SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- - - - - - - - - - - - - -
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 11, 1998
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-19253
---------
Au Bon Pain Co., Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2723701
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Fid Kennedy Avenue, Boston, MA 02210
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(617) 423-2100
---------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
As of August 21, 1998, 10,398,030 shares and 1,572,907 shares of the
registrant's Class A and Class B Common Stock, respectively, $.0001 par value,
were outstanding.
<PAGE>
AU BON PAIN CO., INC.
INDEX
<TABLE>
<CAPTION>
FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C> <C>
PART I. ITEM 1. FINANCIAL STATEMENTS................................ 3
- ------
Consolidated Balance Sheets as of
July 11, 1998 and December 27, 1997................. 3
Consolidated Statements of Operations
for the twelve and twenty-eight weeks
ended July 11, 1998 and July 12, 1997............... 4
Consolidated Statements of Cash Flows
for the twenty-eight weeks ended
July 11, 1998 and July 12, 1997..................... 5
Notes to Consolidated Financial Statements.......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................... 8
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS............................................. 13
ITEM 5. OTHER INFORMATION................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 14
</TABLE>
2
<PAGE>
Item 1. Financial Statements
AU BON PAIN CO., INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 11, December 27,
1998 1997
---- ----
ASSETS (unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 690,052 $ 853,025
Accounts receivable, net.......................... 6,698,686 9,427,190
Inventories....................................... 6,114,877 9,116,794
Prepaid expenses.................................. 2,919,413 775,036
Refundable income taxes........................... 595,916 595,916
Deferred income taxes............................. 600,040 600,040
------------ ------------
Total current assets.......................... 17,618,984 21,368,001
------------ ------------
Property and equipment, less accumulated
depreciation and amortization..................... 102,475,769 112,231,916
------------ ------------
Other assets:
Notes receivable.................................. 4,667,664 4,742,994
Intangible assets, net of accumulated amortization 30,689,925 31,360,459
Deferred financing costs.......................... 1,036,974 952,591
Deposits and other................................ 11,238,442 9,097,477
Deferred income taxes............................. 6,761,983 6,761,983
------------ ------------
Total other assets............................ 54,394,988 52,915,504
------------ ------------
Total assets.................................. $174,489,741 $186,515,421
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable.................................. $ 6,682,375 $ 7,070,881
Accrued expenses.................................. 12,711,853 13,917,058
Current maturities of long-term debt.............. 40 800 438,100
------------ ------------
Total current liabilities..................... 19,435,028 21,426,039
Long-term debt, less current maturities............. 34,236,294 42,526,752
Convertible Subordinated Notes...................... 30,000,000 30,000,000
------------ ------------
Total liabilities............................. 83,671,322 93,952,791
------------ ------------
Minority interest................................... 181,588 287,847
Stockholders' equity:
Common stock, $.0001 par value:
Preferred stock, $.0001 par value:
Class B, shares authorized 2,000,000;
issued and outstanding none
in 1998 and 1997, respectively
Class A, shares authorized 50,000,000; issued and
outstanding 10,398,030 and 10,187,042 in 1998
and 1997, respectively........................... 1,034 1,019
Class B, shares authorized 2,000,000; issued and
outstanding 1,572,907 and 1,610,038 in 1998 and
1997, respectively............................... 161 161
Additional paid-in capital......................... 69,576,876 68,485,661
Retained earnings.................................. 21,058,760 23,787,942
------------ ------------
Total stockholders' equity.................... 90,636,831 92,274,783
------------ ------------
Total liabilities and stockholders' equity.... $174,489,741 $186,515,421
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
for the 12 weeks ended for the 28 weeks ended
---------------------- -----------------------
July 11, July 12, July 11, July 12,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales.............. $53,942,016 $54,120,469 $123,661,755 $121,776,084
Franchise sales and other
revenues.................... 3,311,576 4,699,321 8,555,120 8,553,523
----------- ----------- ------------ ------------
57,253,592 58,819,790 132,216,875 130,329,607
Costs and expenses:
Cost of food and paper
products..................... 19,965,766 20,833,718 48,032,540 46,576,468
Restaurant operating expenses:
Labor..................... 15,302,104 15,079,213 34,739,946 33,546,079
Occupancy................. 6,918,325 7,167,680 13,983,396 14,393,646
Other..................... 6,320,271 6,578,102 14,036,827 14,139,453
----------- ----------- ------------ ------------
28,540,700 28,824,995 62,760,169 62,079,178
Depreciation and amortization. 3,934,950 3,919,262 9,202,750 8,998,339
General and administrative
expenses.................... 4,472,077 3,753,654 9,946,568 8,667,617
Non-recurring charge.......... -- -- 1,210,000 --
----------- ----------- ------------ ------------
56,913,493 57,331,629 131,152,027 126,321,602
----------- ----------- ------------ ------------
Operating income................ 340,099 1,488,161 1,064,848 4,008,005
Interest expense, net........... 1,407,935 1,608,072 3,534,676 3,743,236
Other expense, net.............. 78,440 229,513 216,005 500,624
Loss on sale of assets.......... -- -- 734,823 --
Minority interest............... 8,105 (31,986) 25,527 20,282
----------- ------------ ------------ ------------
Income (loss) before provision
for income taxes.............. (1,154,381) (317,438) (3,446,183) (256,137)
Provision (benefit) for income
taxes......................... (375,000) (151,833) (717,000) (102,455)
----------- ----------- ------------ ------------
Net income (loss)............... $ (779,381) $ (165,605) $ (2,729,183) $ (153,682)
=========== =========== ============ ============
Net income (loss) per
common share - basic.......... $ (0.07) $ (0.01) $ (0.23) $ (0.01)
=========== =========== ============ ============
Net income (loss) per
common share - diluted........ $ (0.07) $ (0.01) $ (0.23) $ (0.01)
=========== =========== ============ ===========
Weighted average number of
common and common equivalent
shares outstanding
- basic................... 11,903,632 11,758,178 11,867,016 11,751,454
=========== =========== ============ ============
Weighted average number of
common and common equivalent
shares outstanding
- diluted................. 11,903,632 11,758,178 11,867,016 11,751,454
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
for the 28 weeks ended
------------------------------
July 11, July 12,
1998 1997
------------ --------
<S> <C> <C>
Cash flows from operations:
Net income (loss)............................ $(2,729,183) $ (153,681)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 9,202,750 8,998,339
Amortization of deferred financing costs.......... 385,764 263,165
Provision for losses on accounts receivable....... 30,550 29,189
Minority interest................................. 25,527 20,282
Deferred income taxes............................. - 19,123
Non-recurring charge.............................. 1,210,000 712,828
Loss on sale of assets............................ 734,823 --
Changes in operating assets and liabilities:
Accounts receivable............................... 789,426 (826,451)
Inventories....................................... 799,648 (291,804)
Prepaid expenses.................................. (2,334,592) (810,904)
Accounts payable.................................. (388,506) (1,464,985)
Accrued expenses.................................. (1,069,353) (3,268,907)
----------- -----------
Net cash provided by operating activities....... 6,656,854 3,226,194
----------- -----------
Cash flows from investing activities:
Additions to property and equipment............... (8,989,727) (8,017,600)
Proceeds from sale of assets...................... 12,693,917 --
Payments received on notes receivable............. 120,330 49,112
Increase in intangible assets..................... (93,641) (54,784)
Decrease/(increase) in deposits and other......... (2,299,982) 1,422,554
Increase in notes receivable...................... (45,000) --
----------- -----------
Net cash provided by (used in)
investing activities.......................... 1,385,897 (6,600,718)
------------ -----------
Cash flows from financing activities:
Exercise of employee stock options................ 874,311 22,641
Proceeds from long-term debt issuance net
of deferred financing costs..................... 43,396,342 36,658,341
Principal payments on long-term debt.............. (52,084,100) (34,758,933)
Proceeds from issuance of common stock............ 216,920 --
Deferred financing costs.......................... (477,411) (43,206)
Decrease in minority interest..................... (131,786) (203,021)
----------- -----------
Net cash provided by (used in) financing
activities.................................... (8,205,724) 1,675,822
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... (162,973) (1,698,702)
----------- -----------
Cash and cash equivalents, at beginning of period..... 853,025 2,578,830
----------- -----------
Cash and cash equivalents, at end of period........... $ 690,052 $ 880,128
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited, consolidated financial statements of Au Bon
Pain Co., Inc. and Subsidiaries (the "Company") have been prepared in accordance
with instructions to Form 10-Q and, therefore, do not include all information
and footnotes normally included in financial statements prepared in conformity
with generally accepted accounting principles. They should be read in
conjunction with the financial statements of the Company for the fiscal year
ended December 27, 1997.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations for the interim periods, and are not necessarily
indicative of the results that may be expected for the entire year.
Note B - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
for the twelve weeks ended
--------------------------
July 11, July 12,
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) used in net
income (loss) per common share
- basic................................ $ (779,381) $ (165,605)
=========== ===========
Net income (loss) used in net
income (loss) per common share
- diluted.............................. $ (779,381) $ (165,605)
=========== ===========
Weighted average number of shares
outstanding - basic.................... 11,903,632 11,758,178
Effect of dilutive securities:
Employee stock options............. -- --
Stock warrants..................... -- --
Weighted average number of shares
outstanding - diluted.............. 11,903,632 11,758,178
=========== ===========
Net income (loss) per common share
- basic................................ $ (.07) $ (.01)
=========== ===========
Net income (loss) per common share
- diluted.............................. $ (.07) $ (.01)
=========== ===========
</TABLE>
Note C - Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information", which changes the manner in which public
companies report information about their operating segments. SFAS No. 131, which
is based on the management
6
<PAGE>
approach to segment reporting, establishes requirements to report selected
segment information quarterly and to report entity-wide disclosures about
products and services, major customers, and the geographic locations in which
the entity holds assets and reports revenue. Management is currently evaluating
the effects of this change on its reporting of segment information. The Company
will adopt SFAS No. 131 for its fiscal year ending December 26, 1998.
Note D - Subsequent Events
On August 12, 1998, Au Bon Pain Co., Inc. (the "Company"), ABP Holdings,
Inc., a Delaware corporation and wholly owned subsidiary of the Company (the
"Subsidiary"), and ABP Corporation, a Delaware corporation controlled by
Bruckmann, Rosser, Sherill & Co., Inc., a private equity investment firm based
in New York (the "Buyer"), entered into a Stock Purchase Agreement (the
"Agreement"), which contemplates (i) the transfer from the Company to the
Subsidiary of substantially all of the operating assets, store leases, contracts
and liabilities associated with the Company's bakery cafe food service business
concept generally known as Au Bon Pain (collectively, the "Au Bon Pain
Division") and (ii) the sale of all of the capital stock of the Subsidiary to
the Buyer (the "Sale"), whereby the Buyer will become the owner of the Au Bon
Pain Division. The Sale will become effective subject to the terms and
conditions of the Agreement, including, but not limited to, the approval of the
stockholders of the Company, consents of certain landlords, governmental
approvals, and consummation of financing pursuant to previously obtained
commitments from Buyer's lenders and investors, of which no assurance can be
given. In the event the Sale is consummated, the Company expects to record a
non-cash after-tax loss of approximately $20 million in connection with the
Sale. The description of the Agreement is qualified in its entirety by reference
to Form 8-K and the exhibits attached thereto, including the Agreement, filed
with the Commission on August 21, 1998. The purchase price payable to the
Company upon the effectiveness of the Sale shall be seventy-eight million
dollars ($78,000,000), subject to possible purchase price adjustments, as
described in the Agreement.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues of certain items included in the Company's consolidated statements of
operations for the periods indicated:
<TABLE>
<CAPTION>
For the For the
12 weeks ended 28 weeks ended
-------------------- ------------------
July 11, July 12, July 11, July 12,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales ............. 94.2% 92.0% 93.5% 93.4%
Franchise sales and
other revenues ............. 5.8 8.0 6.5 6.6
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of food and
paper products ............. 34.9% 35.4% 36.3% 35.7%
Restaurant operating
expenses ................... 49.8 49.0 47.5 47.6
Depreciation and
amortization ............... 6.9 6.7 7.0 6.9
General and
administrative ............. 7.8 6.4 7.5 6.7
Non-recurring reserve ........ -- -- 0.9 --
----- ----- ----- -----
99.4 97.5 99.2 96.9
----- ----- ----- -----
Operating margin ............... 0.6 2.5 0.8 3.1
Interest expense, net .......... 2.5 2.7 2.7 2.9
Other expense, net ............. 0.1 0.4 0.2 0.4
Loss of sale on assets ......... -- -- 0.5 --
Minority interest .............. -- (0.1) -- --
----- ----- ----- -----
Income (loss) before
provision (benefit) for
income taxes ................. (2.0) (0.5) (2.6) (0.2)
Provision (benefit) for
income taxes ................. (0.6) (0.2) (0.5) (0.1)
----- ----- ----- -----
Net income (loss) .............. (1.4)% (0.3)% (2.1)% (0.1)%
===== ===== ===== =====
</TABLE>
General
The Company's revenues are derived from restaurant sales and franchise
sales and other revenues. Franchise sales and other revenues include sales of
frozen dough products to franchisees and others, royalty income and franchise
fees. Certain expenses (cost of food and paper products, restaurant operating
expenses, and
8
<PAGE>
depreciation and amortization) relate primarily to restaurant sales, while
general and administrative expenses relate to all areas of revenue generation.
The Company's fiscal year ends on the last Saturday in December. The
Company's fiscal year normally consists of 13 four-week periods, with the first,
second and third quarters ending 16 weeks, 28 weeks and 40 weeks, respectively,
into the fiscal year.
Results of Operations
Total revenues for the twelve weeks ended July 11, 1998 decreased 3% to
$57.2 million from $58.8 million for the comparable period of 1997, comprising
an 18.3% increase in total revenues at the Saint Louis Bread business unit and a
10.3% decrease in total revenues at the Au Bon Pain business unit. Total
revenues increased in the Saint Louis Bread/Panera Bread business unit to $18.6
million in the second quarter of 1998, driven principally by positive comparable
restaurant sales and incremental revenues from the seven and five company-owned
bakery cafes opened in 1997 and 1998 to-date, respectively. Comparable
restaurant sales at Saint Louis Bread Co./Panera Bread continued at a moderately
strong pace, increasing 2.9% in the second quarter of 1998 versus the comparable
period of 1997. This increase is on top of the 9.8% comparable restaurant sales
increase of the second quarter of 1997. In the Au Bon Pain business unit, total
revenues decreased to $38.7 million for the second quarter of 1998, reflecting
the closing of certain restaurants in 1997 and 1998 and the franchising of
eleven stores in the Philadelphia market in the third quarter of 1997.
Comparable restaurant sales for the Au Bon Pain business unit in the second
quarter of 1998 increased by .9%.
Operating income in the second quarter of 1998 decreased to $340,000,
versus $1,492,000 in the second quarter of 1997, as operating margin was .6% in
the second quarter of 1998 versus 2.5% in the comparable period of 1997. The 1.9
point year-over-year decline in margin was a result of increased food costs as a
percentage of total revenues, particularly butter and previously-contracted-for-
coffee, an increase in overall general and administrative expenses, including
increased expenses to support the company's 1998 projected growth, and lower
contribution in the second quarter of 1998 from the Au Bon Pain International
and Trade Channels business unit.
At the Saint Louis Bread Co./Panera Bread business unit, operating
margin decreased .8% in the second quarter of 1998 versus the comparable quarter
of 1997 due to increased general and administrative and other infrastructure
expenses to support the business unit's projected 63% systemwide unit growth in
1998 over 1997. Operating margin in the Au Bon Pain business unit in the second
quarter of 1998 was 3.1 points below that of the second quarter of 1997, as the
Au Bon Pain business unit results were significantly impacted by higher
percentage food costs, principally in the areas of
9
<PAGE>
butter, coffee, and produce costs. In addition, the Au Bon Pain International
and Trade Channels business unit earnings decreased significantly versus the
comparable quarter of 1997, attributable to some sales softness in the Asian
markets and particularly strong fees in the second quarter of 1997.
During the second quarter of 1998, six Saint Louis Bread Co./Panera Bread
franchise area development agreements were signed, representing commitments for
the development of 66 bakery cafes and increasing the number of franchise
commitments to a total of 452 bakery cafes to be developed. Nine Saint Louis
Bread/Panera Bread bakery cafes were opened in the second quarter of 1998,
including three company-owned cafes and six franchise-operated cafes. For the Au
Bon Pain International and Trade Channels business unit, nine franchise-operated
units opened in the second quarter of 1998.
Net Income
The Company recorded a net loss in the second quarter of 1998 of $779,381
versus a net loss of $165,605 in the comparable 1997 period. Interest expense
decreased to $1,408,000 in the second quarter of 1998 versus $1,608,000 in the
comparable period in 1997 with other expense of $88,000 at July 11, 1998
compared to $198,000 at July 12, 1997.
Liquidity and Capital Resources
The Company's principal requirements for cash are capital expenditures for
constructing and equipping new bakery cafes, maintaining or remodeling existing
bakery cafes and working capital. To date, the Company has met its requirements
for capital with cash from operations, proceeds from the sale of equity and debt
securities and bank borrowings.
For the twenty-eight weeks ended July 11, 1998, operating activities
provided $6.7 million versus $3.2 million for the comparable period of 1997.
Funds provided by operating activities were primarily the result of the sale of
assets and decreases in accounts receivable and inventories, offset by an
increase in prepaid expenses and decreases in accrued expenses. In 1997, cash
was generated by disposal of assets offset by decreases in accounts payable and
accrued expenses.
Total capital expenditures for the twenty-eight weeks ended July 11, 1998
of $9.0 million were related primarily to the construction of new Saint Louis
Bread bakery cafes and commissaries and the remodeling of existing Au Bon Pain
bakery cafes. The expenditures were funded principally by net cash from
operating activities and by use of the Company's revolving line of credit. Total
capital expenditures for the twenty-eight weeks ended July 12, 1997 were $8.0
million.
On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrue
10
<PAGE>
interest at varying fixed rates over the four-year term, ranging between 11.25%
and 14.0%. In connection with the private placement, warrants with an exercise
price of $5.62 per share were issued to purchase between 400,000 and 500,000
shares of the Company's Class A common stock, depending on the term during which
the debentures remain outstanding and certain future events. The net proceeds of
the financing were used to reduce the amount outstanding under the Company's
bank revolving line of credit. With the senior subordinated financing and the
Company's revolving line of credit, the Company's management believes it has the
capital resources necessary to meet its growth goals through 1998.
On March 23, 1998 the Company sold its Mexico, MO production facility and
its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for
approximately $13 million in cash. The net proceeds of the sale were used to
repay the $7.9 million outstanding for the Industrial Revenue Bond and to reduce
amounts outstanding under the revolving credit line. There were no gains or
losses associated with the early retirement of the Industrial Revenue Bond or
the partial repayment of the revolving credit line.
The Company has a $22.0 million unsecured revolving line of credit which
bears interest at the commercial bank's prime rate plus .25% to 2.25%, depending
upon certain financial tests performed quarterly. As of July 11, 1998, $17.5
million was outstanding under the line of credit and an additional $1.1 million
of the remaining availability was utilized by outstanding letters of credit
issued by the bank on behalf of the Company.
In 1998, the Company currently anticipates spending approximately $19.0
million for capital expenditures, principally for the opening of new bakery
cafes and the remodeling of existing units. The Company expects to fund these
expenditures principally through internally generated cash flow.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information", which changes the manner in which public
companies report information about their operating segments. SFAS No. 131, which
is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers, and the
geographic locations in which the entity holds assets and reports revenue.
Management is currently evaluating the effects of this change on its reporting
of segment information. The Company will adopt SFAS No. 131 for its fiscal year
ending December 26, 1998.
Statements made or incorporated in this Form 10-Q include a number of
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "estimates", "projects", "anticipates", "believes", "expects",
"intends", "future", and words of similar import which express management's
belief, expectations or
11
<PAGE>
intentions regarding the Company's future performance. The forward-looking
statements involve known or unknown risks and uncertainties. The Company's
actual results could differ materially from those set forth in the
forward-looking statements. Additionally, the Company's operating results may be
affected by many factors, including but not limited to, variations in the number
and timing of bakery cafe openings and public acceptance of new bakery cafes,
competition and other factors that may affect retailers in general.
The Company has not completed its assessment of the impact of the Year 2000
issue. It is management's belief that the primary financial systems are Year
2000 compatible. Those systems are being tested for compliance during 1998. Many
secondary systems associated with the Company's retail operations will require
modifications. It is the Company's belief that existing internal Company
resources will be adequate to reprogram these Year 2000 modifications. It is
expected that the most significant Year 2000 system issue for the Company is
with POS systems used by the Au Bon Pain concept. The Company is in negotiation
with several vendors to replace the exiting POS systems with new
state-of-the-art systems. The new systems are expected to be leased at a net
incremental cost of approximately $400,000 annually for both the Au Bon Pain and
Saint Louis Bread concepts. The incremental cost of the new system is expected
to be substantially offset by labor efficiency savings associated with the new
POS system.
12
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 25, 1998, to
consider and vote upon the following matters:
1. To elect two (2) members of the Board of Directors, each for a
three-year term ending at the Company's 2001 Annual Meeting
(the "Directors Proposal"); and
2. To ratify the action of the Board of Directors reappointing
Coopers & Lybrand LLP (now known as PricewaterhouseCoopers
LLP) as auditors for the Company for the fiscal year ending
December 26, 1998 (the "Auditors Proposal");
With respect to the Directors Proposal, each of the following Nominees
received the following votes in favor, and withheld, from his nomination:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
George E. Kane 11,830,151 295,742
Henry J. Nasella 11,866,817 259,076
</TABLE>
Accordingly, Messrs. Kane and Nasella were elected as members of the Board
of Directors, each to serve a three-year term expiring at the Company's 2001
Annual Meeting and until his successor has been duly elected and qualified.
With respect to the Auditors Proposal, 12,097,072 votes were cast for the
proposal, 11,288 votes were cast against the proposal, and there were 17,533
abstentions on the proposal. Accordingly, the Auditors Proposal was approved.
Item 5. OTHER INFORMATION
On August 12, 1998, Au Bon Pain Co., Inc. (the "Company"), ABP Holdings,
Inc., a Delaware corporation and wholly owned subsidiary of the Company (the
"Subsidiary"), and ABP Corporation, a Delaware corporation controlled by
Bruckmann, Rosser, Sherill & Co., Inc., a private equity investment firm based
in New York (the "Buyer"), entered into a Stock Purchase Agreement (the
"Agreement"), which contemplates (i) the transfer from the Company to the
Subsidiary of substantially all of the operating assets, store leases, contracts
and liabilities associated with the Company's bakery cafe food service business
concept generally known as Au Bon Pain (collectively, the "Au Bon Pain
Division") and (ii) the sale of all of the capital stock of the Subsidiary to
the Buyer (the "Sale"), whereby the Buyer will become the owner of the Au Bon
Pain Division. The Sale will become effective subject to the terms and
conditions of the Agreement, including, but not limited to, the approval of the
stockholders of the Company, consents of certain landlords, governmental
approvals, and
13
<PAGE>
consummation of financing pursuant to previously obtained commitments from
Buyer's lenders and investors, of which no assurance can be given. In the event
the Sale is consummated, the Company expects to record a non-cash after-tax loss
of approximately $20 million in connection with the Sale. The description of the
Agreement is qualified in its entirety by reference to Form 8-K and the exhibits
attached thereto, including the Agreement, filed with the Commission on August
21, 1998. The purchase price payable to the Company upon the effectiveness of
the Sale shall be seventy-eight million dollars ($78,000,000), subject to
possible purchase price adjustments, as described in the Agreement.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) Exhibit 10 - Executive Employment Agreement between the Company and
Sam Yong dated June 16, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AU BON PAIN CO., INC.
---------------------
(Registrant)
<TABLE>
<S> <C>
Dated: August 25, 1998 By: /S/ LOUIS I. KANE
------------------------------------
Louis I. Kane
Co-Chairman
Dated: August 25, 1998 By: /S/ RONALD M. SHAICH
------------------------------------
Ronald M. Shaich
Co-Chairman and
Chief Executive Officer
Dated: August 25, 1998 By: /S/ ANTHONY J. CARROLL
------------------------------------
Anthony J. Carroll
Senior Vice President and
Chief Financial Officer
</TABLE>
15
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made this 16th day of
June, 1998, by and between Sam Yong ("Employee") and Au Bon Pain, Co., Inc., a
Delaware corporation with a principal place of business in Boston, Massachusetts
(the "Company").
WHEREAS, the Company wishes to employ and engage the services of the
Employee in an executive capacity for the Company, upon the terms, conditions
and provisions of this Agreement; and
WHEREAS, the Employee desires to provide services to the Company in
accordance with the terms, conditions and provisions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Definitions
-----------
For all purposes of this Agreement, the following terms shall have the
meanings specified in this Section 1 unless the context clearly requires
otherwise:
(a) "Base Salary" means the Employee's annualized base salary set forth in
Section 3 of this Agreement, and such increases thereto as may be established by
the Company from time to time. In no event, however, shall Employee's Base
Salary be less than the amount set forth in Section 3 of this Agreement. "Base
Salary" shall not include any bonus, incentive compensation or employee
benefits;
(b) "Benefits" means all employee benefits provided to the Employee by the
Company, including medical, dental, long-term disability, life insurance, and
such other benefits as may be provided from time to time by the Company
generally to its employees;
(c) "Incentive Compensation" means additional compensation provided to the
Employee by the Company during the term of this Agreement, if any, other than
Base Salary and Benefits;
(d) "Severance" means payments made by the Company to the Employee after
termination of employment, pursuant to this Agreement, at the rate of the
Employee's annualized Base Salary (and car allowance, if any) as of the date of
Employee's termination. Severance is payable, commencing after the last day of
active employment with the Company, on a weekly basis in substantially equal
installments following Employee's termination, in such increments and for such
period(s) of time designated in
<PAGE>
-2-
this Agreement ("Severance Period"). Severance shall not include any bonuses or
other Incentive Compensation. Except as set forth in the immediately preceding
sentence, Severance shall also include the continuation of Employee's Benefits
existing at the time of Employee's termination for the Severance Period.
Employee shall be responsible for making all required contributions to continue
Benefits during the Severance Period on the same basis as existed at the time of
the Employee's termination. Severance shall be reduced (dollar for dollar) by
any compensation and benefits Employee receives or earns during the Severance
Period from any source other than the Company including, without limitation,
salary, employee benefits, consulting fees, income from self-employment or
otherwise;
2. Employment
----------
The Company agrees to employ the Employee to render services to the Company
in an executive capacity, consistent with the typical duties and
responsibilities of an Executive Vice President with the Company, and to
maintain the Employee's title as President, Au Bon Pain Brands. Employee
understands and agrees that Employee's duties and responsibilities may change
from time to time, in the sole discretion of the Company. Effective as of the
date hereof, Employee hereby accepts such employment subject to the terms and
conditions set forth herein. Employee agrees to devote his full attention, best
talents and abilities to the job and to perform faithfully his duties and
responsibilities hereunder.
3. Compensation
------------
The Company shall pay Employee a Base Salary at the rate of $300,000.00
annualized, Incentive Compensation, and Benefits, subject to federal and state
withholdings and customary payroll deductions.
4. Term
----
Unless terminated as provided in Section 5, or as otherwise provided in
this Agreement, this Agreement shall continue for a two-year period from the
effective date of this Agreement; thereafter, this Agreement shall automatically
renew for additional one-year periods, unless either party notifies the other in
writing of its intent not to renew this Agreement at least thirty (30) days
prior to its expiration. In the event the Employee gives notice of intent not to
renew this Agreement, the Employee shall not be entitled to Severance. In the
event the Company gives notice of intent not to renew this Agreement, at the
expiration of the Agreement the Employee shall be entitled to fifty-two (52)
weeks' Severance.
<PAGE>
-3-
5. Termination
-----------
(a) Termination for Cause
---------------------
The Company may terminate Employee's employment at any time for cause, upon
written notice specifying the reasons. As used herein, the term "cause" shall
mean:
(i) The commission by Employee of (A) any act of embezzlement, fraud,
larceny, theft, or (B) other willful misconduct or gross negligence
in connection with the performance of Employee's duties which
adversely affects the affairs of the Company;
(ii) Employee's conviction of a felony, or conviction of a misdemeanor
involving moral turpitude;
(iii) A material breach of the terms of this Agreement which continues
uncured for fifteen (15) days after the Company has given written
notice to the Employee specifying in reasonable detail the material
breach.
(b) Termination Without Cause
-------------------------
Notwithstanding any other provision of this Agreement, the Company may
terminate Employee's employment, without cause, at any time, for any reason,
effective upon thirty (30) days' written notice to the Employee. In the event of
a termination without cause, the Employee shall be entitled to fifty-two (52)
weeks' Severance.
(c) Resignation
-----------
The Employee may at any time during the term of this Agreement resign
employment, effective upon ninety (90) days' written notice to the Company, or
upon such shorter period of notice as the parties may agree in writing. Upon
such resignation, the Employee shall not be entitled to any Severance, and,
except as otherwise specifically set forth herein, the obligations of the
Company to the Employee under this Agreement shall terminate upon the effective
date of such resignation. Employee agrees to continue to perform his duties
hereunder, and otherwise assist the Company in an orderly transition, during
such ninety-day period.
(d) Disability
----------
The Company may terminate Employee's employment if, at any time during the
term of this Agreement, the Employee shall become disabled so that he is unable
to perform the Employee's regular duties of employment, with reasonable
accommodation, for a period of ninety (90) days in the aggregate during any
180-day period. The determination of the Employee's disability for purposes of
this Section 5(d) shall be made
<PAGE>
-4-
by a qualified physician acceptable to both parties. In the event that the
Company and the Employee are unable to agree upon a qualified physician, each
party shall select a qualified physician, and in the event those two physicians
are unable to agree upon a determination as to the Employee's disability, a
third neutral physician ("Neutral Physician") acceptable to the parties shall be
selected. The determination of disability by the Neutral Physician shall be
final and binding for purposes of this Agreement. In the event this Agreement is
terminated pursuant to this Section 5(d), the Employee shall be entitled to
fifty-two (52) weeks' Severance. Such Severance shall be offset dollar for
dollar by any payments made in the aggregate to the Employee under the Company's
existing Salary Continuation and Long-Term Disability Plan(s).
(e) Death
-----
This Agreement and all obligations of the Company hereunder shall terminate
upon the death of the Employee. In the event of a termination upon the death of
the Employee, monies or compensation owed by the Company to the Employee up to
the date of termination shall be paid to the Employee's estate or designee.
(f) Accrued Vacation
----------------
All accrued vacation owed by the Company to the Employee upon termination
of employment shall be included in the Employee's last paycheck following active
employment.
6. Confidential Nature of this Agreement
-------------------------------------
Employee agrees to keep confidential the terms of this Agreement. A
violation of this provision shall entitle the Company to terminate this
Agreement immediately, for cause, as set forth in Section 5(a)(iii).
Notwithstanding the above, the Employee may disclose the terms of this Agreement
to his/her immediate family, bankers, accountants, attorneys, and other
financial advisers, the Internal Revenue Service, the Massachusetts Department
of Revenue, in the event such disclosure is required by prospective employers or
others to review the restrictive covenants contained herein, in the event of
litigation or arbitration involving this Agreement, or in the event that such
disclosures shall be compelled by law.
7. Confidential and Proprietary Information
----------------------------------------
(a) The Employee understands and acknowledges that in the course of
employment with the Company, Employee will have access to confidential and
proprietary information of the Company and its Affiliates (which shall mean
entities controlling, controlled by or under common control with the Company,
including without limitation, Saint Louis Bread Company, Inc. and its
Affiliates) which constitute valuable, special and unique assets of the Company
and its Affiliates. For purposes of this Agreement, such
<PAGE>
-5-
confidential and proprietary information shall include, without limitation, the
following: trade secrets; operating techniques; procedures and methods; product
specifications; customer lists; account information; price lists; discount
schedules; budgets; strategic plans; financial and other projections;
correspondence with customers, vendors, lenders, employees, partners or others;
drawings; software; leads from suppliers; marketing techniques; procedures and
methods; employee lists; internal financial reports of the Company and its
Affiliates; sourcing lists; and recruiting lists (collectively, "Confidential
Information"), but shall not include any information which is commonly known or
in the public domain.
(b) The Employee agrees that during the term of this Agreement and at any
time thereafter, Employee will not, without the authorization of the Company:
(i) disclose any Confidential Information to any person or entity for any
purpose whatsoever; or (ii) make use of any Confidential Information for
Employee's own purposes or for the benefit of any other person or entity, other
than the Company and its Affiliates.
(c) The Employee agrees that upon the request of the Company or upon
termination of employment, Employee shall return to the Company all documents or
other materials, including electronic or computerized data, containing or
relating to Confidential Information, along with all other Company property.
8. Restrictive Covenant
--------------------
The Employee shall not, other than in the course of employment with the
Company, directly or indirectly, either as an individual, employee, partner,
officer, owner, director, shareholder, advisor or consultant, or in any other
capacity whatsoever, on behalf of any person, firm, corporation, partnership or
entity:
(a) during the term of this Agreement, and for one (1) year after its
termination, for whatever reason, be employed by or retained as a consultant or
advisor to a competitive entity in the bakery/coffee/deli business. For purposes
of this Agreement, "competitive entity" includes, without limitation, the
following companies doing business as: Paradise Bakery, Inc.; Starbucks;
Bruegger's Bagel Bakery; Finagle-A-Bagel; Le Boulangerie; Great Harvest;
Einstein's/Noah's; Corner Bakery; Big Sky; AFC Enterprises, Inc. and their
respective parents, subsidiaries, franchisees, affiliates, successors or
assigns. Additionally, "competitive entity" shall include, without limitation,
any company which generates in the aggregate more than 50% of its revenues from
the retail sales of baked goods and coffee, and their respective parents,
subsidiaries, franchisees, affiliates, successors or assigns. Notwithstanding
the above, the direct or indirect ownership of one percent (1%) or less of the
stock of a competitive entity whose shares are listed on a national securities
exchange or are quoted on the National Association of Securities Dealers
Automated Quotation System or so-called Bulletin Board shall not, in and of
itself, be deemed to be a violation of this Section 8(a);
<PAGE>
-6-
(b) during the terms of this Agreement and for one (1) year after its
termination, for whatever reason, recruit, solicit, hire, or assist any other
person or party in recruiting, soliciting, or hiring any employee of the Company
or any of its Affiliates or any of their respective franchisee.
The Company may, in its sole discretion, waive enforcement of any of the
provisions of this Section 8, which waiver shall be evidenced solely by the
execution and delivery to the Employee of a written document setting forth the
terms of such waiver, executed by an authorized representative of the Company.
9. Enforcement
-----------
Employee agrees and acknowledges that a violation of Sections 7 or 8 of
this Agreement shall entitle the Company to terminate this Agreement
immediately, which termination shall be conclusively deemed to be a termination
for cause, as set forth in Section 5(a) hereunder. In the event of a violation
of Sections 7 or 8 of this Agreement, any further Severance, salary
continuation, Benefits or other future compensation otherwise owed to the
Employee pursuant hereto shall be forfeited.
The Employee acknowledges and agrees that the Company's remedies at law for
a breach of Sections 7 or 8 of this Agreement are inadequate and that the harm
caused thereby is irreparable. The Employee expressly agrees that in the event
of a violation of Sections 7 or 8 of this Agreement, the Company shall be
entitled to equitable relief enforcing the terms of this Agreement, including
without limitation, specific performance, a temporary restraining order,
preliminary injunction or permanent injunction to prevent any breach or
attempted breach thereof. The provisions of Sections 7, 8 and 9 shall survive
the termination of this Agreement, in addition to any others which may survive
pursuant to the terms of this Agreement.
10. Severability
------------
If any provision of this Agreement including, without limitation,
Sections 7, 8 or 9 hereof, is declared or found to be illegal, unenforceable,
void, overbroad, or unreasonable in scope, territory, or duration, in whole or
in part, then both parties will be relieved of all obligations arising under
such provision, but only to the extent it is illegal, unenforceable, void,
overbroad, or unreasonable in scope, territory or duration. The intent and
agreement of the parties to this Agreement is that this Agreement will be deemed
amended by modifying any such illegal, unenforceable, void, overbroad or
unreasonable provision to the extent necessary to make it legal and enforceable
while preserving its intent, or if such is not possible, by substituting
therefor another provision that is legal, enforceable and achieves the same
objectives. The foregoing notwithstanding, if the remainder of this Agreement
will not be affected by such declaration or finding and is capable of
substantial performance, then each provision not so affected will be enforced to
the extent permitted by law.
<PAGE>
-7-
11. Arbitration
-----------
Any controversy or claim arising out of or relating to this Agreement or
Employee's employment with the Company, except for claims of violation by the
Employee of Sections 7 and 8 hereof which may be enforced by the Company in a
court of competent jurisdiction pursuant to Section 9 hereof, shall be settled
exclusively by binding arbitration before a single arbitrator in the City of
Boston, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The provisions hereof shall be a complete bar and
defense to any suit, action or proceeding instituted by the Employee in any
federal, state or local court or before any administrative tribunal with respect
to any matter which is arbitrable as herein set forth. This Section shall
survive the termination or expiration of this Agreement. Nothing herein
contained shall be deemed to give any arbitrator any authority, power, or right
to alter, change, amend, modify, add to, or subtract from any provisions of this
Agreement. The arbitrator shall have no authority to award punitive damages or
attorney's fees to any party. The decision of the arbitrator shall be final and
conclusive. Judgment on an award rendered by the arbitrator may be entered in
any court of competent jurisdiction.
12. No Conflicting Agreements
-------------------------
Employee hereby represents and warrants that neither the entry into this
Agreement nor its performance by Employee will conflict with or result in a
breach of the terms, conditions or provisions of any other agreement or other
obligation of any nature to which Employee is a party, or by which he is
otherwise bound, including, without limitation, any other employment agreement,
non-competition agreement, or confidentiality agreement.
13. Governing Law
-------------
The terms hereof shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts, without giving
effect to its conflict of laws rules which may otherwise require the application
of the law of another jurisdiction.
14. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Employee and their respective successors, assigns, heirs, legal
representatives, executors and administrators.
<PAGE>
-8-
15. Notices
-------
(i) All notices to the Employee shall be addressed to Employee at:
Sam Yong
P.O. Box 812903
Wellesley, MA 02181-0027
or to such other place(s) as may be designated by written notice to the Company.
(ii) All notices to the Company shall be addressed to the Company at:
19 Fid Kennedy Avenue
Boston, MA 02210
Attention: C.F.O.
With copies to:
Walter D. Wekstein, Esq.
Gadsby & Hannah LLP
225 Franklin Street
Boston, MA 02110-2811
or to such other place(s) as may be designated by written notice to Employee.
(iii) Notice shall be sufficient if given by hand or by certified mail,
postage prepaid, return receipt requested, addressed to the party at its address
described above. Unless otherwise notified in writing, each party shall direct
all sums payable to the other party at its address for notice purposes.
16. Headings
--------
The captions and headings in this Agreement are for convenience and
reference only, and they shall in no way be held or deemed to define, modify or
add to the meaning, scope or intent of any provision of this Agreement.
17. Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, written or oral on the
subject matter hereof including, but not limited to, offer letters, employment
letters, and agreements concerning severance pay.
<PAGE>
-9-
18. Amendments
----------
This Agreement may be modified only by written agreement signed by both the
Employee and the Company.
19. Waiver
------
The failure of any party at any time to require the performance of any
provision(s) hereof shall in no manner affect the right(s) of such party at a
later time to require the performance of said provision(s), and shall not be
deemed a waiver of any obligations hereunder.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement under seal, as of the date first above written.
AU BON PAIN CO., INC.
<TABLE>
<S> <C>
By: /s/ Ronald Shaich Date: June 16, 1998
Witness: /s/ Mariel Clark Date: June 16, 1998
SAM YONG
/s/ Sam Yong Date: June 16, 1998
Witness: _________________________ Date: _____________________
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000724606
<NAME> Au Bon Pain Co., Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> JUL-11-1998
<CASH> 690,052
<SECURITIES> 0
<RECEIVABLES> 6,885,796
<ALLOWANCES> 187,110
<INVENTORY> 6,114,877
<CURRENT-ASSETS> 17,618,984
<PP&E> 102,475,769
<DEPRECIATION> 81,616,009
<TOTAL-ASSETS> 174,489,741
<CURRENT-LIABILITIES> 19,435,028
<BONDS> 0
0
0
<COMMON> 1,195
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 174,489,741
<SALES> 53,942,016
<TOTAL-REVENUES> 57,253,592
<CGS> 19,965,766
<TOTAL-COSTS> 56,913,493
<OTHER-EXPENSES> 86,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,407,935
<INCOME-PRETAX> (1,154,381)
<INCOME-TAX> (375,000)
<INCOME-CONTINUING> (779,381)
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<CHANGES> 0
<NET-INCOME> (779,381)
<EPS-PRIMARY> (0.07)
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</TABLE>
