<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Act of 1934
Date of Report (Date of earliest event reported): June 17, 1996
BOSTON CHICKEN, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in this charter)
Delaware 0-22802 36-3904053
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(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
14103 Denver West Parkway, P.O. Box 4086, Golden, Colorado 80401-4086
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(303) 278-9500
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(Registrant's telephone number, including area code)
Not applicable
- - --------------------------------------------------------------------------------
(Former name or former address, if changes since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 17, 1996, Boston Chicken, Inc. (the "Company") acquired 65,765.22
shares of common stock, $0.01 par value per share, of Einstein Bros. Bagels,
Inc. (now known as Einstein/Noah Bagel Corp.) ("ENBC"), constituting a majority
equity interest in ENBC, by completing the previously announced conversion of
the Company's loan to ENBC. In the loan conversion, two-thirds of the Company's
loan was converted at a price of $1,436.1368 per share and one-third was
converted at a price of $3,244.6490 per share. Such conversion prices
represented the estimated per share fair market value of ENBC's common stock
plus a negotiated premium both determined at the time the Company committed to
loan the respective amounts.
ENBC operates and franchises specialty retail stores that feature fresh-
baked bagels, cream cheese, coffee and other related products, primarily under
the Einstein Bros. Bagels and Noah's New York Bagels brand names. The material
relationships between the Company and ENBC and certain of the Company's officers
and ENBC are described under the captions "Relationship with Boston Chicken,"
"Management," and "Certain Transactions" contained in ENBC's registration
statement on Form S-1 filed with the Securities and Exchange Commission on May
30, 1996 (Registration No. 333-04725) (the "ENBC Registration Statement"). The
information contained under such captions is incorporated herein in its entirety
by this reference. In addition, Scott A. Beck, Co-Chairman and Chief Executive
Officer of the Company, is expected to assume the additional role of chairman of
ENBC.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
It is impracticable for the Company to file the financial statements
required by this Item 7(a) at the time of filing this Current Report on Form
8-K. Such financial statements are expected to be filed as soon as practicable,
and, in any event, no later than 60 days after the filing date of this Current
Report on Form 8-K.
(b) Pro forma financial information.
It is impracticable for the Company to file the pro forma financial
statement required by this Item 7(b) at the time of filing this Current Report
on Form 8-K. Such financial statements are expected to be filed as soon as
practicable, and, in any event, no later than 60 days after the filing date of
this Current Report on Form 8-K.
2
<PAGE>
(c) Exhibits.
Exhibit No. 10 Amended and Restated Loan Agreement dated May 17, 1996, by and
between the Company and ENBC (incorporated by reference to
Exhibit 10.1 to the ENBC Registration Statement).
Exhibit No. 99 The following pages and sections from the ENBC Registration
Statement: Facing page of ENBC Registration Statement,
preliminary prospectus cover page, "Prospectus Summary,"
"Management," pages and "Certain Transactions," and
"Relationship with Boston Chicken."
3
<PAGE>
SIGNATURE
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 hereunto duly authorized.
Dated: July 2, 1996
____________
BOSTON CHICKEN, INC.
By: /s/ Mark A. Link
___________________________________
Mark A. Link
Vice President-Financial Reporting
4
<PAGE>
EXHIBIT INDEX
Exhibit No. 10 Amended and Restated Loan Agreement dated May 17, 1996, by and
between the Company and ENBC (incorporated by reference to
Exhibit 10.1 to the ENBC Registration Statement).
Exhibit No. 99 The following pages and sections from the ENBC Registration
Statement: Facing page of ENBC Registration Statement,
preliminary prospectus cover page, "Prospectus Summary"
"Management," pages and "Certain Transactions," and
"Relationship with Boston Chicken."
5
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996
REGISTRATION NO. 333-04725
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EINSTEIN BROS. BAGELS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5812 84-1294908
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL A. STRASEN
VICE PRESIDENT AND GENERAL COUNSEL
EINSTEIN BROS. BAGELS, INC.
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-3463
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
AMY S. POWERS DAVID A. SCHUETTE
BELL, BOYD & LLOYD MAYER, BROWN & PLATT
THREE FIRST NATIONAL PLAZA 190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60602 CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 372-1121 TELEPHONE: (312) 782-0600
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
AMENDING PART II AND FILING CERTAIN EXHIBITS.
- - -------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 30, 1996
PROSPECTUS
2,625,000 SHARES
[EINSTEIN [NOAH'S NEW YORK BAGELS LOGO]
BROS. EINSTEIN/NOAH BAGEL CORP.
BAGELS COMMON STOCK
LOGO]
-----------
All of the shares of Common Stock offered hereby are being issued and sold by
Einstein/Noah Bagel Corp. (the "Company"). Of the 2,625,000 shares offered
hereby, 2,200,000 shares are being offered in an Initial Public Offering and
425,000 shares are being offered in a non-underwritten Concurrent Public
Offering by the Company directly to certain persons or entities, including
officers of each of the Company and Boston Chicken, Inc. ("Boston Chicken").
Shares of Common Stock offered in the Concurrent Public Offering are being
offered at a price equal to the initial public offering price per share, net of
underwriting discount.
Concurrent with the sale of the shares offered hereby, the Company will sell
an additional 2,000,000 shares of Common Stock in a Concurrent Private
Placement to Boston Chicken at a price equal to the initial public offering
price per share, net of underwriting discount. Following the Offerings, Boston
Chicken is expected to beneficially own approximately 62.6% of the outstanding
shares of Common Stock.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $18.00 and $20.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
Application will be made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "ENBX," subject to notice of
issuance.
SEE "RISK FACTORS" AT PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share--Initial Public Offering. $ $ $
- - --------------------------------------------------------------------------
Per Share--Concurrent Public
Offering.......................... $ $ $
- - --------------------------------------------------------------------------
Total (3).......................... $ $ $
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted the several Underwriters an option for 30 days to
purchase up to 330,000 additional shares of Common Stock, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount, and Proceeds to Company will be
$ , $ , and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock offered in the Initial Public Offering are being
offered by the several Underwriters, subject to prior sale, when, as and if
issued to and accepted by the Underwriters, subject to the approval of certain
legal matters by counsel for the Underwriters. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock will be
made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
-----------
The date of this Prospectus is , 1996.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus (i)
gives effect to the Company's name change from Einstein Bros. Bagels, Inc. to
Einstein/Noah Bagel Corp., which is being submitted to stockholders of the
Company for their approval, (ii) gives effect to a 225-for-1 stock split
approved by the board of directors of the Company on May 28, 1996, which is
subject to approval by the stockholders of the Company of an increase in the
number of authorized shares of Common Stock of the Company, (iii) assumes the
conversion by Boston Chicken, Inc. ("Boston Chicken") of its convertible loan
to the Company into 15,307,421 shares of Common Stock, (iv) assumes the
conversion of 6,250 shares of preferred stock, par value $.01 per share, of the
Company into 411,185 shares of Common Stock and (v) assumes no exercise of the
over-allotment option granted by the Company to the Underwriters. Although this
Prospectus assumes the conversion by Boston Chicken of its convertible loan
upon the Company's request, such conversion has not yet occurred. Boston
Chicken has, however, announced its intention to convert the loan absent any
change in circumstances, conditioned upon approval of its board of directors
and the termination of the moratorium period under its loan agreement with the
Company. Unless the context suggests otherwise, references in this Prospectus
to the "Company" mean Einstein/Noah Bagel Corp., its predecessors, and its and
their subsidiaries. References herein to the "Offerings" include the 2,200,000
shares being offered in an initial public offering through the Underwriters
(the "Initial Public Offering"), the 425,000 shares being offered concurrently
in a non-underwritten public offering to certain persons or entities, including
officers of each of the Company and Boston Chicken (the "Concurrent Public
Offering") and the 2,000,000 shares being offered concurrently to Boston
Chicken in a private placement (the "Concurrent Private Placement") and
references herein to the "Concurrent Offerings" include the Concurrent Public
Offering and the Concurrent Private Placement. See "--The Offerings,"
"Concurrent Offerings" and "Underwriting."
THE COMPANY
The Company operates and franchises specialty retail stores that feature
fresh-baked bagels, cream cheeses, coffee and other related products, primarily
under the Einstein Bros. Bagels and Noah's New York Bagels brand names. As of
May 21, 1996, there were 152 stores in operation systemwide, of which 66 were
Company-operated and 86 were operated by area developers financed in part by
the Company. Such financing generally permits the Company in certain
circumstances to convert its loan into a majority equity interest in the area
developer. As of May 21, 1996, the Company had entered into area development
agreements that provide for the development of 582 additional stores, the
majority of which are scheduled to open over the next three years. The Company
estimates that there will be between 275 and 300 stores in operation systemwide
by the end of 1996.
The Company's principal business objective is to become the leading specialty
retailer of fresh-baked bagels and related products in the United States and to
ultimately support and extend its consumer brands through alternate
distribution channels, such as wholesale and contract food service. The Company
believes that there is an opportunity to develop a significant multi-unit
specialty retail business based on fresh-baked bagels because of the growth in
per capita consumption of bagels and the fragmented state of the current retail
bagel market. To achieve its specialty retail objectives, the Company and its
area developers employ a concentrated market development strategy that is
designed to create strong local brand awareness. The Company believes this
strategy will allow it and its area developers to more efficiently leverage
marketing, development and operations resources, while establishing a strong
competitive position in each targeted market. The Company initially plans to
segregate development of its Einstein Bros. Bagels and Noah's New York Bagels
stores on a geographic basis; however, the Company intends to test the
development and operation of both brands within the same trade area.
Einstein Bros. Bagels stores feature both traditional and creative bagels
baked fresh throughout the day and offered to customers in an inviting store
environment that combines the authentic tastes of a bagel bakery with the
comfortable setting of a neighborhood meeting place. Each Einstein Bros. Bagels
store blends function, style and customer comfort with simple, contemporary
colors and furnishings in a relaxed social atmosphere. In addition to a
distinctive variety of fresh-baked bagels, Einstein Bros. Bagels stores offer a
broad selection of specialty cream cheeses, premium coffee products and an
array of creative soups, salads and sandwiches. The stores' atmosphere and
products are enhanced by a service philosophy designed to develop customer
loyalty, so
3
<PAGE>
that visiting an Einstein Bros. Bagels store becomes part of the customer's
daily or weekly routine. The first Einstein Bros. Bagels store opened in June
1995 in Ogden, Utah and as of May 21, 1996, there were 65 stores operating
under the brand in 11 states. The Company currently expects that it and its
area developers will develop Einstein Bros. Bagels stores primarily outside of
the West Coast area.
Noah's New York Bagels stores are authentic kosher bagel bakeries featuring
bagels baked fresh throughout the day, cream cheese "shmears", kosher dairy
deli items, including fish salads and four varieties of lox, and selected New
York deli-style beverages. Noah's New York Bagels stores recreate the mood and
feeling of a turn-of-the-century New York bakery. A key element of the Noah's
New York Bagels brand is involvement on a store-by-store basis as a committed
and conscientious member of the community. The first Noah's New York Bagels
store opened in Berkeley, California in 1989 and as of May 21, 1996, there were
51 stores operating under the brand in three states. The Company currently
expects that it and its area developers will develop Noah's New York Bagels
stores primarily on the West Coast.
The Company was established in early 1995 as Progressive Bagel Concepts, Inc.
and launched its business through the acquisition of three regional bagel
retailers. The Company's formation was facilitated by Boston Chicken, which, in
addition to providing convertible and non-convertible loan financing, has
supported, and will continue to support, the Company's growth with multi-unit
retail infrastructure and systems pursuant to fee service agreements.
Subsequently, the Company changed its name to Einstein Bros. Bagels, Inc.,
developed the Einstein Bros. Bagels brand and acquired two West Coast bagel
retailers, including Noah's New York Bagels, Inc. ("Noah's"). In May 1996, the
board of directors of the Company approved the change of the Company's name to
Einstein/Noah Bagel Corp. to reflect its dual brand development strategy. Such
name change is subject to the approval of the stockholders of the Company. The
Company and its area developers intend to convert stores currently operating
under all other brand names to either Einstein Bros. Bagels stores or Noah's
New York Bagels stores over the next 12 to 18 months.
The Company's executive offices are located at 1526 Cole Boulevard, Suite
200, Golden, Colorado 80401 and its telephone number is (303) 202-9300.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered hereby:
Initial Public Offering...... 2,200,000 shares
Concurrent Public Offering... 425,000 shares
Common Stock offered in the
Concurrent Private Placement.. 2,000,000 shares
Common Stock to be outstanding
after the Offerings(1)........ 27,634,000 shares
Use of Proceeds................ To finance the development of additional stores
and to repay indebtedness utilized for the
acquisition and development of stores. See "Use
of Proceeds."
Proposed Nasdaq National Market
Symbol........................ ENBX
</TABLE>
- - --------
(1) Includes 15,307,421 shares of Common Stock issuable upon the conversion by
Boston Chicken of its convertible loan (the "Loan Conversion"), 411,185
shares of Common Stock issuable upon the conversion of 6,250 shares of
Series A Preferred Stock, $.01 par value per share, of the Company (the
"Preferred Shares") at a contractual conversion price equal to 80% of an
assumed initial public offering price of $19.00 per share (being the mid-
point of the proposed initial public offering price range) (the "Preferred
Conversion") and 1,721,250 shares of Common Stock subject to repurchase by
the Company (the "Repurchase Shares"), which repurchase obligation
terminates upon consummation of the Offerings. See "Relationship with Boston
Chicken--Loan Agreement," "Description of Capital Stock" and Note 12 of
Notes to the Company's Audited Consolidated Financial Statements included
elsewhere herein. References herein to the "Transactions" include the Loan
Conversion, the Preferred Conversion and the termination of the Company's
repurchase obligation with respect to the Repurchase Shares. Excludes
5,143,318 shares of Common Stock issuable upon exercise of outstanding stock
options (vested and unvested) and warrants.
4
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kyle T. Craig(1)(2) 48 Chairman of the Board
Noah C. Alper 49 Vice Chairman of the Board
Mark R. Goldston 41 President, Chief Executive Officer and Director
David G. Stanchak 38 Vice President, Chief Development Officer and Director
Michael Beaudoin 34 Vice President and Chief Financial Officer
Jeffrey L. Butler 34 President of Einstein Bros. Bagels Concept
Glenn L. Bacheller 42 President of Noah's New York Bagels Concept
Joel M. Alam 38 Vice President and Secretary
Paul A. Strasen 39 Vice President and General Counsel
Scott A. Beck(1)(2) 38 Director
M. Laird Koldyke 34 Director
Gail A. Lozoff 46 Director and Vice President--Design and Merchandising
John H. Muehlstein,
Jr.(1) 41 Director
John A. Offerdahl 31 Director and Vice President--Operations, Southeast Zone
Lloyd D. Ruth 49 Director
</TABLE>
- - --------
(1) Member of the Stock Option Committee of the board of directors. After
completion of the Offerings, the Stock Option Committee will consist of two
members of the board of directors, each of whom will be "disinterested
persons" (as such term is defined under Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act")).
(2) Mr. Craig has informed the Company that he intends to resign as Chairman of
the Board of the Company upon the Loan Conversion but will remain as a
member of the board of directors. The Company expects that at such time,
Scott Beck will be elected as Chairman of the Board of the Company.
Messrs. Craig, Stanchak and Beck were elected to the board of directors as
designees of Boston Chicken, Messrs. Koldyke, Muehlstein and Ruth were elected
to the board of directors as designees of investors in the Company's March 1995
private placement and Messrs. Offerdahl and Daniel V. Colangelo (the Company's
former President and Chief Executive Officer and formerly a director) and Ms.
Lozoff were elected to the board of directors as designees of Offerdahl's,
Brackman and Bagel & Bagel, respectively. Boston Chicken and Brackman did not
designate nominees for the 1996 election of directors and the private placement
investors designated Messrs. Koldyke, Muehlstein and Ruth for such election.
All such contractual designation rights have expired or will expire upon the
consummation of an initial public offering of the Common Stock. See "Risk
Factors--Control by and Conflicts of Interest with Boston Chicken."
Prior to completion of the Offerings, the board of directors of the Company
will form an Executive Committee, Compensation Committee and Audit Committee.
All directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the pleasure of the board of directors.
Mr. Craig has been Chairman of the Board of the Company since June 1995.
Prior thereto, he served as a director and Vice President of the Company from
the date the Company was incorporated in February 1995 until his appointment as
Chairman. Mr. Craig also served as the Chief Concept Officer of Boston Chicken
from April 1994 through June 1995. From November 1993 until April 1994, he was
President of KFC-Brand Development,
33
<PAGE>
a unit of KFC Corp. in Louisville, Kentucky, and from April 1990 until
November 1993, he was President of KFC-USA, also a unit of KFC Corp. in
Louisville, Kentucky. KFC Corp. is a wholly owned subsidiary of PepsiCo, Inc.
Mr. Alper became the Company's Vice Chairman of the Board in March 1996. Mr.
Alper founded Noah's in 1989 and served as its Chairman of the Board until
March 1996.
Mr. Goldston became President and Chief Executive Officer and a director of
the Company in April 1996. Since January 17, 1996, Mr. Goldston has also been
employed by Boston Chicken to undertake various special projects for Boston
Chicken. From July 1994 to April 1996, Mr. Goldston was the Chairman and Chief
Executive Officer of The Goldston Group, a strategic advisory firm which
advises high-growth companies on improving performance and creating operating
leverage and efficiencies. From October 1991 to June 1994, Mr. Goldston served
as President and Chief Operating Officer of L.A. Gear, Inc. From September
1989 to October 1991, Mr. Goldston was a principal of Odyssey Partners, L.P.,
an investment firm, and from September 1988 to September 1989 served as Chief
Marketing Officer of Reebok Inc.
Mr. Stanchak became a director and Vice President and Chief Development
Officer of the Company in March 1995. From June 1992 until March 1995, he
served as a Senior Vice President of Boston Chicken, and from August 1989
until June 1992, Mr. Stanchak was the National Director of Real Estate and
Real Estate Legal Counsel for Blockbuster Entertainment Corporation
("Blockbuster").
Mr. Beaudoin became the Company's Vice President and Chief Financial Officer
in July 1995, after serving as Assistant to the Chairman of Boston Chicken
from February 1995. From December 1992 to February 1995, he held several
positions with NewLeaf Entertainment (a joint venture between Blockbuster and
IBM), including Vice President of Finance, Marketing and Operations. From June
1990 through November 1992, Mr. Beaudoin was an Associate and Limited Partner
of Pfingsten Partners, L.P., a private equity investment firm in Deerfield,
Illinois.
Mr. Butler became President of Einstein Bros. Bagels Concept in May 1996.
From January 1996 until May 1996, Mr. Butler served as Chief Operating Officer
of the Company. Prior thereto, he was employed by BC Great Lakes, L.L.C., an
area developer of Boston Chicken ("BC Great Lakes"), since June of 1995, and
also served as President of the managing member of BC Heartland, L.L.C., also
a Boston Chicken area developer, since August 1995. From June 1993 until June
1995, Mr. Butler served as President and Chief Executive Officer of the
general partner of BC Detroit L.P., a predecessor of BC Great Lakes. From
January 1992 to June 1993, Mr. Butler served as Vice President--Human
Resources of Boston Chicken. Prior thereto, Mr. Butler was an independent
consultant from July 1991 until January 1992 and was Regional Director of
Operations for Blockbuster in San Diego and Orange County, California from
April 1990 until June 1991.
Mr. Bacheller became President of Noah's New York Bagels Concept in May
1996. Since December 1995, Mr. Bacheller has also been President and Chief
Executive Officer of Noah's. From December 1992 until November 1995, Mr.
Bacheller was President of Baskin Robbins Incorporated and prior thereto, he
was Vice President--Marketing of Dunkin' Donuts Incorporated.
Mr. Alam became Vice President and Secretary in April 1995. From January
1994 to April 1995, he was Vice President and Associate General Counsel of
Boston Chicken and from May 1993 to January 1994 he was Assistant General
Counsel of Boston Chicken. Prior thereto, Mr. Alam was an associate at the
Chicago law firm of Bell, Boyd & Lloyd from 1986 to May 1993.
Mr. Strasen became Vice President and General Counsel of the Company in
April 1995. Prior thereto, he was a partner at the Chicago law firm of Bell,
Boyd & Lloyd from 1988 to April 1995.
Mr. Beck became a director of the Company in March 1995. He has been Chief
Executive Officer and a director of Boston Chicken since June 1992 and served
as Chairman of Boston Chicken from such time until December 1995 when he
became Co-Chairman. He was Vice Chairman of the Board of Blockbuster in Fort
34
<PAGE>
Lauderdale, Florida from September 1989 until January 1992, and Chief
Operating Officer of Blockbuster from September 1989 to January 1991. Since
1980, Mr. Beck also has been President of Pace Affiliates, Inc., an investment
banking firm he founded.
Mr. Koldyke became a director of the Company in March 1995. Mr. Koldyke has
served as a general partner of the Frontenac Company ("Frontenac"), a venture
capital company, in Chicago, Illinois since 1989.
Ms. Lozoff became a director and Vice President--Design and Merchandising of
the Company in April 1995, after working with Bagel & Bagel, which she founded
in June 1988. Ms. Lozoff also served as President and Chief Executive Officer
of Bagel & Bagel from May 1992 to April 1995.
Mr. Muehlstein became a director of the Company in March 1995. Since 1986,
he has been a partner at the Chicago law firm of Pedersen & Houpt.
Mr. Offerdahl became a director and Vice President--Operations, Southeast
Zone of the Company in March 1995, after working with Offerdahl's, which he
founded in 1989. Mr. Offerdahl served as the Chairman and Chief Executive
Officer of Offerdahl's from December 1989 until March 1995. From May 1986
until September 1994, Mr. Offerdahl played professional football for the Miami
Dolphins in the National Football League.
Mr. Ruth became a director of the Company in March 1995. Since January 1987,
he has been a general partner at Marquette Management Partners, a venture
capital company, in Deerfield, Illinois.
MANAGEMENT COMPENSATION
The Company was incorporated in February 1995 and did not conduct any
operations prior to that time. The only executive officer of the Company who
earned more than $100,000 in salary and bonus during fiscal year 1995 was
Daniel V. Colangelo, the Company's former President and Chief Executive
Officer who served in that capacity during fiscal year 1995 (the "named
executive officer"). Mr. Colangelo's total cash compensation during fiscal
year 1995 consisted of $103,462 in salary and $47,375 in bonus.
On March 24, 1995, the Company entered into a three-year employment
agreement with Mr. Colangelo, pursuant to which he became the President of the
Company's Rocky Mountain Division and a director of the Company. Mr. Colangelo
was later promoted to President and Chief Executive Officer of the Company.
Under the employment agreement, Mr. Colangelo was entitled to receive an
annual salary of $125,000 and reimbursement for reasonable business expenses.
In addition, during 1995, Mr. Colangelo was granted options to purchase 50,979
shares of Common Stock under the Plan (defined herein) at an exercise price of
$5.88 per share. See "--Option Grants in Last Fiscal Year."
In March 1996, Mr. Colangelo's employment agreement was terminated and the
Company entered into a consulting agreement with him in connection with his
resignation as President and Chief Executive Officer and a director of the
Company. Pursuant to the consulting agreement, Mr. Colangelo will, upon the
Company's request, provide information, advice and assistance to the Company
concerning matters that were within the scope of his knowledge and expertise
during the course of his employment by the Company. The consulting agreement
has a term of one year and is automatically renewed for successive one-year
periods unless terminated by either party upon 30 days' prior written notice.
Under the consulting agreement, Mr. Colangelo receives $100,000 per year and
is entitled to reimbursement for his related reasonable business expenses. In
addition, the options granted during 1995 to Mr. Colangelo under the Plan were
deemed vested and were exercised by him in January 1996. Mr. Colangelo also
retained options granted in January 1996 under the Plan to purchase an
aggregate of 37,931 shares of Common Stock at an exercise price of $6.59 per
share, which options were granted in January 1996 and vest in accordance with
the Plan's vesting schedule during the term of his consulting agreement.
The Company has also entered into employment and consulting agreements with
certain of its other current executive officers and others. See "Certain
Transactions--Employment and Consulting Agreements."
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the named executive officer during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION ----------------------
NAME GRANT GRANTED(1) IN FISCAL YEAR PRICE DATE 5% 10%
- - ---- ------- ---------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel V. Colangelo..... 3/24/95 25,491 1.2% $5.88 3/24/05 $ 94,337 $ 239,068
5/16/95 16,992 0.8 5.88 5/16/05 62,886 159,428
7/25/95 8,496 0.4 5.88 7/25/05 31,443 79,746
</TABLE>
- - --------
(1) Options granted to Mr. Colangelo in 1995 were deemed fully vested in
January 1996 in connection with his resignation as President and Chief
Executive Officer of the Company. See "--Management Compensation."
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
DIRECTOR COMPENSATION
In addition to annual grants under the Directors Plan (as defined herein),
directors who are not officers or employees of, or consultants to, the Company
receive $500 cash compensation for each board of directors meeting at which
they are present and for each committee meeting at which they are present not
held in conjunction with a meeting of the board of directors. Outside
directors are also reimbursed for their expenses for each board and committee
meeting attended.
The Company has also entered into employment and consulting agreements with
certain of its directors who are also current executive or other officers of
the Company. See "Certain Transactions--Employment and Consulting Agreements."
1995 STOCK OPTION PLAN
General. The board of directors has adopted the 1995 Employee Stock Option
Plan, effective February 16, 1995, as subsequently amended (the "Plan"). On
May 28, 1996, the Plan was amended and restated by the board of directors (as
so amended and restated, the "Amended Plan"). The Amended Plan is being
submitted to the stockholders of the Company for approval by written consent
prior to completion of the Offerings.
The purpose of the Amended Plan is to benefit the Company by offering
certain present and future employees, officers and consultants of the Company
and its subsidiaries, if any, a favorable opportunity to become holders of
Common Stock over a period of years, thereby giving them a long-term stake in
the growth and prosperity of the Company and encouraging the continuance of
their involvement with the Company. Under the Amended Plan, eligible persons
may be granted options to purchase an aggregate of not more than 5,500,000
shares of Common Stock. An aggregate of approximately 1,785,000 shares of
Common Stock are currently available for option grants under the Amended Plan.
Such options are not intended to be treated as incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
After completion of the Offerings, the Amended Plan will be administered by
the Stock Option Committee (the "Committee"), which will consist of two
members of the board of directors, each of whom will be "disinterested
persons" (as such term is defined under Rule 16b-3 of the Exchange Act).
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<PAGE>
The Committee may grant options under the Amended Plan to eligible
employees, officers, and consultants of the Company and its subsidiaries
selected initially and from time to time thereafter by the Committee based on
the importance of their services; provided, however, that the maximum number
of shares subject to all options granted to any individual in any calendar
year shall in no event exceed 300,000. Eligible individuals may be selected
individually or by groups or categories, as determined by the Committee in its
discretion.
Options granted under the Amended Plan have a term of 10 years, subject to
earlier expiration if the optionee's service terminates, and no options under
the Amended Plan may be granted after February 1, 2005. Options may not be
transferred other than by will, by the laws of descent and distribution, or
pursuant to a qualified domestic relations order. In the event that such
restriction on transferability pursuant to Section 16 of the Exchange Act is
no longer required, the Committee has the discretion to permit the assignment
or transfer of an option on such terms and conditions as the Committee may
deem necessary or appropriate or as otherwise required by or deemed advisable
under applicable law.
Options granted under the Amended Plan become exercisable with respect to
10% of the total number of shares subject to the option on the first
anniversary of the date of grant, an additional 20% on the second anniversary
of the date of grant, an additional 30% on the third anniversary of the date
of grant and the balance on the fourth anniversary of the date of grant. The
Committee has the discretion to accelerate the exercisability of any option
subject to such terms and conditions as the Committee deems necessary,
including a requirement that the optionee grant the Company an option to
repurchase all or a portion of the shares issued upon exercise of the
accelerated option for their fair market value on the date of grant. If an
option expires or is terminated or canceled unexercised as to any shares, such
shares may be optioned again. Shares subject to options may be made available
from unissued or reacquired shares of Common Stock.
In the event the relationship between the Company and an officer, employee
or consultant who is an optionee is terminated for any reason other than
death, permanent disability or retirement, such optionee's option shall expire
and all rights to purchase shares pursuant thereto shall terminate on the date
of termination, except that, to the extent any option or portion thereof is
exercisable on the date of termination, such option (or portion thereof) may
be exercised for a period of 15 days after such termination (or until the
scheduled termination of the option, if earlier); provided, however, that,
with respect to any option held by such optionee, the Committee may, in its
sole discretion, accelerate exercisability, permit continued vesting in
accordance with the vesting schedule set forth in the Amended Plan or permit
exercisability beyond the 15-day period referenced above (but in no event
beyond its specified term), subject to such terms and conditions, if any, as
determined by the Committee in its sole discretion.
In the event of termination of said relationship because of death or
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), the option may be exercised in
full (to the extent not previously exercised) without regard to the vesting
schedule set forth in the Amended Plan, by the optionee or, if he or she is
not living, by his or her heirs, legatees or legal representative, as the case
may be, during its specified term prior to two years after the date of death
or permanent disability. In the event of termination of employment because of
early, normal or deferred retirement under an approved retirement program of
the Company (or other plan or arrangement as may be approved by the Committee,
in its discretion, for this purpose), the option may be exercised by the
optionee (or, if he or she dies after such retirement, by his or her heirs,
legatees or legal representative, as the case may be), to the extent that any
portion thereof would be exercisable on the date of such retirement (or with
respect to such greater portion as determined by the Committee), at any time
during its specified term prior to one year after the date of such retirement.
Except as otherwise determined by the Committee, upon the termination of a
relationship between the Company or any subsidiary and a consultant who is an
optionee, such optionee's option shall expire and all rights to purchase
shares pursuant thereto shall terminate.
The exercise price of options granted under the Amended Plan is the fair
market value of the shares of Common Stock on the date of the grant. The
exercise price is payable in cash, by check, by a promissory note in
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<PAGE>
a form specified by the Committee and payable to the Company no later than 15
business days after the exercise date, or, if approved by the Committee, by
shares of Common Stock or by a combination of these payment methods. In the
event that shares of Common Stock are changed by a stock dividend, split or
combination of shares, merger, consolidation or reorganization of the Company
with any other corporation or corporations in which holders of the Common
Stock receive other securities, or any other relevant change in the
capitalization of the Company, a proportionate or equitable adjustment will be
made to the number or kind of shares subject to the Amended Plan and to the
exercise price.
The Committee may require an optionee to satisfy any tax withholding
obligation upon exercise and may permit an eligible participant (or any
beneficiary or person entitled to act) to elect to pay a portion or all of the
amount requested by the Company for such taxes with respect to such option, at
such time and in such manner as the Committee shall deem to be appropriate
(including, but not limited to, authorizing the Company to withhold, or
agreeing to surrender to the Company on or about the date such tax liability
is determinable, Common Stock, other securities or property, or other forms of
payment, or any combination thereof, owned by such participant, or a portion
of such forms of payment that would otherwise be distributed, or has been
distributed, as the case may be, pursuant to such option to such participant,
having a fair market value equal to the amount of such taxes).
The Committee may amend or discontinue the Amended Plan at any time,
provided that no amendment or discontinuance may, without the consent of the
optionee, change or impair any option previously granted or, without the
approval of stockholders, materially increase the benefits accruing to
participants under the Amended Plan, materially increase the number of
securities which may be issued under the Amended Plan, or materially modify
the requirements as to eligibility for participation in the Amended Plan.
The Amended Plan provides that, unless otherwise determined by the Committee
in its sole discretion, options granted prior to May 28, 1996 shall be
governed by the Plan as it was in effect prior to such date.
Federal Income Tax Consequences of the Amended Plan. The following is a
brief summary of the current federal income tax rules relevant to stock
options issued under the Amended Plan. These rules are subject to change in
the future.
Options granted or to be granted under the Amended Plan are, or will be,
non-qualified stock options ("NQO"). In general, an optionee will not
recognize any taxable income, and the Company will not be entitled to a
deduction, upon the grant of an NQO. Upon the exercise of an NQO where the
exercise price is paid in cash, the optionee will recognize ordinary income
(subject to wage and employment tax withholding) equal to the excess of the
fair market value of the shares acquired over the option exercise price. The
amount of such excess is generally determined by reference to the fair market
value of the Common Stock on the date of exercise. An optionee's basis in the
underlying stock received will equal such stock's fair market value on the
date of exercise. The Company will be entitled to a deduction (subject to the
$1 million cap described below, if applicable) equal to the ordinary income
taxable to the optionee in the year of exercise.
Upon the sale of shares acquired pursuant to the exercise of an NQO, such
optionee will recognize capital gain or loss equal to the difference between
the selling price of the shares and the optionee's basis in the shares. Such
capital gain or loss will be long-term gain or loss if the optionee has held
the shares for more than one year. The Company will not be entitled to any
deduction with respect to any capital gain recognized by the optionee.
If an optionee surrenders previously acquired shares of Common Stock,
however acquired, in payment of all or part of the option exercise price of an
NQO, the optionee will not, as a result of such delivery, recognize gain or
loss for federal income tax purposes on the shares surrendered. The optionee's
tax basis in, and holding period for, the previously acquired stock
surrendered will carry over to an equal number of the shares of Common Stock
received on a share-for-share basis. The fair market value of the shares
received in excess of the shares surrendered will constitute compensation
taxable to the optionee as ordinary income. The tax basis for
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<PAGE>
such shares will equal their fair market value and such shares' holding period
for federal income tax purposes begins on the date of exercise. The Company
will be entitled to a tax deduction (subject to the $1 million cap described
below, if applicable) equal to the compensation income recognized by the
optionee.
A publicly held corporation may not, subject to certain exceptions, deduct
for federal income tax purposes in any taxable year certain compensation paid
to certain executives in excess of $1 million for each such executive (the "$1
million cap"). The Company believes that under recently promulgated
regulations the $1 million cap will be inapplicable to options granted under
the Amended Plan.
Options Granted under the Plan and the Amended Plan. As of May 28, 1996, the
Company had options outstanding for an aggregate of 3,419,068 shares of Common
Stock under the Plan at exercise prices ranging from $5.88 to $10.52 per
share, with a weighted average exercise price of approximately $6.46 per
share. As of such date, no shares of Common Stock had been issued under the
Amended Plan. The following table sets forth certain information with respect
to options granted under the Plan (whether or not exercised) through May 28,
1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
NAME AND POSITION OPTIONS GRANTED UNDER THE PLAN
----------------- ------------------------------
<S> <C>
Daniel V. Colangelo, former President and Chief
Executive Officer............................. 88,910
All current executive officers as a group (11
persons)...................................... 849,242
All directors who are not executive officers as
a group (4 persons)........................... 0
All eligible employees who are not executive
officers or associates thereof and consultants
as a group.................................... 2,777,084
</TABLE>
DIRECTORS PLAN
General. On May 28, 1996, the board of directors of the Company adopted a
1996 Stock Option Plan for Non-Employee Directors (the "Directors Plan"),
which is being submitted to the stockholders of the Company for approval by
written consent prior to completion of the Offerings. On May 28, 1996, options
to purchase an aggregate of 4,318 shares of Common Stock were granted under
the Directors Plan to each of Messrs. Scott Beck, Koldyke, Muehlstein and Ruth
at an exercise price of $11.58 per share. The Directors Plan is administered
by the board of directors.
Options under the Directors Plan may only be granted to directors of the
Company who are not officers or employees of the Company. Options may be
granted with respect to a total of not more than 100,000 shares of Common
Stock under the Directors Plan, subject to antidilution and other adjustments.
Such options are not intended to be treated as incentive stock options as
defined in Section 422 of the Code. Each option granted under the Directors
Plan is for a term of ten years, subject to earlier termination if the
optionee's service as a director terminates. If an option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned. Options which have been granted become exercisable after
the end of one year from the date of grant.
Pursuant to the Directors Plan, options for shares having a fair market
value of $50,000 at the date of grant, as determined in good faith by the
board of directors on such date, are granted at the time of each election or
re-election of eligible directors to the Board, except that the initial grants
of options under the Directors Plan were made on the date of adoption of the
Directors Plan by the board of directors, which option grants are subject to
approval of the Directors Plan by the stockholders of the Company. The
exercise price is payable in cash, by check, by a promissory note in a form
specified by the board of directors and payable to the Company no later than
15 business days after the exercise date or, if approved by the board of
directors, by shares of Common Stock of the Company or by a combination of
these methods.
If tenure as a director with the Company or any of its subsidiaries is
terminated for any reason other than death, permanent disability or
resignation, such director's option shall expire and all rights to purchase
shares under it shall terminate 15 days after such termination (or until the
scheduled termination of the option, if earlier). In the event of death or
permanent disability, an exercisable option may be exercised in full by the
optionee or, if he is not living, by his or her heirs, legatees, or legal
representative, as the case may be, during its specified
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<PAGE>
term prior to two years after the date of death or permanent disability;
provided, however, that in the event an optionee hereunder should die or
become permanently disabled prior to the end of one year of service as a
director of the Company, then such optionee's option shall become immediately
exercisable as of the date of such death or permanent disability and shall be
exercisable for a period of two years after such date. In the event of
resignation, an exercisable option may be exercised by the optionee (or, if he
or she dies within three months after such termination, by his or her heirs,
legatees, or legal representative, as the case may be), at any time during its
specified term prior to three months after the date of such resignation.
No option is transferable by the optionee otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order, and each option shall be exercisable during an optionee's lifetime only
by him.
The board of directors may amend or discontinue the Directors Plan at any
time, provided, however, that the Directors Plan may not be amended more than
once every six months except to comport with relevant changes in the law, and
provided further that no such amendment or discontinuation shall (a) change or
impair any option previously granted without the consent of the optionee, or
(b) without the approval of stockholders, (i) increase the maximum number of
shares which may be purchased by all optionees, (ii) change the purchase price
of any option, or (iii) change the option period or increase the time
limitations on the grant of options.
Federal Income Tax Consequences of the Directors Plan. The federal income
tax consequences relating to stock options under the Directors Plan are the
same as those relating to stock options issued under the Amended Plan. See "--
1995 Stock Option Plan--Federal Income Tax Consequences of the Amended Plan."
Copies of the Amended Plan and the Directors Plan are exhibits to the
Registration Statement of which this Prospectus is a part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The board of directors has approved the terms of compensation paid and to be
paid to the Company's executive officers for fiscal years 1995 and 1996.
During the year ended December 31, 1995, the following persons served as
members of the Stock Option Committee of the board of directors: Scott Beck,
Kyle Craig and John Muehlstein.
Currently, no executive officer of the Company serves as a member of the
compensation committee or as a director of any other entity, one of whose
executive officers serves on the compensation committee or is a director of
the Company. Following the Loan Conversion, it is expected that Scott Beck
will become Chairman of the Board of the Company. Mr. Beck is Co-Chairman of
the Board and Chief Executive Officer of Boston Chicken. Mr. Beck does not
serve on the compensation committee of Boston Chicken's board of directors.
CERTAIN TRANSACTIONS
FORMATION OF THE COMPANY AND SUBSEQUENT ACQUISITIONS
In March 1995, the Company acquired the operations of Brackman, Bagel &
Bagel and Offerdahl's, and in connection with such acquisitions, issued
1,959,152 shares of Common Stock valued at $5.88 per share to the owners of
such companies. Concurrently with the acquisitions, the Company also raised
approximately $20.8 million in a private placement of its Common Stock to
investors (including approximately $5.2 million of such amount that was
purchased, directly or indirectly, by officers and directors of each of the
Company and Boston Chicken). These transactions are separately described
below.
On March 24, 1995, pursuant to an agreement to contribute shares, the
Company acquired all of the outstanding capital stock of Brackman, of which
Daniel V. Colangelo, the Company's former President and Chief Executive
Officer, was a shareholder (the "Brackman Acquisition"). The consideration
paid by the Company consisted of 573,750 shares of Common Stock and 488,236
shares of Boston Chicken common stock, which shares of Boston Chicken common
stock were purchased by the Company for a cash purchase price of
40
<PAGE>
$17.00 per share, pursuant to a stock purchase agreement between the Company
and Boston Chicken dated as of March 24, 1995. See "Relationship with Boston
Chicken--Other Relationships Between Boston Chicken and the Company."
Following the Brackman Acquisition, Mr. Colangelo entered into an employment
agreement with the Company, pursuant to which he became President--Rocky
Mountain Zone and a director of the Company. See "Management--Management
Compensation."
On March 24, 1995, pursuant to an agreement to contribute assets, the
Company acquired all of the assets, properties and business of Bagel & Bagel,
of which Richard Lozoff, Gail Lozoff's spouse, was the sole shareholder (the
"Bagel & Bagel Acquisition"). The consideration paid by the Company consisted
of 573,750 shares of Common Stock and 323,530 shares of Boston Chicken common
stock, which shares of Boston Chicken common stock were purchased by the
Company for a cash purchase price of $17.00 per share, pursuant to a stock
purchase agreement between the Company and Boston Chicken dated as of March
24, 1995. See "Relationship with Boston Chicken--Other Relationships between
Boston Chicken and the Company." Following the Bagel & Bagel Acquisition, Ms.
Lozoff entered into an employment agreement with the Company, pursuant to
which she became Vice President--Design and Merchandising and a director of
the Company. See "--Employment and Consulting Agreements."
On March 31, 1995, pursuant to an agreement to contribute assets, the
Company acquired substantially all of the assets, properties and business of
Offerdahl's, of which John Offerdahl was a majority shareholder (the
"Offerdahl's Acquisition"). The consideration paid by the Company consisted of
811,652 shares of Common Stock and 331,852 shares of Boston Chicken common
stock, which shares of Boston Chicken common stock were purchased by the
Company for a cash purchase price of $16.875 per share, pursuant to a stock
purchase agreement between the Company and Boston Chicken dated as of March
31, 1995. See "Relationship with Boston Chicken--Other Relationships between
Boston Chicken and the Company." Following the Offerdahl's Acquisition, Mr.
Offerdahl entered into an employment agreement with the Company, pursuant to
which he became Vice President--Operations, Southeast Zone and a director of
the Company. In addition, Mr. Offerdahl's spouse, Lynnora Offerdahl, entered
into a consulting agreement with the Company. See "--Employment and Consulting
Agreements."
On March 24, 1995, the Company entered into Subscription Agreements pursuant
to which certain investors, including Messrs. Craig, Stanchak, Beaudoin,
Butler and Beck, Mr. Alam and his spouse, PJS Bagel Investing, L.L.C., an
entity controlled by Mr. Strasen and his spouse ("PJS"), OBG Holdings, Inc.
(formerly Offerdahl's), of which Mr. Offerdahl and his spouse are majority
stockholders ("OBG"), Frontenac VI, Limited Partnership ("Frontenac"), of
which Mr. Koldyke is a general partner, Marquette Venture Partners II, L.P.
("Marquette") and MVP II Affiliates Fund, L.P. ("MVP II"), the general partner
of each of which is an entity of which Mr. Ruth is a general partner, and
Pedersen Bagel Investments Joint Venture ("Pedersen Bagel"), of which Mr.
Muehlstein is a general partner, purchased 1,618,972 shares of Common Stock at
$5.88 per share.
In February 1996, the Company acquired all of the outstanding stock of
Noah's for an aggregate purchase price of $100.9 million in cash. In
connection with the transaction, certain former shareholders of Noah's,
including Noah Alper, Vice Chairman of the Board, and other members of Noah's
management purchased 855,225 shares of Common Stock at a purchase price of
$10.52 per share.
REGISTRATION RIGHTS
The Company is a party to an amended and restated registration rights
agreement dated as of February 1, 1996 (the "Stockholder Registration
Agreement") with certain stockholders of the Company, including Messrs. Craig,
Alper, Stanchak, Beaudoin, Butler, Beck, Bacheller and Colangelo, as well as
Mr. Alam and his spouse, PJS, OBG, Frontenac, Marquette, MVP II and B&B
Holdings, Inc. (formerly Bagel & Bagel), of which Ms. Lozoff's spouse is the
sole stockholder ("B&B"), and with Boston Chicken (with respect to the shares
of Common Stock into which its loan to the Company is convertible). Pursuant
to such agreement, the Company granted to such stockholders and Boston Chicken
certain piggyback registration rights under the Securities Act with respect to
shares of Common Stock owned by them (or issuable in connection with Boston
Chicken's convertible loan) (the "Registrable Securities"). In addition, the
Company is obligated to file, within 13 months after the completion of an
initial public offering, a registration statement under the Securities Act
that would
41
<PAGE>
include the Registrable Securities then held by such stockholders and Boston
Chicken, permitting them to make public resales of the Registrable Securities.
The Company expects to file such registration statement shortly after the
completion of the Offerings. Pursuant to the Stockholder Registration
Agreement, each holder of Registrable Securities has agreed not to sell, for a
specified period of time, up to 30% of the Registrable Securities held by such
holder. See "Shares Eligible for Future Sale." The Company expects to enter
into the Boston Chicken Registration Agreement (defined below) that will
supersede the rights of Boston Chicken under the Stockholder Registration
Agreement. Prior to completion of the Offerings, the Company will request that
the parties to the Stockholder Registration Agreement waive the provision of
such agreement prohibiting the Company from granting registration rights
superior to those granted under the agreement, and consent to the grant by the
Company to Boston Chicken of superior registration rights pursuant to the
Boston Chicken Registration Agreement. See "--Concurrent Public Offering,"
"Relationship with Boston Chicken--Concurrent Private Placement Agreement and
Registration Agreement" and "Shares Eligible for Future Sale."
CONCURRENT PUBLIC OFFERING
In the Concurrent Public Offering, the Company is offering to certain
persons or entities, including officers of each of the Company and Boston
Chicken, the opportunity to purchase an aggregate of 425,000 shares of Common
Stock at a price equal to the initial public offering price per share, net of
underwriting discount. In the Concurrent Public Offering, executive officers
and directors of the Company (none of whom are members of the committee of the
Company's board of directors who will negotiate the initial public offering
price with the Representatives) are expected to purchase an aggregate of
of such shares of Common Stock as follows: Mr. Craig-- ; Mr.
Alper-- ; Mr. Goldston-- ; Mr. Stanchak-- ; Mr. Beaudoin--
; Mr. Butler-- ; Mr. Bacheller-- ; Mr. Alam-- ; Mr.
Strasen-- ; Mr. Scott Beck-- ; Mr. Koldyke-- ; Ms. Lozoff--
; Mr. Muehlstein-- ; Mr. Offerdahl-- ; and Mr. Ruth--
. Certain officers and directors of Boston Chicken are expected to
purchase in the Concurrent Public Offering an aggregate of shares of
Common Stock.
BAGEL STORE DEVELOPMENT FUNDING
In December 1995, Bagel Funding was formed under the name Einstein Bros.
Equity Funding, L.L.C. with the objective of raising $90.0 million to invest
in existing and proposed area developers of the Company. Bagel Funding has
received total capital commitments aggregating such amount, $45.0 million of
which has been contributed to Bagel Funding and the balance of which is
payable to Bagel Funding at such times on or after October 1, 1996 and on or
before December 31, 1998 as the manager or managers of Bagel Funding make one
or more capital calls. Through May 21, 1996, Bagel Funding had invested a
total of $29.9 million in area developers of the Company. Pursuant to certain
agreements with Bagel Funding, the Company has agreed to purchase Bagel
Funding's equity interests in area developers of the Company in certain
circumstances. See "Business--Area Developer Financing." No fees were paid to
the Company in its capacity as manager in 1995. The Company will be entitled
to receive fees of $500,000 and $50,000 for serving as manager of Bagel
Funding during 1996 and 1997, respectively.
The Company's term as manager of Bagel Funding expires on April 20, 1997,
although the Company may be removed prior to such time for cause by action of
more than two-thirds in interest of Bagel Funding's members and may be removed
for any reason at fiscal year-end by action of more than four-fifths in
interest of Bagel Funding's members. Prior to the expiration of the Company's
term as manager, Bagel Funding also has a three-person advisory committee, the
members of which were nominated by the Company and approved by a majority in
interest of Bagel Funding's members. None of the members of the advisory
committee are officers, directors or employees of the Company. The advisory
committee is required to approve any sale by Bagel Funding of an interest in
an area developer and to determine the manner in which Bagel Funding's
interests in an area developer should be voted on any merger, consolidation,
sale of all or substantially all of the assets of the area developer or
amendment of its governing documents. The advisory committee is also available
to consult with the manager with respect to any matters requested by the
manager concerning Bagel Funding's investments and has the power to resolve
any questions with respect to potential conflicts of interest between Bagel
Funding and the manager that may be presented to it by the manager.
42
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Effective April 21, 1997, or at such earlier time as the Company ceases to
be the manager of Bagel Funding, each of the members of the advisory committee
will become a manager of Bagel Funding and collectively will constitute the
three-person board of managers. At such time the advisory committee of Bagel
Funding will disband and all authority previously vested in the advisory
committee will be vested in the board of managers. In addition, when the
Company ceases to be the manager of Bagel Funding, the equity interests of
Bagel Funding in the Company's area developers will automatically be converted
from nonvoting equity interests to voting equity interests, which will have
the power to select the manager or general partner, as applicable, of each of
the Company's area developers.
Bagel Funding has also acquired from the Company, for an aggregate purchase
price of $45,000, warrants to acquire 1,012,500 shares of Common Stock of the
Company having an exercise price of $6.47 per share (the "Bagel Funding
Warrants"). The Bagel Funding Warrants have a term of five years. In the event
the total capital ultimately contributed to Bagel Funding is less than $90.0
million or Bagel Funding is dissolved prior to the time all remaining capital
commitments have been called, the number of shares purchasable upon exercise
of the Bagel Funding Warrants will be adjusted based on the total amount of
capital contributed or committed to be contributed to Bagel Funding less the
amount of cash to be distributed to the members of Bagel Funding upon such
dissolution. In the event of such a dissolution, the amount of capital
committed to be contributed to Bagel Funding shall be deemed to be zero. Such
adjustments to the number of shares covered by the Bagel Funding Warrants, if
any, will be made by the Company (i) at the time that Bagel Funding may no
longer accept additional capital subscriptions, (ii) at such time, if any, as
any member of Bagel Funding fails to honor its commitment to contribute
capital and (iii) immediately prior to any dissolution of Bagel Funding that
occurs prior to the time all committed capital has been contributed to Bagel
Funding, but only if the Warrants have not been distributed by Bagel Funding.
Bagel Funding is required to distribute the Bagel Funding Warrants to its
members on the later of (i) six months after the date of the closing of an
underwritten initial public offering of the Company or (ii) four months after
all committed capital has been contributed to Bagel Funding, but in no event
later than the date that is six months prior to the expiration date of the
Bagel Funding Warrants.
Messrs. Scott Beck, Butler, Muehlstein, Ruth and Stanchak each own a direct
equity interest in Bagel Funding. Such interests aggregate approximately 7.8%
of the outstanding equity interest in Bagel Funding. Certain officers and
directors of Boston Chicken, excluding Scott Beck, own direct equity interests
in Bagel Funding. Such interests aggregate approximately 16.3% of the
outstanding equity interest in Bagel Funding.
INTERESTS IN AREA DEVELOPERS BY CERTAIN PERSONS
BCE West Bagels, L.L.C. Effective November 26, 1995, the Company entered
into a convertible secured loan agreement and an area development agreement
with BCE West Bagels, L.L.C. ("Old BCE West") for the development of the
following DMAs: Phoenix (excluding portions of California included in the
Phoenix DMA); Tucson; Albuquerque/Santa Fe; Denver (excluding portions of
South Dakota included in the Denver DMA); Colorado Springs; Las Vegas; and El
Paso. Also effective November 26, 1995, the Company entered into a convertible
secured loan agreement and an area development agreement with BCE SLC Bagels,
L.L.C. ("BCE SLC") for the development of the Salt Lake City DMA. At the time
of the consummation of such transactions, Lawrence Beck, Scott Beck's father,
was the majority equity owner of Old BCE West and BCE SLC. In connection with
the execution of such agreements, the Company sold to Old BCE West and BCE SLC
the Company-operated stores and other assets located in certain of such DMAs
at net book value for an aggregate purchase price of $1,432,519 and
$3,719,625, respectively, pursuant to asset sale agreements, and entered into
a franchise agreement for each such store. The Company realized no significant
gain or loss on such sales. The Company believes that the terms of the
agreements entered into with Old BCE West and BCE SLC are as favorable to the
Company as the terms that could be negotiated with unrelated third parties.
On December 29, 1995, Lawrence Beck sold to Bagel Funding 1,750,000 units of
membership interest in each of Old BCE West and BCE SLC for an aggregate
purchase price of approximately $3.5 million. The Company understands that
Lawrence Beck did not realize any significant gain or loss on such sales.
Lawrence Beck retained a minority equity interest in each of Old BCE West and
BCE SLC, and an entity controlled by him remained the manager of each such
entity.
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Effective January 29, 1996, BCE SLC acquired the assets of Old BCE West, BCE
SLC was renamed BCE West, L.L.C. ("BCE West") and Old BCE West was dissolved.
For the Company's 1995 fiscal year and the quarter ended April 21, 1996, BCE
West (together with its predecessor, Old BCE West) paid to the Company an
aggregate of $2,308,714 and $486,553, respectively, in development, franchise,
royalty, real estate, software license, software maintenance, miscellaneous
and accounting fees and deposits. For the quarter ended April 21, 1996, BCE
West paid $80,200 in national and $135,266 in local advertising fund
contributions. In addition, for such period, BCE West paid to the Company
$193,734 in interest on its loan from the Company.
Finest Bagels, L.L.C. Effective January 1, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Finest Bagels, L.L.C. ("Finest") for the development of the following DMAs:
St. Louis; Kansas City; and Minneapolis/St. Paul. Bagel Funding is the
majority equity owner of Finest. In connection with the execution of such
agreements, the Company sold to Finest the Company-operated stores and other
assets located in certain of those DMAs at net book value for an aggregate
purchase price of $6,216,545, pursuant to an asset sale agreement, and entered
into a franchise agreement with Finest for each such store. The Company
realized no significant gain or loss on such sale. For the Company's first
quarter ended April 21, 1996, Finest paid to the Company an aggregate of
$1,613,001 in development, franchise, royalty, real estate, software license,
software maintenance, miscellaneous and accounting fees and deposits. For the
quarter ended April 21, 1996, Finest paid $54,350 in national and $109,830 in
local advertising fund contributions. In addition, for such period, Finest
paid to the Company $74,717 in interest on its loan from the Company. The
Company believes that the terms of the agreements entered into with Finest are
as favorable to the Company as terms of agreements that could be negotiated by
the Company with unrelated third parties.
Einstein Bros. America, L.P. Effective March 25, 1996, the Company entered
into a convertible secured loan agreement and an area development agreement
with Einstein Bros. America, L.P. ("EBA") for the development of the following
DMAs: Milwaukee; Chicago; Detroit; Madison; Tampa/St. Petersburg/Sarasota;
Orlando/Daytona Beach/Melbourne; Ft. Myers/Naples; Miami/Ft. Lauderdale; and
West Palm Beach/Ft. Pierce. Bagel Funding is the majority equity owner of EBA.
In connection with the execution of such agreements, the Company sold to EBA
the Company-operated stores and other assets located in certain of those DMAs
at net book value for an aggregate purchase price of $18,622,026, pursuant to
an asset sale agreement, and entered into a franchise agreement with EBA for
each such store. The Company realized no significant gain or loss on such
sale. For the Company's first quarter ended April 21, 1996, EBA paid to the
Company an aggregate of $5,392,331 in development, franchise, real estate
fees, deposits and reimbursement of expenses. The Company believes that the
terms of the agreements entered into with EBA are as favorable to the Company
as terms of agreements that could be negotiated by the Company with unrelated
third parties. EBA is currently negotiating the sale by it of certain of its
stores and area development rights in the Milwaukee, Chicago, Detroit and
Madison DMAs to a new area developer of the Company.
Mayfair Bagels, L.L.C. On April 1, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Mayfair Bagels, L.L.C. ("Mayfair") for the development of a portion of the
Baltimore and Washington, D.C. DMAs. Bagel Funding is the majority equity
owner of Mayfair. In connection with the execution of such agreements, the
Company sold to Mayfair certain assets located in certain of those DMAs at net
book value for an aggregate purchase price of $249,084, pursuant to an asset
sale agreement. The Company realized no significant gain or loss on such sale.
For the Company's first quarter ended April 21, 1996, Mayfair paid to the
Company an aggregate of $860,000 in deposits and reimbursement of expenses.
The Company believes that the terms of the agreements entered into with
Mayfair are as favorable to the Company as terms of agreements that could be
negotiated by the Company with unrelated third parties.
Liberty Foods, L.L.C. Effective May 6, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Liberty Foods, L.L.C. ("Liberty") for the development of the New York DMA.
Bagel Funding is the majority equity owner of Liberty. In connection with the
execution of such agreements, the Company sold to Liberty the Company-operated
store and certain assets located in the DMA at net book value for an aggregate
purchase price of $869,743, pursuant to an asset sale agreement and
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entered into a franchise agreement with Liberty for such store. The Company
realized no significant gain or loss on such sale. The Company believes that
the terms of agreements entered into with Liberty are as favorable to the
Company as terms of agreements that could be negotiated by the Company with
unrelated third parties.
BCE West, Finest, Mayfair and EBA are each represented by Pedersen & Houpt,
a law firm in which John Muehlstein, Jr., a director of the Company, is a
partner.
AREA DEVELOPER WARRANTS
On January 15, 1996, in connection with the formation of the Company's
prospective area developers, the Company issued to eleven such entities
warrants to acquire an aggregate of 1,237,050 shares of Common Stock of the
Company, each at an exercise price per share of $6.47, as follows: BCE SLC
(now named BCE West)--85,050 shares; Finest--77,175 shares; Great Lakes
Bagels, L.L.C. ("Great Lakes")--108,225 shares; Liberty--100,350 shares;
Mayfair--77,175 shares; NJ Rose Bagels, L.L.C. ("NJ Rose")--92,700 shares;
NNYB, L.L.C. ("NNYB")--270,000 shares; P&L Bagels, L.L.C. ("P&L")--100,350
shares; P&L II Bagels, L.L.C. ("P&L II")--156,150 shares; R&A Bagels ("R&A")--
92,700 shares; and Texas Bagels, L.L.C.--77,175 shares. The warrants issued to
Great Lakes and R&A were transferred to EBA in connection with EBA's
transactions with the Company. See "--Interests in Area Developers by Certain
Persons." Each warrant becomes exercisable by the holder thereof during the
five-day period commencing on the date of entering into an area development
agreement and secured loan agreement with the Company, and is exercisable only
in its entirety. If an area development agreement and secured loan agreement
are not entered into prior to July 15, 1997, each warrant expires as of such
date. Lawrence Beck owns a majority equity interest in each of P&L and P&L II.
As of May 21, 1996, each of the warrants granted to BCE West, Finest, Great
Lakes, Liberty, Mayfair, and R&A had been exercised.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into a consulting agreement with Mr. Colangelo in
connection with his resignation as President and Chief Executive Officer of
the Company. See "Management--Management Compensation."
On March 24, 1995, the Company entered into an employment agreement with Ms.
Lozoff, pursuant to which Ms. Lozoff became Vice President--Design and
Merchandising and a director of the Company. The employment agreement
terminates August 1, 1998. Ms. Lozoff receives an annual salary of $125,000
and reimbursement of reasonable business expenses. In addition, at the time
she entered into the employment agreement, Ms. Lozoff was granted options to
purchase 42,483 shares of Common Stock under the Plan with an exercise price
of $5.88 per share.
On March 31, 1995, the Company entered into an employment agreement with Mr.
Offerdahl, pursuant to which Mr. Offerdahl became Vice President of
Operations--Southeast Zone and a director of the Company. The employment
agreement terminates August 1, 1998. Mr. Offerdahl receives an annual salary
of $125,000 per year and reimbursement of reasonable business expenses. In
addition, at the time he entered into the employment agreement, Mr. Offerdahl
was granted options to purchase 42,483 shares of Common Stock under the Plan
with an exercise price of $5.88 per share.
On March 31, 1995, the Company entered into a consulting agreement with
Lynnora Offerdahl, Mr. Offerdahl's spouse, pursuant to which she provides
information, advice and assistance concerning product development, restaurant
design and general projects for the Company. The one-year consulting agreement
is automatically renewed for additional one year periods unless terminated by
either party upon 60 days' prior written notice. Ms. Offerdahl receives a
monthly salary of $5,000 and reimbursement of reasonable business expenses. In
addition, at the time she entered into the consulting agreement, Ms. Offerdahl
was granted options to purchase 42,483 shares of Common Stock under the Plan
with an exercise price of $5.88 per share.
On April 5, 1996, Mr. Goldston was elected President and Chief Executive
Officer and a director of the Company. The Company has agreed to pay to Mr.
Goldston a base salary of $360,000 per year, with a guaranteed
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bonus of $400,000 for fiscal year 1996. For fiscal year 1997, Mr. Goldston
will be eligible for a $400,000 bonus, his receipt of which will be based upon
the achievement of mutually agreed upon reasonable performance goals. In
addition, the Company granted to Mr. Goldston options under the Plan to
purchase 114,030 shares of Common Stock at an exercise price of $10.52 per
share. Beginning in fiscal year 1997, and for each year thereafter as long as
he remains an employee of the Company, Mr. Goldston will be eligible for an
annual stock option grant under the Amended Plan to purchase, at a minimum,
that number of shares of Common Stock that have an aggregate exercise price of
$800,000. In connection with his employment, Mr. Goldston also purchased
28,508 shares of Common Stock at a price of $10.52 per share.
Effective January 17, 1996, Boston Chicken employed Mr. Goldston to
undertake various special projects for Boston Chicken. As an employee of
Boston Chicken, Mr. Goldston receives an annual salary of $40,000 and is
eligible to participate in Boston Chicken's employee stock option plan. Mr.
Goldston has been granted options under that plan to purchase 100,000 shares
of Boston Chicken common stock at an exercise price of $27.9375 per share.
Boston Chicken has agreed to structure Mr. Goldston's future projects so that
his employment with Boston Chicken will not interfere with his duties with the
Company.
In addition, in consideration for certain consulting services rendered to
Boston Chicken by Mr. Goldston and the consulting firm of which Mr. Goldston
was a principal, Boston Chicken has paid $1,818,086 for consulting services
rendered during fiscal years 1995 and 1996 and granted an option (outside of
the Boston Chicken employee option plan) to purchase 100,000 shares of Boston
Chicken common stock at an exercise price of $16.00 per share. Boston Chicken
has also granted to Mr. Goldston an option to purchase from Boston Chicken
344,673 shares of Common Stock at an exercise price of $6.38 per share.
BOWANA AVIATION, INC.
During the 1995 fiscal year, the Company from time to time used airplanes
owned by a company controlled by Scott Beck and Lawrence Beck, for which the
Company incurred aggregate rental expense of $85,874 in such fiscal year. The
Company believes that the terms of its use of the planes were at least as
favorable to the Company as those it could have obtained from an unaffiliated
party. The Company is currently negotiating an agreement with Boston Chicken,
pursuant to which the Company will enter into subleases with Boston Chicken
entitling the Company to the non-exclusive use of aircraft leased by Boston
Chicken from unaffiliated leasing companies. See "Relationship with Boston
Chicken--Other Relationships Between Boston Chicken and the Company."
LOANS TO EXECUTIVE OFFICERS
On August 9, 1995, the Company made a loan to Kyle T. Craig, Chairman of the
Board, in the principal amount of $400,000, the proceeds of which were used by
Mr. Craig to pay off a loan from Boston Chicken. Interest on the principal
amount of the Company's loan to Mr. Craig accrues at the reference rate
announced by Bank of America Illinois from time to time plus 1%. The principal
balance of the loan and all accrued but unpaid interest thereon are due and
payable upon demand.
On March 31, 1995, in connection with the Company's acquisition of the
assets of Offerdahl's (now known as OBG) the Company made a non-recourse loan
to OBG in the principal amount of $437,497, the proceeds of which were used to
purchase an aggregate of 74,345 shares of Common Stock, which shares secure
the payment of principal and interest under such loan. Also on March 31, 1995,
the Company made a non-recourse loan to OBG in the principal amount of
$1,312,500, the proceeds of which were used to purchase an equity interest in
BC Equity Funding, L.L.C., a Delaware limited liability company which invests
in Boston Chicken area developers ("BCEF"), which equity interest secures the
payment of principal and interest under such loan. Each loan described above
accrues interest on the principal amount at the reference rate announced by
Bank of America Illinois from time to time plus 1%. The principal balance of
each loan and all accrued but unpaid interest thereon are due and payable on
April 15, 2001, but may be required to be repaid earlier under certain
circumstances.
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Also in connection with the Company's acquisition of the assets of
Offerdahl's, on each of April 15, 1995, June 15, 1995, September 15, 1995 and
January 15, 1996, the Company made an interest-free loan to OBG in the
principal amount of $46,100, and on April 15, 1996, the Company made an
additional interest-free loan to OBG in the principal amount of $1,502,276.
The proceeds of each such loan were used to satisfy income tax obligations
arising from the acquisition. Each such loan is secured by units of membership
interest in BCEF owned by OBG. The principal balance of each loan and all
accrued but unpaid interest thereon are due and payable on April 15, 2001, but
may be required to be repaid in whole or in part under certain circumstances.
OTHER RELATIONSHIPS
Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
shareholders, leases to the Company the land and building on which a store is
located. The Company subleases such land and building to one of its area
developers. The annual rental payments under the lease and sublease, each of
which terminates in May 2009, aggregate $72,000.
CERTAIN TRANSACTIONS WITH BOSTON CHICKEN
See "Risk Factors--Dependence on Boston Chicken," "Risk Factors--Control by
and Conflicts of Interest with Boston Chicken" and "Relationship with Boston
Chicken."
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RELATIONSHIP WITH BOSTON CHICKEN
During 1994 and 1995 Boston Chicken spent substantial amounts of time and
resources investigating the potential of the bagel business. In March 1995,
Boston Chicken made an investment in the Company in the form of a convertible
secured loan and sold to the Company at net book value certain assets and
certain know-how and agreements. At that time Boston Chicken and the Company
also entered into fee service agreements pursuant to which Boston Chicken
provides the Company with certain multi-unit retail infrastructure support,
including accounting and administration services, real estate services and
computer and communications services. Any of the foregoing agreements may be
changed at any time, as may be agreed by Boston Chicken and the Company. See
"Risk Factors--Control by and Conflicts of Interest with Boston Chicken."
The loan agreement between Boston Chicken and the Company, as well as each
of the other agreements referred to above, are summarized below and are
attached as exhibits to the Registration Statement of which this Prospectus is
a part.
LOAN AGREEMENT
On March 24, 1995, Boston Chicken made a senior secured convertible loan to
the Company, secured by substantially all of the Company's and its
subsidiaries' assets, pursuant to which the Company could draw on a line of
credit, with certain limitations, in order to provide partial funding for
store development and working capital. In February 1996, in connection with
the Noah's acquisition, Boston Chicken increased the amount available under
the loan from $80.0 million to $120.0 million. Also in February 1996, Boston
Chicken provided a $25.0 million bridge loan to the Company (later increased
to $40.0 million), which was repaid by the Company upon the closing of the
Company's secured revolving credit facility. On May 9, 1996, Boston Chicken
and the Company amended the convertible loan agreement to include a $14.0
million non-convertible facility. As of May 21, 1996, $120.0 million was
outstanding under the convertible loan and no borrowings were outstanding
under the non-convertible loan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 7 of Notes to the
Company's Audited Consolidated Financial Statements.
Boston Chicken may satisfy its funding obligations under the loan agreement
in cash or in shares of Boston Chicken common stock. Boston Chicken has agreed
to guarantee the price of any shares of Boston Chicken common stock delivered
to the Company in satisfaction of Boston Chicken's funding obligations and
thereafter sold by the Company, provided that certain conditions regarding the
timing and manner of such sales are satisfied. As of May 21, 1996 Boston
Chicken had issued to the Company, and the Company had sold in the over-the-
counter market, through Merrill Lynch acting as broker, 2,701,615 shares of
registered Boston Chicken common stock for aggregate proceeds of approximately
$88.0 million.
Boston Chicken's convertible loan to the Company is convertible at any time,
after the earlier of April 1, 1997 or acceleration due to a default on the
loan or an initial public offering by the Company, and up to the later of full
repayment of the loan or a specified date in 2003, into a majority equity
interest in the Company. The initial $80.0 million of the loan is convertible
into Common Stock at a conversion price of $6.38 per share, and the remaining
$40.0 million is convertible into Common Stock at a conversion price of $14.42
per share. To the extent the loan is not fully drawn or has been drawn and
repaid, Boston Chicken has a corresponding option to acquire at the conversion
price the amount of additional equity it could have acquired by conversion of
the loan had the loan been fully drawn. Such option expires six months after
the loan's final maturity date.
In April 1996, Boston Chicken sold a $4 million undivided interest in the
convertible loan to BCEF pursuant to a participation agreement. BCEF's
interest in the convertible loan includes the pro rata participation by BCEF
in the principal, interest and security of the loan and the conversion and
option rights of Boston Chicken under such loan. In connection with the
conversion and option rights, two-thirds of BCEF's participation interest is
convertible into Common Stock at a conversion price of $6.38 per share and the
remaining one-third has a conversion price of $14.42 per share. BCEF has no
independent right to exercise any conversion or option rights with respect to
its participation interest, or to cause Boston Chicken to exercise such
conversion or option rights.
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In the event Boston Chicken exercises the conversion or option rights on
behalf of itself and BCEF, any shares of Common Stock acquired by BCEF may not
be transferred by BCEF without providing Boston Chicken prior notice and the
opportunity to purchase such shares for, at the option of Boston Chicken, cash
or registered shares of Boston Chicken common stock. Certain executive
officers and directors of the Company own in the aggregate less than 10% of
the outstanding equity interests of BCEF.
In connection with the closing of the Company's secured revolving credit
facility with Bank of America Illinois, Boston Chicken agreed to subordinate
all of its loans to the Company, both convertible and non-convertible, to all
indebtedness under the Company's secured revolving credit facility, and
further agreed to release its security interest in the assets of the Company.
Such subordination does not affect Boston Chicken's ability to convert its
convertible loan into Common Stock.
Although the foregoing tables assume that the Loan Conversion will be
consummated upon the Company's request to Boston Chicken, such conversion has
not yet occurred. Boston Chicken has, however, announced its intention to
consummate the Loan Conversion absent any change in circumstances, conditioned
upon approval of its board of directors and the termination of the moratorium
period under its loan agreement with the Company.
CONCURRENT PRIVATE PLACEMENT AGREEMENT AND REGISTRATION AGREEMENT
Concurrent with the consummation of the Initial Public Offering and the
Concurrent Public Offering, the Company expects to enter into a concurrent
private placement agreement with Boston Chicken (the "Concurrent Private
Placement Agreement"), pursuant to which Boston Chicken would purchase
2,000,000 shares of Common Stock at the initial public offering price per
share, net of underwriting discount. The Concurrent Private Placement
Agreement includes customary terms and provisions, representations and
warranties and indemnification obligations. In addition, the Concurrent
Private Placement Agreement would permit Boston Chicken to maintain ownership
of shares of Common Stock having up to 52% of the voting power of all of the
outstanding shares of capital stock of the Company having the power generally
to vote in the election of directors pursuant to an option (the "BCI Option")
to purchase newly issued shares of Common Stock for cash or registered shares
of Boston Chicken common stock at a per share exercise price equal to the (i)
the weighted average price per share at which the Common Stock was issued or
sold in a transaction pursuant to which the BCI Option becomes exercisable, in
the case of a transaction in which such price per share is readily
ascertainable, or (ii) in all other cases, the average of the closing sale
prices for the Common Stock on the Nasdaq National Market (or such other
principal exchange or market on which the Common Stock may then be trading)
for the five trading days ending on the fifth trading day prior to the date of
the transaction pursuant to which the BCI Option becomes exercisable, but
subject in each case to adjustments for issuances of shares of Common Stock in
connection with recapitalizations, dividends, stock splits, consolidations of
shares and other diluting events. In the event payment is made in registered
shares of Boston Chicken common stock, Boston Chicken will guarantee the price
at which those shares can be sold at the market within a limited time period.
The BCI Option will terminate if (i) Boston Chicken sells or transfers shares
of Common Stock and as a result owns less than a majority of the then
outstanding shares of the Company's voting stock or (ii) the percentage of
outstanding shares of voting stock of the Company owned by Boston Chicken is
reduced below 50% other than as a result of Boston Chicken's voluntary sale or
transfer of shares of Common Stock and Boston Chicken fails to acquire a
sufficient number of shares of Common Stock so that it owns at least a
majority of the then outstanding shares of voting stock of the Company by July
31 of the calendar year next following the calendar year in which such
reduction occurs. In addition, the percentage ownership level of 52% is
subject to reduction to the extent voluntary sales or transfers by Boston
Chicken reduce its ownership of the outstanding shares of voting stock of the
Company to less than 52% but do not otherwise result in termination of the BCI
Option. The Concurrent Private Placement Agreement prohibits the Company from
taking certain actions without the consent of Boston Chicken as long as the
BCI Option has not terminated, including altering any rights attaching to the
Common Stock, offering or issuing any equity securities or debt securities
convertible into equity securities, in either case other than Common Stock,
distributing assets or securities of the Company having a fair market value in
excess of 10% of the Company's consolidated gross assets or consolidated gross
revenues measured as of the immediately preceding fiscal year end, and filing
a petition in bankruptcy.
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In connection with the Concurrent Private Placement Agreement, the Company
also expects to enter into a registration agreement with Boston Chicken (the
"Boston Chicken Registration Agreement"), pursuant to which the Company would
grant to Boston Chicken five demand and unlimited piggyback registration
rights under the Securities Act with respect to the shares of Common Stock
purchased by Boston Chicken in the Concurrent Private Placement or otherwise
owned by it, including shares of Common Stock subject to the BCI Option for
which the Company will bear substantially all of the expenses in connection
with such registrations (other than underwriting discounts or commissions).
The Boston Chicken Registration Agreement will supersede the rights of Boston
Chicken under the Stockholder Registration Agreement. Boston Chicken's demand
registration rights under the Boston Chicken Registration Agreement are not
exercisable by it until the earlier of (i) the date on which the Company
requests the effectiveness of the resale registration statement under the
Stockholder Registration Agreement or (ii) 13 months after the closing of the
Offerings. In addition, the Company has agreed in connection with Boston
Chicken's first demand registration, to waive the requirement of the
Stockholder Registration Agreement, if it is still applicable, that the
holders of the Registrable Securities agree not to sell up to 30% of such
Registrable Securities for certain periods and Boston Chicken has agreed to
consent to such waiver. The execution of the Concurrent Private Placement
Agreement and the Boston Chicken Registration Agreement will be subject to the
waiver of certain provisions of the Stockholder Registration Agreement by, and
the consent of, the holders of at least 75% of the Registrable Securities. The
Company intends to request such waiver and consent prior to the consummation
of the Offerings. See "Certain Transactions--Registration Rights" and "Shares
Eligible for Future Sale."
The Concurrent Private Placement Agreement and the Boston Chicken
Registration Agreement are exhibits to the Registration Statement of which
this Prospectus is a part.
ASSIGNMENT AND REIMBURSEMENT AGREEMENT
On March 24, 1995, Boston Chicken and the Company entered into an assignment
and reimbursement agreement, pursuant to which Boston Chicken assigned to the
Company certain intellectual property rights relating to the development,
manufacture and sale of bagels and bagel-related products (the "Bagel Rights")
and certain rights under contracts to which Boston Chicken was a party,
including Boston Chicken's rights under a lease of office space in Golden,
Colorado that is currently used as the Company's support center (the "Bagel
Contracts"). The Company paid to Boston Chicken an aggregate of $1,160,334 in
consideration for certain assets and Boston Chicken's assignment of the Bagel
Rights and the Bagel Contracts, and in reimbursement of certain costs and
expenses paid by Boston Chicken in connection with the development and
creation of the Company and certain of its relationships, the development or
acquisition of the Bagel Rights, the negotiation of the Bagel Contracts and
the costs associated with transferring certain employees from Boston Chicken
to the Company. The Company also agreed to assume Boston Chicken's liabilities
and obligations under the Bagel Contracts and in connection with the other
activities performed by Boston Chicken for which the Company reimbursed Boston
Chicken.
ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT
On March 24, 1995, Boston Chicken and the Company entered into an accounting
and administration services agreement, subsequently amended and restated in
May 1996 to incorporate minor changes to such agreement (the "Accounting and
Administration Services Agreement"), pursuant to which Boston Chicken has
agreed to assist the Company, its subsidiaries and its area developers in
performing certain services, including maintaining accounting records,
performing accounting activities, preparing financial reports, administering
options, establishing and administering employee benefits, human resources,
insurance and recordkeeping services, assisting with lease negotiations,
maintaining lease files and complying with reporting obligations thereunder,
and providing certain other administrative support services.
In consideration for such assistance, the Company has agreed to pay to
Boston Chicken (i) a base fee of $30,000 for each four-week accounting period,
and (ii) a supplemental base fee of $4,500 for each accounting
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period for services to each franchisee or subsidiary of the Company (each such
franchisee or subsidiary being herein sometimes referred to as an "Entity"),
which fees may be increased cumulatively not more than 10% per fiscal year by
Boston Chicken. The Accounting and Administration Services Agreement also
provides for a per store fee to be paid by each Entity, ranging from $850 per
four-week accounting period, in the case of an Entity operating fewer than
twelve bagel stores, to $350 per four-week accounting period for an Entity
operating more than 200 bagel stores (which range of per store fees may be
reduced to a range from $700 to $250 upon compliance with certain reporting
requirements, administrative procedure compliance requirements and timeliness
deadlines established by Boston Chicken). The Company has also agreed to
reimburse Boston Chicken for all non-ordinary, out-of-pocket expenses incurred
by Boston Chicken or its affiliates in connection with the Accounting and
Administration Services Agreement. All such expenses in excess of $50,000 must
be approved by the Company prior to being incurred. Pursuant to the Accounting
and Administration Services Agreement, the Company paid to Boston Chicken in
fiscal year 1995 fees aggregating $489,750.
The Accounting and Administration Services Agreement has a term of three
years and may be terminated by the Company or Boston Chicken upon 180 days'
prior written notice. In addition, Boston Chicken may terminate the agreement
without notice 15 days after giving notice of non-payment of the fees provided
for in the agreement, unless such non-payment is cured within such 15-day
period.
FINANCIAL SERVICES AGREEMENT
On March 24, 1995, Boston Chicken and the Company entered into a financial
services agreement, (as amended, the "Financial Services Agreement"), pursuant
to which Boston Chicken agreed to provide certain financial services to the
Company and its area developers, including identification and analysis of
possible transactions and related financial and strategic advice, assistance
in budget and forecast preparation, consultations and advice as to
presentations, discussions and disclosures to financial analysts and the
financial press, and advice concerning crisis management and control. In
consideration for such financial services, the Company agreed to pay to Boston
Chicken financial services fees aggregating $500,000 for fiscal year 1995 and
approximately $96,000 for fiscal year 1996. The Company also agreed to
reimburse Boston Chicken for all non-ordinary, out-of-pocket expenses incurred
by Boston Chicken or its affiliates in connection with the Financial Services
Agreement. All such expenses in excess of $50,000 were required to be approved
by the Company prior to being incurred. The Financial Services Agreement was
terminated effective as of May 20, 1996.
REAL ESTATE SERVICES AGREEMENT
On March 24, 1995, Boston Chicken and the Company entered into a real estate
services agreement, subsequently amended and restated in May 1996 to make
minor changes to such agreement (the "Real Estate Services Agreement"),
pursuant to which Boston Chicken has agreed to assist the Company, its
subsidiaries and its area developers in conducting certain real estate-related
activities, including site analysis, advisory services regarding customer
trade area studies and other real estate matters. In consideration for such
real estate services, the Company has agreed to pay a general real estate
advisory fee of $5,000 for each bagel store location proposed to be owned,
operated, leased or franchised by the Company or any of its area developers or
subsidiaries, which fee may be increased cumulatively not more than 10% per
fiscal year by Boston Chicken. The Company has also agreed that the Company
and its subsidiaries will pay Boston Chicken's regular fees for customer area
trade studies, market development plans, and demographic and census reports,
charts and maps (which fees are subject to change from time to time by Boston
Chicken). The Company has also agreed to reimburse Boston Chicken for all non-
ordinary, out-of-pocket expenses incurred by Boston Chicken or its affiliates
in connection with the Real Estate Services Agreement. All such expenses in
excess of $50,000 must be approved by the Company prior to being incurred.
Pursuant to the Real Estate Services Agreement, the Company paid to Boston
Chicken in fiscal year 1995 fees aggregating $280,000.
The Real Estate Services Agreement has a term of three years and may be
terminated by the Company or Boston Chicken upon 180 days' prior written
notice. In addition, Boston Chicken may terminate the agreement without notice
15 days after giving notice of non-payment of the fees provided for in the
agreement, unless such non-payment is cured within such 15-day period.
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COMPUTER AND COMMUNICATIONS SYSTEMS SERVICES AGREEMENT
On March 24, 1995, Boston Chicken and the Company entered into the Computer
Services Agreement, subsequently amended and restated in May 1996 to make
certain changes to such agreement, pursuant to which (i) the Company has
agreed to acquire communications and computer systems or hardware specified or
required from time to time by Boston Chicken for use by the Company and its
subsidiaries and area developers, (ii) Boston Chicken has licensed the Company
to use retail store-level computer software programs and certain other
computer software programs in connection with various support and control
functions (which the Company has agreed to use exclusively, along with other
software specified by Boston Chicken), and (iii) Boston Chicken has agreed to
provide certain computer and communications support services. In consideration
for such license and provision of services, the Company has agreed to pay, and
to cause each of its subsidiaries and area developers to pay, to Boston
Chicken a one-time license fee of $15,000 per bagel store. In addition, the
Company and any other entity installing specific software must pay an annual
fee of $78,000 for certain real estate software, an annual fee of $78,000 for
certain Lotus Notes Database(R) templates and an annual fee of $78,000 for
certain structured report software. In addition, the Company has agreed to pay
to Boston Chicken, for data center and network service operations and support
of certain infrastructure programs, $750,000 for each of the 1996, 1997 and
1998 fiscal years and 0.25% of net systemwide revenue of the Company, its
subsidiaries and its area developers (excluding the revenue derived from
Noah's New York Bagels stores) for each of the 1999 and 2000 fiscal years. The
Company has also agreed to pay, and to cause each of its subsidiaries and area
developers to pay, to Boston Chicken a software maintenance and support
service fee of $400 for each of Boston Chicken's four-week accounting periods
for each installed copy of certain software licensed from Boston Chicken,
which fee may be increased by Boston Chicken at any time at its option. The
Company has also agreed to compensate Boston Chicken at hourly rates for
performance of support services not otherwise covered by the foregoing fees
and to incur certain additional amounts as may be needed to modify, enhance or
replace computer or communications systems or computer software, some of which
amounts may be payable to Boston Chicken. The Company has also agreed to
reimburse Boston Chicken for certain costs and expenses incurred by Boston
Chicken in connection with the Computer Services Agreement. Pursuant to the
Computer Services Agreement, the Company, its subsidiaries and area developers
paid to Boston Chicken in fiscal year 1995 fees aggregating $234,823.
The Computer Services Agreement has a term of five years and may be
terminated by the Company or Boston Chicken upon one year prior written
notice. In addition, Boston Chicken may terminate the agreement without notice
15 days after giving notice of non-payment of the fees provided for in the
agreement, unless such non-payment is cured within such 15-day period.
OTHER RELATIONSHIPS BETWEEN BOSTON CHICKEN AND THE COMPANY
Pursuant to subscription agreements and certain other agreements entered
into upon the formation of the Company, the stockholders of the Company agreed
to vote their shares in favor of three persons designated by Boston Chicken as
directors of the Company. The Company currently has ten directors, including
the following designees of Boston Chicken: Scott Beck, Kyle Craig and David
Stanchak. Boston Chicken did not designate nominees for the 1996 election of
directors. In addition, certain officers of the Company were previously
officers or employees of Boston Chicken. See "Management."
The Company has from time to time purchased from Boston Chicken shares of
Boston Chicken common stock for delivery by the Company in connection with
acquisitions of other businesses by the Company. In addition to shares of
Boston Chicken common stock funded by Boston Chicken under the loan agreement,
during the period from March 24, 1995 through August 10, 1995, the Company
also purchased an aggregate of 1,298,958 shares of Boston Chicken common stock
in connection with such acquisitions, having an aggregate market value,
measured as of the respective dates such shares were acquired, of
approximately $23.4 million. See "Certain Transactions--Formation of the
Company and Subsequent Acquisitions." The Company may from time to time
acquire shares of common stock, or other securities, of Boston Chicken for
such purposes in the future. See also "--Loan Agreement."
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In connection with the formation of the Company, the Company granted options
to purchase an aggregate of 224,292 shares of Common Stock to certain officers
and employees of Boston Chicken at an exercise price of $5.88 per share.
The Company is currently negotiating two subleases with Boston Chicken,
pursuant to which the Company will be entitled to the non-exclusive use of
three airplanes leased by Boston Chicken from unaffiliated leasing companies.
Under the subleases, the Company will be obligated to pay its proportionate
share of Boston Chicken's lease payments, maintenance and related costs, based
on the Company's use of the airplanes. The Company expects that such subleases
will be terminable by either party upon 30 days' notice.
See also "Risk Factors--Dependence on Boston Chicken," "Risk Factors--
Control by and Conflicts of Interest with Boston Chicken" and "Certain
Transactions."
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