<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 6, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ TO ____
COMMISSION FILE NUMBER 0-22802
BOSTON CHICKEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3904053
(State or other jurisdiction of (IRS Employer
incorporation or organization ) Identification No.)
14103 Denver West Parkway
P. O. Box 4086
Golden, CO 80401-4086
(Address of principal executive offices, including zip code)
(303) 278-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $.01 par value per share, outstanding as of
November 11, 1996: 64,061,569.
<PAGE>
BOSTON CHICKEN, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and
October 6, 1996........................................ 2
Consolidated Income Statements for the quarter and
three quarters ended October 1, 1995 and
October 6, 1996........................................ 3
Consolidated Statements of Cash Flows for the three
quarters ended October 1, 1995 and October 6, 1996..... 4
Notes to Consolidated Financial Statements............. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 15
Signature Page.............................................. 16
Exhibit Index............................................... Exhibit-1
</TABLE>
1
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, October 6,
1995 1996
------------ -----------
<S> <C> <C>
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and cash equivalents............. $ 310,436 $ 59,358
Accounts receivable, net.............. 13,445 18,907
Due from affiliates................... 9,614 10,462
Notes receivable...................... 5,462 -
Prepaid expenses and other current 1,536 2,680
assets..............................
Deferred income taxes................. 3,322 8,534
---------- -----------
Total current assets................ 343,815 99,941
Property and Equipment, net............. 258,550 358,567
Notes Receivable........................ 450,572 710,111
Deferred Financing Costs, net........... 15,745 20,504
Excess of Purchase Price Over Fair
Value of Net Assets Acquired, net..... - 180,468
Other Assets, net....................... 5,195 53,179
---------- -----------
Total assets........................ $1,073,877 $1,422,770
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable...................... $ 12,292 $ 10,218
Accrued expenses...................... 9,095 28,584
Deferred franchise revenue............ 8,945 11,290
---------- -----------
Total current liabilities........... 30,332 50,092
Deferred Franchise Revenue.............. 2,072 7,608
Revolving Credit Facility............... - 1,200
Liquid Yield Option Notes............... 177,306 179,373
Convertible Subordinated Debt........... 129,872 129,862
Deferred Income Taxes................... 16,631 35,958
Other Noncurrent Liabilities............ 833 7,258
Minority Interest....................... - 99,090
Commitments and Contingencies
Stockholders' Equity:
Preferred stock --$.01 par value;
authorized 20,000,000 shares; no
shares issued and outstanding....... - -
Common stock --$.01 par value;
authorized 100,000,000 shares;
issued and outstanding:
59,129,301 in 1995 and 63,902,895
in 1996............................. 591 640
Additional paid-in capital........... 675,611 822,195
Retained earnings.................... 40,629 89,494
---------- -----------
716,831 912,329
---------- -----------
Total liabilities and
stockholders' equity............. $1,073,877 $1,422,770
========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three
Quarter Ended Quarters Ended
------------------------- -----------------------
October 1, October 6, October 1, October 6,
1995 1996 1995 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Royalties and franchise-related fees.............. $ 26,566 $ 45,646 $ 73,163 $ 130,816
Company-operated stores........................... 12,105 28,664 40,415 55,402
------------ ---------- ---------- ----------
Total revenue.................................... 38,671 74,310 113,578 186,218
Cost and Expenses:
Cost of products sold............................. 4,510 10,567 15,111 20,515
Salaries and benefits............................. 6,930 12,862 22,958 29,699
General and administrative........................ 8,350 31,368 28,689 58,084
------------ ---------- ---------- ----------
Total cost and expenses.......................... 19,790 54,797 66,758 108,298
------------ ---------- ---------- ----------
Income from Operations............................. 18,881 19,513 46,820 77,920
Other Income (Expense):
Interest expense, net............................. (4,593) (3,803) (9,090) (10,138)
Gain on sale of subsidiary's stock................ - 14,778 - 14,778
Other income (expense), net....................... (56) 4 (22) 316
------------ ---------- ---------- ----------
Total other income (expense)..................... (4,649) 10,979 (9,112) 4,956
------------ ---------- ---------- ----------
Income Before Income Taxes and
Minority Interest................................. 14,232 30,492 37,708 82,876
Income Taxes....................................... 5,418 11,194 14,358 30,992
Minority Interest in Earnings of
Subsidiary........................................ - (1,998) - (3,019)
------------ ---------- --------- ----------
Net Income......................................... $ 8,814 $ 17,300 $ 23,350 $ 48,865
============ ========== ========= ==========
Net Income Per Common and
Equivalent Share.................................. $ 0.17 $ 0.26 $ 0.47 $ 0.74
============ ========== ========= ==========
Weighted Average Number of Common
and Equivalent Shares Outstanding................. 50,863 67,416 49,695 66,091
============ ========== ========= ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
------------------------
October 1, October 6,
1995 1996
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income........................................................ $23,350 $ 48,865
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................... 8,380 15,559
Interest on liquid yield option notes........................... 4,637 10,542
(Gain) loss on sale of subsidiary's stock....................... - (14,778)
Deferred income taxes........................................... 11,094 (21,843)
Minority interest............................................... - 3,019
Loss (gain) on disposal of assets............................... 306 (160)
Changes in assets and liabilities, excluding effects
from acquisitions:
Accounts receivable and due from affiliates................... (5,120) (3,877)
Accounts payable and accrued expenses......................... (3,837) 7,776
Deferred franchise revenue.................................... (411) 2,713
Other assets and liabilities.................................. (982) 1,175
---------- ----------
Net cash provided by operating activities.................... 37,417 48,991
---------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment............................... (99,519) (92,351)
Proceeds from the sale of assets................................. 47,171 58,996
Increase in deferred financing costs and other assets............ (9,454) (10,247)
Issuance of notes receivable..................................... (376,008) (1,013,570)
Repayments of notes receivable................................... 207,175 630,064
---------- ----------
Net cash used in investing activities........................ (230,635) (427,108)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock........................... 36,610 110,833
Proceeds from issuance of subsidiary's common stock.............. - 59,902
Proceeds from issuance of liquid yield option notes.............. 172,464 -
Proceeds from revolving credit facilities........................ 165,815 32,660
Repayments of revolving credit facilities........................ (165,815) (76,356)
--------- ----------
Net cash provided by financing activities.................... 209,074 127,039
--------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents.............. 15,856 (251,078)
Cash and Cash Equivalents, beginning of period.................... 25,304 310,436
---------- ----------
Cash and Cash Equivalents, end of period.......................... $ 41,160 $ 59,358
========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by Boston Chicken,
Inc. (the "Company") and are unaudited except for the consolidated balance sheet
at December 31, 1995. The financial statements have been prepared in accordance
with the instructions for Form 10-Q and, therefore, do not necessarily include
all information and footnotes required by generally accepted accounting
principles. In the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows as of
October 6, 1996 and for all periods presented have been made. The statements are
subject to year-end audit adjustment. A description of the Company's accounting
policies and other financial information is included in the audited consolidated
financial statements as filed with the Securities and Exchange Commission in the
Company's Form 10-K for the year ended December 31, 1995. The consolidated
results of operations for the quarter and three quarters ended October 6, 1996
are not necessarily indicative of the results expected for the full year.
2. ACQUISITIONS
During the three quarters ended October 6, 1996, the Company converted its
$120.0 million loan into common stock of Einstein/Noah Bagel Corp. ("ENBC") and
subsequently invested an additional $31.6 million in ENBC common stock,
resulting in a current ownership interest of approximately 58% of the
outstanding shares of common stock of ENBC. The Company also paid $21.6 million
in common stock and notes to acquire the equity interests of certain investors
in Mid-Atlantic Restaurant Systems L.P. ("Mid-Atlantic"), its Boston Market area
developer in Philadelphia. As part of this transaction, the Company assumed
$38.5 million in liabilities owed to third parties, including funded debt of
$27.0 million. The transaction resulted in the Company obtaining a 93% equity
interest in Mid-Atlantic. Subsequent to the Company's acquisition of Mid-
Atlantic, Mid-Atlantic acquired Boston Market stores for a purchase price of
$16.9 million, including the assumption of $1.1 million in liabilities owed to
third parties. These transactions have been accounted for as purchases, and,
accordingly, the purchase prices were allocated to assets and liabilities based
upon an evaluation of their fair values at the date of the transactions,
resulting in goodwill of $182.2 million which is being amortized over a 35-year
life. The Company will evaluate adjustments to the goodwill balance or useful
life based upon future events and circumstances, which could include, but are
not limited to, a change in business strategy or change in current and long-term
projected operating performance. If factors indicate that the assets should be
evaluated for possible impairment, the Company will use an estimate of such
assets' undiscounted projected cash flows in measuring whether the assets are
impaired. In such circumstances, the excess of the net carrying value of the
assets over their fair value would be deemed impaired, and consequently, charged
to earnings.
The following represents the unaudited pro forma results of operations
through October 6, 1996, as if the aforementioned transactions had occurred at
the beginning of the Company's fiscal year (in thousands of dollars, except per
share data):
<TABLE>
<CAPTION>
<S> <C>
Revenue................ $247,485
Net income............. $ 35,633
Net income per share... $ 0.54
</TABLE>
This pro forma information is not indicative of the results of operations
that actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. The pro forma information is not
intended to be a projection of future results.
5
<PAGE>
3. AREA DEVELOPER FINANCING
The Company currently offers convertible and non-convertible secured debt
financing to certain Boston Market area developers to partially finance store
development and working capital needs. Only developers which are developing a
significant portion of an area of dominant influence or metropolitan area of a
major city and which meet all of the Company's requirements are eligible for
such financing. Area developer financing generally requires the developer to
expend at least 75% of its contributed capital prior to drawing on its revolving
loan, with advances permitted during a two- or three-year draw period (or
additional draw period in the event of a loan amendment) in a pre-determined
maximum amount, equal to two to four times the amount of the area developer's
contributed capital. Upon expiration of the draw period, the loan converts to an
amortizing term loan payable over four to five years in periodic installments,
sometimes with a final balloon payment. The Company may extend the draw and
repayment periods, subject to the area developer purchasing additional
development rights, contributing additional capital, or in connection with other
amendments to the loan agreement. Interest is set at 1% over the applicable
reference rate of Bank of America Illinois as established from time to time and
is payable each period. The loan is secured by a pledge of substantially all of
the assets of the area developer and generally by a pledge of the equity
interests of the owners of the developer.
ENBC offers secured debt financing to its area developers to partially finance
store development and working capital needs on terms similar to those offered by
the Company to Boston Market area developers.
(a) LOAN CONVERSION OPTION
The Company may convert all or any portion of the convertible loan amount
after a moratorium period (generally two years from execution or subsequent
amendment of the loan) and generally after the area developer has completed not
less than 80% of its area development commitment (or in the event of certain
defaults) and generally up to the later of full repayment of the loan or a
specified date in the agreement, into equity in the area developer at the
conversion price set forth in the loan agreement, generally at a 12% to 15%
premium over the per unit price paid by the investors in the area developer for
their equity investment made concurrently with the execution of the loan
agreement or subsequent amendments thereto. The maximum loan amount is
established to give the Company majority ownership of the developer upon
conversion, provided the Company exercises its right to participate in any
intervening financing of the developer. To the extent such loan is not fully
drawn or has been drawn and repaid, the Company has a corresponding option to
acquire, at the loan conversion price, the amount of additional equity it could
have acquired by conversion of the loan, had the loan been fully drawn.
ENBC's loan agreements with its area developers contain conversion and option
features similar to the Company's loan agreements with its Boston Market area
developers.
There can be no assurance that the Company or ENBC will exercise future rights
to convert their loans to area developers into, or acquire an equity interest in
any area developer to which they provide financing or that such exercise or
acquisition would result in a majority interest in the area developer.
(b) COMMITMENTS TO EXTEND AREA DEVELOPER FINANCING
The following table summarizes credit commitments and outstanding balances set
forth on the Company's balance sheets for area developer financing of Boston
Market area developers as of both December 31, 1995 and October 6, 1996 and ENBC
area developers as of October 6, 1996 (in thousands of dollars, except number of
area developers):
<TABLE>
<CAPTION>
December 31, October 6,
1995 1996
------------ ----------
<S> <C> <C>
Boston Market:
Number of area developers receiving financing...... 15 14
Loan commitments................................... $ 614,094 $ 761,415
Unused revolving loans............................. (202,676) (170,692)
--------- ---------
Loans outstanding (included in Notes Receivable)... $ 411,418 $ 590,723
========= =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 31, October 6,
1995 1996
------------ ----------
<S> <C> <C>
ENBC:
Number of area developers receiving financing...... - 10
Loan commitments................................... $ - $ 210,800
Unused revolving loans............................. - (110,070)
--------- ---------
Loans outstanding (included in Notes Receivable)... $ - $ 100,730
========= =========
</TABLE>
(c) CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
The allowance for Boston Market and ENBC financed area developers' loan losses
is maintained at a level that in management's judgment is adequate to provide
for estimated possible loan losses. The amount of the allowance is based on
management's review of use of loan proceeds, adherence to store development
schedules, store performance trends, type and amount of collateral securing the
loan, prevailing economic conditions, and other factors which management deems
relevant at the time. Based upon this review and analysis, no allowance for loan
losses was required as of December 31, 1995 and October 6, 1996.
The following table sets forth certain aggregate financial information as of
the dates indicated provided annually by Boston Market and ENBC financed area
developers (excluding Mid-Atlantic which is now consolidated in the Company's
financial statements), even though such loans made by ENBC pre-date its
consolidation in the Company's financial statements (in thousands, except number
of financed area developers and store data):
<TABLE>
<CAPTION>
December 26, December 25, December 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total number of financed area developers........................... 5 12 18
Total number of financed area developer stores open................ 78 274 649
Total gross assets................................................. $71,880 $237,833 $531,153
Total debt:
To the Company or ENBC........................................... 43,794 163,971 379,556
To third parties (including capital lease obligations)........... - 3,068 14,606
Total stockholder/partner/member equity (deficit).................. 10,006 7,448 (6,083)
</TABLE>
4. DEBT
The Company and ENBC each have a revolving bank credit facility, which
together aggregate $109.5 million. The Company's facility provides for
borrowings of up to $64.5 million through June 30, 1997 and ENBC's facility
provides for borrowings up to $45.0 million through April 30, 1998. Borrowings
under the Company's facility may be either floating rate loans with interest at
the bank's reference rate or eurodollar rate loans plus an applicable margin.
Borrowings under ENBC's facility may be either floating rate loans with interest
at the bank's base rate plus .5% or eurodollar rate loans plus an applicable
margin. In addition, a commitment fee applicable to each facility equal to .25%
of the average daily unused portion of the loan is required. The credit facility
agreements contain covenants, among others, restricting other borrowings,
prohibiting cash dividends, and requiring the respective borrowers maintenance
of interest coverage and cash flow ratios, minimum capital levels, and specified
store level sales. ENBC's facility is
7
<PAGE>
collateralized by substantially all of its assets. As of October 6, 1996, no
amount was outstanding under the Company's facility and $1.2 million was
outstanding under ENBC's facility.
5. STOCK OPTIONS
The Company accounts for its employee stock options in accordance with APB
No. 25.
6. STOCKHOLDERS' EQUITY
In August 1996, ENBC completed an initial public offering and other financings
which in the aggregate raised net proceeds of $86.0 million, including an
investment by the Company of $31.6 million. Prior to these transactions, the
Company held approximately a 70% interest in ENBC and subsequent to these
transactions, the Company held approximately a 58% interest in ENBC. The
transactions resulted in a pretax gain of approximately $14.8 million. Deferred
income taxes have been provided for on the gain.
7. ROYALTIES AND FRANCHISE-RELATED FEES
Royalties and franchise-related fees for the Company and ENBC (from the date
of the Company's conversion of its loan into ENBC common stock) are comprised of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
-------------------------------- --------------------------------
October 1, 1995 October 6, 1996 October 1, 1995 October 6, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Royalties........................................ $ 8,756 $14,159 $24,165 $ 40,519
Initial franchise and area developer fees........ 3,013 5,978 9,079 13,255
Interest income.................................. 8,678 15,522 22,044 47,421
Real estate, lease, and related services income.. 4,352 7,000 12,338 20,255
Software fees.................................... 1,713 2,858 5,454 9,238
Other............................................ 54 129 83 128
--------------- --------------- --------------- ---------------
$26,566 $45,646 $73,163 $130,816
=============== =============== =============== ===============
</TABLE>
8. COMMITMENTS
Through October 6, 1996, twelve Boston Market area developers sold to BC
Equity Funding, L.L.C. an aggregate of $56.7 million of 10% cumulative preferred
equity, redeemable at any time by the area developers at a premium initially
equal to 10% of the initial issue price, to be increased 2% each year up to a
maximum of 20% of the initial issue price plus accrued dividends (the
"Redemption Price"). The Company has agreed that in the event its conversion and
option rights under its secured loan agreement with the area developers have
expired
8
<PAGE>
unexercised (see Note 3) and the Company does not consent to an initial public
offering of the area developer, the Company will purchase the preferred equity
from the holders at the Redemption Price.
In December 1995, Bagel Store Development Funding, L.L.C. ("Bagel Funding")
was formed to invest in existing and proposed area developers of ENBC. Through
October 6, 1996, Bagel Funding had raised $90.0 million (including an aggregate
of $20.7 million in subscriptions receivable) and had invested a total of $51.9
million in ENBC area developers. ENBC is obligated to purchase Bagel Funding's
equity interest in an area developer at a formula price in the event that the
area developer fails to fulfill its obligation to redeem such interests at such
price in any one of the following circumstances: (i) ENBC converts into or
otherwise acquires a majority interest in the area developer; (ii) ENBC does not
consent to the area developer undertaking an initial public offering after
ENBC's conversion and/or option rights under its loan agreement with the area
developer have expired unexercised; or (iii) ENBC does not consent to the
termination of the area developer's area development and franchise agreements
with ENBC after ENBC's conversion and/or option rights under its loan agreement
with the area developer have expired unexercised.
9. CONTINGENCIES
The Company is subject to various lawsuits, claims, and other legal matters
in the course of conducting its business, including its business as a
franchisor. The Company believes that the outcome of such lawsuits, claims, and
other legal matters will not have a material impact on the Company's
consolidated financial position or results of operations.
9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE, OR ACHIEVEMENTS OF BOSTON CHICKEN, INC. (THE "COMPANY"),
EINSTEIN/NOAH BAGEL CORP. ("ENBC"), THEIR AREA DEVELOPERS AND FRANCHISEES,
BOSTON MARKET(R) STORES, EINSTEIN BROS. BAGELS(TM) STORES AND NOAH'S NEW YORK
BAGELS(R) STORES TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: COMPETITION;
SUCCESS OF OPERATING INITIATIVES, INCLUDING ROLL-OUT OF THE F.A.S.T. TRACK(TM)
SYSTEM AT BOSTON MARKET STORES; AREA DEVELOPERS' ADHERENCE TO DEVELOPMENT
SCHEDULES; ADVERTISING AND PROMOTIONAL EFFORTS; ADVERSE PUBLICITY; ACCEPTANCE OF
NEW PRODUCT OFFERINGS; EXPANSION OF THE HOLIDAY HOME MEAL REPLACEMENT BUSINESS;
AVAILABILITY, LOCATIONS, AND TERMS OF SITES FOR STORE DEVELOPMENT; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY AND TERMS OF CAPITAL; FOOD,
LABOR, AND EMPLOYEE BENEFIT COSTS; CHANGES IN GOVERNMENT REGULATIONS; REGIONAL
WEATHER CONDITIONS; AND OTHER FACTORS REFERENCED IN THIS FORM 10-Q OR IN THE
COMPANY'S FORM 10-K FOR ITS 1995 FISCAL YEAR. THE SUCCESS OF THE COMPANY AND
ENBC IS DEPENDENT ON THEIR RESPECTIVE AREA DEVELOPERS AND FRANCHISEES AND THE
MANNER IN WHICH THEY OPERATE AND DEVELOP BOSTON MARKET STORES AND EINSTEIN BROS.
BAGELS AND NOAH'S NEW YORK BAGELS STORES.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
On June 17, 1996, the Company converted its loan to ENBC into ENBC common
stock and currently owns approximately a 58% equity interest. On April 22, 1996,
the Company acquired a 93% interest in Mid-Atlantic Restaurant Systems L.P.
("Mid-Atlantic"), its Boston Market area developer in the Philadelphia area.
During the quarter ended October 6, 1996, Mid-Atlantic acquired additional
Boston Market stores. As a result of the conversion of the ENBC loan, the
revenue previously generated from ENBC by the Company as a lender and service
provider has been eliminated in consolidation and replaced with revenue (and
operating expenses) from ENBC franchise operations as well as from ENBC operated
stores. As a result of the acquisition of Mid-Atlantic and its subsequent
acquisition of stores, the revenue previously generated by the Company as a
franchisor, lender and service provider has been eliminated in consolidation and
replaced with revenue (and operating expenses) from Company-operated stores. The
foregoing results are adjusted in the "minority interest" line item to reflect
the minority interest not owned by the Company. As a result of these
transactions, the operating results for the period are not readily comparable to
those for the quarter ended October 1, 1995.
As of October 6, 1996, the Company owned 95 Boston Market stores in the
Philadelphia market. The following table sets forth store performance data for
these stores:
<TABLE>
<CAPTION>
Quarter Ended October 6, 1996
-----------------------------
(dollars in thousands)
<S> <C> <C>
Net sales........................... $25,964.5 100.0%
Food and paper costs................ 9,606.2 37.0%
Salaries and benefits............... 6,614.0 25.5%
Operating expenses.................. 2,033.8 7.8%
Occupancy and advertising costs..... 2,813.5 10.8%
-------------- -----------
Store cash flow..................... $ 4,897.0 18.9%
============== ===========
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
- ----------------------
STORE ACTIVITY
The results of operations are significantly impacted by the number of stores
opened during the quarter. The following table sets forth systemwide store
activity for the Company and ENBC for the period indicated.
<TABLE>
<CAPTION>
Quarter Ended October 6, 1996
----------------------------------------------------------
Beginning Stores Stores Ending
Stores Opened Closed Stores
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Boston Market 957 67 (1) 1,023
ENBC 188 53 0 241
</TABLE>
REVENUE
Total revenue increased 92% for the quarter ended October 6, 1996 over the
prior comparable quarter. For the three quarters ended October 6, 1996, total
revenue increased 64% over the prior comparable period. Royalties and franchise-
related fees increased 72% for the quarter ended October 6, 1996 and increased
79% for the three quarters ended October 6, 1996. The increases in royalties and
franchise-related fees were primarily attributable to higher interest income
from loans made to Boston Market area developers, higher royalties due to higher
systemwide store revenue in the Boston Market system and the inclusion of ENBC's
royalties and franchise-related fees from the date of conversion of the
Company's loan to ENBC into ENBC common stock. The increases in interest income
were due to higher outstanding loan balances associated primarily with the
increases in stores opened by area developers. Higher royalties were the result
of an increase in Boston Market systemwide store revenue which increased to
$288.9 million in the quarter ended October 6, 1996, up 46% from $197.5 million
for the prior comparable quarter. Systemwide store revenue increased to $861.1
million in the three quarters ended October 6, 1996, up 55% from $556.3 million
for the prior comparable period. The increase in systemwide store revenue was
due primarily to an increase in the number of Boston Market stores open and
higher weekly per store averages ("WPSAs") for the Boston Market system, which
increased 5.7% to $24,716 for the quarter ended October 6, 1996, from $23,388 in
the prior comparable quarter. WPSA increased 7.1% to $23,673 for the three
quarters ended October 6, 1996, from $22,098 in the prior comparable period.
WPSA represents the weekly per store average gross revenue for all stores in the
Boston Market system based upon the actual number of days the stores are open in
the reporting period. The inclusion of ENBC's royalties and franchise-related
fees from the date of conversion accounted for 42% of the increase in royalty
and franchise-related fees for the third quarter and 19% of the increase for the
three quarters ended October 6, 1996.
Revenue from Boston Market Company-operated stores is significantly affected
by the average number of such stores in the periods being compared. The average
number of Boston Market Company-operated stores for the third quarter of 1996
was 94 compared to 32 for the third quarter of 1995. The average number of
Boston Market Company-operated stores for the three quarters ended October 6,
1996 was 53 compared to 39 in the comparable 1995 period. This change in average
number is attributable to the timing of store sales to area developers in 1995
and the acquisition of stores in 1996. Revenue from Company-operated stores
increased 137% for the third quarter of 1996 compared with the comparable
quarter last year and increased 37% for the three quarters ended October 6, 1996
compared with the prior comparable period. The increase for these periods was
due to a combination of a higher average number of Boston Market Company-
operated stores and the inclusion of ENBC operated stores from the date of
conversion. The inclusion of revenue from ENBC operated stores from the date of
conversion accounted for 14% of the increase in store revenue for the third
quarter and 39% of the increase for the three quarters ended October 6, 1996.
11
<PAGE>
COST OF PRODUCTS SOLD
As a result of the higher average number of Boston Market Company-operated
stores operating in the quarter ended October 6, 1996, cost of products sold
increased 134% compared with the prior comparable quarter. Cost of products sold
increased 36% for the three quarters ended October 6, 1996, compared with the
comparable period last year, also as a result of the higher average number of
Boston Market Company-operated stores operating in the three quarters ended
October 6, 1996, compared with the prior comparable period. ENBC operated stores
included from the date of conversion accounted for 13% of the increase in cost
of products sold for the third quarter and 37% of the increase for the three
quarters ended October 6, 1996.
SALARIES AND BENEFITS
Primarily as a result of the higher average number of Boston Market Company-
operated stores operating in the quarter ended October 6, 1996, salaries and
benefits increased 86% compared with the prior comparable quarter. The increase
for the third quarter of 1996 was also due to the inclusion of ENBC employees
from the date of conversion and an increased number of employees at the
Company's support center. ENBC accounted for 31% of the increase in salaries and
benefits for the third quarter. Salaries and benefits increased 29% for the
three quarters ended October 6, 1996 compared with the comparable period last
year. The increase in salaries and benefits for the three quarters ended October
6, 1996 was due to an increased number of employees at the Company's support
center and the inclusion of ENBC employees from the date of conversion. ENBC
accounted for 34% of the increase in salaries and benefits for the three
quarters ended October 6, 1996.
GENERAL AND ADMINISTRATIVE
Included in general and administrative expenses for the quarter and three
quarters ended October 6, 1996, was a non-recurring provision of approximately
$15.0 million to purchase store equipment from Boston Market area developers
which equipment will be made obsolete due to the introduction of a new service
system designed to provide faster customer service. Absent this provision,
general and administrative expenses increased 96% for the quarter ended October
6, 1996 over the prior comparable quarter and increased 50% for the three
quarters ended October 6, 1996 over the comparable 1995 period. The increase for
the quarter was attributable to inclusion of ENBC's general and administrative
expenses from the date of conversion, greater depreciation and amortization
expense, and a higher average number of Company-operated Boston Market stores.
ENBC accounted for 13% of the increase in general and administrative expenses
for the third quarter. The increase for the three quarters ended October 6, 1996
was primarily attributable to greater depreciation and amortization expense, an
increase in the general and administrative expenses at the support center
necessary to support systemwide expansion, and inclusion of ENBC's general and
administrative expenses from the date of conversion. ENBC accounted for 14% of
the increase. Included in general and administrative expenses were depreciation
and amortization charges of $6.3 million for the third quarter of 1996 compared
with $2.9 million in the third quarter of 1995. Depreciation and amortization
charges were $15.6 million for the three quarters ended October 6, 1996,
compared with $8.4 million for the comparable period last year. The increases in
depreciation and amortization expense were primarily attributable to the
goodwill associated with the acquisition of Mid-Atlantic and the conversion of
the ENBC loan, as well as a higher fixed asset base reflecting the Company's and
ENBC's investment in support center infrastructure.
OTHER INCOME (EXPENSE)
Included in other income (expense) for the quarter and three quarters ended
October 6, 1996, was approximately a $14.8 million gain recognized as a result
of ENBC issuing 4.4 million shares of common stock to third parties in the third
quarter. Absent this gain, the Company had a net expense of $3.8 million in the
third quarter of 1996 compared to a net expense of $4.6 million in the
comparable quarter of 1995 and a net expense of $9.8 million for the three
quarters ended October 6, 1996 compared to a net expense of $9.1 million in the
comparable 1995 period. The decrease in the expense in the 1996 quarter was
attributable to additional interest income earned in the third quarter of 1996.
The increase in the expense for the three quarters ended October 6,
12
<PAGE>
1996 was due to additional interest expense incurred in 1996 resulting from the
Liquid Yield Option Notes being outstanding for the entire period in 1996 versus
only a portion of the year in 1995.
INCOME TAXES
The provision for income taxes for 1996 is based upon the Company's and ENBC's
anticipated tax rates.
MINORITY INTEREST
The minority interest in the earnings of subsidiary of $2.0 million for the
quarter and $3.0 million for the three quarters ended October 6, 1996,
represents the minority ownership interest in the earnings of ENBC.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company's and ENBC's principal capital requirements relate to
establishing brand awareness and leadership by providing partial financing to
area developers for their use in rapid store development and to finance their
working capital needs. As of October 6, 1996, the Company had secured loan
commitments to its Boston Market financed area developers aggregating
approximately $761.4 million, of which approximately $590.7 million had been
advanced. As of October 6, 1996, ENBC had secured loan commitments to its
area developers aggregating approximately $210.8 million, of which
approximately $100.7 million had been advanced.
As a result of executing the rapid expansion strategy required by the Company,
Boston Market area developers have incurred net losses in each of the last three
years. The losses incurred over this three year period, aggregating $149.1
million in 1995, $47.0 million in 1994, and $9.8 million in 1993, include (a)
depreciation and amortization charges of approximately $49 million, (b)
approximately $86 million attributable to development overhead, scale
inefficiencies in operating overhead, and other start-up costs which the Company
believes are necessary to establish the Boston Market brand in new territories
and open stores at a rate sufficient to gain a competitive advantage over
similar concepts, and (c) royalties, interest, and other franchise-related fees
that would no longer be incurred in the event the Company were to acquire, or
convert its convertible secured loans, to such financed area developers. As a
result of the foregoing factors, as well as ongoing improvements to store
operating performance, the Company does not consider these start-up losses to be
a meaningful financial measure during this rapid expansion phase (i.e. that
period during which new stores constitute a significant percentage of stores
open in an area of dominant influence). The Company believes the rapid expansion
phase for most of its developers should last approximately four to five years
from the time significant development commences in such area developer's area of
dominant influence. As the rapid expansion phase ends, the size of the area
developer's store base should enable the developer to gradually reduce and
eventually recover such start-up losses. The reduction in and recovery of losses
is expected to be driven primarily by lower development overhead, increased
operational and advertising efficiencies, greater economies of scale, and
further increases in store revenue through continued product and service
enhancements. The point at which losses may be recovered will vary by area
developer depending primarily upon the size and timing of the area developer's
store development schedule, the achievement of advertising efficiency, the level
of interest charges, the intensity of regional competition, and the quality of
management, however, there can be no assurance that such losses will be
recovered. Because the financed area developers are generally two to three years
into significant store development in their respective areas of dominant
influence, the Company believes substantially all of its financed area
developers will remain in the rapid expansion phase during 1996 in most of their
areas of dominant influence and the Company, accordingly, anticipates that such
financed area developers will continue to incur start-up losses in 1996.
Subsequent to the completion of the rapid expansion phase, the Company expects
area developer profitability to be a more meaningful factor in assessing loan
recoverability and any future loan commitments. Although the Company believes
its current financed area developers will achieve such profitability, in the
event the foregoing strategy does not come to fruition or an area developer
otherwise fails to achieve a sufficient level of profitability subsequent to its
rapid expansion phase, such event could have a material adverse impact on the
Company's
13
<PAGE>
financial position and results of operations. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 10.
ENBC's area developers are pursuing a similar rapid expansion strategy and the
Company believes such area developers will also incur net losses during their
rapid expansion phase. The Company also believes however, that the foregoing
factors applicable to start-up losses and recovery will apply to ENBC area
developers as well. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON
PAGE 10.
Pursuant to the terms of the loan agreement with its area developers, the
Company may convert all or any portion of the convertible loan amount into
equity of the area developer after a moratorium period, provided generally the
area developer has completed not less than 80% of its area development
commitment or in the event of certain defaults. Any determination to convert any
area developer loan or otherwise acquire an equity interest would involve a
variety of economic and operational considerations, including the projected
financial impact of converting the loan, the status of the area developer's
market penetration, the performance of the area developer's stores, the
Company's desire to own such stores and the willingness of the Company to incur
the risk of owning stores versus receiving income as a franchisor, lender and
service provider, the Company's ability to manage such stores if necessary, the
future capital requirements of the area developer and its ability to raise such
capital, and the demand on Company resources. Any such conversion could occur in
conjunction with combinations of existing area developers with one another or
otherwise. In addition, any loan conversion or other acquisition of an equity
interest in an area developer by the Company would not be indicative of whether
the Company intended to, or would, convert or otherwise acquire an equity
interest in any other area developer. Upon conversion, the Company would
typically become majority equity owner of the area developer, resulting in the
Company consolidating the area developer's operations in its financial
statements. Consequently, the franchise and related fees earned by the Company
(including interest, royalties, real estate related, software, and other fees)
from such an area developer would be eliminated in consolidation. The operating
results of the area developer (primarily store revenue, less expenses) would be
included in the Company's financial results. Such results would be adjusted for
any remaining minority interest in such area developer not acquired by the
Company.
Capital Resources. For the three quarters ended October 6, 1996, the Company
generated approximately $49.0 million of cash from operating activities and
$170.7 million from the issuance of shares of common stock. In August 1996,
ENBC completed an initial public offering and other financings which in the
aggregate raised net proceeds of $86.0 million, including an investment by the
Company of $31.6 million. Of such net proceeds, approximately $45.0 million was
used to repay the balance outstanding under its bank revolving credit facility.
As of October 6, 1996, the Company had $59.4 million available in cash and cash
equivalents and $108.3 million available under its revolving credit facilities.
The Company anticipates that it, ENBC, and their respective area developers
will have need for additional financing dependent primarily on the number of
stores opened, the cost of such stores, and store operating results. The
Company's capital requirements depend primarily on the amount and timing of
borrowings under the loan agreements between the Company and its area developers
and the Company and ENBC. The Company, ENBC, and their respective area
developers, may seek additional funds from public or private offerings of debt
or equity securities. There can be no assurance that the Company, ENBC, or their
area developers will be able to raise such funds on satisfactory terms when
needed. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 10.
14
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Pursuant to a warrant purchase agreement dated July 18, 1996, the
Company issued and sold from September 27, 1996 until October 6, 1996
warrants to purchase an aggregate of 750,000 shares of common stock to
certain area developers of the Company at an exercise price of $25.00
per share. The aggregate cash purchase price for the warrants was
$7,327,500. Such warrants were sold without registration under
the Securities Act of 1933, as amended ("Securities Act") in
reliance on Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits: See Exhibit Index appearing elsewhere herein, which is
incorporated herein by reference.
B. Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended October 6, 1996. A Form 8-K/A supplementing the Company's
Form 8-K dated June 17, 1996 was filed on August 28, 1996. Such Form 8-
K/A updated information under Item 2 (Acquisition or Disposition of
Assets) and included under Item 7 (Exhibits) financial statements of
Einstein/Noah Bagel Corp. ("ENBC"), pro forma condensed consolidated
financial statements of the Company and Subsidiaries, excerpts from
ENBC's Registration Statement on Form S-1 (Reg. No. 333-04725), and a
consent of auditors.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOSTON CHICKEN, INC.
Date: November 19, 1996 /s/ Scott A. Beck
-------------------------------------
Scott A. Beck
Co-Chairman of the Board and Chief
Executive Officer
Date: November 19, 1996 /s/ Mark W. Stephens
-------------------------------------
Mark W. Stephens
Vice Chairman and Chief Financial
Officer (Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- -------
<S> <C>
4.1 Warrant Purchase Agreement dated July 18, 1996 by and between the Company
and Market Partners, L.L.C. ("Market Partners"), including the form of
Warrant ("Warrant Purchase Agreement") (incorporated by reference to
Exhibit 4.17 to the Company's Registration Statement on Form S-8
(Registration No. 333-15389)).
4.2 Registration Rights Agreement dated September 27, 1996 by and between the
Company and Market Partners (incorporated by reference to Exhibit 4.18
to the Company's Registration Statement on Form S-8 (Registration No.
333-15389)).
10.1 Warrant Purchase Agreement (included in Exhibit 4.1).
10.2 Second Amendment to the Amended and Restated Loan Agreement between the
Company and Einstein/Noah Bagel Corp. ("ENBC") dated September 16, 1996
and Second Amendment to Secured Demand Note of ENBC dated September 16,
1996 (incorporated by reference to Exhibit 10.1(c) to ENBC's Registration
Statement on Form S-1 (Registration No. 333-12395)).
10.3 First Amendment and Waiver dated August 27, 1996 to Secured Credit
Agreement dated as of May 17, 1996 among ENBC, the Lenders named therein,
and Bank of America Illinois, as Agent (incorporated by reference to
Exhibit 10.9(b) to ENBC's Registration Statement on Form S-1 (Registration
No. 333-12395)).
10.4 Fourteenth Amendment dated July 12, 1996 to Amended and Restated Credit
Agreement dated as of May 18, 1994 among the Company, the Lenders named
therein, and Bank of America Illinois, as Agent (incorporated by reference
to Exhibit 4.4(o) to the Company's Registration Statement on Form S-8
(Registration No. 333-15389)).
10.5 Option Agreement dated August 27, 1996 among the Company, Harlan Bagel
Supply Company, L.L.C., and Hal P. Harlan, Hugh P. Harlan, and Doug H.
Harlan (the "Harlans") (incorporated by reference to Exhibit 10.25 ENBC's
Registration Statement on Form S-1 (Registration No. 333-12395)).
10.6 Right of First Refusal Agreement among the Company, Harlan Bakeries, Inc.
and the Harlans (incorporated by reference to Exhibit 10.26 to ENBC's
Registration Statement on Form S-1 (Registration No. 333-12395)).
10.7 Option Agreement between the Company and Saad J. Nadhir Dated as of
July 25, 1996.
10.8 Option Agreement between the Company and John Todd dated as of July 29,
1996.
10.9 Letter Agreement between the Company and Jeffry J. Shearer dated as of
August 19, 1996. </TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.10 Fourth Amended and Restated Limited Liability Company Agreement of
Bagel Store Development Funding, L.L.C. dated as of July 1, 1996
(incorporated by reference to Exhibit 10.28 to ENBC's Registration
Statement on Form S-1 (Registration No. 333-12395)).
10.11 Form of Warrant Purchase Agreement between the Company, Market Partners
and certain area developers of the Company, including the form of
Warrant issued by each such area developer to Market Partners.
11 Statement re Computation of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
In the case of incorporation by reference to documents filed by ENBC, ENBC's
file number under that Act is 0-21097.
Exhibit - 1
<PAGE>
Exhibit 10.7
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made as of this 25th day of
July, 1996, between Boston Chicken, Inc., a Delaware corporation ("BCI") and
Saad J. Nadhir ("Grantee").
1. GRANT OF OPTION. Subject to the terms and conditions of this
Agreement, BCI hereby grants to Grantee the right and option (the "Option") to
purchase from BCI 156,740 shares of common stock, $.01 par value per share, of
Einstein/Noah Bagel Corp. ("ENBC") (the "Option Shares"), which number of Option
Shares may be adjusted pursuant to Section 9 below.
2. EXERCISE PRICE. The purchase price for each Option Share shall be
$6.38 per share (the "Exercise Price").
3. VESTING. Subject to termination or acceleration of the Option as
provided herein, the Option may be exercised, at any time and from time to time
on or after July 25, 1997 but such Option shall not be exercisable for more than
a percentage of the aggregate number of Option Shares in accordance with the
following schedule:
Cumulative
Date Percentage
---- ----------
On or after July 25, 1997 to July 24, 1998 up to 10%
July 25, 1998 to July 24, 1999 up to 30%
July 25, 1999 to July 24, 2000 up to 60%
July 25, 2000 to July 25, 2001 up to 100%
4. PROCEDURE FOR EXERCISE. If Grantee elects to exercise the Option,
Grantee shall deliver to BCI: (i) a notice of exercise (the "Exercise Notice")
in the form set forth on Exhibit A attached hereto, and (ii) full payment of the
Exercise Price for the Option Shares to be purchased. The date on which the
Exercise Notice and the Exercise Price for the Option Shares to be purchased are
received by BCI is referred to herein as the "Exercise Date." As soon as
practicable after the Exercise Date, BCI will deliver to Grantee one or more
properly executed ENBC stock certificates, in the name of Grantee, evidencing
the Option Shares so purchased, subject to appropriate restrictive legends.
5. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be paid by
Grantee by delivery of a certified check drawn on any state or national bank or
savings and loan association.
6. PARTIAL EXERCISE. One or more partial exercises of the Option shall
be permitted from time to time.
<PAGE>
7. EXPIRATION. The Option and this Agreement shall expire and become void
upon the earlier of five (5) years from the date hereof or upon the termination
of Grantee's employment with BCI, regardless of the cause for such termination;
provided, however, that the Option and this Agreement shall not terminate and
the Option shall accelerate and immediately become 100% vested in the event of
Grantee's death or permanent disability during his employment with BCI.
8. RESTRICTIONS ON OPTION AND OPTION SHARES. The Option shall be
exercisable only by Grantee. The Option may not be sold, pledged, assigned or
otherwise transferred without the prior written consent of BCI in its sole
discretion. Any purported transfer or transaction in violation of this Section
8. shall be null and void ab initio.
9. ADJUSTMENTS. In the event of any change in the number of shares of
common stock of ENBC outstanding by reason of any stock split, stock dividend,
split-up, split-off, spin-off, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, sale by ENBC of all or part
of its assets, distribution to shareholders of ENBC other than a normal cash
dividend, or other extraordinary or unusual event occurring after the date
hereof and prior to exercise of the Option in full, the number and kind of
shares of common stock of ENBC or other property for which the Option may then
be exercised and the Exercise Price per Option Share shall be adjusted so as to
reflect such change.
10. NO RIGHTS AS A STOCKHOLDER. Unless and until a certificate or
certificates representing such Option Shares of common stock of ENBC shall have
been issued to Grantee, Grantee shall not be or have any of the rights or
privileges of a stockholder of ENBC with respect to shares of common stock of
ENBC acquirable upon exercise of the Option.
11. TAX WITHHOLDING. As a condition to any exercise of the Option, BCI
shall require Grantee to deposit with BCI such federal and state income,
employment and other taxes, if any, as may be required to be withheld under
applicable law. Such withholding shall be paid in cash.
12. TAX CONSEQUENCES. Grantee is solely responsible for learning,
understanding, and accepting the tax consequences to him of the receipt and
exercise of the Option and the disposition of the Option Shares.
13. INVESTMENT REPRESENTATIONS. Grantee, as a condition to this Agreement
and the exercise of the Option, represents and warrants that the Option and the
Option Shares have been and will be acquired for its own account and not with a
view to the resale or other distribution thereof. Grantee further represents
that he is an accredited investor within the meaning of Regulation D under the
Securities Act of 1933, as amended, that he has made all inquires concerning the
Option and the Option Shares, he deems appropriate, and has received
satisfactory responses to such inquires. Grantee understands that the Option and
the Option Shares have not been and will not be registered under the Securities
Act of 1933 and, therefore, cannot be sold or transferred unless either they are
subsequently registered under such Act (as
2
<PAGE>
well as under any applicable state securities laws) or an exemption from such
registration is available.
14. GOVERNING LAW. THE PARTIES INTEND THIS AGREEMENT TO BE GOVERNED BY THE
LAWS OF THE STATE OF COLORADO. If the scope of any provision contained herein is
too broad to permit enforcement of such provision to its full extent, then such
provision shall be enforced to the maximum extent permitted by law. If any
provision of this Agreement shall be construed to be illegal or invalid, the
legality or validity of any other provision hereof shall not be affected
thereby, and any illegal or invalid provision of this Agreement shall be
severable, and all other provisions shall remain in full force and effect.
15. AMENDMENT. This Agreement, and each section hereof, may be amended
only in writing, signed by the party against whom enforcement of any such
amended provision is sought.
16. HEADINGS. Any headings of sections of this Agreement are solely for
the convenience of the parties and are not a part of this Agreement nor are they
to be used in its interpretation.
17. COUNTERPARTS. This Agreement may be executed in several counterparts;
each such counterpart shall be considered as an original agreement and all such
executed counterparts shall constitute an Agreement.
18. NOTICES. Any notice, request, instruction, or other document required
to be given under this Agreement by either party to the other shall be in
writing and delivered in person or by courier, or by facsimile transmission or
mailed by certified mail, postage prepaid, return receipt requested (such mailed
notice to be effective on the date such receipt is acknowledged) as follows:
To BCI:
General Counsel
Boston Chicken, Inc.
14103 Denver West Parkway
Golden, Colorado 80401
Facsimile: (303) 384-5339
To Grantee:
Saad J. Nadhir
14103 Denver West Parkway
Golden, Colorado 80401
Facsimile: (303) 384-5335
3
<PAGE>
Notices sent for next day delivery by Federal Express or other reliable courier
shall be deemed given the next business day after sending, notices transmitted
by fax or personally delivered shall be deemed given when so transmitted or
delivered, respectively, and notices sent by certified or registered mail shall
be deemed given on the fifth business day after sending.
19. SUCCESSORS. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors.
20. ENTIRE AGREEMENT. This Agreement and exhibits hereto contain the
entire agreement of the parties hereto with respect to the transactions and
relationships contemplated herein, and supersedes all prior understandings and
agreements of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BOSTON CHICKEN, INC.
By: /s/ Donald J. Bingle /s/ Saad J. Nadhir
----------------------------- -----------------------------------
Title: Vice President Saad J. Nadhir
-------------------------
4
<PAGE>
EXHIBIT A
---------
EXERCISE NOTICE
-----------------------
Date
Boston Chicken, Inc.
14103 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Dear Sir:
I wish to exercise the option granted on ________________, 1996 and
evidenced by that Option Agreement dated ___________________, 1996 to the extent
of ______________ shares of the common stock of Einstein/Noah Bagel Corp., at
the option price of $6.38 per share. My check in the amount of
$________________ in payment of the entire purchase price and tax withholding
for these shares accompanies this letter.
Please issue a certificate for these shares in the following name:
-----------------------------
Name
-----------------------------
Street Address
-----------------------------
City/State/Zip
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Typed or Printed Name
--------------------------------------
Social Security Number
<PAGE>
Exhibit 10.8
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made as of this 29th day of
July, 1996, between Boston Chicken, Inc., a Delaware corporation ("BCI") and
John Todd ("Grantee").
1. GRANT OF OPTION. Subject to the terms and conditions of this
Agreement, BCI hereby grants to Grantee the right and option (the "Option") to
purchase from BCI 19,593 shares of common stock, $.01 par value per share, of
Einstein/Noah Bagel Corp. ("ENBC") (the "Option Shares"), which number of Option
Shares may be adjusted pursuant to Section 9 below.
2. EXERCISE PRICE. The purchase price for each Option Share shall be
$6.38 per share (the "Exercise Price").
3. VESTING. Subject to termination or acceleration of the Option as
provided herein, the Option may be exercised, at any time and from time to time
on or after July 29, 1997 but such Option shall not be exercisable for more than
a percentage of the aggregate number of Option Shares in accordance with the
following schedule:
Cumulative
Date Percentage
---- ----------
On or after July 29, 1997 to July 28, 1998 up to 10%
July 29, 1998 to July 28, 1999 up to 30%
July 29, 1999 to July 28, 2000 up to 60%
July 29, 2000 to July 28, 2001 up to 100%
4. PROCEDURE FOR EXERCISE. If Grantee elects to exercise the Option,
Grantee shall deliver to BCI: (i) a notice of exercise (the "Exercise Notice")
in the form set forth on Exhibit A attached hereto, and (ii) full payment of the
Exercise Price for the Option Shares to be purchased. The date on which the
Exercise Notice and the Exercise Price for the Option Shares to be purchased are
received by BCI is referred to herein as the "Exercise Date." As soon as
practicable after the Exercise Date, BCI will deliver to Grantee one or more
properly executed ENBC stock certificates, in the name of Grantee, evidencing
the Option Shares so purchased, subject to appropriate restrictive legends.
5. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be paid by
Grantee by delivery of a certified check drawn on any state or national bank or
savings and loan association.
6. PARTIAL EXERCISE. One or more partial exercises of the Option shall
be permitted from time to time.
<PAGE>
7. EXPIRATION. The Option and this Agreement shall expire and become void
upon the earlier of five (5) years from the date hereof or upon the termination
of Grantee's employment with BCI, regardless of the cause for such termination;
provided, however, that the Option and this Agreement shall not terminate and
the Option shall accelerate and immediately become 100% vested in the event of
Grantee's death or permanent disability during his employment with BCI.
8. RESTRICTIONS ON OPTION AND OPTION SHARES. The Option shall be
exercisable only by Grantee. The Option may not be sold, pledged, assigned or
otherwise transferred without the prior written consent of BCI in its sole
discretion. Any purported transfer or transaction in violation of this Section
8. shall be null and void ab initio.
9. ADJUSTMENTS. In the event of any change in the number of shares of
common stock of ENBC outstanding by reason of any stock split, stock dividend,
split-up, split-off, spin-off, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, sale by ENBC of all or part
of its assets, distribution to shareholders of ENBC other than a normal cash
dividend, or other extraordinary or unusual event occurring after the date
hereof and prior to exercise of the Option in full, the number and kind of
shares of common stock of ENBC or other property for which the Option may then
be exercised and the Exercise Price per Option Share shall be adjusted so as to
reflect such change.
10. NO RIGHTS AS A STOCKHOLDER. Unless and until a certificate or
certificates representing such Option Shares of common stock of ENBC shall have
been issued to Grantee, Grantee shall not be or have any of the rights or
privileges of a stockholder of ENBC with respect to shares of common stock of
ENBC acquirable upon exercise of the Option.
11. TAX WITHHOLDING. As a condition to any exercise of the Option, BCI
shall require Grantee to deposit with BCI such federal and state income,
employment and other taxes, if any, as may be required to be withheld under
applicable law. Such withholding shall be paid in cash.
12. TAX CONSEQUENCES. Grantee is solely responsible for learning,
understanding, and accepting the tax consequences to him of the receipt and
exercise of the Option and the disposition of the Option Shares.
13. INVESTMENT REPRESENTATIONS. Grantee, as a condition to this Agreement
and the exercise of the Option, represents and warrants that the Option and the
Option Shares have been and will be acquired for its own account and not with a
view to the resale or other distribution thereof. Grantee further represents
that he is an accredited investor within the meaning of Regulation D under the
Securities Act of 1933, as amended, that he has made all inquires concerning the
Option and the Option Shares, he deems appropriate, and has received
satisfactory responses to such inquires. Grantee understands that the Option and
the Option Shares have not been and will not be registered under the Securities
Act of 1933 and, therefore, cannot be sold or transferred unless either they are
subsequently registered under such Act (as
2
<PAGE>
well as under any applicable state securities laws) or an exemption from such
registration is available.
14. GOVERNING LAW. THE PARTIES INTEND THIS AGREEMENT TO BE GOVERNED BY
THE LAWS OF THE STATE OF COLORADO. If the scope of any provision contained
herein is too broad to permit enforcement of such provision to its full extent,
then such provision shall be enforced to the maximum extent permitted by law. If
any provision of this Agreement shall be construed to be illegal or invalid, the
legality or validity of any other provision hereof shall not be affected
thereby, and any illegal or invalid provision of this Agreement shall be
severable, and all other provisions shall remain in full force and effect.
15. AMENDMENT. This Agreement, and each section hereof, may be amended
only in writing, signed by the party against whom enforcement of any such
amended provision is sought.
16. HEADINGS. Any headings of sections of this Agreement are solely for
the convenience of the parties and are not a part of this Agreement nor are they
to be used in its interpretation.
17. COUNTERPARTS. This Agreement may be executed in several counterparts;
each such counterpart shall be considered as an original agreement and all such
executed counterparts shall constitute an Agreement.
18. NOTICES. Any notice, request, instruction, or other document required
to be given under this Agreement by either party to the other shall be in
writing and delivered in person or by courier, or by facsimile transmission or
mailed by certified mail, postage prepaid, return receipt requested (such mailed
notice to be effective on the date such receipt is acknowledged) as follows:
To BCI:
General Counsel
Boston Chicken, Inc.
14103 Denver West Parkway
Golden, Colorado 80401
Facsimile: (303) 384-5339
To Grantee:
John Todd
14103 Denver West Parkway
Golden, Colorado 80401
Facsimile: (303) 384-5335
3
<PAGE>
Notices sent for next day delivery by Federal Express or other reliable courier
shall be deemed given the next business day after sending, notices transmitted
by fax or personally delivered shall be deemed given when so transmitted or
delivered, respectively, and notices sent by certified or registered mail shall
be deemed given on the fifth business day after sending.
19. SUCCESSORS. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors.
20. ENTIRE AGREEMENT. This Agreement and exhibits hereto contain the
entire agreement of the parties hereto with respect to the transactions and
relationships contemplated herein, and supersedes all prior understandings and
agreements of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BOSTON CHICKEN, INC.
By: /s/ DONALD J. BINGLE /s/ JOHN TODD
----------------------- --------------------------
Title: Vice President JOHN TODD
--------------------
4
<PAGE>
EXHIBIT A
---------
EXERCISE NOTICE
-------------------------
Date
Boston Chicken, Inc.
14103 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Dear Sir:
I wish to exercise the option granted on ________________, 1996 and
evidenced by that Option Agreement dated ___________________, 1996 to the extent
of ______________ shares of the common stock of Einstein/Noah Bagel Corp., at
the option price of $6.38 per share. My check in the amount of $___________ in
payment of the entire purchase price and tax withholding for these shares
accompanies this letter.
Please issue a certificate for these shares in the following name:
----------------------------------------
Name
-----------------------------------------
Street Address
------------------------------------------
City/State/Zip
Very truly yours,
------------------------------------
Signature
------------------------------------
Typed or Printed Name
------------------------------------
Social Security Number
<PAGE>
Exhibit 10.9
[LOGO OF BOSTON CHICKEN] [LETTERHEAD OF BOSTON CHICKEN]
August 19, 1996
Jeffry J. Shearer
120 East Delaware Place #3025
Chicago, IL 60611
Dear Jeff:
Effective August 19, 1996 your employment with Boston Chicken, Inc. (the
"Company") terminated. While you were employed with the Company you received
stock options to purchase common stock of the Company pursuant to and in
accordance with the Company's Amended and Restated 1991 Employee Stock Option
Plan and 1995 Employee Stock Option Plan (together, the "Plans"). Details on the
options remaining for exercise, the exercise price and vesting of your options
are set forth on Exhibit A to this letter.
The terms of the Plans provide that, upon the termination of your
employment with the Company, your options (vested and unvested) expire and all
rights to purchase shares pursuant thereto terminate immediately. However, in
recognition of your hard work for and dedication to the Company, the Stock
Option Committee of the Board of Directors of the Company ("Committee") has
agreed to continue the vesting of your options and exercisability of vested
options until the earlier of thirty days after written notice, if any, to you of
the Company's intention to cease such vesting or September 30, 2000.
Finally, in partial consideration for the Committee continuing the vesting
of your options, we are requiring you to execute the release attached hereto as
Exhibit B.
<PAGE>
Please execute and return to me the enclosed copy of this letter and the
release. If you have any questions about your options, please do not hesitate to
call me at 303-384-5476.
Very truly yours,
/s/ Donald J. Bingle
----------------------
Donald J. Bingle
Vice President and
General Counsel
enclosures
ACKNOWLEDGED
/s/ Jeffry J. Shearer
- ------------------------
Jeffry J. Shearer
Date: 8/19/96
------------------
<PAGE>
EXHIBIT A
<PAGE>
Jeffry Shearer
J. Shearer C/O Trinue
4770 Baseline Rd 380
Boulder, CO 80303
Boston Chicken, Inc. Run Date 09/19/96
As of 09/19/96 Page No. 1
<TABLE>
<CAPTION>
Date of Options Options Option Date of Availability
Grant Type of Grant Granted Outst. Price Expir. Options Vested For Exercise
- -------- ------------- ------- ------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/30/92 308,572 308,572 $1.4584 01/30/02 308,572 (CURRENT) 308,572
03/04/92 240,000 240,000 $1.4584 03/04/02 240,000 (CURRENT) 240,000
01/15/93 112,500 112,500 $3.3334 01/15/03 67,500 (CURRENT) 67,500
45,000 ON 01/15/97
01/03/94 25,000 25,000 $18.0000 01/03/04 7,500 (CURRENT) 7,500
7,500 on 01/03/97
10,000 on 01/03/98
12/02/94 30,252 30,252 $14.8750 12/02/04 3,025 (CURRENT) 3,025
6,050 on 12/02/96
9,076 on 12/02/97
12,101 on 12/02/98
12/21/95 19,355 19,355 $31.0000 12/21/05 0 (CURRENT) 0
1,935 on 12/21/96
3,871 on 12/21/97
5,806 on 12/21/98
7,743 on 12/21/99
07/16/96 11,823 11,823 $25.3750 07/16/06 0 (CURRENT) 0
1,182 on 07/16/97
2,364 on 07/16/98
3,547 on 07/16/99
4,730 on 07/16/00
------- -------
Shares 747,502 747,502
</TABLE>
This summary supercedes any and all summaries previously delivered, is for
informational purposes only, and does not create any entitlement, ownership, or
other right to options or shares of Boston Chicken, Inc. regardless of whether
options or shares are listed above. Options may only be granted in accordance
with the Company's Employee Stock Option Plan, the Company's Stock Option Plan
for Non-Employee Directors, or action of the Company's Board of Directors or
other appropriate body are subject to the terms, vesting schedule, and
conditions of such plan or grant.
<PAGE>
EXHIBIT B
<PAGE>
RELEASE
I, Jeffry J. Shearer, am giving this release to Boston Chicken, Inc. (the
"Company") in partial consideration of the continued vesting of options granted
to me by the Company.
In exchange for this and other valuable consideration, I hereby agree to release
the Company, its parents, subsidiaries, and affiliated organizations, if any,
and their respective past, present, and future directors, officers, agents,
attorneys, franchisees, and employees (collectively referred to as the
"Company") from any and all claims, liabilities, demands, and causes of action
of any nature or type whatsoever which I or any of my heirs or personal
representatives may have, either now or at any time before now, against the
Company based on any action, inaction, fact, occurrence, cause, or matter
whatsoever, including but not limited to: any judicial, quasi-judicial, or
administrative action relating to my employment or termination of my employment
or arising under the Age Discrimination in Employment Act, Title VII of the
Civil Rights Act of 1964, the Employee Retirement Income Security Act, the Fair
Labor Standards Act, the Illinois Human Rights Act, the Massachusetts Fair
Employment Practice Law or other similar applicable federal, state, or local
statute; my service as an employee of the Company; or otherwise; provided,
however, this release shall not affect (i) the Company's indemnification
obligations to me, if any, that currently exist or may subsequently arise as
provided for by the Company's Certificate of Incorporation and Bylaws, each as
amended, in connection with my service to the Company in my capacity as a
director or officer, and (ii) my rights to recovery under any applicable
directors and officers policy of insurance in connection with my service to the
Company in my capacity as a director or officer.
I acknowledge that before signing this Release the Company has advised me in
writing to consult with an attorney before signing this Release.
Before signing this Release, I acknowledge that I am being given at least 21
days within which to consider the Release.
This Release may be revoked by me within seven (7) days following my signing of
this Release if, within (7) days following my signing I serve a written note of
revocation to the General Counsel of Boston Chicken, Inc. at 14103 Denver West
Parkway, Golden, CO 80401. The terms of that letter agreement between me and the
Company dated as of June 2, 1996, and this Release shall not become binding and
enforceable until the seven (7) day revocation period has expired.
Signed: /s/ Jeffry J. Shearer
--------------------------------
Jeffry J. Shearer
Date Signed: 8/19/96
---------------------------
<PAGE>
Exhibit 10.11
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (the "Agreement") is made and entered into
as of this ___ day of October, 1996 by and between [Name of Financed Area
Developer] a Delaware [limited liability company/limited partnership] (the
"Company"), Market Partners, L.L.C., a Delaware limited liability company
("Market Partners"), and for purposes of the covenants contained in Section 7
only, Boston Chicken, Inc., a Delaware corporation ("BCI").
RECITALS
The Company desires to sell to Market Partners, and Market Partners
desires to purchase from the Company, on the terms and conditions hereinafter
set forth, a warrant to purchase [Common Membership Units/Common Limited
Partnership Units] ("Common Units") of the Company.
COVENANTS
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained, the parties hereto agree as
follows:
1.0 PURCHASE AND SALE OF WARRANT
1.1 The Company agrees to sell, transfer, assign and deliver to
Market Partners at the Closing (as defined herein), and Market Partners agrees
to purchase and accept from the Company, on the terms and subject to the
conditions set forth in this Agreement, a warrant (the "Warrant") to purchase
Common Units of the Company, upon the terms and conditions set forth in the
Warrant. The Common Units purchasable upon exercise of the Warrant are
hereinafter referred to as the "Warrant Units". The Warrant will be in the form
attached as Exhibit A hereto.
1.2 As consideration for the Warrant, Market Partners agrees, on
the terms and subject to the conditions set forth in this Agreement, to pay to
or for the account of the Company in cash an amount equal to $________* (the
"Purchase Price").
2.0 CLOSING
2.1 The closing of the purchase and sale of the Warrant shall
take place at the offices of Pedersen & Houpt, 161 North Clark Street, Suite
3100, Chicago, Illinois 60601-3224 at 10:00 A.M., local time, on October __,
1996, or at such other place or on such other date as may be mutually agreed by
the parties. Throughout this Agreement, such event is referred to as the
"Closing" and such date and time are referred to as the "Closing Date."
- -----------------------
* Appraised fair market value of the Warrant.
<PAGE>
2.2 At the Closing:
2.2.1 The Company shall deliver to Market Partners:
2.2.1.1 a duly executed Warrant;
2.2.1.2 a certificate of good standing of the Company,
certified as of a date not more than five business days prior to the
Closing Date by the Secretary of State of Delaware;
2.2.1.3 a certified copy of the [Certificate of
Formation]/[Certificate of Limited Partnership] of the Company,
certified as of a date not more than five business days prior to the
Closing Date by the Secretary of State of Delaware, and a certified
copy of the [Limited Liability Company Agreement]/[Agreement of
Limited Partnership] of the Company (the "Company Agreement"),
certified as of the Closing Date by an officer of the Company's
[manager]/ [general partner]; and
2.2.1.4 a certified copy of resolutions duly adopted by the
board of directors of the Company's [manager]/ [general partner] (i)
authorizing the issuance of the Warrant and (ii) authorizing the
execution, delivery and performance of this Agreement and any other
agreements contemplated hereby.
2.2.2 Market Partners shall pay to the Company the Purchase Price by
wire transfer of immediately available funds to an account designated by
the Company.
3.0 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Market Partners to enter into this Agreement and to
purchase the Warrant, the Company represents and warrants to Market Partners as
follows:
3.1 The Company is a [limited liability company/limited partnership]
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the requisite power and authority, and all
material licenses, permits and authorizations necessary, to own its property and
assets and to transact the business in which it is engaged or presently proposes
to engage. The Company is qualified to do business in all states except where
the failure to be qualified would not have a material adverse effect on the
business, financial condition, or results of operations of the Company.
2
<PAGE>
3.2 The Company has the power to execute, deliver, and perform
its obligations under the terms of this Agreement, and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the other agreements and transactions contemplated hereby. Each of this
Agreement and any other agreements contemplated hereby has been duly executed
and delivered by the Company and is a valid and legally binding obligation of
the Company, enforceable in accordance with its terms.
3.3 The Company's authorized equity securities consist of
[describe equity capitalization]. All of the issued and outstanding Common
Units and Preferred Units (as defined in the Company Agreement) of the Company
are validly authorized and issued in accordance with the terms of the Company
Agreement. Except for any provisions requiring redemption of the Company's
outstanding Preferred Units, the Company has no obligation to acquire any of its
issued and outstanding Common Units or Preferred Units or any other security
issued by it from any holder thereof.
3.4 The Company has taken, or will prior to the exercise of the
Warrant take, all necessary action to cause the Warrant Units, when issued upon
exercise of the Warrant, to be validly authorized and issued.
3.5 Neither the execution, delivery and performance of this
Agreement or the Warrant by the Company, nor the consummation by it of the
transactions contemplated hereby or thereby, will, to the best knowledge of the
Company, violate any applicable law or regulation, or any order, writ,
injunction, or decree of the United States or any court, arbitrator, or
governmental or regulatory official, body, subdivision, instrumentality, agency
or authority, whether federal, state or local ("Governmental Body"), or will
conflict or be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under, any
agreement to which the Company is a party or by which it is bound, or result in
the creation of any liens, claims, charges, security interests, restrictions on
transfer (other than restrictions under federal and state securities laws),
options, warrants voting trusts and any other encumbrances of any kind
whatsoever ("Encumbrances") upon any of the property or assets of the Company or
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under, the terms of any
license, permit, mortgage, deed of trust, lease, agreement or other instrument
to which the Company is a party or by which it is bound, or violate any of the
provisions of the [Certificate of Formation]/[Certificate of Limited
Partnership] or Company Agreement of the Company. No permit, consent, approval,
or authorization of, or declaration to or filing with, any Governmental Body or
any other person which has not already been obtained is necessary for the
execution and delivery by the Company of this Agreement or the Warrant or for
the consummation by the Company of the transactions contemplated hereby and
thereby.
3.6 The Company is not in material default under or in material
violation of any provision of any agreement to which it is a party. The Company
is in material compliance with all applicable laws and applicable regulations,
and all orders, writs, injunctions and decrees of all Governmental Bodies to
which it is subject or by which it is bound.
3
<PAGE>
3.7 There are no actions, suits, investigations or proceedings
pending or threatened against or affecting the Company or its assets by or
before any Governmental Body or any other tribunal that could have a material
adverse effect on the consummation of the transactions contemplated hereby.
3.8 The Company has no obligation to pay any fees or commissions
to any investment banker, broker, finder or agent with respect to the
transactions contemplated by this Agreement or by the Warrant.
4.0 REPRESENTATIONS AND WARRANTIES OF MARKET PARTNERS
In order to induce the Company to enter into this Agreement and to
sell the Warrant, Market Partners represents and warrants as follows:
4.1 Market Partners is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Market Partners has the power to execute, deliver and perform its
obligations under the terms of this Agreement, and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement.
4.2 This Agreement has been duly executed and delivered by
Market Partners and is a valid and legally binding obligation of Market
Partners, enforceable in accordance with its terms. Neither the execution and
delivery of this Agreement by Market Partners nor the consummation by it of the
transactions contemplated hereby, will violate any applicable law or regulation,
or any order, writ, injunction, or decree of any Governmental Body, or will
conflict or be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under, any
agreement to which Market Partners is a party or by which it is bound, or result
in the creation of any Encumbrance upon any of the property or assets of Market
Partners or result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, the terms
of any license, permit, mortgage, deed of trust, lease, agreement or other
instrument to which Market Partners is a party or by which it is bound, or
violate any of the provisions of the certificate of formation or limited
liability company agreement of Market Partners. No permit, consent, approval or
authorization of, or declaration to or filing with, any Governmental Body or any
other person is required in connection with the execution and delivery of this
Agreement by Market Partners and the consummation by it of the transactions
contemplated hereby.
4.3 Market Partners has no obligation to pay any fees or
commissions to any investment banker, broker, finder or agent with respect to
the transactions contemplated by this Agreement or by the Warrant.
4.4 Market Partners understands that neither the Warrant nor the
Warrant Units have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and, therefore, cannot be sold or transferred unless
either they are subsequently registered under such Act (as well as under any
applicable state securities laws) or an exemption from such registration is
available.
4
<PAGE>
4.5 Market Partners is an accredited investor within the meaning
of Regulation D under the Securities Act.
5.0 COVENANTS OF THE COMPANY
The Company covenants and agrees that so long as the Warrant (or any
portion thereof) is outstanding, it will perform and observe the following
covenants:
5.1 The Company shall, upon reasonable prior notice to the
Company, permit authorized representatives of Market Partners to visit and
inspect any of the properties of the Company including its books of account (and
to make copies thereof and take extracts therefrom at Market Partners' expense),
and to discuss the affairs, finances and accounts of the Company with its
officers, administrative employees and independent accountants.
5.2 The Company will continue its existence and use its
reasonable best efforts to keep in full force and effect all intangible property
rights used in the conduct of its business and to maintain all tangible
properties used in the conduct of its business in good repair, working order and
condition.
5.3 The Company will pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property before the same shall become in default, as well as all
lawful claims for labor, materials and supplies which, if not paid when due,
might become a lien or charge upon its property or any part thereof; provided,
however, that the Company shall not be required to pay or discharge any such
tax, assessment, charge, levy, or claim so long as the validity thereof is being
contested by the Company in good faith by appropriate proceedings and an
adequate reserve therefor has been established on its books. The Company will
use its reasonable best efforts to comply with all applicable laws and
regulations in the conduct of its business.
5.4 The Company will keep its insurable properties insured, upon
reasonable business terms, by financially sound and reputable insurers against
liability, and the perils of casualty, fire and extended coverage in amounts of
coverage sufficient, in the reasonable business judgment of the Company, to
protect the Company. The Company will also maintain with such insurers
insurance against other hazards and risks and liability to persons and property
which, in the reasonable business judgment of the Company, is customary in the
industry in which the Company operates for companies of comparable size.
5.5 At all times after the Company has filed a registration
statement with the Securities and Exchange Commission pursuant to the
requirements of either the Securities Act of 1933 or the Securities Exchange Act
of 1934, and such registration statement has become effective, the Company shall
file all reports required to be filed by it under the Securities Act of 1933 and
the Securities Exchange Act of 1934 and the rules and regulations adopted by the
Securities and Exchange Commission thereunder and shall take such further action
as any holder or holders of the Warrant Units may reasonably request, all to the
extent required to enable such holders to sell Warrant Units pursuant to Rule
144 adopted by the Securities and Exchange Commission under the Securities Act
(as such rule may be amended from time to time) or any
5
<PAGE>
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Warrant
Units a written statement as to whether it has complied with such requirements.
5.6 At the time of a Controlling Interest Acquisition (as
defined in the Warrant) of the Company, the Company shall provide Market
Partners with a calculation in reasonable detail of (i) the FAD Equity Value (as
defined in the Warrant) as of such time and (ii) the Specified Number of Common
Units and the Fully Diluted Common Units (as such terms are defined in the
Warrant) as of such time.
6.0 COVENANTS OF MARKET PARTNERS
6.1 Market Partners covenants and agrees that so long as it holds any
of the Warrants, and for a period of three years thereafter, it will hold in
confidence all financial and other information concerning the Company received
by it and will not, without the prior consent of the Company, disclose any of
such information to any other person. The preceding sentence shall not apply to
information which (i) is disclosed in a printed publication available to the
public, or is otherwise in the public domain through no act of Market Partners
or its members, managers, employees, agents or other person or entity which has
received such information from or through Market Partners or (ii) is required to
be disclosed by proper order of a court of applicable jurisdiction after
adequate notice to the Company sufficient to permit the Company to seek a
protective order therefor, the imposition of which protective order Market
Partners agrees to approve and support.
7.0 COVENANTS OF BCI AND THE COMPANY
Capitalized terms used in this Section 7.0 but not defined herein
have the respective meanings therefor set forth in the Warrant. If (but only if)
BCI shall not have exercised its Call Right (a "Non-Call") and the Warrant shall
have nonetheless been exercised by Market Partners, BCI and the Company agree
with Market Partners to observe the following covenants until such time as the
number of Stores whose results of operations have been included (actually or on
a pro forma basis) in the calculation of FAD Equity Value for Previously
Converted FADs first exceeds 1,500:
7.1 The Company will not (i) make any distribution of any kind
to BCI or any of its Subsidiaries in respect of any Common Unit beneficially
owned by BCI or any such Subsidiary (except distributions calculated with
respect to the payment of taxes under the terms of the Company Agreement as in
effect on the date hereof) or (ii) make any payment in respect of the principal
amount of any loan, intercompany transfer or advance or other obligation for
borrowed money owed by the Company to BCI or any such Subsidiary (any of the
foregoing, "Company Indebtedness"); provided that nothing in this Section 7.1
--------
shall be deemed to prohibit the Company from making any payment (except those
specifically set forth in clauses (i) and (ii) above) required to be made by the
Company to BCI or any of its Subsidiaries pursuant to any contract, agreement,
arrangement or understanding now or hereafter in effect between the Company and
BCI or any of its Subsidiaries, including without limitation the payment of any
fee, cost, expense, royalty, deposit, advertising contribution, software license
fee or interest
6
<PAGE>
payment relating to or arising out of any contract, agreement, arrangement or
understanding entered into in connection with the Company being a franchisee or
area developer of, or a borrower from, BCI or any of its Subsidiaries. BCI
agrees that any failure by the Company to make any payment on Company
Indebtedness in accordance with the provisions of this Section 7.1 shall not
constitute a default or event of default by the Company on such Company
Indebtedness.
7.2 If BCI offers to purchase any of the outstanding Common
Units or any other equity security ("Other Securities") exercisable or
exchangeable for or convertible into Common Units (other than Warrant Units)
(collectively, "Minority Securities"), it will at such time offer to purchase
all of the Warrant Units at a purchase price (the "Non-Call Purchase Price")
equal to the greater of (i) the sum of the BCI Call Right Exercise Price,
determined as if BCI's Call Right had been exercised on the date of such offer,
and the dollar amount of the aggregate Exercise Price deducted, as provided in
Section 6 of the Warrant, in connection with the calculation of the BCI Call
Right Exercise Price, and (ii) an amount equal to the product of the number of
Warrant Units and the purchase price offered by BCI for each Minority Security
(or if there is more than one such purchase price, the weighted average of the
purchase prices offered by BCI for Minority Securities), in the manner set forth
in Section 7.3. To the extent that the Minority Securities which BCI elects to
purchase include Other Securities, the purchase price offered by BCI used in the
calculation described in clause (ii) of the preceding sentence shall be
increased by the amount of the exercise, conversion or exchange price per Common
Unit payable to the Company upon the exercise, conversion or exchange of such
Other Securities by the holder thereof. To the extent that the purchase price
to be paid by BCI for Minority Securities is to be paid in shares of BCI Common
Stock not having a fixed dollar value, such shares shall be valued based on the
average of the BCI Closing Prices for the five Trading Days immediately prior to
the last Business Day before BCI's offer to purchase such Minority Securities.
To the extent that the purchase price to be paid by BCI for Minority Securities
includes securities (other than BCI Common Stock) or other property, such
securities or other property shall be valued as agreed between BCI and the
holder of the Warrant Units or if no such agreement can be reached, by an
investment banking firm chosen by BCI and reasonably acceptable to the holder of
the Warrant Units based on a valuation methodology deemed appropriate by such
investment banking firm.
7.3 At such time as BCI makes an offer to purchase any Minority
Securities, BCI shall contemporaneously deliver a written notice (the "Purchase
Notice") to the holder of the Warrant Units. The Purchase Notice will state (i)
BCI's bona fide intention to purchase the Minority Securities, (ii) a summary of
the terms and conditions of the contemplated purchase including the proposed
purchase price per Minority Security and the form of consideration to be paid in
connection with such purchase, and (iii) a calculation in reasonable detail of
the Non-Call Purchase Price. The holder of the Warrant Units may elect to sell
all of the Warrant Units by delivering a written notice (an "Election Notice")
to BCI within five Business Days after receipt of such Purchase Notice. If the
holder of the Warrant Units fails to deliver an Election Notice by the close of
business on the fifth Business Day after receipt of a Purchase Notice, it shall
be deemed to have elected not to sell the Warrant Units. The Non-Call Purchase
Price shall be payable in cash, or at BCI's option, in shares of BCI Common
Stock having a value, based on the average of the BCI Closing Prices for the
five Trading Days immediately prior to the last
7
<PAGE>
Business Day before the closing of the transaction contemplated by this Section
7.3, equal to such Non-Call Purchase Price. If BCI shall elect to deliver shares
of BCI Common Stock in lieu of cash, such shares shall have been (i) registered
pursuant to an effective registration statement under the Securities Act, and
(ii) listed on the principal national securities market or exchange on which
shares of BCI Common Stock are then listed or admitted for trading. The closing
of the purchase and sale of the Warrant Units shall take place at the offices of
BCI on the fifth Business Day following the delivery of the Election Notice. At
such closing, the holder shall deliver the Warrant Units, together with an
assignment thereof assigning the Warrant Units to BCI, and BCI shall deliver to
the holder of the Warrant Units the Non-Call Purchase Price in immediately
available funds or, if BCI shall have elected to deliver shares of BCI Common
Stock, certificates for such shares registered in the name of the Registered
Holder.
8.0 INDEMNIFICATION
8.1 The Company agrees to indemnify, defend and hold harmless
Market Partners and its managers, officers, employees and agents and, if
applicable, the directors, officers, employees and agents of its managers
(collectively, the "Market Partners Indemnified Persons"), from and against all
losses, claims, damages, liabilities, expenses (including reasonable legal fees
and expenses), judgments, fines, settlements and other amounts incurred or
suffered by Market Partners or Market Partners Indemnified Persons and arising
out of the inaccuracy of any of the representations and warranties made by the
Company in this Agreement or any breach by the Company of this Agreement.
Market Partners agrees that neither it nor Market Partners Indemnified Persons
shall seek against the Company or the Company Indemnified Persons (as defined
below), nor shall the Company or the Company Indemnified Persons be liable for,
any consequential, punitive, special or exemplary damages for any breach of this
Agreement or the agreements and transactions contemplated hereby.
8.2 Market Partners agrees to indemnify, defend and hold
harmless the Company and its managers or general partners, officers, directors,
employees and agents and, if applicable, the directors, officers, employees and
agents of its managers or general partners (the "Company Indemnified Persons")
from and against all losses, claims, damages, liabilities, expenses (including
reasonable legal fees and expenses), judgments, fines, settlements and other
amounts incurred or suffered by the Company or the Company Indemnified Persons
and arising out of the inaccuracy of any of the representations and warranties
made by Market Partners in this Agreement or any breach by Market Partners of
this Agreement. The Company agrees that neither it nor the Company Indemnified
Persons shall seek against Market Partners or Market Partners Indemnified
Persons, nor shall Market Partners or Market Partners Indemnified Persons be
liable for, any consequential, punitive, special or exemplary damages for any
breach of this agreement or the agreements and transactions contemplated hereby.
8.3 Any party entitled to indemnification hereunder will give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to
8
<PAGE>
the indemnified party. If such defense is assumed, the indemnifying party will
not be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of such counsel a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
9.0 MISCELLANEOUS
9.1 The representations, warranties, covenants and
indemnification agreements contained herein are continuing in nature and shall
survive the execution and delivery of this Agreement and the Closing, regardless
of any investigation made by or on behalf of any party to this Agreement.
9.2 The parties hereto may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
9.3 Each party to this Agreement shall pay all of the expenses
incurred by it in connection with this Agreement, including without limitation
its legal and accounting fees and expenses, and the commissions, fees and
expenses of any person employed or retained by it to bring about, or to
represent it in, the transactions contemplated hereby.
9.4 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
including in the case of Market Partners, any transferee of the Warrant which is
made in accordance with the terms of the Warrant.
9.5 This instrument and the form of Warrant contain the entire
agreement of the parties hereto with respect to the purchase of the Warrant, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof.
9.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.7 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
9
<PAGE>
9.8 All notices provided for in this Agreement shall be in
writing, duly signed by the party giving such notice, and shall be sent by
Federal Express or other reliable overnight courier, sent by fax or mailed by
registered or certified mail, return receipt requested, as follows:
If to the Company, addressed to such party at:
[Name of Financed Area Developer]
[Address]
Attention:
If to Market Partners, addressed to:
Market Partners, L.L.C.
14103 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401-4086
Attention: Manager
If to BCI, addressed to:
Boston Chicken, Inc.
14103 Denver West Parkway
P.O. Box 4086
Golden, Colorado 80401-4086
Attention: General Counsel
Each notice shall be deemed to have been given upon the earlier of the receipt
of such notice by the intended recipient thereof, two days after it is sent by
Federal Express or other reliable overnight courier or sent by fax, or five days
after it is mailed by registered or certified mail, return receipt requested.
9.9 This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed therein.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
[NAME OF FINANCED AREA DEVELOPER]
By:_______________________________
Name:_____________________________
Its:______________________________
MARKET PARTNERS, L.L.C.
By:
Name:_____________________________
Its: Manager
BOSTON CHICKEN, INC.
By:_______________________________
Name:_____________________________
Its:______________________________
11
<PAGE>
EXHIBIT A
THE SECURITY REPRESENTED BY THIS CERTIFICATE WAS ORIGINALLY ISSUED ON
OCTOBER __, 1996, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT. THE TRANSFER OF THE SECURITY
REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT TO CERTAIN OTHER
RESTRICTIONS DESCRIBED HEREIN.
[NAME OF FINANCED AREA DEVELOPER]
WARRANT CERTIFICATE TO PURCHASE
[COMMON MEMBERSHIP UNITS/COMMON LIMITED PARTNERSHIP UNITS]
Date of Issuance: October __, 1996 Certificate W-1
FOR VALUE RECEIVED, [Name of Financed Area Developer], a Delaware
[limited liability company/limited partnership] (the "Company"), hereby grants
to Market Partners, L.L.C., a Delaware limited liability company ("Market
Partners"), or its registered assigns (the "Registered Holder") the right to
purchase from the Company the Specified Number (as defined below) of Common
Units (as defined below) at the Exercise Price (as defined below) for each
Common Unit purchased.
This Warrant is subject to the following provisions:
SECTION 1. Defined Terms. The following terms used in this Warrant
-------------
shall have the following meanings (such meanings to be applicable to both the
singular and the plural forms of the terms defined):
1A. Accounting Period. "Accounting Period" means one of thirteen
-----------------
periods of four or five consecutive weeks in each year that is designated by BCI
from time to time as an accounting period.
1B. BCI. "BCI" means Boston Chicken, Inc., a Delaware corporation,
---
and its successors and assigns.
1C. BCI Call Right Exercise Price. "BCI Call Right Exercise Price"
-----------------------------
has the meaning set forth in Section 6 hereof.
1D. BCI Closing Price. "BCI Closing Price" means, for any Trading
-----------------
Day, (i) if the BCI Common Stock is authorized for quotation on the National
Association of Securities Dealers Inc.'s NASDAQ National Market System
("NASDAQ/NMS") or listed on a national securities exchange, the closing price,
regular way, of the BCI Common Stock on NASDAQ/NMS or such
<PAGE>
exchange, as the case may be, as reported in The Wall Street Journal (Western
Edition), or if no such reported sale of the BCI Common Stock shall have
occurred on such date, on the next preceding date on which there was such a
reported sale, or (ii) if the BCI Common Stock is not authorized for quotation
on NASDAQ/NMS or listed for trading on a national securities exchange, the
average of the closing bid and asked prices as reported by the National
Association of Securities Dealers Automated Quotation System or, if no such
prices shall have been so reported for such date, on the next preceding date for
which such prices were so reported. In the event that during any period with
respect to which BCI Closing Prices are being calculated for purposes of any
provision of this Warrant or the Warrant Purchase Agreement, there shall occur
any stock split, stock dividend, reverse stock split, recapitalization,
combination, exchange of shares, or other similar event affecting the BCI Common
Stock, then the BCI Closing Prices for such period shall be adjusted
appropriately so as to restore the Registered Holder and BCI to their respective
rights hereunder and under the Warrant Purchase Agreement.
1E. BCI Common Stock. "BCI Common Stock" means the common stock,
----------------
$.01 par value per share, of BCI or any other shares of capital stock of BCI
into which such stock shall be reclassified or changed.
1F. BCI EBITDA. "BCI EBITDA" means, with respect to BCI and for any
----------
period, the sum of (i) the Consolidated Net Income of BCI for such period after
excluding all items, to the extent taken into account in determining such
Consolidated Net Income, which are BCI Non-Recurring Items, plus (ii) all
----
amounts deducted in computing such Consolidated Net Income in respect of (a)
depreciation and amortization expense, (b) Consolidated Interest Expense and (c)
Federal and state income taxes, all as determined in conformity with GAAP.
1G. BCI EBITDA Multiple. "BCI EBITDA Multiple" means, as of any date
-------------------
of determination, the result (rounded to the nearest one-hundredth of a whole
number) obtained through application of the following formula:
(CP x AS) + IND - C
---------------------
BCI EBITDA
where
CP = the average of the BCI Closing Prices for the twenty (20)
Trading Days immediately preceding the second day prior to
the day upon which the Call Right has been validly
exercised by BCI in accordance with the terms of Section 6
hereof;
AS = the weighted average number of shares of BCI Common Stock
outstanding, as determined in conformity with GAAP, during
the 12-month period ending on the last day of BCI's
immediately preceding fiscal quarter prior to the exercise
of the Call Right (such 12-month period, the "Measuring
Period");
2
<PAGE>
IND = the aggregate amount of all Indebtedness of BCI and its
Subsidiaries that would be shown on a consolidated balance
sheet of BCI prepared in conformity with GAAP as at the end
of the Measuring Period;
C = the aggregate dollar amount of all cash and cash
equivalents of, and investments in the debt obligations of
other Persons maturing within 365 days of the date of
acquisition thereof by, BCI and its Subsidiaries that would
be shown on a consolidated balance sheet of BCI prepared in
conformity with GAAP as at the end of the Measuring Period;
and
BCI EBITDA = the BCI EBITDA for the Measuring Period.
1H. BCI Loan Agreement. "BCI Loan Agreement" means the [Amended and
------------------
Restated] Secured Loan Agreement dated as of ______ __, 199_ between BCI and the
Company, as such agreement may be amended or supplemented from time to time.
1I. BCI Non-Recurring Items. "BCI Non-Recurring Items" means the
-----------------------
following: (i) any item of gain, income, loss or expense which should be
classified as extraordinary in accordance with GAAP, (ii) any gain or loss
realized on the sale, exchange or other disposition of assets or securities
other than in the ordinary course of business (including any gain or loss
realized upon the sale of equity securities by a Subsidiary of BCI) and any gain
or loss from discontinued operations, (iii) the amount of any contribution by
BCI to its national advertising fund, (iv) the amount of any write-off or write-
down relating to the impairment of any asset or any write-up of any asset, and
(v) any other non-recurring, unusual or infrequent item of gain, income, loss or
expense as to which BCI and Market Partners may agree.
1J. BCI Convertible Note. "BCI Convertible Note" means the
--------------------
Convertible Note, as defined in the BCI Loan Agreement, as such note may be
amended or supplemented from time to time (and any other note or notes that may
be substituted therefor), and any other promissory note or other debt instrument
or obligation issued by the Company to BCI or any of its Subsidiaries, the terms
of which provide for the conversion of the indebtedness represented thereby into
equity securities of the Company.
1K. BCI Option. "BCI Option" means the Option, as defined in the BCI Loan
----------
Agreement.
1L. Business Day. "Business Day" shall mean any day other than a Saturday,
------------
Sunday or day on which banking institutions in the State of Colorado are
authorized or obligated by law or executive order to close.
1M. Call Right. "Call Right" has the meaning set forth in Section 6
----------
hereof.
1N. Capital Lease. "Capital Lease" means any lease of any property
-------------
(whether real, personal, or mixed) which, in conformity with GAAP, is accounted
for as a capital lease on the balance sheet of the lessee.
3
<PAGE>
1O. Close of Business. "Close of Business" on any given date shall
-----------------
mean 5:00 P.M., Denver time, on such date; provided, however, that if such date
-------- -------
is not a Business Day, it shall mean 5:00 P.M., Denver time, on the next
succeeding Business Day.
1P. Common Units. "Common Units" means the [Common Membership
------------
Units]/[Common Limited Partnership Units] of the Company having the terms set
forth in the Company Agreement.
1Q. Company Agreement. "Company Agreement" means the [Limited
-----------------
Liability Company Agreement]/[Limited Partnership Agreement] of the Company
dated as of ______________, 199_, as such agreement has been or may be amended
or supplemented from time to time.
1R. Consolidated Interest Expense. "Consolidated Interest Expense"
-----------------------------
means, with respect to any Person and for any period, total interest expense
incurred in that period, whether or not currently payable in cash (including the
interest component of any Capital Leases), of such Person and its Subsidiaries
on a consolidated basis for such period, all as determined in conformity with
GAAP, and after giving effect to all interest rate swap and cap agreements and
other agreements the purpose of which is to protect such Person against
fluctuations in interest rates.
1S. Consolidated Net Income. "Consolidated Net Income" means, with
-----------------------
respect to any Person and for any period, the net income (or loss) after taxes
of such Person and its Subsidiaries on a consolidated basis for such period
determined in conformity with GAAP.
1T. Controlling Interest Acquisition. "Controlling Interest
--------------------------------
Acquisition" means (i) the acquisition by BCI of any interest in the Company
that would require BCI, in conformity with GAAP, to report the results of
operations of the Company either on a consolidated basis with those of BCI and
its Subsidiaries or in accordance with the equity method of accounting or (ii)
the acquisition by BCI and/or any of its Subsidiaries of the lesser of (x) more
than fifty percent (50%) of the number of Stores that it is contemplated will be
developed by the Company under the [Area] Development Agreement (as defined in
the Company Agreement) with BCI as in effect on the date of issuance of this
Warrant and (y) more than thirty percent (30%) of the maximum number of Stores
owned by the Company at any time during the then current Accounting Period and
each of the twelve consecutive Accounting Periods immediately preceding such
current Accounting Period, assuming for this purpose that the Company had not
sold any Stores during any of these Accounting Periods.
1U. Conversion Right. "Conversion Right" means the right of BCI to
----------------
acquire Common Units through either (i) the conversion of amounts outstanding
under the BCI Convertible Note or (ii) the exercise of the BCI Option.
4
<PAGE>
1V. Exercise Price. "Exercise Price" means [$_______* ] per Common
--------------
Unit, subject to adjustment as provided herein.
1W. FAD EBITDA. "FAD EBITDA" means, with respect to the Company and
----------
for any period, the sum of (i) the Consolidated Net Income of the Company for
such period after excluding all items, to the extent taken into account in
determining such Consolidated Net Income, which are FAD Non-Recurring Items,
plus (ii) all amounts deducted in computing such Consolidated Net Income in
- ----
respect of (a) depreciation and amortization expense, (b) Consolidated Interest
Expense and (c) Federal and state income taxes, all as determined in conformity
with GAAP, and plus (iii) development overhead, scale inefficiencies in
----
operating overhead and other start-up costs relating to the establishment of the
Boston Market brand in new territories and/or the opening of new Boston Market
stores, as determined in a manner consistent with the determination thereof made
in connection with the preparation of BCI's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 14, 1996.
1X. FAD Equity Value. "FAD Equity Value" means, with respect to the
----------------
Company as of any date of determination, (w) the product of (i) the FAD EBITDA
for the thirteen full Accounting Periods ending immediately preceding the date
the Controlling Interest Acquisition of the Company shall have first occurred
(the "FAD EBITDA Measurement Period") and (ii) the greater of (A) eight (8) and
(B) fifty percent of the BCI EBITDA Multiple determined as of such date, minus
-----
(x) all Indebtedness of the Company as at the date BCI exercises its Call Right
hereunder (the "Call Date"), except amounts outstanding under the BCI
Convertible Note on the Call Date, plus (y) the aggregate dollar amount of all
----
cash and cash equivalents of, and investments in the debt obligations of other
Persons maturing within 365 days of the date of acquisition thereof by, the
Company and its Subsidiaries that would be shown on a consolidated balance sheet
of the Company as at the Call Date, plus (z) to the extent not reflected in the
----
cash balances referred to in (y), an amount equal to the sum of (I) the
aggregate amount which BCI would pay upon the exercise in full of the BCI Option
on the Call Date (to the extent the BCI Option is unexercised on such date)
because of reductions (if any) in the aggregate amount outstanding under the BCI
Convertible Note prior to the Call Date and (II) the aggregate cash exercise
price of all outstanding rights, options, warrants and other convertible or
exchangeable securities of the Company that are exercisable or exchangeable for
or convertible into equity securities of the Company (regardless of whether such
rights, options, warrants, or other convertible or exchangeable securities are
then exercisable), other than the BCI Option and this Warrant; provided,
--------
however, that if the number of Stores whose results of operation are included
- -------
(actually or on a pro forma basis) in the calculation of FAD Equity Value with
respect to the Company, together with the number of Stores whose results of
operation were included (actually or on a pro forma basis) in the calculation of
FAD Equity Value for all Previously Converted FADs, exceeds 1,500 Stores, then
the FAD Equity Value shall be reduced to an amount equal to the result obtained
by multiplying the FAD Equity Value of the Company determined as provided above
by a fraction, the numerator of which is the maximum number of Stores whose
___________________
* Weighted average conversion/option price per Common Unit under the BCI Loan
Agreement with such area developer.
5
<PAGE>
results of operations could have been included in the calculation of the
Company's FAD Equity Value for this proviso not to apply and the denominator of
which is the number of Stores whose results of operation were included (actually
or on a pro forma basis) in the calculation of the Company's FAD Equity Value;
and provided further, that if a transaction of the type described in Section 3C
-------- -------
involving the Company shall have occurred in which the Company is the Other FAD
(as defined in Section 3C) and a Controlling Interest Acquisition of the Company
shall thereafter occur at any time within the next thirteen Accounting Periods,
then the FAD EBITDA for the FAD EBITDA Measurement Period shall be determined on
a pro forma basis as if such transaction occurred on the first day of the FAD
EBITDA Measurement Period; and provided further, that if during the FAD EBITDA
-------- -------
Measurement Period, BCI or any of its Subsidiaries shall have acquired from the
Company any Stores owned by the Company, the FAD Equity Value shall be adjusted
in accordance with Section 3F hereof.
1Y. FAD Non-Recurring Items. "FAD Non-Recurring Items" means the
-----------------------
following: (i) any item of gain, income, loss or expense which should be
classified as extraordinary in accordance with GAAP, (ii) any gain or loss
realized on the sale, exchange or other disposition of assets other than in the
ordinary course of business (including any gain or loss realized upon the sale
of equity securities by a Subsidiary of BCI) and any gain or loss from
discontinued operations, (iii) the amount of any write-off or write-down
relating to the closure of any Stores or other facilities, (iv) the amount of
any write-off or write-down relating to the impairment of any other asset or any
write-up of any asset, and (v) any other non-recurring, unusual or infrequent
item of gain, income, loss or expense as to which BCI and Market Partners may
agree.
1Z. FAD Warrants. "FAD Warrants" means the warrants purchased by
------------
Market Partners that entitle Market Partners to purchase ownership interests in
financed area developers of BCI, other than the Company, on substantially the
same terms as this Warrant.
1AA. Fully Diluted Common Units. "Fully Diluted Common Units" means,
--------------------------
as of any date of determination, the sum of (i) the number of Common Units
outstanding on that date, (ii) the maximum number of Common Units for which the
Conversion Right can be exercised on that date (regardless of whether the
Conversion Right is then fully exercisable), (iii) the maximum number of Common
Units that can be issued upon the exercise, exchange or conversion of all
outstanding rights (excluding the Conversion Right), options, warrants
(including this Warrant) or other convertible or exchangeable securities
exercisable or exchangeable for or convertible into Common Units (regardless of
whether such rights, options, warrants, or other convertible or exchangeable
securities are then exercisable, but excluding any security that is convertible
into or exercisable or exchangeable for Common Units solely in the event the
Company offers Common Units for sale in an offering made pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended) on that date, and (iv) the maximum number of Common Units that can be
issued as a result of the adjustment (the "Warrant Adjustment") to the
outstanding Common Units (other than those owned by BCI and its affiliates)
required on account of the exercise of this Warrant pursuant to the terms of the
Company Agreement in effect on the date hereof.
6
<PAGE>
1BB. GAAP. "GAAP" means generally accepted accounting principles in
----
the United States consistently applied.
1CC. Indebtedness. "Indebtedness" means with respect to any Person
------------
(without duplication) the following liabilities and obligations: (i) the
principal amount of all liabilities and obligations of such Person for borrowed
money, (ii) the principal amount of all liabilities and obligations of such
Person evidenced by notes, debentures or other instruments (other than checks
drawn for payment upon a demand deposit account); (iii) the imputed principal
amount (determined in conformity with GAAP) of all liabilities and obligations
of such Person in respect of Capital Leases or other leases intended to be
treated as secured borrowings under applicable commercial law; (iv) the deferred
purchase price of property or assets payable by such Person, other than trade
and vendor accounts payable arising in the ordinary course of business that are
less than thirty days past due; (v) the principal amount of all liabilities and
obligations of such Person in respect of unreimbursed drawings under letters of
credit; and (vi) any preferential amounts payable in respect of any Preferred
Security of such Person (excluding accrued dividends) payable upon the
liquidation or dissolution of such Person or the earlier redemption of such
Preferred Security.
1DD. Person. "Person" means any individual, firm corporation,
------
partnership, limited liability company, trust, or other entity and shall include
any successor (by merger or otherwise) of such Person.
1EE. Preferred Security. "Preferred Security" of a Person means any
------------------
security that is entitled to a preference with respect to the payment of (i)
distributions by such Person or (ii) amounts payable upon the liquidation or
dissolution of such Person.
1FF. Previously Converted FAD. "Previously Converted FAD" means a
------------------------
financed area developer of BCI which has issued a FAD Warrant and (i) as to
which BCI has exercised a call right substantially similar to that set forth in
Section 6 hereof or (ii) as to which BCI purchased all of the Common Units that
were subject to such FAD Warrant on terms substantially similar to those set
forth in Section 7.2 of the Warrant Purchase Agreement.
1GG. Specified Number. "Specified Number" means, as of any date of
----------------
determination, a number of Common Units equal to seven percent (7%) of the Fully
Diluted Common Units (rounded to the nearest whole Common Unit) on such date,
subject to adjustment as provided herein.
1HH. Store. "Store" means a Boston Market store that is open to the
-----
public and which offers substantially all of the products and services then
offered by the Boston Market system.
1II. Subsidiary. "Subsidiary" means with respect to any Person, any
-----------
corporation or other entity of which securities or other ownership interests
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions, or, in the case of a limited partnership, to remove the general
partner or partners, are at the time directly or indirectly owned by such Person
or any Subsidiary of such Person; provided, however, that BC Equity Funding,
-------- -------
L.L.C. is not and shall in
7
<PAGE>
no event be deemed to be a Subsidiary of BCI or any Subsidiary of BCI; and
provided further that the Company shall in no event be deemed to be a Subsidiary
- -------- -------
of BCI or any Subsidiary of BCI until such time as a Controlling Interest
Acquisition of the Company shall have occurred.
1JJ. Termination Date. "Termination Date" means the earliest of (i)
----------------
the date on which the Conversion Right shall have expired or been terminated in
its entirety (other than as a result of the exercise thereof), (ii) the date on
which the aggregate number of Stores whose results of operations have been
included (actually or on a pro forma basis) in the calculation of FAD Equity
Value for all Previously Converted FADs first exceeds 1,500, and (iii) the date
this Warrant is terminated in accordance with paragraph 3C.
1KK. Trading Day. "Trading Day" means a day on which the principal
-----------
national securities market or exchange on which the shares of BCI Common Stock
are listed or admitted for trading is open for transaction of business.
1LL. Warrant Purchase Agreement. "Warrant Purchase Agreement" means
--------------------------
the Warrant Purchase Agreement dated as of October __, 1996 between the Company
and Market Partners.
SECTION 2. Exercise of Warrant.
-------------------
2A. Exercise Period. So long as the Termination Date shall not have
---------------
occurred, the Registered Holder may exercise, in whole but not in part, the
purchase rights represented by this Warrant during the period commencing at the
Call Right Expiration Time (as defined in Section 6) and ending at the Close of
Business on the tenth Business Day after a Controlling Interest Acquisition
shall have occurred with respect to the Company (the "Exercise Period");
provided however, that if BCI's Call Right shall have been exercised and BCI
- -------- --------
shall have acquired this Warrant, this Warrant shall be exercisable from the
time of such acquisition until the Close of Business on the third anniversary of
BCI's acquisition of this Warrant. If (i) the Termination Date shall have
occurred, or (ii) a Controlling Interest Acquisition shall have occurred with
respect to the Company but the Registered Holder shall not have given an Intent
Notice (as defined in Section 6) within the time required by Section 6, or (iii)
this Warrant is not exercised prior to the expiration of the Exercise Period (or
if BCI shall have acquired this Warrant pursuant to the exercise of its Call
Right, prior to the third anniversary of BCI's acquisition of this Warrant),
this Warrant shall thereupon terminate and be of no further force and effect.
2B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised at such time
(the "Exercise Time") during the Exercise Period as the Company has first
received all of the following items:
(a) a completed Exercise Agreement, as described in paragraph 2C
below, executed by the Registered Holder;
(b) this Warrant;
8
<PAGE>
(c) cash (payable by wire transfer of same day funds or a
certified or bank cashier's check) in an amount equal to the product of the
Exercise Price and the Specified Number of Common Units;
(d) a counterpart signature page to the Company Agreement,
executed by the Registered Holder; and
(e) if any Indebtedness of the Company to BCI or any of its
Subsidiaries shall be outstanding at the Exercise Time that is secured in
whole or in part by the pledge or collateral assignment of the then
outstanding Common Units, a pledge or collateral assignment of the Common
Units to be acquired pursuant to the exercise of this Warrant, in the form
thereof then required by BCI, executed by the Registered Holder, together
with any other documents reasonably required by BCI in connection
therewith.
(ii) Certificates for Common Units, if any such certificates are then
being issued by the Company, purchased upon exercise of this Warrant shall be
delivered by the Company to the Registered Holder as soon as reasonably
practicable after the Exercise Time.
(iii) The Common Units issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Registered Holder at the Exercise
Time, and the Registered Holder shall be deemed for all purposes to have become
the record holder of such Common Units, and to have been admitted to the Company
as a [member]/[limited partner] thereof, at the Exercise Time.
(iv) The issuance of Common Units, upon exercise of this Warrant shall
be made without charge to the Registered Holder for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such exercise
and the related issuance of Common Units. Each Common Unit issuable upon
exercise of this Warrant shall, when issued, be duly and validly issued and free
from all taxes, liens and charges.
(v) The Company shall assist and cooperate with any Registered Holder
required to make any governmental filings or obtain any governmental approvals
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings required to be made by the Company).
(vi) The Company shall take all such actions as may be necessary to
assure that all such Common Units may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which Common Units of the Company or their equivalents
may be listed.
(vii) Notwithstanding any other provision hereof, if an exercise of
this Warrant is to be made in connection with a registered public offering of
the Company, the sale of the Company or pursuant to Section 3 hereof, the
exercise of this Warrant may, at the election of the Registered Holder hereof,
be conditioned upon the consummation of the public offering, the sale or the
event referred to in the notice described in Section 3, in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
9
<PAGE>
(viii) Unless the Common Units to be issued upon exercise of this
Warrant have been registered under the Securities Act of 1933, as amended, the
certificates for such Common Units (if any) shall contain the following legends:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and may not be
resold or transferred unless registered under the Securities Act or unless the
Company has received an opinion of counsel, which counsel and opinion are
satisfactory to it, that the proposed transfer will not violate the registration
requirements of the Securities Act."
"The securities represented by this certificate are subject to the
restrictions on transfer and other terms and provisions contained in (i) the
[Limited Liability Company Agreement]/[Limited Partnership Agreement] of the
Company as in effect from time to time, and (ii) the Warrant Purchase Agreement
dated as of October 4, 1996 between the Company and Market Partners, L.L.C., a
copy of each of which is on file at the office of the Company.
2C. Exercise Agreement. Upon the exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that (subject to the provisions of Section 5 hereof) if the
Common Units are not to be issued in the name of the person in whose name this
Warrant is registered, the Exercise Agreement shall also state the name of the
person to whom the Common Units are to be issued. Such Exercise Agreement shall
be dated the actual date of execution thereof.
SECTION 3. Certain Adjustments. In order to prevent dilution of the
-------------------
rights granted under this Warrant, the Exercise Price shall be subject to
adjustment from time to time as provided in this Section 3, and the number of
Common Units obtainable upon exercise of this Warrant shall be subject to
adjustment from time to time as provided in this Section 3.
3A. Subdivision or Combination of Common Units; Certain
---------------------------------------------------
Distributions. The Exercise Price shall be adjusted in the event the Company
shall at any time (i) make a subdivision of or combine the Common Units
outstanding or (ii) make a distribution in cash, in kind, or in securities of
any kind, except distributions or other payments required or permitted by the
terms of any Preferred Security of the Company outstanding on the date hereof
and any required distributions calculated with respect to the payment of taxes
under the terms of the Company Agreement as in effect on the date hereof (a
"Permitted Distribution"); provided, however, that any Warrant Adjustment shall
-------- -------
not give rise to any adjustment under this Section 3A. In the event the Company
makes a subdivision of Units or makes a distribution in cash, in kind, or in
securities of any kind (other than a Permitted Distribution), the Exercise Price
in effect immediately prior to such action shall be appropriately decreased, and
in the event the Company shall at any time combine the Common Units outstanding,
the Exercise Price in effect immediately prior to such combination shall be
appropriately increased. An adjustment made pursuant to this paragraph 3A
shall, in the event of a subdivision or combination, become effective
retroactively immediately after the effective date thereof, and shall, in the
event of a distribution, become effective retroactively immediately after the
date of distribution.
10
<PAGE>
3B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
In case of any reclassification or change of the Common Units issuable upon
conversion of this Warrant, or in case of any consolidation or merger of the
Company with or into any other Person or in case of any sale or conveyance to
any Person of the property of the Company as an entirety or substantially as an
entirety (except a consolidation, merger, sale or conveyance described in
paragraph 3C), then the holder of this Warrant shall have the right thereafter
to convert this Warrant into the kind and amount of other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale, or conveyance by a holder of the number of Common Units of the Company
issuable upon conversion of this Warrant immediately prior to such
reclassification, change, consolidation, merger, sale, or conveyance, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for herein. Without limiting the generality of the
foregoing, in the event of any such reclassification, change, consolidation,
merger, sale, or conveyance, this Warrant shall in all events be exercisable for
the same kind of securities and property receivable upon such reclassification,
change, consolidation, merger, sale, or conveyance by BCI upon exercise of its
Conversion Right. In case of any consolidation or merger of the Company in
which the Company is the surviving or continuing entity and after which the
Common Units remain outstanding and unchanged except for an increase in the
aggregate number thereof outstanding (except a consolidation, merger, sale or
conveyance described in paragraph 3C), then the percentage used in calculating
the Specified Number of Common Units for which this Warrant is exercisable shall
thereafter be the percentage of the Fully Diluted Common Units that the holder
would have owned immediately after such consolidation or merger if such holder
had exercised this Warrant immediately prior to such consolidation or merger
3C. Consolidation, Merger or Sale Involving Other Financed Area
-----------------------------------------------------------
Developers. In the event of any consolidation or merger of the Company with or
- ----------
into any other issuer of a FAD Warrant other than a Previously Converted FAD (an
"Other FAD") wherein the Company is not the surviving or continuing entity or in
the event of any sale or conveyance to any Other FAD of the property of the
Company as an entirety or substantially as an entirety wherein the Company does
not retain the right to continue to develop additional Stores after the date of
such transaction, then this Warrant and all rights hereunder shall terminate and
be of no further force and effect and the FAD Warrant issued by the Other FAD
shall remain outstanding and unchanged.
3D. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 3 but not expressly provided for by such
provisions, then the Company shall make an appropriate adjustment in the
Exercise Price and the number of Common Units obtainable upon exercise of this
Warrant so as to protect the rights of the holder of the Warrants; provided that
no such adjustment shall increase the Exercise Price or decrease the number of
Common Units for which this Warrant is exercisable.
3E. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price or the
number of Common Units issuable upon exercise of this Warrant, the Company shall
give written notice
11
<PAGE>
thereof to the Registered Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder at
least 10 days prior to the date on which the Company intends to (A) make any
distribution with respect to the Common Units other than Permitted Distributions
or (B) consummate any transaction described in Section 3B or 3C or any
dissolution or liquidation of the Company.
3F. Adjustments with Respect to Certain Store Sales. In the event that
-----------------------------------------------
during the FAD EBITDA Measurement Period preceding a Controlling Interest
Acquisition of the type described in clause (ii) of Section 1T hereof, BCI or
any of its Subsidiaries shall have acquired any Stores owned by the Company,
appropriate pro forma adjustments shall be made in the determination of the FAD
Equity Value of the Company so as to give effect to the intent of the parties
that the FAD Equity Value be determined, to the extent practicable, as if such
sale of Stores had not occurred prior to the end of the FAD EBITDA Measurement
Period, such as, for example and without limitation, by including the results of
operations of any Stores so acquired for the full FAD EBITDA Measurement Period
in determining FAD EBITDA and by excluding the results of operations of such
Stores for such period in determining BCI EBITDA.
SECTION 4. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
holder of Common Units in the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Common Units, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such holder for the Exercise Price of Common Units
acquirable by exercise hereof or as a holder of a Common Unit in the Company.
SECTION 5. Warrant Not Transferable. Neither this Warrant nor any right
------------------------
hereunder (including the right to receive Common Units upon the exercise hereof)
is transferable, as a whole or in part, except in connection with the
dissolution and liquidation of Market Partners or with the prior written consent
of the Company.
SECTION 6. Call Right. BCI shall have the right (the "Call Right") to
----------
purchase this Warrant, as a whole but not in part, as provided in this Section
6. If a Controlling Interest Acquisition of the Company shall have occurred, the
Company and BCI shall notify the Registered Holder of this Warrant of such
occurrence not later than the Close of Business on the date thereof. Not later
than the Close of Business on the second Business Day following such notice
having been given to the Registered Holder, the Registered Holder shall notify
the Company and BCI if it intends to exercise the Warrant (an "Intent Notice").
If the Registered Holder shall give an Intent Notice, BCI shall be entitled to
exercise its Call Right at any time prior to the Close of Business on the second
Business Day after such Intent Notice shall have been delivered to the Company
and BCI (the "Call Right Expiration Time"). Such right shall be exercised by BCI
by delivering written notice (the "Exercise Notice") to the Registered Holder
and the Company at any time prior to the Call Right Expiration Time. The
purchase price payable by BCI for the Warrant (the "BCI Call Right Exercise
Price") shall be equal to (i) seven percent (or such other percentage that the
Specified Number shall represent of the Fully Diluted
12
<PAGE>
Common Units in accordance with the last sentence of Section 3B hereof, if
applicable) of the FAD Equity Value on the date of the exercise of the Call
Right minus (ii) the aggregate Exercise Price of this Warrant; provided,
----- --------
however, that if the number of Stores whose results of operation are included
- -------
(actually or on a pro forma basis) in the calculation of FAD Equity Value with
respect to the Company, together with the number of Stores whose results of
operation were included (actually or on a pro forma basis) in the calculation of
FAD Equity Value for all Previously Converted FADs, exceeds 1,500 Stores, then
the Exercise Price used in calculating the dollar amount of clause (ii) above
shall be reduced to an amount equal to the result obtained by multiplying the
then effective Exercise Price by a fraction, the numerator of which is the
maximum number of Stores whose results of operations could have been included in
the calculation of the Company's FAD Equity Value for this proviso not to apply
and the denominator of which is the number of Stores whose results of operation
were included (actually or on a pro forma basis) in the calculation of the
Company's FAD Equity Value. The BCI Call Right Exercise Price shall be payable
in cash, or at BCI's option, in shares of BCI Common Stock having a value, based
on the average of the BCI Closing Prices for the five Trading Days immediately
prior to the last Business Day before the exercise of the Call Right, equal to
such BCI Call Right Exercise Price. If BCI shall elect to deliver shares of BCI
Common Stock in lieu of cash, such shares shall have been (i) registered
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and (ii) listed on the principal national securities market or
exchange on which shares of BCI Common Stock are then listed or admitted for
trading. The closing of the purchase and sale of this Warrant shall take place
at the offices of BCI on the tenth Business Day following BCI's delivery of its
Exercise Notice. At such closing, the Registered Holder shall deliver this
Warrant, together with an Assignment in the form of Exhibit 2 hereto assigning
this Warrant to BCI, and BCI shall deliver to the Registered Holder the BCI Call
Right Exercise Price in immediately available funds or, if BCI shall have
elected to deliver shares of BCI Common Stock, certificates for such shares
registered in the name of the Registered Holder.
SECTION 7. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the Registered Holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 8. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing, duly signed by the
party giving such notice, and shall be delivered personally, sent by Federal
Express or other reputable overnight courier service (charges prepaid), sent by
fax or sent by registered or certified mail, return receipt requested, postage
prepaid, as follows: (i) if given to the Company, at its principal executive
offices, (ii) if given to the Registered Holder of this Warrant, at such
holder's address or fax
13
<PAGE>
number as it appears in the records of the Company (unless otherwise indicated
by any such holder), and (iii) if given to BCI, at BCI's principal executive
offices. Each such notice shall be deemed to have been given upon the earlier of
the receipt of such notice by the intended recipient thereof, on the next
Business Day after it is sent by Federal Express or other reliable overnight
courier, or five days after it is mailed by registered or certified mail, return
receipt requested.
SECTION 9. Amendment and Waiver. Except as otherwise provided herein, the
--------------------
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holder of this Warrant and BCI.
SECTION 10. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by a duly authorized person under its corporate seal and to be
dated the Date of Issuance hereof.
[NAME OF FINANCED AREA DEVELOPER]
By:____________________________________
Name:
Its:
15
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W- ___________), hereby agrees to purchase the Common
Units covered by such Warrant and makes payment herewith in full therefor at the
price per Common Unit provided by such Warrant.
Signature _______________________________
Address _________________________________
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
------------------- --------------------
Oct. 1, Oct. 6, Oct. 1, Oct. 6,
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares outstanding 47,105 63,956 46,128 62,481
Dilutive effect of common stock options and warrants 3,758 3,460 3,567 3,610
------- ------- ------- -------
Adjusted primary weighted average number of
common and equivalent shares outstanding 50,863 67,416 49,695 66,091
======= ======= ======= =======
Fully diluted earnings per share:
Weighted average number of shares outstanding 47,105 63,956 46,128 62,481
Dilutive effect of common stock options and warrants 3,870 3,591 3,682 3,649
------- ------- ------- -------
Adjusted fully diluted weighted average number
of common and equivalent shares outstanding 50,975 67,547 49,810 66,130
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-06-1996
<CASH> 59,358
<SECURITIES> 0
<RECEIVABLES> 18,907
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,941
<PP&E> 358,567
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,422,770
<CURRENT-LIABILITIES> 50,092
<BONDS> 1,200
0
0
<COMMON> 640
<OTHER-SE> 911,689
<TOTAL-LIABILITY-AND-EQUITY> 1,422,770
<SALES> 55,402
<TOTAL-REVENUES> 186,218
<CGS> 20,515
<TOTAL-COSTS> 20,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,138
<INCOME-PRETAX> 82,876
<INCOME-TAX> 30,992
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,865
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0
</TABLE>
