervise the operation of the Restaurant and must be someone whom we have approved. We also must approve the Restaurant Manager. All persons that afterward serve in the positions of Operating Partner and Restaurant Manager will be subject to our prior written approval and must also attend and successfully complete our manager training program (which is described in Item 11 of this offering circular).

The Franchise Agreement does not require you to participate personally in the direct operation of the Restaurant, although we encourage and recommend your active participation. We do, however, require that you or your Operating Partner devote full time, energy, and best efforts to the management of the Restaurant.

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If you are a corporation or a partnership, a Operating Partner must supervise the operation of the Restaurant whom we have approved ahead of time. The person who serves as Restaurant Manager will also be subject to our prior written approval. Our approval will be based on whether the proposed Operating Partner and Restaurant Manager have a good business reputation, are not competitors of ours, and whether they can successfully complete our training program. Operating Partners and Restaurant Managers must be able to speak the English language to attend and complete our training course. After the initial Operating Partner and Restaurant Manager, any replacements will also be subject to our reasonable approval, and are required to attend and successfully complete our training program. See Items 11 and 17 for a description of these obligations. We require your principals (including the Operating Partner), supervisors and managers to sign a Non-Disclosure and Non-Competition Agreement, the form of which is attached to the Franchise Agreement as Exhibit F. We do not impose any other restrictions on your managers.

ITEM 16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL

You may sell and provide only products and services that conform to our standards and specifications (which are described in Item 8 above). You also will have certain obligations to offer for sale particular items (which are described in Item 9 above). We have the right, without limit, to change the types of authorized products and services.

As noted above in Item 12, you may only offer and sell products to retail customers for consumption on the Restaurant's premises, for personal carry-out consumption, and for delivery service in a manner that complies with our standards. You may also sell products to end-users and other entities that do not resell the products. You may not sell products to gift shops and similar type stores. We will have the right to review and approve (or not approve) any proposed sale of the products to a hotel or a restaurant (which may be required to comply with our standards in order to feature or give away Manhattan Bagel brand products). All sales will be counted in "Gross Sales."

The Approved Location for the Restaurant will be specified in the Franchise Agreement. You may not relocate the Restaurant without our prior written approval.

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ITEM 17 RENEWAL. TERMINATION. TRANSFER. AND DISPUTE RESOLUTION

This table lists important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this offering circular.

Provision	Section in Agreement	Summary
a. Term of the franchise	§ 2.1 of Franchise Agreement; § 4 in Area Development Agreement; § 4 of Software License Agreement	10 years
b. Renewal or extension of the term	§ 2.2 of Franchise Agreement; none in Area Development Agreement	One additional 10-year term
c. Requirements for you to renew or extend	§§ 2.2.1 - 2.2.8 of Franchise Agreement; none in Area Development Agreement	Notice, satisfaction of monetary obligations, compliance with Franchise Agreement, release, sign new Franchise Agreement, and others; see §§ 2.2.1 -2.2.8 in Franchise Agreement.
d. Termination by you	None	We each have the right to terminate the Deposit Agreement at any time, with or without cause, by providing written notice to the other party.
e. Termination by us without cause	None	We each have the right to terminate the Deposit Agreement at any time, with or without cause, by providing written notice to the other party.
f. Termination by us with cause	§ 14 of Franchise Agreement; § 6 in Area Development Agreement; § 9 of Software License Agreement	Default under Franchise Agreement, bankruptcy, abandonment, and other grounds; see § 14 of the Franchise Agreement. Under the U.S. Bankruptcy Code, we may be unable to terminate the agreement merely because you make a bankruptcy filing.

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Provision	Section in Agreement	Summary
g. "Cause" defined - defaults which can be cured	§ 13.3 of Franchise Agreement; § 6.3 in Area Development Agreement	All other defaults not specified in §§14.1 and 14.2 of the Franchise Agreement
h. "Cause" defined - defaults which cannot be cured	§§14.1 and 14.2 of Franchise Agreement; §§ 6.1 and 6.2 in Area Development Agreement	Bankruptcy, abandonment, conviction of felony, and others; see § 14.2. of the Franchise Agreement (Under the U.S. Bankruptcy Code, we may be unable to terminate the agreement merely because you make a bankruptcy filing.)
1. Your obligations on termination/ nonrenewal	§ 15 of Franchise Agreement; § 6.4 in Area Development Agreement; § 10 of Software License Agreement	Cease operating Restaurant, payment of amounts due, and others; see§§ 15.1-15.9 of the Franchise Agreement.
j. Assignment of contract by us	§ 13.1 of Franchise Agreement; § 7.1 in Area Development Agreement	There are no limits on our right to assign the Franchise Agreement.
k. "Transfer" by you - definition	§§ 13.4.1 -13.4.4 of Franchise Agreement; §§ 7.4.1 - 7.4.4 in Area Development Agreement	Includes transfer of any interest.
1. Our approval of transfer by you	§ 13.4 of Franchise Agreement; § 7.4 in Area Development Agreement	We have the right to approve transfers.
m. Conditions for our approval of transfer	§ 13.5 of Franchise Agreement; § 7.5 in Area Development Agreement	Release, signature of new Franchise Agreement, payment of transfer fee, and others; see §§ 13.5.1 -13.5.10 of the Franchise Agreement.
n. Our right of first refusal to acquire your business	§ 13.6 of Franchise Agreement; § 7.6 in Area Development Agreement	We can match any offer.
o. Our option to purchase your business	§§ 15.4 and 15.9 of Franchise Agreement; none in Area Development Agreement	We can acquire any interest which you have in any lease or sublease for the premises and purchase your furnishings, equipment, material, or inventory at cost or fair market value.

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3671595.32 (March 31, 2006)

Provision	Section in Agreement	Summary
p. Your death or disability	§§ 13.7,13.8 and 13.9 of Franchise Agreement; §§ 7.7, 7.8 and 7.9 in Area Development Agreement	Your estate must transfer your interest in the Restaurant to a third party we have approved, within a year after death or 6 months after the onset of disability.
q. Non-competition covenants during the term of the franchise	§§ 16.2,16.3 and 16.4 of Franchise Agreement; §§ 8.2, 8.3 and 8.4 in Area Development Agreement	Includes prohibition on engaging in any other business which is the same or similar to the Restaurant and others; see §§ 16.2 -16.4 of the Franchise Agreement.
r. Non-competition covenants after the franchise is terminated or expires	§§ 16.3 and 16.4 of Franchise Agreement; §§ 8.3 and 8.4 in Area Development Agreement	Includes an 18 month prohibition similar to "q" (above), within 5 miles of the Approved Location, or within 5 miles of any other Restaurant then-operating under the System.
s. Modification of the agreement	§ 22 of Franchise Agreement; § 13 in Area Development Agreement; § 19 in Software License Agreement	Must be in writing signed by both parties.
t. Integration/ merger clause	§ 22 of Franchise Agreement; § 13 in Area Development Agreement; § 16 in Software License Agreement	Only the final written terms of the Franchise Agreement are binding.
u. Dispute resolution by arbitration or mediation	§ 25.3 of Franchise Agreement; § 15.3 in Area Development Agreement	Before bringing an action in court, the parties must first submit the dispute to non-binding mediation (except for injunctive relief).
v. Choice of forum	§ 25.2 of Franchise Agreement; § 15.2 in Area Development Agreement	If we ever litigate, you must do so in the state and judicial district where we maintain our principal place of business, currently, Golden, Colorado.*
w. Choice of law	§ 25.1 of Franchise Agreement; § 15.1 in Area Development Agreement	Colorado law applies.*

These states have statutes which may. supersede the Franchise Agreement in your relationship with us, including the areas of termination and renewal of your franchise: Arkansas [Ark. Code Sections 4-72-201 to 4-72-210]; California [Bus. & Prof. Code Sections 20000 to 20043];

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Connecticut [Gen. Stat. Sections 42-133e to 42-133h]; Delaware [Code Sections 2551 to 2556]; Hawaii [Rev. Stat. Section 482E-6]; Illinois [815 ILCS 705/1-44]; Indiana [Stat. Sections 23-2.5-1 and 23-2-2.7]; Iowa [Code Sections 523H.1 to 523H.17; Michigan [Stat. Section 19.854(27); Minnesota [Stat. Section 80C.14]; Mississippi [Code Sections 75-24-51 to 87-410; Missouri [Rev. Stat. Sections 407.400 to 407.410]; Nebraska [Rev. Stat. Sections 87-401 to 87-^10]; New Jersey [Rev. Stat. Section 56:10-1 to 56:10-12]; South Dakota [Codified Laws Section 37-5a-51]; Virginia [Code 13.1-557 through 13.1-574]; Washington [Code Section 19.100.180]; and Wisconsin [Stat. Section 135.01 to 135.07]. These and other states may have other statutes and court decisions that may supersede the franchise agreement in your relationship with us including the areas of termination and renewal of your franchise.

In addition to the provisions noted in the table above, the Franchise Agreement and Development Agreement contain a number of provisions that may affect your legal rights, including a waiver of a jury trial, waiver of punitive or exemplary damages, and limitations on when claims may be raised. See Sections 25.6, 25.7 and 25.8 in the Franchise Agreement, and Sections 15.6 and 15.7 in the Development Agreement. We recommend that you carefully review all of these provisions, and the entire contracts, with a lawyer.

* Please refer to the disclosure addenda and contractual amendments appended to this offering circular for additional terms that may be required under applicable state law.

ITEM 18 PUBLIC FIGURES

We do not use any public figures to promote our franchise.

ITEM 19 EARNINGS CLAIMS

We do not furnish or authorize our employees, salespersons, or any other representations to furnish any oral or written information concerning the actual or potential sales, costs, income, or profits of a Restaurant. Actual results vary from unit to unit, and neither we nor our employees, salespersons, nor any other representative can estimate the results of any particular franchise.

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ITEM 20 LIST OF OUTLETS

FRANCHISED STORE STATUS SUMMARY FOR FISCAL YEARS 2005/2004/2003

State	Transfers			Canceled or Terminated			Not Renewed			Reacquired by Franchisor			Otherwise Left the System			Total from Left Columns			Franchises Operating at Year End
	o O O CM	o o CM	CO o o CM	in o o CM	o o CM	CO o o CM	W o o CM	O O CM	CO © o CM	w o o CM	o © CM	CO o o CM	in o o CM	o o CM	CO o o CM	m o o CM	o o CM	CO o o CM	m o o CM	O O CM	CO o o CM
Ala.	0	0	0	0	0	0	2	0	0	0	0	0	0	0	0	2	0	0	0	2	2
Calif.	0	1	3	3	5	6	1	0	0	0	0	0	0	0	0	4	5	g	6	10	15
Conn.	0	0	0	1	1	2	0	0	0	0	0	0	0	0	0	1	1	2	0	1	2
Dela.	0	0	1	0	1	0	0	0	0	0	0	0	0	0	0	0	1	1	3	3	4
Fla	0	1	2	4	1	3	0	0	0	0	0	0	0	0	0	4	1	5	8	12	13
Ga	0	0	0	1	1	1	0	1	0	0	0	0	0	0	0	1	2	1	3	4	6
Md	0	0	1	2	0	0	1	0	0	0	0	0	0	0	0	3	0	1	0	3	3
Mass.	0	0	0	1	0	0	0	0	0	0	0	0	0	0	0	1	0	0	1	2	2
Mich.	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Nev.	0	0	0	0	2	0	0	0	0	0	0	0	0	0	0	0	2	0	0	0	2
N.J.	1	6	2	2	5	2	0	1	1	0	0	0	1	0	0	4	11	5	33	36	42
N.Y.	0	0	0	2	7	4	0	0	1	0	0	0	0	0	0	2	5	5	9	11	17
N.C.	0	0	1	6	2	1	0	0	0	0	0	0	0	0	0	6	2	2	3	9	11
Ohio	0	0	0	0	0	1	0	0	0	0	0	0	0	0	0	0	0	1	0	0	0
Penn.	0	1	6	3	5	0	0	1	0	0	0	0	0	0	0	4	8	6	33	36	41
S.C.	0	0	0	1	0	0	0	0	0	0	0	0	0	0	0	1	0	0	1	2	2
Texas	0	0	1	3	0	0	0	0	0	0	0	0	0	0	0	3	0	1	0	3	3
Virginia	2	0	0	2	2	0	0	0	0	0	0	0	0	0	0	4	2	0	9	11	13
Total	4	9	17	31	32	20	4	3	2	0	0	0	1	0	0	40	44	39	109	145	178

Notes:

1. All numbers are as of our fiscal years ended January 3, 2006 (which was the last day in our FY2005), December 28, 2004 (which was the last day in our FY2004), and December 30, 2003 (which was the last day in our FY2003).

2. Numbers may not add up because a single franchise may be listed in more than one category.

We did not have any company-owned restaurants during any of the past three fiscal years.

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Projected Manhattan Bagel Openings During the Period From January 4,2006 Through January 2, 2007
State	Franchise Agreement Signed as of January 3, 2006 but the Restaurant Was Not Yet Open	Projected Franchised Restaurants To Be Opened	Projected Company-Owned Restaurants To Be Opened
New Jersey	1	2	1
Pennsylvania	0	3	0
TOTALS	1	5	1

The names, addresses, and telephone numbers of our franchisees as of January 3, 2006 are listed in Exhibit H.

The name and last known home address and telephone number of every one of our franchisees who has had an agreement terminated, canceled, not renewed, or who otherwise voluntarily or involuntarily ceased to do business under a Franchise Agreement during the one-year period ending January 3, 2006, or who has not communicated with us within ten weeks of the date of this offering circular are also listed in Exhibit H. Exhibit I lists our company-owned units (currently there are none).

ITEM 21 FINANCIAL STATEMENTS

The financial statements listed below are attached as exhibits to this offering circular as Exhibit I:

NWR's* consolidated balance sheets as of January 3, 2006 (which was the last day in NWR's FY2005) and December 28, 2004 (which was the last day in NWR's FY2004); and NWR's* consolidated statements of operations, statements of changes in stockholders' equity, and statements of cash flows for the years ended January 3, 2006, December 28, 2004, and December 30, 2003.

* NWR has absolutely and unconditionally guaranteed our obligations to our franchisees

under the franchise agreements.

ITEM 22 CONTRACTS

The following contracts are attached as exhibits to this offering circular:

The Franchise Agreement (Exhibit B), which includes the following exhibits that are attached to the Franchise Agreement:

A. Guarantee, Indemnification and Acknowledgment

B. List of Principals

C. EFT Authorization Form

D. ADA Certification

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E. Lease Rider

F. Non-Disclosure and Non-Competition Agreement

The Development Agreement (Exhibit C) The Deposit Agreement (Exhibit D) The Software License Agreement (Exhibit E) General Release Language (Exhibit O)

ITEM 23 RECEIPT

The last two pages of this offering circular (Exhibit P) are identical pages acknowledging receipt of this entire document (including the exhibits). Please sign and return to us one copy; please keep the other copy along with this offering circular.

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