<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-28231
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BOSTON CHICKEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5812 36-3904053
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
14103 DENVER WEST PARKWAY, GOLDEN, COLORADO 80401, TELEPHONE (303) 278-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MARK W. STEPHENS
VICE CHAIRMAN OF THE BOARD AND CHIEF FINANCIAL OFFICER
14103 DENVER WEST PARKWAY, GOLDEN, COLORADO 80401, TELEPHONE (303) 278-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
PATRICK J. MALONEY, ESQ.
BELL, BOYD & LLOYD
70 WEST MADISON STREET, CHICAGO, ILLINOIS 60602, TELEPHONE: (312) 372-1121
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
AMENDING THE PROSPECTUS, PART II AND FILING CERTAIN EXHIBITS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 27, 1997
PROSPECTUS
- ----------
4,500,000 SHARES
BOSTON CHICKEN, INC.
[LOGO OF BOSTON CHICKEN COMMON STOCK
APPEARS HERE]
------------
The 4,500,000 shares of common stock, $.01 par value per share ("Common
Stock"), covered by this Prospectus may be offered and issued from time to time
by Boston Chicken, Inc. (the "Company") in connection with (i) acquisitions of
other businesses, real or personal properties, or securities, including
convertible debt in satisfaction of the Company's funding obligations under
loan agreements between the Company and various parties, in accordance with
Rule 415(a) (1) (viii) of Regulation C under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) otherwise under Rule 415 of Regulation
C. This Prospectus may also be used, with the Company's prior consent, by
persons who have received or will receive shares pursuant to this Prospectus
and who wish to offer and sell such shares under circumstances requiring or
making desirable its use. See "Securities Covered by this Prospectus".
The Common Stock is traded on the Nasdaq National Market under the symbol
"BOST". On June 25, 1997, the last sales price of the Common Stock as reported
on the Nasdaq National Market was $15 3/8 per share. See "Price Range of Common
Stock and Dividend Policy".
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HASTHE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
------------
The date of this Prospectus is June , 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Special Note Regarding Forward-Looking Statements......................... 6
Risk Factors.............................................................. 6
Securities Covered by this Prospectus..................................... 10
Recent Developments....................................................... 11
The Company............................................................... 13
Price Range of Common Stock and Dividend Policy........................... 25
Selected Consolidated Financial and Store Data............................ 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Management................................................................ 38
Principal Stockholders and Security Ownership of Management............... 40
Executive Compensation.................................................... 44
Certain Transactions...................................................... 46
Description of Capital Stock.............................................. 53
Experts................................................................... 54
Index to Financial Statements............................................. F-1
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Reports, registration
statements, proxy statements, and other information filed by the Company with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the Commission's Regional Offices, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission.
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), in respect of the Common Stock
offered hereby. For purposes hereof, the term "Registration Statement" means
the initial Registration Statement and any and all amendments thereto. This
Prospectus omits certain information contained in the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to such contract or other document filed with the Commission as an exhibit to
the Registration Statement, or otherwise, each such statement being qualified
by, and subject to, such reference in all respects.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements of the Company and Notes
thereto included in this Prospectus. References in this Prospectus to the
"Company" mean the Company, its predecessors, and its and their subsidiaries
from time to time, unless the context otherwise requires. Boston Chicken(R) and
Boston Market(R) are trademarks owned by the Company, and Einstein Bros.(TM)
and Noah's New York Bagels(R) are trademarks owned by Einstein/Noah Bagel Corp.
THE COMPANY
The Company franchises and operates retail food service stores under the
Boston Market brand name that specialize in fresh, convenient meals featuring
home style entrees of chicken, turkey, ham, and meat loaf, as well as
sandwiches and a variety of freshly prepared vegetables, salads, and other side
dishes. As of April 20, 1997, the Boston Market system included 1,159 stores
located in 38 states and the District of Columbia, 915 of which are operated by
area developers partially financed by the Company with convertible secured
revolving loans, 226 of which are Company stores, and 18 of which are operated
by other franchisees. As of April 20, 1997, the Company had entered into area
development agreements that provide for the development of 2,425 additional
stores. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6. See
also "Risk Factors--Expansion/Dependence on Area Developers," "Recent
Developments" and "The Company--Area Developers".
The Boston Market concept combines the fresh, flavorful, and appealing meals
associated with traditional home cooking with the convenience associated with
fast food. Boston Market stores feature a clean, bright, and inviting
environment to purchase a meal for take-out or in-store dining. Primary entrees
include rotisserie roasted chicken and turkey breast, double-glazed baked ham,
and double-sauced meat loaf. Side dishes designed to complement these entrees
include mashed potatoes made from scratch, corn, stuffing, creamed spinach,
butternut squash, garlic and dill potatoes, baked beans, macaroni and cheese,
cranberry walnut relish, cinnamon apples, and a variety of chilled salads.
Stores also offer a variety of freshly carved chicken, turkey, ham and meat
loaf sandwiches under the Boston Carver(R) and Extreme Carver(TM) brand names;
fresh-baked chicken pot pies; chicken and other soups; beverages; desserts; and
other items.
The Company owns approximately 17.3 million shares (representing
approximately 52%) of the outstanding common stock of Einstein/Noah Bagel Corp.
("ENBC") as of June 25, 1997. ENBC franchises specialty retail stores that
feature fresh-baked bagels, proprietary cream cheeses, specialty coffees and
teas, and creative soups, salads and bagel sandwiches, and other related
products, primarily under the Einstein Bros. Bagels and Noah's New York Bagels
brand names. The common stock of ENBC is quoted on the Nasdaq National Market
under the symbol "ENBX". On June 25, 1997, the last sale price of the common
stock of ENBC as reported on the Nasdaq National Market was $13 1/16 per share.
See "The Company--Einstein/Noah Bagel Corp."
The Company was incorporated as a Massachusetts corporation in March 1988 and
was reincorporated in the State of Delaware in September 1993. The Company's
principal executive offices are located at 14103 Denver West Parkway, P.O. Box
4086, Golden, Colorado 80401-4086, and its telephone number is (303) 278-9500.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS."
3
<PAGE>
RECENT DEVELOPMENTS
On May 28, 1997, the Board of Directors of the Company determined that,
effective upon the sale by Saad J. Nadhir to other persons of a majority of his
interest in the common stock of PFCI and Mr. Nadhir's resignation as an officer
of PFCI, the number of directors of the Company would increase to ten and Mr.
Nadhir would be appointed as a director and Co-Chairman of the Company, in each
case without further action by the Board. On May 29, 1997, the Company
announced that Scott Beck was assuming day-to-day management of the Company's
Boston Market division, and that Larry Zwain, who had previously served as
President and Chief Executive Officer of the Company's Boston Market division,
would remain active in the Company's business through his position as Vice
Chairman of the Company's Board of Directors. The Company also announced that
it was not satisfied with current sales momentum in Boston Market stores or the
level of discounts and promotions that currently characterize the system's
marketing efforts, and that it intended to refocus the Company on its core home
meal replacement business. Finally, the Company indicated that it was
finalizing plans with its area developers to simplify the system's
organizational structure to reduce duplication between the area developers and
the Company's support center, to streamline certain administrative functions
and to facilitate a higher level of store focus systemwide.
On June 2, 1997, the Company reduced its support center workforce by
approximately 115 people. The Company estimates that the workforce reductions
will result in a one-time charge of up to $4.0 million in the second quarter of
1997. Such workforce reductions were primarily the result of the elimination of
duplicative positions and the consolidation of various administrative
functions. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
On June 25, 1997, the Company announced that it and its area developers had
completed their review of store development plans and expect to open a total of
150 to 200 Boston Market stores in fiscal year 1997 and a total of 150 to 250
Boston Market stores in fiscal year 1998. The Company's original objective was
to open approximately 300 stores in each such fiscal year. The Company has also
announced that fewer than expected store openings will negatively impact
earnings expectations for 1997 and 1998. The Company also announced that it is
seeing sales weakness in Boston Market stores during the second quarter of
fiscal 1997. The Company believes that such sales weakness is primarily
attributable to transitioning its marketing strategy away from high levels of
price-promoted offers and media spending and an emphasis on lunch products to
reduced levels of price-promoted offers and media spending and an emphasis on
dinner products. The Company believes that it may take several quarters for
customer transactions to return to historical levels in light of fewer price-
promoted offers and lower media spending. See "Risk Factors--
Expansion/Dependence on Area Developers," "The Company--Current Initiatives in
the Boston Market System--Marketing Strategy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." SEE ALSO "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF STORES)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) QUARTERS ENDED(1)
-------------------------------- --------------------
DEC. 25, DEC. 31, DEC. 29, APR. 21, APR. 20,
1994 1995 1996(2) 1996 1997
-------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenue......... $ 96,151 $ 159,479 $ 264,508 $ 47,347 $ 116,764
Income from opera-
tions................ 24,611 67,238 91,329 28,547 46,021
Net income............ 16,173 33,559 66,958 15,649 21,448
Net income per common
and equivalent
share............... $ 0.38 $ 0.66 $ 1.01 $ 0.24 $ 0.32
Weighted average num-
ber of common and
equivalent shares
outstanding......... 42,861 50,972 66,501 64,317 67,966
STORE DATA (UNAUDITED):
Systemwide Boston Mar-
ket store revenue
(3).................. $383,691 $ 792,948 $1,166,591 $311,798 $ 415,238
Number of Boston Mar-
ket stores:
Beginning of period. 217 534 829 829 1,087
Opened.............. 323 310 273 70 72
Closed (4).......... (6) (15) (15) (5) 0
-------- ---------- ---------- -------- ----------
End of period....... 534 829 1,087 894 1,159
======== ========== ========== ======== ==========
Company stores...... 41 3 105 3 226
Franchised stores... 493 826 982 891 933
CONSOLIDATED BALANCE
SHEET DATA:
Working capital....... $ 32,049 $ 313,483 $ 58,829 $ (3,584)
Notes receivable...... 202,500 456,034 800,519 852,834
Total assets.......... 426,982 1,073,877 1,543,616 1,635,917
Long-term debt........ 130,000 307,178 312,454 381,871
Stockholders' equity.. $259,815 $ 716,831 $ 935,840 $ 968,989
</TABLE>
- --------
(1) The Company's fiscal year is the 52/53-week period ending on the last
Sunday in December and normally consists of 13 four-week periods. The first
quarter consists of four periods and each of the remaining quarters
consists of three periods. The fiscal year ended December 31, 1995 includes
53 weeks of operations.
(2) On June 17, 1996, the Company began consolidating ENBC's results of
operations as a result of the Company's conversion of its loan to ENBC into
a majority equity interest in ENBC's common stock. Giving pro forma effect
to the Company's loan conversion as of the beginning of the Company's
fiscal year, revenue, net income, and net income per common and equivalent
share were $292,030,000, $59,522,000, and $0.90, respectively.
(3) Includes gross revenue for all stores in the Boston Market system.
(4) Such stores were closed due to operating or site-related issues, changes in
the market or trade area, changes in store development strategy, or failure
of the store to meet desired sales or profitability levels. Of such stores,
the Company closed two stores located in Michigan and area developers
closed the remaining stores located in 15 states. Such stores were open for
an average of 2.5 years prior to their closing. Costs associated with such
closings were expensed by the owners of such stores.
5
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS 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 THE
COMPANY, ENBC, BOSTON MARKET INTERNATIONAL, INC. ("BMI"), THEIR AREA
DEVELOPERS, FRANCHISEES, AND LICENSEES, BOSTON MARKET STORES, EINSTEIN BROS.
BAGELS AND NOAH'S NEW YORK BAGELS STORES AND PROGRESSIVE FOOD CONCEPTS, INC.
("PFCI") 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)(TM) SYSTEM
AT BOSTON MARKET STORES; DEVELOPMENT AND OPERATING COSTS; AREA DEVELOPERS'
ADHERENCE TO DEVELOPMENT SCHEDULES; ADVERTISING AND PROMOTIONAL EFFORTS; BRAND
AWARENESS; 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, INCLUDING
THE POSSIBLE INTEGRATION OF FRESH, READY-TO-HEAT PREPARED FOODS IN THE BOSTON
MARKET CONCEPT; CHANGES IN 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
PROSPECTUS. THE SUCCESS OF THE COMPANY, ENBC, AND BMI IS DEPENDENT ON THEIR
RESPECTIVE AREA DEVELOPERS, FRANCHISEES AND LICENSEES, AND THE MANNER IN WHICH
THEY OPERATE AND DEVELOP BOSTON MARKET STORES AND EINSTEIN BROS. BAGELS AND
NOAH'S NEW YORK BAGELS STORES. IN ADDITION TO STATEMENTS THAT EXPLICITLY
DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER
STATEMENTS THAT INCLUDE THE TERMS "BELIEVES," "BELIEF," "EXPECTS," "PLANS,"
"ANTICIPATES," "INTENDS" OR THE LIKE TO BE UNCERTAIN AND FORWARD-LOOKING. ALL
CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR. IN THIS CONNECTION, INVESTORS
SHOULD CONSIDER THE RISKS DESCRIBED HEREIN. SEE "RISK FACTORS".
RISK FACTORS
In evaluating an investment in the Common Stock, prospective investors
should carefully consider the following factors in addition to the other
information contained in this Prospectus.
COMPETITION
The food service industry is intensely competitive with respect to food
quality, concept, location, service, and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than the Company and with substantially longer operating
histories. The Company believes that it competes with national, regional, and
local take-out food service companies, quick service restaurants, casual full-
service dine-in restaurants, delicatessens, cafeteria-style buffets, and
prepared food stores, as well as with supermarkets and convenience stores.
RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional, and local economic conditions, demographic trends, traffic
patterns, and the type, number, and location of competing restaurants. Multi-
unit food service chains such as the Company can also be substantially
adversely affected by publicity resulting from food quality, illness, injury,
or other health concerns (including food-borne illness claims) or operating
issues stemming from one store or a limited number of stores, whether or not
the Company is liable. Claims relating to foreign objects, food-borne illness
or operating issues are common in the food service industry and a number of
such claims may exist at any given time. Dependence on frequent deliveries of
produce and supplies also subjects food service businesses such as the Company
to the risk that shortages or interruptions in supply caused by adverse
weather or other conditions could adversely affect the availability, quality,
and cost of ingredients. In addition, material changes in, or the Company's
failure to comply with, applicable federal, state, and local government
regulations, and factors such as inflation, increased food, labor, and
employee benefits costs, regional weather conditions, and unavailability of an
adequate number of experienced managers
6
<PAGE>
and hourly employees may also adversely affect the food service industry in
general and the Company's results of operations and financial condition in
particular.
EXPANSION/DEPENDENCE ON AREA DEVELOPERS
As of April 20, 1997, there were 1,159 Boston Market stores in operation
systemwide and the Company had entered into area development agreements that
provide for the opening of 2,425 additional stores over the next five to seven
years. However, as a result of a number of factors, including the availability
and cost of capital to the restaurant industry in general and to the Company in
particular and recent store performance, as well as the possible opportunity to
integrate offerings of fresh, ready-to-heat prepared foods in existing or
future Boston Market stores, the Company and its area developers have
determined to reduce the rate of store development. Such reduction will not
alter the total number of stores committed to be opened under the existing area
development agreements, but will extend the period over which such stores are
to be developed. The Company expects that the reduction in store development
will result in the opening systemwide of 150 to 200 Boston Market stores in
fiscal year 1997 and 150 to 250 Boston Market stores in fiscal year 1998. There
can be no assurance that the Company and its area developers will be able to
achieve these goals, manage expanding operations effectively, or maintain or
accelerate growth. The Company's original development objective was to open
approximately 300 stores in each such fiscal year. The reduction in the rate of
store development will negatively impact earnings for 1997 and 1998. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6. See also "Recent
Developments."
The Company has extended secured debt financing to its Boston Market area
developers pursuant to which the Company has agreed to lend an aggregate of
approximately $755.6 million, of which approximately $622.7 million had been
advanced as of April 20, 1997. These loans subject the Company to the risks of
being a secured lender, including those risks relating to borrower delinquency
and default and the adequacy of the collateral for such loans. In connection
with and as a result of the amendment to the area developers' area development
agreements to effect the reduction in the rate of store development, the
Company expects to amend such area developers' loan agreements with the Company
to extend the principal draw and repayment periods under each such loan
agreement to reflect the extended store development schedules. See "--Need for
Additional Capital," "The Company--Area Developers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".
The Company's success is dependent upon its area developers and franchisees
and the manner in which they develop and operate their Boston Market stores and
manage their organizational and financial resources. The opening and success of
stores are dependent on a number of factors, including the availability of
suitable sites, the negotiation of acceptable lease or purchase terms for such
sites, permitting and regulatory compliance, the ability to meet construction
schedules, the ability to hire and train qualified personnel, the financial and
other capabilities of the Company and its area developers, and general economic
and business conditions. Not all of the foregoing factors are within the
control of the Company or its area developers. The financial resources required
by the Company's area developers to comply with their area development
agreements are dependent upon, among other things, the number and cost of
stores developed and store operating results. The cost to develop a store
ranges from $700,000 to $1.5 million. The area developers have financed, and
will continue to finance, their capital requirements through borrowings from
the Company, equity, debt and lease financing from third parties and internally
generated funds. There can be no assurance that area developers and franchisees
will have the business abilities or access to financial resources necessary to
open the Boston Market stores required by their development schedules or will
successfully develop or operate Boston Market stores in their development areas
in a manner consistent with the Company's concepts and standards. See "The
Company--Area Developers". Because the amount of additional financing that the
Company may provide to area developers depends on, among other things, the
amount of funds internally generated by the area developers, the amount of
additional equity, debt and lease financing to be obtained by the area
developers from other parties and the cost of stores developed, the Company has
not determined, nor is it able at present to reasonably estimate, any amount of
additional financing that it may commit to such area developers. As of April
20, 1997, the Company had committed to lend the area developers an additional
$132.9 million, which financing is expected to be substantially funded during
1997.
7
<PAGE>
OPERATIONS OF EINSTEIN/NOAH BAGEL CORP.
The Company owns approximately 17.3 million shares (representing
approximately 52%) of the outstanding common stock of ENBC as of June 25, 1997.
The nature of ENBC's business and operations expose it to risks substantially
similar to those set forth herein with respect to the Company. In addition,
ENBC is at a significantly earlier stage in its development program than is the
Company. ENBC's anticipated expansion will require the addition of management,
facilities, systems, and personnel. The failure by ENBC and its area developers
to acquire necessary resources on a cost-effective basis could have a material
adverse effect on the value of the Company's investment in ENBC and the
contribution by ENBC to the earnings of the Company. There can be no assurance
that ENBC and its area developers will be able to achieve their development and
operating goals, manage expanding operations effectively, or maintain or
accelerate growth. In addition, there can be no assurance of the viability of
any of ENBC's brands in a particular geographic region or locale. The Company
has made available to ENBC a $50.0 million unsecured, subordinated, non-
convertible loan facility (no borrowings under which were outstanding as of
June 25, 1997), which, if any amount were outstanding, would subject the
Company to the risks of being an unsecured, subordinated lender, including
those risks relating to delinquency and default by ENBC, the subordination of
the Company's claims to senior indebtedness of ENBC, and the prior right of
secured lenders to ENBC to realize upon assets of ENBC which secure such
lenders' indebtedness. See "The Company--Einstein/Noah Bagel Corp."
DEVELOPMENT OF BUSINESS OF BOSTON MARKET INTERNATIONAL, INC.
The Company and Boston Market International, Inc. ("BMI") have entered into a
letter of intent with John Sun, a restaurant developer in Southeast Asia, that
contemplates the grant by the Company to BMI of certain development rights and
the formation of a new entity that would sublicense from BMI the right to
develop up to 600 Boston Market stores in Taiwan and the People's Republic of
China. No officer or director of the Company currently owns an equity interest
in BMI. In addition, no executive officer or director of the Company is, or
will be, an executive officer or director of BMI. BMI is a newly formed entity
that intends to seek private equity financing from third parties, who may
include officers and directors of the Company, in order to provide its initial
equity capital. The Company is negotiating a license with BMI which would grant
to BMI the rights to develop Boston Market stores in such countries, and a
convertible loan from the Company to BMI which could be convertible into a
majority equity interest in BMI. On May 31, 1997, the Company, BMI and Mr. Sun
agreed to extend, until June 1, 1998, the period during which such parties may
negotiate and execute definitive agreements providing for BMI's development of
Boston Market stores and Mr. Sun's sublicense from BMI. The extension resulted
from Mr. Sun's desire to explore the possible opportunity to integrate the
offerings of fresh, ready-to-heat prepared foods in Boston Market international
stores and the Company's desire to focus, in the short-run, on its domestic
business. See "The Company--Boston Market International".
The success of BMI and its area developers, franchisees, licensees, and/or
joint venture partners in the development of the Boston Market brand and
concept in foreign markets are subject to risks similar to those set forth
above for the Company and its area developers. In addition, there can be no
assurance that the contemplated transactions between the Company and BMI, or
BMI and Mr. Sun, will be consummated, BMI and its area developers, franchisees,
licensees, and/or joint venture partners will be able to raise sufficient
capital when needed on satisfactory terms, foreign consumers will accept the
Boston Market brand and concept, BMI will be able to successfully identify and
recruit qualified area developers, franchisees, licensees, joint venture
partners and suppliers in foreign markets, BMI will be able to obtain necessary
foreign government approvals, or that compliance with foreign government
regulations will not significantly adversely affect BMI's business plan.
DEVELOPMENT OF BUSINESS OF PROGRESSIVE FOOD CONCEPTS, INC.
The Company has provided a $17.0 million convertible loan to Progressive Food
Concepts, Inc. ("PFCI"). PFCI has entered into a series of agreements with
Harry's Farmers Market, Inc. ("Harry's"), an operator of retail food stores in
the Atlanta area. Scott Beck, the Company's Chairman of the Board, President
and Chief Executive Officer, and Saad Nadhir, the former Co-Chairman of the
Board and President of the Company, each own a 46.2% equity interest in PFCI,
and Harry's owns a 7.6% interest in PFCI. Messrs. Beck and Nadhir
8
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currently intend to offer a significant portion of their shares of PFCI common
stock to other persons, who may include area developers of the Company. The
Board of Directors of the Company has determined that effective upon the sale
by Mr. Nadhir to other persons of a majority of his interest in the common
stock of PFCI and Mr. Nadhir's resignation as an officer of PFCI, the number of
directors of the Company would increase to ten and Mr. Nadhir would be
appointed as a director and Co-Chairman of the Company, in each case without
further action by the Board. The success of PFCI is subject to the finalization
and implementation of a business plan, adaptability of the Harry's business
concepts to new markets and acceptance of such concepts by consumers in such
markets, raising sufficient capital, obtaining the management and
infrastructure necessary to implement such business plan, financial condition
and results of operations of Harry's, and competition in the perishable fresh
food, prepared foods, and specialty food businesses, as well as the grocery
business generally. See "Recent Developments" and "The Company--Progressive
Food Concepts, Inc."
NEED FOR ADDITIONAL CAPITAL
The Company anticipates that it will have a continuing need for additional
capital to accomplish its and its area developers' expansion goals. There can
be no assurance that the Company will be able to raise such capital when needed
on satisfactory terms. The Company currently offers loans to its area
developers, ENBC, and PFCI, and is expected to offer loans to BMI, under loan
agreements pursuant to which the Company is, and will be, subject to the risks
of being a lender. See "The Company--Area Developers," "The Company--
Einstein/Noah Bagel Corp.," "The Company--Progressive Food Concepts, Inc." and
"The Company--Boston Market International." The Company's management of its
capital resources may be affected by the amount and timing of advances under
such loan agreements and additional loan agreements. The Company's obligations
under the loan agreements could affect the amount and timing of the Company's
future capital financing requirements.
EFFECT OF CERTAIN CHARTER, BYLAW, AND OTHER PROVISIONS
The Company's Certificate of Incorporation and Bylaws include certain
provisions that may have the effect of discouraging a change in control of the
Company. Such provisions include the requirement that all stockholder action
must be effected at a duly-called annual or special meeting of stockholders and
the requirement that stockholders follow an advance notification procedure for
stockholder nominations of candidates for the Board of Directors and to present
other stockholder business to be considered at any meeting of stockholders. In
addition, the Board of Directors has the authority, without further action by
the stockholders, to issue up to 20,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges, and restrictions
thereof, and to issue authorized but unissued shares of Common Stock up to the
maximum of 480,000,000 shares. The issuance of preferred stock or additional
shares of Common Stock could have the effect of delaying, deferring, or
preventing a change in control of the Company, even if such change in control
would be beneficial to the Company's stockholders.
The terms of the Company's Liquid Yield Option Notes due 2015 ("LYONs"), 4
1/2% Convertible Subordinated Debentures due 2004 ("4 1/2% Debentures") and 7
3/4% Convertible Subordinated Debentures due 2004 ("7 3/4% Debentures") provide
that the Company will be required, as of 40 business days after the occurrence
of a Change in Control (as defined) of the Company (occurring on or prior to
June 1, 2000, in the case of the LYONs), to purchase for cash any LYON, 4 1/2%
Debenture or 7 3/4% Debenture, at the option of the holder, for a Change in
Control Purchase Price equal to the Issue Price plus accrued Original Issue
Discount (in the case of a LYON), or 100% of the principal amount thereof, plus
accrued but unpaid interest (in the case of a 4 1/2% Debenture or 7 3/4%
Debenture), through the Change in Control Purchase Date. The Change in Control
purchase features of the LYONs, the 4 1/2% Debentures and 7 3/4% Debentures may
in certain circumstances have an anti-takeover effect. The definition of
"Change in Control" for purposes of the LYONs, the 4 1/2% Debentures and 7 3/4%
Debentures is set forth in the respective indenture related to the LYONs, the 4
1/2% Debentures and the 7 3/4% Debentures, which are exhibits to the
Registration Statement of which this Prospectus is a part. If a Change in
Control was to occur, there can be no assurance that the Company would have
sufficient funds to pay the
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Change in Control Purchase Price for all LYONs, 4 1/2% Debentures and 7 3/4%
Debentures tendered by the holders thereof.
RECENT STORE PERFORMANCE
Beginning in the second quarter of 1997, management has begun to modify the
Company's marketing strategy away from high levels of price-promoted offers
and media spending and an emphasis on lunch products to reduced levels of
price-promoted offers and media spending and an emphasis on dinner products.
The Company believes that a reduction in the overall level of price-promoted
offers and media spending will, at least initially, negatively affect gross
weekly per store average revenue, which in turn, will negatively affect store-
level profitability. The Company believes that such strategy has begun to
negatively impact store performance in the second quarter of 1997. The Company
believes that it may take several quarters for customer transactions to return
to historical levels in light of fewer price-promoted offers and lower media
spending. There can be no assurance, however, that the modification of the
Company's marketing strategy will eventually have a positive effect on store
performance. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE
6.
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus may be offered and
issued from time to time by the Company (i) in connection with (x)
acquisitions of other businesses, (y) acquisitions of real or personal
properties, including acquisitions of Boston Market stores from area
developers, and (z) acquisitions of securities, including convertible debt
securities from the Company's area developers, BMI and/or PFCI in satisfaction
of the Company's funding obligations under loan agreements between the Company
and such parties, in each case in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act, or (ii) otherwise under Rule 415 of
Regulation C.
To the extent this Prospectus is used in connection with acquisitions, such
acquisitions may be made directly by the Company or indirectly through a
subsidiary, may relate to businesses or securities of businesses similar or
dissimilar to that of the Company or to properties of a type which may or may
not currently be used by or in connection with Boston Market stores or by the
Company, and may be made in connection with the settlement of litigation or
other disputes. The consideration offered by the Company in such acquisitions,
in addition to the shares of Common Stock offered by this Prospectus, may
include cash, debt, or other securities (which may be convertible into shares
of Common Stock covered by this Prospectus), or assumption by the Company of
liabilities of the business, properties, or securities being acquired or of
their owners, or a combination thereof. It is contemplated that the terms of
acquisitions will be determined by negotiations between the Company and the
owners of the businesses, properties, or securities acquired, with the Company
taking into account such facts as the quality of management, the past and
potential earning power, growth and appreciation of the businesses,
properties, or securities acquired, and other relevant factors, and it is
anticipated that shares of Common Stock issued in acquisitions will be valued
at a price reasonably related to the market value of the Common Stock either
at the time the terms of the acquisition are tentatively agreed upon or at or
about the time or times of delivery of the shares.
In connection with the issuance of shares covered by the Prospectus, if the
price at which shares are resold by a recipient thereof is less than the sale
price to such recipient (i.e., the price of the shares at the time of the
issuance of such shares to the recipient), the Company may agree to pay the
difference between such price and the actual sales price received by such
recipient. Any such price guarantee granted by the Company may be subject to
certain limitations and conditions, which may include a requirement that
shares subject to such guarantee must be sold within a specified time period
and/or a limitation on the number of shares of Common Stock which may be
resold in the over-the-counter market on any one day.
With the consent of the Company, this Prospectus may also be used by persons
who have received or will receive from the Company Common Stock covered by
this Prospectus and who may wish to sell such stock under circumstances
requiring or making desirable its use. This Prospectus may also be used, with
the Company's consent, by pledgees, donees, or assignees of such persons. The
Company's consent to any such use may be
10
<PAGE>
conditioned upon such persons' agreeing not to offer more than a specified
number of shares. The Company may require that any such offering be effected
in an organized manner through securities dealers. Such sales may be made from
time to time privately at prices to be individually negotiated with the
purchasers, or publicly through transactions in the over-the-counter market
(which may involve block transactions), at prices reasonably related to market
prices at the time of the sale or at negotiated prices. Broker-dealers
participating in such transactions may act as agent or as principal and, when
acting as agent, may receive commissions from the purchasers as well as from
the sellers (if also acting as agent for the purchasers). The Company may
indemnify any broker-dealer participating in such transactions against certain
liabilities, including liabilities under the Securities Act. Profits,
commissions, and discounts on sales by persons who may be deemed to be
underwriters within the meaning of the Securities Act may be deemed
underwriting compensation under the Securities Act.
The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or Rule 145(d), and certain persons party to such agreements
may not otherwise be subject to such Securities Act requirements. The Company
anticipates that, in general, such negotiated agreements will be of limited
duration and will permit the recipients of Common Stock issued in connection
with acquisitions to sell up to a specified number of shares per business day
or days.
Stockholders may also offer shares of Common Stock covered by this
Prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities
Act, including sales which meet the requirements of Rule 144 or Rule 145(d)
under the Securities Act, and stockholders should seek the advice of their own
counsel with respect to the legal requirements for such sales.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for
whom the Company has consented to the use of this Prospectus in connection
with such resales.
RECENT DEVELOPMENTS
On May 28, 1997, the Board of Directors of the Company determined that,
effective upon the sale by Saad J. Nadhir to other persons of a majority of
his interest in the common stock of PFCI and Mr. Nadhir's resignation as an
officer of PFCI, the number of directors of the Company would increase to ten
and Mr. Nadhir would be appointed as a director and Co-Chairman of the
Company, in each case without further action by the Board. On May 29, 1997,
the Company announced that Scott Beck was assuming day-to-day management of
the Company's Boston Market division, and that Larry Zwain, who had previously
served as President and Chief Executive Officer of the Company's Boston Market
division, would remain active in the Company's business through his position
as Vice Chairman of the Company's Board of Directors. The Company also
announced that it was not satisfied with current sales momentum in Boston
Market stores or the level of discounts and promotions that currently
characterize the system's marketing efforts, and that it intended to refocus
the Company on its core home meal replacement business. Finally, the Company
indicated that it was finalizing plans with its area developers to simplify
the system's organizational structure to reduce duplication between the area
developers and the Company's support center, to streamline certain
administrative functions and to facilitate a higher level of store focus
systemwide.
On June 2, 1997, the Company reduced its support center workforce by
approximately 115 people. The Company estimates that the workforce reductions
will result in a one-time charge of up to $4.0 million in the second quarter
of 1997. Such workforce reductions were primarily the result of the
elimination of duplicative positions and the consolidation of various
administrative functions. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 6.
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<PAGE>
On June 25, 1997, the Company announced that it and its area developers had
completed their review of store development plans and expect to open a total
of 150 to 200 Boston Market stores in fiscal year 1997 and a total of 150 to
250 Boston Market stores in fiscal year 1998. The Company's original objective
was to open approximately 300 stores in each such fiscal year. The Company has
also announced that fewer than expected store openings will negatively impact
earnings expectations for 1997 and 1998. The Company also announced that it is
seeing sales weakness in Boston Market stores during the second quarter of
fiscal 1997. The Company believes that such sales weakness is primarily
attributable to transitioning its marketing strategy away from high levels of
price-promoted offers and media spending and an emphasis on lunch products to
reduced levels of price-promoted offers and media spending and an emphasis on
dinner products. The Company believes that it may take several quarters for
customer transactions to return to historical levels in light of fewer price-
promoted offers and lower media spending. See "Risk Factors--
Expansion/Dependence on Area Developers," "The Company--Current Initiatives in
the Boston Market System--Marketing Strategy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." SEE ALSO "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
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THE COMPANY
The Company franchises and operates retail food service stores under the
Boston Market brand name that specialize in fresh, convenient meals featuring
home style entrees of chicken, turkey, ham, and meat loaf, as well as
sandwiches and a variety of freshly prepared vegetables, salads, and other side
dishes. As of April 20, 1997, the Boston Market system included 1,159 stores
located in 38 states and the District of Columbia, 915 of which are operated by
area developers partially financed by the Company with convertible secured
revolving loans, 226 of which are Company stores, and 18 of which are operated
by other franchisees. As of April 20, 1997, the Company had entered into area
development agreements that provide for the development of 2,425 additional
stores. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6. See
also "--Area Developers," "Risk Factors--Expansion/Dependence on Area
Developers" and "Recent Developments."
The Boston Market concept combines the fresh, flavorful, and appealing meals
associated with traditional home cooking with the convenience associated with
fast food. Boston Market stores feature a clean, bright, and inviting
environment to purchase a meal for take-out or in-store dining. Primary entrees
include rotisserie roasted chicken and turkey breast, double-glazed baked ham,
and double-sauced meat loaf. Side dishes designed to complement these entrees
include mashed potatoes made from scratch, corn, stuffing, creamed spinach,
butternut squash, garlic and dill potatoes, baked beans, macaroni and cheese,
cranberry walnut relish, cinnamon apples, and a variety of chilled salads.
Stores also offer a variety of freshly carved chicken, turkey, ham, and meat
loaf sandwiches under the Boston Carver and Extreme Carver brand names; fresh-
baked chicken pot pies; chicken and other soups; beverages; desserts; and other
items.
Certain members of the Company's current management made their initial
investment in the Company in December 1991, at which time there were
approximately 33 stores operating under the Boston Chicken name. After an
extensive review of the Boston Chicken concept, members of the Company's
management invested additional capital and acquired control of the Company in
the spring of 1992. Subsequently, the Company substantially refined the Boston
Chicken concept, developed an attractive prototype store, created a network of
area developers, installed systemwide voice and data communications systems,
and achieved significant development momentum in most major markets in the
United States. With these formation and development phases completed, the
Company shifted its focus to evolving the Boston Chicken concept and increasing
operational efficiency. Further evolution of the concept was initiated in early
1995 with the addition of turkey, ham, and meat loaf dinner entrees, expansion
of the line of sandwiches, salads, and soups, and entry into the holiday home
meal replacement business. To reflect the variety of complete meals offered and
to establish a broad platform for future growth, the Company changed the name
of Boston Chicken stores to Boston Market.
AREA DEVELOPERS
General. The Company relies on area developers to achieve rapid penetration
of targeted markets. The Company believes that having a relatively small group
of area developers, each led by an experienced retail food service veteran with
substantial equity invested in the area developer, is a superior means to
achieve market leadership than more traditional franchising approaches which
utilize a large number of franchisees. By concentrating its expansion efforts
through these focused area development organizations, the Company believes it
is able to achieve focused systemwide expansion and create operating and
advertising efficiencies.
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The following table sets forth certain information as of April 20, 1997,
concerning the Company's 15 domestic area developers. The operating principals
of such area developers listed below each have experience in the multi-unit
retail industry ranging from 16 to 27 years. The additional stores committed
by each area developer are generally required to be opened over the next five
to seven years. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON
PAGE 6. However, the Company has agreed to amend the area development
agreements to extend the period in which such stores are required to be
opened. See "Recent Developments."
<TABLE>
<CAPTION>
ADDITIONAL
OPERATING STORES STORES
AREA DEVELOPER PRIMARY MARKETS PRINCIPAL OPEN COMMITTED
-------------- ------------------------ --------------- ------ ----------
<C> <S> <C> <C> <C>
BC Boston, L.P.(1) Portions of John Altomare 56 147
Massachusetts, Vermont,
Maine, New Hampshire,
Rhode Island and New
York
BC GoldenGate, L.L.C. Portions of Central and Dan Anderson 60 176
Northern California and
Nevada
BC Great Lakes, L.L.C. Portions of Illinois, Gary Graves 113 42
Wisconsin, Michigan and
Ohio
BC Heartland, L.L.C. Portions of Indiana, Gary Graves 12 111
Illinois, Michigan and
Wisconsin
BC Northwest, L.P. Portions of Washington, Dan Anderson 54 92
Oregon and Idaho
BC Superior, L.L.C. Portions of Maryland, Gary Graves 49 274
Virginia, West Virginia,
Alabama, Ohio,
Pennsylvania, Kentucky,
Tennessee and
Mississippi
BC Tri-States, L.L.C. Portions of Connecticut, Robert Anarumo 10 257
New York and New Jersey
B.C.B.M. Southwest, L.P. Portions of Texas Michael Donovan 68 205
BCE West, L.P.(1) Arizona, Colorado, New Larry Hohl 62 154
Mexico, Utah, and
Portions of Nevada and
Wyoming
Boston West, L.L.C. Portions of Central and Alan Palmieri 94 90
Southern California
Finest Foodservice, L.L.C. Portions of Iowa, Gary Graves 73 162
Illinois, Kansas,
Minnesota, Missouri,
Nebraska, South Dakota
and Wisconsin
Mayfair Partners, L.P. Washington, D.C., Michael Thomas 56 15
Northern Virginia, and
Portions of Maryland
P&L Food Services, L.L.C.(1) Portions of New York, John Altomare 54 170
Ohio, Pennsylvania and
West Virginia
Platinum Rotisserie, L.L.C. North Carolina and Chris Miller 54 349
Portions of South
Carolina, New Jersey,
Tennessee, Georgia,
Pennsylvania and
Virginia
R&A Food Services, L.P. Central and Southern Terry Spaight 100 181
Florida
--- -----
Total 915(2) 2,425
=== =====
</TABLE>
(1) Lawrence Beck, Scott Beck's father, owns a controlling interest in such
area developers. The Company does not believe Lawrence Beck is an
affiliate of the Company. No director or officer of the Company, or a
member of their immediate families, owns a controlling interest in any
other area developer. See "Certain Transactions".
(2) In addition, other franchisees operate 18 stores and the Company operates
226 stores.
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The Company and its area developers are currently exploring alternative
organizational strategies that may include sharing corporate and managerial
resources among area developers and possible area developer combinations. See
"--Current Initiatives in the Boston Market System--Organizational Strategy".
At December 29, 1996, the Company had 15 domestic area developers compared
with 20 domestic area developers at the end of its 1995 fiscal year. The
reduction in the total number of area developers was the result of the
acquisition by the Company of Mid-Atlantic Restaurant Systems L.P. ("Mid-
Atlantic"), Mid-Atlantic's acquisition of New Jersey Rose, L.L.C. ("New Jersey
Rose") and the combination of three area developers with three other area
developers. Each of the combinations involved area developers with
geographically contiguous territories. Such combinations were the result of
negotiations between the area developers and were conditioned upon the consent
of the Company in its capacity as franchisor. The Company believes that future
consolidation of area developers primarily will be the result of negotiations
by and among such area developers, with input and suggestions from the Company
in its capacity as franchisor. The Company will continue to determine whether
or not to consent to any such combination on a case-by-case basis. During 1995
and 1996, area developers have used an aggregate of $10.3 million borrowed
under their secured loan agreements with the Company to acquire equity
interests in, or to purchase assets from, other area developers.
Area Development Agreements. Area development agreements provide for the
opening of a specified number of stores within a defined geographic territory
in accordance with a schedule of dates. As of April 20, 1997, the Company had
entered into area development agreements that provide for the development of
2,425 additional stores. See "Recent Developments." An area developer's
development schedule generally covers periods up to seven years and typically
has benchmarks for the number of stores to be opened and in operation at six-
month intervals. Area developers are required to pay a development fee of
$5,000 per store and a $35,000 store franchise fee described in "--Franchise
Agreements". Area development agreements generally provide that the area
developer has the exclusive right to open Boston Market stores within the
specified territory during the term of the development schedule, except that
the Company reserves the right to engage in certain limited special
distribution arrangements and, in the event the area developer does not choose
to develop them, to develop target sites and conversion sites within the
specified territory. Target sites are sites which the Company believes should
be developed for competitive or market reasons regardless of the applicable
development schedule or the location of pre-existing sites. Conversion sites
are sites obtained from other companies which are suitable for conversion for
use as Boston Market stores.
Failure to meet development schedules or other breaches of the area
development agreement may lead to termination of the limited exclusivity
provided by the agreement, renegotiation of development and franchise
provisions, or termination of the right to build future stores, although such
termination does not generally affect existing franchise agreements for
developed locations.
Franchise Agreements. Once an acceptable lease for an approved store site
has been fully executed, the Company and the area developer enter into a
franchise agreement under which the area developer becomes the franchisee for
the specific store to be developed at the site.
Franchise agreements typically provide for payment of a $35,000 per store
franchise fee (less any applicable franchise deposit), a 5% royalty on gross
revenue minus sales/service taxes, customer refunds and coupons, and the
portion of employee meals not charged to the employee, a 2% national
advertising fund contribution, a 4% local advertising fund contribution, and a
$10,000 minimum grand opening expenditure. Under the majority of applicable
franchise agreements, the local advertising fund contribution may be increased
by .25% per calendar year up to an aggregate 5% local advertising fund
contribution. The Company has sought and received from certain of its area
developers commitments for higher advertising expenditures. Certain of the
Company's older franchise and area development agreements provide for 4%
royalties and reduced franchise and area development fees. In addition, stores
opened or to be opened pursuant to such older forms of agreements need not
make combined national and local advertising contributions in excess of 5%.
Such older forms of agreements constitute a decreasing percentage of all
franchise agreements.
The Company's franchise agreements generally provide that the Company may
from time to time specify computer hardware and software for use in the
stores, including the use of licensed software designated or created
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<PAGE>
by or for the Company and its franchisees. The computer hardware specified by
the Company costs approximately $21,000 to $49,000 per store. The Company
charges a one-time $15,000 fee for its licensed software for store systems,
plus approximately $1,500 for certain specified third-party software purchased
through the Company. Current franchise agreements also generally provide for a
maintenance fee to the Company of $323 per four-week accounting period for
modifications and enhancements made to the licensed software and certain other
maintenance and support services. The Company believes that its integrated
hardware and licensed software systems facilitate better communication with,
and monitoring of, the Boston Market system. The Company makes extensive use
of computer systems and electronic data transmission in evaluating the results
of the Boston Market system, polling a majority of its stores daily by modem
to gather revenue and other financial and statistical information.
Franchise agreements generally provide for an area of limited exclusivity
surrounding the Boston Market store in which the Company may neither develop
nor grant to others the right to develop additional Boston Market stores,
except that the Company generally reserves the right to engage in certain
limited special distribution arrangements and, in the event that the
franchisee does not choose to develop them, to develop regional shopping mall
sites and conversion sites within the franchisee's designated territory.
Designated territories in suburban locations are generally a one mile radius
surrounding the Boston Market store, while urban locations generally have a
smaller (e.g., one-half mile) radius or a trade-area-specific designated
territory.
All of the Company's franchise agreements require that the store be operated
in accordance with the operating procedures and menu established by the
Company and meet applicable quality, service, and cleanliness standards. The
Company may default and terminate any franchisee who does not comply with such
standards. The Company is specifically authorized to take accelerated action
in the event that any franchisee operation presents a health risk. The Company
believes that maintaining superior food quality, a clean and pleasing
environment, and excellent customer service is critical to the reputation and
success of the Boston Market system and intends to act aggressively to enforce
applicable contractual requirements. Franchisees could contest such defaults
or terminations.
Area Developer Financing. The Company believes that the development of
stores in a targeted market is enhanced when an area developer is permitted to
focus on development and operations, rather than on raising capital.
Accordingly, the Company has made convertible loans to its area developers to
partially finance store development and working capital needs and provides to
certain area developers various equipment and real estate leasing programs.
See Note 9 of Notes to Audited Consolidated Financial Statements. The
Company's loan agreements with its area developers generally require the area
developer to expend at least 75% of its contributed capital toward developing
stores 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 three to four
times the amount of the area developer's contributed capital. The loans are
typically convertible into a majority equity interest in the area developer at
a conversion price set forth in the loan agreement, which is at a premium over
the per unit price paid by investors in the area developer for their equity
investments, after the expiration of a moratorium period, provided generally
that the area developer has completed not less than 80% of its area
development commitment, or in the event of certain defaults. See Note 10 of
Notes to Audited Consolidated Financial Statements. 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 fees, software
fees, and other fees) from such 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.
Each area developer loan agreement contains customary secured loan agreement
representations, warranties, terms, and covenants. The Company's loans to its
area developers subject the Company to the risks of being a secured lender.
The Company considers each area developer's use of loan proceeds, adherence to
its store development schedule, store performance trends, type and amount of
collateral securing the loan, prevailing
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<PAGE>
economic conditions, and other factors it deems relevant at the time in
evaluating whether to establish an allowance for potential loan losses. See
Note 10 of Notes to Audited Consolidated Financial Statements.
As a result of executing the rapid expansion strategy required by the
Company, Boston Market financed area developers have incurred net losses in
each of the last three years. The net losses incurred over this three-year
period, which aggregated $156.5 million in 1996, $148.3 million in 1995, and
$51.3 million in 1994, include (a) depreciation and amortization charges of
approximately $93.0 million, (b) approximately $148.0 million attributable to
investment 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, 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. The net loss amounts for each of the fiscal years represent the
aggregate net loss amounts for all financed area developers, the operations of
which were not consolidated into the Company's financial statements as of the
date the Company first reported such losses for such fiscal year. As a result
of the foregoing factors, as well as ongoing improvements to store operating
performance and increases in scale efficiencies, 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 the store base). 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 ("ADI"), although the rate of store
development may vary within the rapid expansion phase. However, as a result of
the reduction in the rate of store development, the Company expects that the
rapid expansion phase may be extended. 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 investment
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 debt and interest charges, the intensity
of 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 ADIs, the Company believes substantially all of its
financed area developers will remain in the rapid expansion phase during 1997
in most of their ADIs. The Company believes that the modification of its
marketing strategy away from high levels of price-promoted offers and media
spending to reduced levels of price-promoted offers and media spending will,
at least initially, negatively affect store-level profitability. Because
store-level profitability affects, in part, the amount of area developer
losses, the modification of the Company's marketing strategy may negatively
affect the amount of aggregate net losses that the area developers will incur
in 1997. The Company believes, however, that such negative effect may be
offset, in whole or in part, by reduced overhead expenses resulting from
centralized administrative functions and shared corporate and managerial
resources among area developers and reduced levels of price-promoted offers
and media spending. See "--Current Initiatives in the Boston Market System--
Organizational Strategy." 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
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 the completion of its rapid expansion phase, such event could have
a material adverse impact on the Company's financial position and results of
operations. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
AREA DEVELOPER CONVERSIONS OR ACQUISITIONS
Mid-Atlantic. In April 1996, the Company acquired a 93% interest in Mid-
Atlantic, the area developer for the Philadelphia area, for an aggregate
purchase price totaling $60.3 million, which included the assumption of $38.5
million in liabilities (including trade payables) owed to third parties by
Mid-Atlantic. The Company's $30.0 million convertible loan to Mid-Atlantic was
eliminated in the Company's consolidated financial
17
<PAGE>
statements. At the date of the acquisition, Mid-Atlantic operated 78 stores.
The acquisition was accounted for as a purchase and, accordingly, the purchase
price was allocated to identified assets and liabilities based upon their fair
values at the date of acquisition, resulting in the Company recording $74.4
million in goodwill. The results of operations of Mid-Atlantic have been
included in the Company's consolidated results of operations since the date of
such acquisition. The Company was approached by Mid-Atlantic's largest equity
holder regarding whether the Company had an interest in purchasing its equity
interest in Mid-Atlantic. Given the desire of such equity holder to sell its
interest, the Company decided, in the exercise of its business judgment, to
acquire Mid-Atlantic primarily based on the Company's desire to own additional
Company stores, the accelerated status of Mid-Atlantic's market penetration
(due primarily to its purchase and conversion of a significant number of Roy
Rogers stores in 1994), Mid-Atlantic having substantially completed its
original development schedule, the anticipated future performance of Mid-
Atlantic's stores and the Company's belief that the Company was able to more
efficiently and economically obtain any remaining required financing. The
acquisition of Mid-Atlantic was the result of arms' length negotiations between
the Company and the equity holders of Mid-Atlantic, none of whom was an officer
or director of the Company.
New Jersey Rose. In July 1996, the Company converted its loan to New Jersey
Rose, the area developer for the southern New Jersey area, into a 71% equity
interest in New Jersey Rose. The conversion premium on such loan was 13% above
the price per unit paid by the equity holders in New Jersey Rose. Immediately
after such conversion, Mid-Atlantic acquired 100% of the equity interests in
New Jersey Rose from the Company and the minority equity holders of New Jersey
Rose for an aggregate purchase price of $13.4 million, which included the
assumption of $1.1 million in liabilities (including trade payables) owed to
third parties by New Jersey Rose. At the date of such acquisition, New Jersey
Rose operated 12 stores in a development territory geographically contiguous to
Mid-Atlantic's development territory. The acquisition was accounted for as a
purchase and, accordingly, the purchase price was allocated to identified
assets and liabilities based upon their fair values at the date of acquisition,
resulting in the Company recording $7.0 million of goodwill. The results of
operations of New Jersey Rose have been included in the Company's consolidated
results of operations since the date of such acquisition. The Company's
proposal to convert its loan to New Jersey Rose and Mid-Atlantic's decision to
acquire the remaining equity interest in New Jersey Rose were based primarily
on the geographically contiguous territory of New Jersey Rose to that of Mid-
Atlantic and Mid-Atlantic's desire to own such stores and to spread overhead
costs over a larger store base. In addition, Harry Rose, the principal equity
holder and the operator of New Jersey Rose, desired to become an area developer
of ENBC, with rights to develop significantly more Einstein Bros. stores than
the 20 Boston Market stores that New Jersey Rose had the right to develop. In
order for Harry Rose to be able to devote sufficient attention to such venture,
he desired to sell his equity interest in New Jersey Rose. New Jersey Rose's
waiver of the loan conversion moratorium was the result of arms' length
negotiations between the Company and New Jersey Rose and was based on Mid-
Atlantic's agreement to acquire the remaining equity interest in New Jersey
Rose from the holders thereof. No officer or director of the Company held an
ownership interest in New Jersey Rose.
BC New York. In March 1997, the Company acquired a 73% equity interest in BC
New York, L.L.C. ("BCNY") for an aggregate purchase price totaling $85.8
million, which included conversion of the Company's loan to BCNY and the
assumption of $5.8 million in liabilities (including trade payables) owed to
third parties by BCNY. The conversion premium on such loan was 15% above the
price per unit paid by the equity holders in BCNY. As of the date of the
acquisition, total outstanding loan advances to BCNY aggregated $80.0 million.
Additionally, the Company has agreed to acquire an additional 11% of the equity
of BCNY from the current BCNY equity holders for approximately $15.0 million,
with the form of the consideration being subject to continuing negotiations
with such holders. Upon consummation of this transaction, such holders will
retain approximately 16% of the outstanding equity of BCNY (constituting 60% of
their original ownership interest) and the Company has no obligation to acquire
such interests. As a result of the foregoing loan conversion, and assuming the
Company purchases the additional 11% of the equity of BCNY, the Company will
have approximately an 84% interest in BCNY. The BCNY transaction added 118
Boston Market stores, operating in the metropolitan New York area, northern New
Jersey, and Connecticut, to the Company store base. As part of the transaction,
the management of, and current equity investors in, BCNY formed a new Boston
Market area developer which acquired the right to develop approximately 260
additional Boston Market stores in the New
18
<PAGE>
York metropolitan area. Such area developer operates the 118 Boston Market
stores for the Company for a fee that is based on store revenue. The
conversion was accounted for as a purchase and, accordingly, the purchase
price was allocated to identified assets and liabilities based upon their fair
values at the date of conversion, resulting in the Company recording $72.6
million of goodwill (based upon a preliminary allocation). The results of
operations of BCNY have been included in the Company's consolidated results of
operations since the date of the loan conversion. Certain officers and
directors of the Company hold a 10% interest in Market Partners, L.L.C.
("Market Partners"), which held a warrant to acquire a minority equity
interest in BCNY. See "Certain Transactions--Transactions with Area
Developers--Market Partners, L.L.C." Subsequent to its conversion of the BCNY
loan, the Company acquired the warrant for $2.9 million. The Company's
proposal to convert its loan to BCNY was based primarily on the Company's
desire to own additional Company stores, the concentration of BCNY stores
reflective of store penetration in a mature market, geographically contiguous
territory to an existing Company market, the anticipated future performance of
BCNY's stores and the Company's ability to consummate the transaction
utilizing a structure which did not foreclose the infusion of additional local
equity capital in a new area developer. BCNY's waiver of the loan conversion
moratorium was the result of arms' length negotiations between the Company and
BCNY. The Company believes that such waiver was primarily dependent on the
Company's willingness to transfer the BCNY development rights with respect to
the approximately 260 additional Boston Market stores to the new area
developer formed by management of, and current equity investors in, BCNY, and
a negotiated purchase price associated with the proposed acquisition of the
11% equity interest of the current BCNY equity holders.
Conversion or Acquisition Criteria. Any determination to convert any area
developer loan or otherwise acquire an equity interest in any developer
involves 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 such stores versus receiving income as a
franchisor, lender, and service provider, the Company's ability to manage
stores if necessary, the future capital requirements of the area developer and
its ability to raise a portion of such capital, and the demand on Company
resources. However, factors or circumstances unique to a specific transaction
may also impact the Company's decision. 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. There can
be no assurance that the Company will exercise its future rights to acquire an
equity interest in any area developer to which it provides financing or that
such exercise will result in control of the area developer. The Company has no
present intention to convert any of its area developers' loans or otherwise
acquire an equity interest in any area developer.
CURRENT INITIATIVES IN THE BOSTON MARKET SYSTEM
Marketing Strategy
The Company has in the past utilized dual messages to market its lunch and
dinner offerings. Beginning in the second quarter of 1997, management has
begun to modify the Company's marketing strategy to unify its brand message to
market both its lunch and dinner products in a single message, with an
emphasis on its dinner products. Such strategy will also include reduced
levels of price-promoted offers and media spending. The Company believes that
reducing the level of price-promoted offers is an important element in
achieving the overall brand positioning it desires. In addition, the Company
believes that reducing promotions will help improve store-level execution and
enhance customer service.
Menu
The Company believes that variety is a primary factor influencing customer
trial and frequency. As a result, the Company has significantly expanded its
menu offerings to include additional dinner entrees and a line of salads,
soups, and Boston Carver and Extreme Carver sandwiches. In addition, the
Company has introduced an expanded kids' meal menu under the Boston Kids
Market(TM) brand featuring sandwiches, individual meals and educational toys
in child friendly packaging. The Company has also expanded its Boston
Hearth(TM) brand of holiday foods to include Boston Hearth breasts of turkey,
which are marinated and slow-roasted in Boston
19
<PAGE>
Market rotisserie ovens, and banquet meal packages which serve from 10 to 24
people. The Company continually evaluates the Boston Market menu, including
product price points, in its attempt to maximize customer trial and frequency.
Organizational Strategy
The Company's area developers are implementing organizational changes that
centralize administrative functions into four "support area developers" that
will share corporate and managerial resources with geographically contiguous
area developers to minimize area developer overhead expenses while maximizing
store level performance. In addition, the Company and its area developers are
considering various store manager incentive programs. Programs under
consideration include store level bonus compensation plans that are based upon
store performance and potential store level ownership opportunities for the
store manager. The Company believes that the implementation of such
initiatives could reduce overhead expenses and enhance the ability of the
Company and its area developers to attract and retain highly motivated store
managers who would deliver consistently superior performance at the store
level. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
MARKETING AND COMPETITION
The Company markets through television, radio, newspapers and other print
media (including use of free-standing inserts and promotional coupons),
signage, direct mail, and in-store point-of-purchase displays. The Company's
advertising, coupons, menus, and in-store displays concentrate on value
through the purchase of meals or meal combinations, as opposed to a la carte
selections. Both Company and franchise stores contribute to a national
advertising fund to pay for the development of advertising material and to a
local advertising fund to pay for advertising in their respective ADIs. See
"--Area Developers--Franchise Agreements" and Note 8 of Notes to Audited
Consolidated Financial Statements.
The food service industry is intensely competitive with respect to food
quality, concept, location, service, and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than the Company and with substantially longer operating
histories. The Company believes that it competes with national, regional, and
local take-out food service companies, quick service restaurants, casual full-
service dine-in restaurants, delicatessens, cafeteria-style buffets, and
prepared food stores, as well as with supermarkets and convenience stores.
Competitors include pizza restaurants, Chinese food restaurants, other
purveyors of carry-out food, and convenience dining establishments, including
such chains as Pizza Hut, McDonald's, Kenny Rogers Roasters, and others. The
Company believes that Boston Market stores compete favorably in the important
factors of taste, food quality, convenience, customer service, and value, and
that its area developer organizational structure, communication systems, and
concentrated market development provide it with competitive advantages.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product, and local competitive
factors. Multi-unit food service chains such as the Company can also be
substantially adversely affected by publicity resulting from food quality,
illness, injury, or other health concerns (including food-borne illness
claims) or operating issues stemming from one store or a limited number of
stores, whether or not the Company is liable. Claims relating to foreign
objects, food-borne illness, or operating issues are common in the food
service industry and a number of such claims may exist at any given time. The
Company attempts to manage or adapt to these factors, but it should be
recognized that some or all of these factors could cause the Company and some
or all of its area developers and franchisees to be adversely affected.
VENDORS
The Company maintains relationships with a variety of suppliers of proteins,
fresh vegetables, fruits, and other produce, spices and seasonings, paper
products, smallwares, furniture, equipment, fixtures, and other items and
services. The Company has a national account relationship with Marriott
Distribution Services Corporation,
20
<PAGE>
which provides for deliveries of food, paper, and smallware products to
participating stores several times a week at a negotiated standardized mark-up
above cost. The Company has entered into supply agreements with Hudson Foods,
Inc. and Tyson Foods, Inc. under which the Boston Market system purchases a
significant portion of its chicken, turkey, ham and meatloaf needs. The Boston
Market system utilizes a number of other suppliers of these products and the
Company believes that alternative sources are available if current suppliers
are unable to provide adequate quantities of these or other products or
services at acceptable prices. The Boston Market system is subject to potential
shortages or interruptions in supply caused by transportation strikes, adverse
weather, or other conditions which could adversely affect the availability,
quality, and cost of ingredients.
The Company is working to consolidate the number of vendors who provide
products and services to the Boston Market system. The Company believes that,
based upon the number of stores in the Boston Market system and the volume
purchases associated therewith, it is capable of negotiating purchase
agreements that will provide savings to it and its area developers.
TRADEMARKS AND SERVICE MARKS
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including Boston
Market(R), Boston Chicken(R), Boston Carver(R), and the current Boston Market
logo. In addition, the Company has trademark applications pending for a number
of additional marks, including Extreme Carver(TM) and Boston Hearth(TM). The
Company has also made application for other trademarks and service marks,
primarily designations of particular food products and services with a "Boston"
appellation.
In addition, the Company has registered or made application to register its
name (or, in certain cases, its name in connection with additional words or
graphics) in more than 70 foreign countries and is currently registering the
Boston Market(R) name or logo in most of such countries, although there can be
no assurance that any mark is registrable in every country registration is
sought. The Company considers its intellectual property rights to be important
to its business and actively defends and enforces them.
ENBC owns a number of federal trademarks and service mark registrations and
has federal trademark applications pending for additional trademarks and
service marks. ENBC has made application to register certain of its trademarks
in approximately 70 foreign countries.
REGULATION
Boston Market stores are required to comply with Federal, state, and local
government regulations applicable to consumer food service businesses
generally, including those relating to the preparation and sale of food,
minimum wage requirements, overtime, working and safety conditions, and
citizenship requirements, as well as regulations relating to zoning,
construction, health, business licensing, and employment. The Company believes
that it and its area developers and franchisees are in material compliance with
these provisions.
Certain states and the Federal Trade Commission require a franchisor to
transmit specified disclosure statements to potential franchisees before
granting a franchise. Additionally, some states require the franchisor to
register its franchise with the state before it may offer a franchise. The
Company believes that its Uniform Franchise Offering Circular (together with
any applicable state versions or supplements) complies with both the Federal
Trade Commission guidelines and all applicable state laws regulating
franchising in those states in which it has offered franchises.
EMPLOYEES
As of May 30, 1997, the Company and ENBC had approximately 4,100 employees,
including approximately 700 employed at their support centers in Golden,
Colorado, and approximately 3,400 employed as salaried or hourly personnel at
Company stores. None of the Company's or ENBC's employees are represented by
any labor union or covered by any collective bargaining contract. The Company
and ENBC believe their relationships with their employees are good. In June
1997, the Company reduced its support center workforce by approximately 115
people.
21
<PAGE>
PROPERTIES
The Company and ENBC lease their support centers (containing their principal
executive offices, Boston Market test kitchen and Einstein Bros. test bakery,
and training facilities), which are located in approximately 157,000 square
feet of space in Golden, Colorado. The Company also leases approximately 25,000
square feet of additional office space in a building near its support center.
The Company considers its offices to be in good condition.
The Company also owns or leases land or buildings for its Company stores. In
certain circumstances, the Company owns or leases land or buildings which it
then leases or subleases to its area developers. Stores leased by the Company
are typically leased under "triple net" leases that require the Company to pay
real estate taxes, maintenance costs, and insurance premiums and, in a few
cases, to pay percentage rent based on sales in excess of specified amounts.
Generally, the Company's leases have initial terms of five years with options
to renew for three additional five year periods.
LEGAL PROCEEDINGS
The Company and ENBC, like others in the food service business, are from time
to time the subject of complaints, threat letters, or litigation from customers
alleging illness, injury, or other food quality, health (including food-borne
illness claims), or operational concerns. Claims relating to foreign objects,
food-borne illness or operating issues are common in the food service industry
and a number of such claims may exist at any given time. Adverse publicity
resulting from such allegations may materially adversely affect the Company and
ENBC and one or more of their brands, regardless of whether such allegations
are valid or whether the Company or ENBC are liable. In addition, the Company
and ENBC encounter complaints and allegations from former or prospective
employees or others from time to time, as well as other matters which are
common for large businesses such as the Company and ENBC. The Company does not
believe that any such matters of which it is aware are material to the Company
individually or in the aggregate, but matters may arise which could adversely
affect the Company or its business operations.
On June 23, 1997, an action was filed in the United States District Court for
the District of Colorado against the Company and two of the Company's directors
and officers (such individuals are collectively referred to herein as the
"Individual Defendants"). The complaint alleges, among other things, that the
Company and the Individual Defendants violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder. The plaintiff is seeking, among
other things, (i) to certify the complaint as a class action on behalf of all
persons who purchased the Common Stock of the Company during the purported
class period, and (ii) an award of compensatory damages to all members of the
purported class. The Company believes that the complaint is without merit and
intends to vigorously defend against the allegations made in such complaint.
The Company believes that the lawsuits, claims, and other legal matters to
which it and ENBC have become subject in the course of their business are not
material to the Company's consolidated financial position or results of
operations.
EINSTEIN/NOAH BAGEL CORP.
General. In March 1995, the Company made an investment in ENBC, which was
created through the combination of a number of leading regional bagel
retailers. ENBC franchises specialty retail stores that feature fresh-baked
bagels, proprietary cream cheeses, specialty coffees and teas, and creative
soups, salads and bagel sandwiches, and other related products, primarily under
the Einstein Bros. Bagels and Noah's New York Bagels brand names. The Company
owns approximately 17.3 million shares (representing approximately 52%) of the
outstanding common stock of ENBC as of June 25, 1997. The common stock of ENBC
is quoted on the Nasdaq National Market under the symbol "ENBX". On June 25,
1997, the last sale price of the common stock of ENBC as reported on the Nasdaq
National Market was $13 1/16 per share.
ENBC Area Developers. As of April 21, 1997, there were 420 stores in
operation systemwide, all of which were operated by area developers financed in
part by ENBC. Such financing generally permits ENBC in certain circumstances to
convert its loan into a majority equity interest in the area developer at a
premium over the price
22
<PAGE>
per unit paid by the investors in the area developer for their equity
investments. As of April 21, 1997, ENBC had entered into area development
agreements that provide for the development of 1,047 additional stores, the
majority of which are scheduled to open over the next three years. ENBC
estimates that there will be between 615 and 665 stores in operation
systemwide by the end of 1997. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 6.
The following table sets forth information as of April 21, 1997 concerning
ENBC's nine area developers. The operating principals of such area developers
listed below each have experience in the multi-unit retail industry ranging
from 10 to 30 years.
<TABLE>
<CAPTION>
ADDITIONAL
PRIMARY OPERATING STORES STORES
AREA DEVELOPER MARKETS PRINCIPAL OPEN COMMITTED
-------------- ------- --------- ------ ----------
<C> <S> <C> <C> <C>
Einstein Bros. Bagels(1):
Colonial Bagels, L.P.(2)(3) Boston, Cleve- Robert Schlacter 45 217
land, Pitts-
burgh, Colum-
bus, New York
City metropol-
itan area
Finest Bagels, L.L.C.(2) Kansas City, Edwin Brownell 61 127
St. Louis,
Minneapolis,
Dallas/Ft.
Worth, Hous-
ton, Austin
Great Lakes Bagels, L.L.C. Milwaukee, Joseph Hoog 53 144
Chicago, De-
troit, Madi-
son, Indianap-
olis
Gulfstream Bagels, L.P.(2) Miami, Fort Robert Hartnett 47 122
Lauderdale,
West Palm
Beach, Orlan-
do, Tampa, At-
lanta(4),
Charlotte
Mayfair Bagels, L.P.(2) Washington, Steven Quamme 37 123
D.C., Balti-
more, Rich-
mond, Phila-
delphia
Sunbelt Bagels, L.L.C.(2)(3) San Diego, Pearce Tucker 75 112
Palm Springs,
Orange County,
San Bernardino
County, Den-
ver, Salt Lake
City, Phoenix,
Tucson,
Albequerque,
Las Vegas,
Colorado
Springs
Noah's New York Bagels:
Noah's Bay Area Bagels, L.L.C. Sacramento, Jim Mizes 51 44
San Francisco/
Oakland/San
Jose, Fresno
Noah's Pacific, L.L.C. Portions of Jim Mizes 51 158
Los Angeles,
Portland,
Seattle/Tacoma
--- -----
Total 420 1,047
=== =====
</TABLE>
- --------
(1) Includes 11 stores operated under the Bagel & Bagel brand, one store
operated under the Offerdahl's Bagel Gourmet brand, seven stores operated
under the Baltimore Bagel brand, 15 stores operated under the Bagel
Boulevard brand and one store operating under the Bagel Street Cafe brand.
ENBC's area developers intend to convert all such stores to Einstein Bros.
Bagels stores by early 1998.
(2) Effective April 21, 1997, Alamo Bagels, L.P. ("Alamo") merged into Finest
Bagels, L.L.C., BCE West Bagels, L.L.C. ("BCE West") merged into Sunbelt
Bagels, L.L.C., and Liberty Foods, L.L.C. ("Liberty") merged into Colonial
Bagels, L.P. Prior to such mergers, Alamo, BCE West and Liberty were area
developers of ENBC. In addition, effective April 21, 1997, Gulfstream
Bagels, L.P. acquired certain development rights, stores and other assets
of Mayfair Bagels, L.P. ("Mayfair") in Atlanta and Charlotte. In addition,
effective June 17, 1997, Philly Rose, L.P. ("Philly Rose") merged into
Mayfair. Prior to such merger, Philly Rose was an area developer of ENBC.
In each of the merger transactions, owners of equity
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<PAGE>
interests in the merging area developer received equity interests in the
surviving area developer. Such transactions were the result of arms' length
negotiations between the relevant area developers and conditioned upon the
consent of ENBC in its capacity as franchisor. ENBC believes that further
consolidation of its area developers primarily will be the result of
negotiations by and among such area developers, with input and suggestions
from ENBC in its capacity as franchisor.
(3) Lawrence Beck owns a minority interest in such area developers. The Company
and ENBC do not believe Lawrence Beck is an affiliate of the Company or
ENBC. No officer or director of the Company or ENBC, including members of
their immediate families, owns a controlling equity interest in any ENBC
area developer.
(4) Stores in the Atlanta metropolitan area operate under the Melvyn &
Elmo's(TM) brand because ENBC does not currently have the right to use the
Einstein Bros. Bagels brand for restaurant services in the Atlanta
metropolitan area.
As of June 25, 1997, ENBC had not converted (nor did it have the right to
convert) any loan to any area developer or otherwise acquired any equity
interest in any area developer. In making a determination to convert any ENBC
area developer loan or otherwise acquire an equity interest in any ENBC area
developer, ENBC expects to use the same economic and operational considerations
as the Company. See "--Area Developer Conversions or Acquisitions--Conversion
or Acquisition Criteria." Any loan conversion or other acquisition of any
equity interest by ENBC in any ENBC area developer would not be indicative of
whether ENBC intended to, or would, convert or otherwise acquire an equity
interest in any other area developer. There can be no assurance that ENBC will
exercise its future rights to acquire an equity interest in any area developer
to which it provides financing or that such exercise will result in control of
the area developer.
ENBC's area developers are pursuing a rapid expansion strategy similar to
that of the Company's area developers. Consequently, the Company believes that
ENBC's area developers will continue to incur net losses during their rapid
expansion phase. The Company also believes, however, that the factors
applicable to start-up losses and recovery of such losses by the Boston Market
area developers should apply to ENBC area developers as well. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6. See also "--Area Developers".
For additional information on ENBC, see "Certain Transactions--Einstein/Noah
Bagel Corp."
PROGRESSIVE FOOD CONCEPTS, INC.
On January 31, 1997, PFCI entered into a series of agreements with Harry's,
an operator of retail food stores in the Atlanta area. The common stock of
Harry's is quoted on the Nasdaq National Market under the symbol "HARY". The
transaction permits PFCI to develop a business model based on Harry's existing
businesses and potentially acquire a significant equity investment in Harry's.
The Company has provided PFCI with a $17.0 million secured loan that is
convertible, after a moratorium period and subject to PFCI meeting certain
financial performance criteria, into a majority equity interest in PFCI. See
"Certain Transactions--Progressive Food Concepts, Inc."
Harry's owns and operates five stores in the Atlanta area, including: three
Harry's Farmers Markets, mega-markets specializing in high quality fruits,
vegetables, meats and seafood, fresh bakery goods, fresh ready-to-heat and
ready-to-eat prepared foods, and deli, cheese and dairy products; and two
smaller Harry's In A Hurry stores, which emphasize high quality, fresh ready-
to-heat prepared foods and specialty perishables. Harry's line of over 300
ready-to-heat prepared meals are made in its 28,000 square foot USDA-approved
manufacturing facility, and over 200 proprietary bakery items are baked fresh
daily in its 55,000 square foot bakery.
Pursuant to the agreements with Harry's, PFCI has acquired beneficial
ownership of, and a royalty-free license to use, all of Harry's intellectual
property and trademark rights outside the states of Georgia and Alabama
(including all rights to the Harry's Farmers Market and Harry's In A Hurry
retail concepts) and access to Harry's personnel, information, and facilities
for purposes of developing a business model based on Harry's businesses. PFCI
has also obtained the right to acquire, subject to certain conditions, up to
seven million shares of Harry's Class A common stock (representing
approximately 43% of Harry's currently outstanding common stock and
24
<PAGE>
approximately 20% of the voting power of such outstanding common stock), and a
right of first refusal with respect to additional financings and business
combination transactions into which Harry's may propose to enter.
Messrs. Beck and Nadhir each own a 46.2% equity interest in PFCI and Harry's
owns a 7.6% equity interest in PFCI. Messrs. Beck and Nadhir currently intend
to offer a significant portion of their shares of PFCI common stock to other
persons, who may include area developers of the Company. The Board of
Directors of the Company has determined that effective upon the sale by Mr.
Nadhir to other persons of a majority of his interest in the common stock of
PFCI and Mr. Nadhir's resignation as an officer of PFCI, the number of
directors of the Company would increase to ten and Mr. Nadhir would be
appointed as a director and Co-Chairman of the Company, in each case without
further action by the Board.
BOSTON MARKET INTERNATIONAL
The Company is in the preliminary stage of taking the Boston Market brand
into foreign markets, which could occur through license, franchise, area
development, joint venture, or other arrangements. The Company and BMI have
entered into a letter of intent with John Sun, a restaurant developer in
Southeast Asia, that contemplates the grant by the Company to BMI of certain
development rights and the formation of a new entity that would sublicense
from BMI the right to develop up to 600 Boston Market stores in Taiwan and the
People's Republic of China. BMI is a newly formed entity that intends to seek
private equity financing from third parties in order to provide its initial
equity capital. The Company is negotiating a license with BMI which would
grant to BMI the rights to develop Boston Market stores in such countries, and
a convertible loan from the Company to BMI which could be convertible into a
majority equity interest in BMI. On May 31, 1997, the Company, BMI and Mr. Sun
agreed to extend, until June 1, 1998, the period during which such parties may
negotiate and execute definitive agreements providing for BMI's development of
Boston Market stores and Mr. Sun's sublicense from BMI. The extension resulted
from Mr. Sun's desire to explore the possible opportunity to integrate the
offerings of fresh, ready-to-heat prepared foods in Boston Market
international stores and the Company's desire to focus, in the short-run, on
its domestic business. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS"
ON PAGE 6. See also "Risk Factors--Development of Business of Boston Market
International, Inc."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth, for each of the Company's fiscal quarters
indicated below, the high and low sale prices of the Common Stock as quoted on
the Nasdaq National Market as reported by The Wall Street Journal (Western
Edition).
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995:
First Quarter........................................... 19 7/8 14 1/2
Second Quarter.......................................... 26 5/8 16 7/8
Third Quarter........................................... 27 1/2 23
Fourth Quarter.......................................... 35 7/8 25 7/8
1996:
First Quarter........................................... 37 5/8 27 3/8
Second Quarter.......................................... 37 27 1/4
Third Quarter........................................... 36 3/8 24 1/8
Fourth Quarter.......................................... 41 1/2 31 3/8
1997:
First Quarter........................................... 38 1/4 24 3/8
Second Quarter (through June 24, 1997).................. 25 1/2 14
</TABLE>
On June 25, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $15 3/8 per share. At June 25, 1997, there were
approximately 2,900 record holders of the Common Stock.
The Company has never paid cash dividends on its Common Stock and the Board
of Directors intends to continue a policy of retaining any earnings for use in
the Company's operations. The Company does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's current senior
credit facilities prohibit the payment of any cash dividends.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF STORES)
The following table sets forth selected consolidated financial and store
data for the Company, including ENBC from the date of conversion (June 17,
1996) of the Company's loan to ENBC. This data should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1) QUARTERS ENDED(1)
---------------------------------------------------- ------------------
DEC. 27, DEC. 26, DEC. 25, DEC. 31, DEC. 29, APR. 21, APR. 20,
1992 1993 1994 1995 1996(2) 1996 1997
-------- -------- -------- -------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenue:
Royalties and
franchise related
fees.................. $ 2,627 $ 11,551 $ 43,603 $ 74,662 $ 115,510 $ 28,046 $ 41,432
Interest income........ -- 1,130 11,632 33,251 65,048 17,987 25,240
Company stores......... 5,656 29,849 40,916 51,566 83,950 1,314 50,092
------- -------- -------- -------- ---------- -------- --------
Total revenue........ 8,283 42,530 96,151 159,479 264,508 47,347 116,764
Costs and expenses:
Cost of products sold.. 2,241 11,287 15,876 19,737 31,160 480 18,744
Salaries and benefits.. 7,110 15,437 22,637 31,137 42,172 7,509 21,911
General and
administrative........ 5,241 13,879 27,930 41,367 99,847(3) 10,811 30,088
Provision for
relocation............ -- -- 5,097 -- -- -- --
------- -------- -------- -------- ---------- -------- --------
Total costs and
expenses............ 14,592 40,603 71,540 92,241 173,179 18,800 70,743
------- -------- -------- -------- ---------- -------- --------
Income (loss) from
operations............. (6,309) 1,927 24,611 67,238 91,329 28,547 46,021
Other income (expense).. 459 (280) (4,161) (12,865) 23,854(4) (2,791) (6,554)
------- -------- -------- -------- ---------- -------- --------
Income (loss) before
income taxes and
minority interest...... (5,850) 1,647 20,450 54,373 115,183 25,756 39,467
Minority interest in
(earnings) of
subsidiary............. -- -- -- -- (5,235) -- (2,586)
Income taxes............ -- -- 4,277 20,814 42,990 10,107 15,433
------- -------- -------- -------- ---------- -------- --------
Net income (loss)....... $(5,850) $ 1,647 $ 16,173 $ 33,559 $ 66,958 $ 15,649 $ 21,448
======= ======== ======== ======== ========== ======== ========
Net income (loss) per
common and equivalent
share................. $ (0.21) $ 0.06 $ 0.38 $ 0.66 $ 1.01 $ 0.24 $ 0.32
======= ======== ======== ======== ========== ======== ========
Weighted average
number of common and
equivalent shares
outstanding........... 28,495 32,667 42,861 50,972 66,501 64,317 67,966
STORE DATA (UNAUDITED):
Systemwide Boston
Market store
revenue(5)............ $42,654 $152,056 $383,691 $792,948 $1,166,591 $311,798 $415,238
Number of Boston
Market stores:
Beginning of period.. 34 83 217 534 829 829 1,087
Opened............... 50 138 323 310 273 70 72
Closed(6)............ (1) (4) (6) (15) (15) (5) 0
------- -------- -------- -------- ---------- -------- --------
End of period........ 83 217 534 829 1,087 894 1,159
======= ======== ======== ======== ========== ======== ========
Company stores....... 19 38 41 3 105 3 226
Franchised stores.... 64 179 493 826 982 891 933
Systemwide Einstein/Noah Bagel store revenue(5)... $ 26,986(7) $ 145,631 $ 29,764 $ 84,469
Number of Einstein/Noah Bagel stores:
Beginning of period............................. -- 60 60 315
Opened or acquired.............................. 60 266 87 105
Closed(8)....................................... -- (11) (9) 0
-------- ---------- -------- --------
End of period................................... 60 315 138 420
======== ========== ======== ========
Company stores.................................. 47 14 61 0
Franchised stores............................... 13 301 77 420
</TABLE>
<TABLE>
<CAPTION>
AT DEC. 27, AT DEC. 26, AT DEC. 25, AT DEC. 31, AT DEC. 29, AT APR. 20,
1992 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital................. $ 7,816 $ 2,788 $ 32,049 $ 313,483 $ 58,829 $ (3,584)
Notes receivable................ 773 45,716 202,500 456,034 800,519 852,834
Total assets.................... 22,670 110,064 426,982 1,073,877 1,543,616 1,635,917
Long-term debt.................. -- -- 130,000 307,178 312,454 381,871
Stockholders' equity............ $17,037 $ 94,906 $259,815 $ 716,831 $ 935,840 $ 968,989
</TABLE>
26
<PAGE>
- --------
(1) The Company's fiscal year is the 52/53-week period ending on the last
Sunday in December and normally consists of 13 four-week periods. The
first quarter consists of four periods and each of the remaining quarters
consists of three periods. The fiscal year ended December 31, 1995
includes 53 weeks of operations.
(2) On June 17, 1996, the Company began consolidating ENBC's results of
operations as a result of the Company's conversion of its loan to ENBC
into a majority equity interest in ENBC's common stock. Giving pro forma
effect of the Company's loan conversion as of the beginning of the
Company's fiscal year, total revenue, net income, and net income per
common and equivalent share were $292,030,000, $59,522,000, and $0.90,
respectively.
(3) Includes non-recurring charges of approximately $38.0 million.
(4) Includes non-recurring gains of approximately $38.2 million.
(5) Includes gross revenue for all stores in the respective Boston Market or
Einstein/Noah systems.
(6) Such stores were closed due to operating or site-related issues, changes
in the market or trade area, changes in store development strategy, or
failure of the store to meet desired sales or profitability levels. Of
such stores, the Company closed two stores located in Michigan and area
developers closed the remaining stores located in 15 states. Such stores
were open for an average of 2.5 years prior to their closing. Costs
associated with such closings were expensed by the owners of such stores.
(7) Reflects period from March 24, 1995 (inception) through December 31,
1995.
(8) Such stores were closed because the sites were determined to be
unsuitable for the Einstein Bros. Bagels brand and store. The Company
closed five stores in Colorado and one store in California and area
developers closed the remaining stores located in three states. Such
stores were open for an average of approximately 23 months prior to
closing. Costs associated with such closings were expensed by the owners
of such stores.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
During fiscal year 1996, the Company converted its loan into a majority
equity interest in ENBC and acquired a 93% interest in Mid-Atlantic, its
Boston Market area developer for the Philadelphia area. Subsequent to the
Company's acquisition of its interest in Mid-Atlantic, Mid-Atlantic acquired
100% of the equity interest in New Jersey Rose, the Boston Market area
developer for the southern New Jersey area. In March 1997, the Company
converted its loan to BCNY into a majority equity interest in BCNY, its Boston
Market area developer for the metropolitan New York, northern New Jersey, and
Connecticut areas. Additionally, the Company has agreed to acquire a portion
of the current equity holders' interest in BCNY, which, if acquired, will
result in the Company having an equity interest in BCNY of approximately 84%.
See "The Company--Area Developer Conversions or Acquisitions".
As a result of these transactions, the revenue previously generated by the
Company as a lender and service provider to ENBC and as a lender, franchisor,
and service provider to such area developers prior to the date of the
respective transactions has been eliminated in consolidation and replaced with
revenue and operating expenses from ENBC franchise operations as well as from
ENBC company-owned stores and from Company-owned stores from and after the
dates of the respective transactions. The foregoing results are adjusted in
the "minority interest" line item to reflect the minority interests not owned
by the Company. As a result of these transactions, the operating results for
the current reporting periods are not readily comparable to prior periods.
COMPANY-OWNED STORES
As part of its rapid store development strategy, the Company had a practice
of "seeding" a start-up market with Company stores, which the Company would
subsequently sell to a newly-formed area developer for that market. In 1994
and 1995, as part of its store seeding practice, the Company sold 54 and 91
Boston Market stores, respectively, to newly formed area developers. As a
result of the completion of the area developer network in 1995, the Company no
longer has the need to "seed" start-up markets with Boston Market stores. ENBC
has also seeded markets in a manner similar to that previously undertaken by
the Company. ENBC sold 59 stores to its area developers in 1996 and it
completed its store seeding program in March 1997. As a result of the sale of
Company stores to newly-formed area developers, revenue and operating expenses
from such stores (while owned by the Company and ENBC) was replaced with
revenue generated as a franchisor and service provider. There have been no
material gains or losses recognized as a result of the sales.
Because of the store seeding program, stores owned by the Company in 1994
and 1995 were generally newer stores in start-up markets. Typically, these
stores tend to have higher costs due to employee inexperience and resulting
inefficiencies, a lack of store-specific operating history to assist in
forecasting daily food and labor needs, and lack of brand awareness in their
market area. Beginning with the acquisition of the Mid-Atlantic stores, the
Company has established a base of Company-owned stores that it believes are
more reflective of mature store performance in an established market. The
following table sets forth store performance data for Company stores for the
quarter ended April 20, 1997 (in thousands of dollars). Such amounts exclude
unallocated capital charges, income taxes and non-store overhead costs,
including accounting, administration and discretionary advertising:
<TABLE>
<S> <C> <C>
Net sales.................................................. $47,511 100.0%
Food and paper costs....................................... 17,826 37.5%
Salaries and benefits...................................... 11,396 24.0%
Operating expenses......................................... 4,049 8.5%
Occupancy and advertising costs............................ 5,569 11.7%
------- -----
Store cash flow............................................ $ 8,671 18.3%
======= =====
</TABLE>
28
<PAGE>
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenue. Total revenue increased 66% for 1996 over 1995. Royalties and
franchise related fees increased 55%, primarily attributable to higher
royalties resulting from an increase in revenue from Boston Market franchised
stores and the inclusion of ENBC royalties from the date of conversion of the
Company's loan into ENBC common stock. Total Boston Market systemwide store
revenue increased to $1.2 billion in 1996, up 47% from $792.9 million in 1995.
The increase in systemwide store revenue was due primarily to an increase in
the number of Boston Market stores open and higher average revenue per store.
Gross weekly per store average ("WPSA") revenue per Boston Market store
increased 6.6% to $24,064 for 1996, from $22,570 in 1995. 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. ENBC's royalties and franchise related fees accounted for
37% of the increase in royalty and franchise related fees for 1996. Interest
income increased 96% over 1995 due to higher outstanding loan balances
associated primarily with the increases in stores opened by Boston Market and
ENBC area developers. ENBC's interest income from area developer financing
accounted for 16% of the increase in interest income.
Revenue from Company-owned stores is significantly affected by the average
number of such stores operating in the periods being compared. The average
number of Company stores for 1996 was 64 compared to 37 for 1995. This change
in average number of stores is attributable to the timing of store sales to
area developers in 1995 and the acquisition of stores in 1996. Revenue from
Company stores increased 63% for 1996 compared with 1995. The increase for the
fiscal year was due to a combination of a higher average number of Company
stores operating during fiscal 1996 and the inclusion of ENBC's company stores
from the date of conversion of the ENBC loan. Revenue from ENBC company stores
accounted for 24% of the increase in store revenue for the fiscal year.
Cost of Products Sold. As a result of a higher average number of Company
stores operating during the year, cost of products sold increased 58% for 1996
compared with 1995. ENBC's company stores accounted for 24% of the increase in
cost of products sold for the fiscal year. Costs of products sold, as a
percentage of Company store revenue, decreased from 38.3% in 1995 to 37.1% in
1996. The decrease in the percentage was attributable to the inclusion of
ENBC's company stores (from the date of conversion of the ENBC loan) which
have a lower cost of sales than Boston Market stores and improved management
of waste and operational variability at Boston Market stores.
Salaries and Benefits. Salaries and benefits increased 35% for 1996 from
1995, primarily as a result of the higher average number of Company stores
operating in 1996. The increase was also due to the inclusion of ENBC
employees from the date of conversion of the Company's loan to ENBC and an
increased number of employees at the Company's support center necessary to
support systemwide expansion. ENBC accounted for 39% of the increase in
salaries and benefits for the year.
General and Administrative. Included in general and administrative expenses
for 1996 were non-recurring charges of approximately $38 million for asset
write-downs and a provision to purchase certain store equipment from Boston
Market area developers related to the introduction of the new F.A.S.T. Track
service system designed to provide faster service to Boston Market customers.
Absent these items, general and administrative expenses increased 50% for
1996. The increase for the year 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 of the Company's loan to ENBC. Excluding the non-
recurring charges, ENBC accounted for 38% of the increase in general and
administrative expenses for the year. Included in general and administrative
expenses were depreciation and amortization charges of $22.9 million in 1996
compared with $11.4 million in 1995. The increase in depreciation and
amortization expense was primarily attributable to a higher fixed asset base
reflecting the Company's and ENBC's investment in support center
infrastructure as well as the goodwill associated with the acquisition of the
interest in Mid-Atlantic and the conversion of the ENBC loan.
29
<PAGE>
Other Income (Expense). Included in other income (expense) for the year was
a $38.2 million gain recognized as a result of ENBC issuing approximately 8.9
million shares of ENBC common stock to third parties at prices per share
greater than the Company's carrying value. See Note 13 of Notes to Audited
Consolidated Financial Statements. Absent this gain, the Company had a net
expense of $14.3 million compared with a net expense of $12.9 million in 1995.
This increase was due to additional interest expense incurred in 1996
resulting from the Company's LYONs being outstanding during all of 1996 versus
only a portion of the year in 1995.
Income Taxes. The provision for income taxes for 1996 reflects the Company's
expected effective tax rate.
Minority Interest. The minority interest in the earnings of subsidiary of
$5.2 million for 1996 represents the minority ownership interest in the
earnings of ENBC.
Fiscal Year 1995 Compared to Fiscal Year 1994
Revenue. Total revenue increased 66% for 1995 from 1994. Royalty and
franchise related fees increased 71% primarily due to an increase in royalties
attributable to the larger base of franchise stores operating systemwide, from
493 stores at December 25, 1994 to 826 stores at December 31, 1995 and an
increase in lease and real estate services income. Interest income increased
as a result of increased loans made to certain area developers.
Revenue from Company stores increased 26% for 1995 due to a combination of a
higher average number of Company stores open and higher average store revenue
during 1995. The Company had three Company stores at December 31, 1995,
compared to 41 at December 25, 1994. During 1995, the Company sold 91 Company
stores that it had opened to seed development in start-up markets prior to
executing area development agreements for such markets. The Company's seeding
program concluded in 1995 as a result of the completion of its nationwide area
developer network.
Cost of Products Sold. Cost of products sold increased 24% for 1995 from
1994 primarily due to an increase in the number of Company stores open and
higher average store revenue during the year.
Salaries and Benefits. Salaries and benefits increased 38% in 1995 from
1994. The increase resulted from an increase in the number of employees at the
Company's support center necessary to support systemwide expansion and an
increase in the number of employees at Company stores due to a higher average
number of Company stores open during the year.
General and Administrative. General and administrative expenses increased
48% for 1995 from 1994. The increase is attributable to the continued
development of the Company's support center infrastructure necessary to
support systemwide expansion and higher general and administrative expenses at
Company stores resulting from a higher average number of Company stores open
during the year. Included in general and administrative expenses were
depreciation and amortization charges of $11.4 million in 1995 and $6.1
million in 1994. The increase in depreciation and amortization expense is
primarily attributable to a substantially higher fixed asset base reflecting
the Company's investment in its infrastructure.
Other Expense. The Company incurred other expense of $12.9 million in 1995
compared with other expense of $4.2 million in 1994. This increase reflects
higher net interest expense, primarily attributable to the Company's 4 1/2%
Debentures, which were outstanding during all of 1995, interest expense on the
Company's LYONs commencing in June 1995, and short-term borrowings under its
credit facility, partially offset by higher interest income.
Income Taxes. The provision for income taxes for 1995 reflects the Company's
expected effective tax rate.
Fiscal Year 1994 Compared to Fiscal Year 1993
Revenue. Total revenue increased 126% for 1994 from 1993. Royalty and
franchise related fees increased 277% primarily due to an increase in
royalties attributable to the larger base of franchise stores operating
systemwide, from 179 stores at December 26, 1993 to 493 stores at December 25,
1994, and an increase in franchise fees related to the increase in the number
of stores that commenced operation as franchised stores
30
<PAGE>
during the year. Additional factors contributing to the increase in revenue
from royalty and franchise related fees include an increase in lease income
due to a higher number of store sites that the Company owns and leases to area
developers, and recognition of software license and maintenance fees for
store-level computer software systems developed by the Company for use by
franchisees. No software-related fees were earned in 1993. Interest income
increased as a result of increased loans made to certain area developers.
Revenue from Company stores increased 37% for 1994 from 1993. This increase
was due to a higher average number of Company stores open during the year. The
Company had 38 Company stores at December 26, 1993 compared to 41 at December
25, 1994. During 1994, the Company sold 54 Company stores that it had opened
to seed new markets.
Cost of Products Sold. Cost of products sold increased 41% for 1994 from
1993. This increase was primarily due to an increase in the number of Company
stores open during 1994.
Salaries and Benefits. Salaries and benefits increased 47% for 1994 from
1993. The increase resulted from an increase in the number of employees at the
Company's support center necessary to support systemwide expansion and an
increase in the number of employees at Company stores due to a higher average
number of Company stores open during the year.
General and Administrative. General and administrative expenses increased
101% for 1994 from 1993. The increase is attributable to the development of
the Company's support center infrastructure necessary to support systemwide
expansion and higher general and administrative expenses at Company stores
resulting from a higher average number of Company stores open during the year.
Included in general and administrative expenses were depreciation and
amortization charges of $6.1 million in 1994 and $2.0 million in 1993. The
increase in depreciation and amortization expense is primarily attributable to
a substantially higher fixed asset base reflecting the Company's investment in
its infrastructure.
Provision for Relocation. In September 1994, the Company consolidated its
four Chicago-based support center facilities into a single facility and
relocated to Golden, Colorado. The total cost of the relocation was $5.1
million.
Other Expense. The Company incurred other expense of $4.2 million in 1994,
compared with other expense of $0.3 million in 1993. This increase reflects
higher interest expense, primarily attributable to the $130.0 million of the 4
1/2% Debentures and short-term borrowings under its unsecured credit facility,
partially offset by higher interest income.
Income Taxes. Included in income taxes in 1994 is a $3.5 million benefit
reflecting an adjustment to the valuation allowance previously provided
against deferred tax assets.
Quarter Ended April 20, 1997 Compared to Quarter Ended April 21, 1996
Revenue. Total revenue increased 147% for the quarter ended April 20, 1997
over the quarter ended April 21, 1996. Royalties and franchise related fees
increased 48%, primarily attributable to the inclusion of ENBC royalties and
franchise related fees and higher royalties resulting from an increase in
revenue from Boston Market franchised stores. ENBC's royalties and franchise
related fees accounted for 70% of the increase in royalty and franchise
related fees for the first quarter of 1997. Interest income increased 40% over
the first quarter of 1996 due to the inclusion of ENBC interest income and
higher outstanding loan balances associated with the increase in stores opened
by Boston Market area developers. ENBC's interest income from area developer
financing accounted for 73% of the increase in interest income.
Revenue from Company stores is significantly affected by the average number
of such stores operating in the periods being compared. The average number of
Company stores for the first quarter of 1997 was 134 compared to 3 for the
first quarter of 1996. This change in average number of stores is attributable
to the acquisition or conversion of Mid-Atlantic, New Jersey Rose, and BCNY.
Revenue from Company stores increased from $1.3 million for the first quarter
of 1996 to $50.1 million for the first quarter of 1997. The increase for the
first quarter of 1997 was due primarily to a higher average number of Company
stores operating during the first quarter of 1997.
Total systemwide Boston Market gross revenue was $415.2 million for the
first quarter of 1997 compared to $311.8 million for the first quarter of
1996. The increase in systemwide store revenue was due primarily to an
31
<PAGE>
increase in the number of Boston Market stores. WPSA revenue per Boston Market
store increased 3.4% from $22,762 for the first quarter of 1996 to $23,528 for
the first quarter of 1997. The cost of customer discounts and promotions to
the stores in the Boston Market system, net of vendor allowances, expressed as
a percentage of systemwide gross revenue, increased from approximately 3% for
the first quarter of 1996 to approximately 7% for the first quarter of 1997.
In general, over the past year the Company believes the increase in customer
discounts and promotions was primarily attributable to an increase in
promotions associated with the introduction of the Boston Carver and Extreme
Carver line of sandwiches. The Company believed that its entry into the highly
competitive sandwich business required a higher level of promotions than its
core dinner business. The Company now believes, however, that because a
significant portion of sandwich sales are occurring at dinner, the promotions
undertaken to drive its sandwich business during the lunch daypart have
negatively affected sales of individual meals at dinner and led to an increase
in promotions of its core dinner products. Accordingly, the Company believes
that reducing the level of price-promoted offers is an important element in
achieving the overall brand positioning it desires. As a result, beginning in
the second quarter of 1997, management has begun to modify the Company's
marketing strategy to unify its brand message to market both its lunch and
dinner products in a single message, with an emphasis on its dinner products.
Such strategy will also include reduced levels of price-promoted offers and
media spending. The Company believes that a reduction in the overall level of
price-promoted offers and media spending will, at least initially, negatively
affect WPSAs, which in turn, will negatively affect store-level profitability.
The Company believes that such strategy has begun to negatively impact store
performance in the second quarter of 1997. The Company believes that it may
take several quarters for customer transactions to return to historical levels
in light of fewer price-promoted offers and lower media spending. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
Cost of Products Sold. As a result of a higher average number of Company
stores operating during the quarter, cost of products sold increased from $.5
million for the first quarter of 1996 to $18.7 million for the first quarter
of 1997. Cost of products sold, as a percentage of Company store net revenue,
increased from 36.5% for the first quarter of 1996 to 37.4% for the first
quarter of 1997. The increase in the percentage was primarily attributable to
lower net revenue resulting from the increased level of customer discounts and
promotions in the first quarter of 1997 compared to the first quarter of 1996.
Salaries and Benefits. Salaries and benefits increased 192% for the first
quarter of 1997 compared to the first quarter of 1996, primarily as a result
of the higher average number of Company stores operating in the first quarter
of 1997. The increase was also due to the inclusion of ENBC employees at both
ENBC company stores and its support center. ENBC accounted for 21% of the
increase in salaries and benefits for the 1997 quarter. In June 1997, the
Company reduced its support center workforce by approximately 115 people. The
workforce reduction is presently estimated by the Company to result in a one-
time charge of up to $4.0 million in the second quarter of 1997. The reduction
in workforce is expected to result in lower salary and benefit expense for the
remainder of 1997. Such workforce reductions are primarily the result of the
elimination of duplicative positions and the consolidation of various
administrative functions. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 6.
General and Administrative. General and administrative expenses increased
178% for the first quarter of 1997 compared to the first quarter for 1996. The
increase for the quarter was attributable to the increased number of Company
stores, greater depreciation and amortization expense, and inclusion of ENBC's
general and administrative expenses. ENBC accounted for 27% of the increase in
general and administrative expenses for the quarter. Included in general and
administrative expenses were depreciation and amortization charges of $10.9
million for the first quarter of 1997 compared with $4.2 million for the first
quarter of 1996. The increase in depreciation and amortization expense was
attributable to the assets acquired from Mid-Atlantic, ENBC, BCNY, and New
Jersey Rose as well as a higher corporate fixed asset base reflecting the
Company's investment in support center infrastructure. The reduction in
workforce is expected to result in lower general and administrative expense
for the remainder of 1997. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 6.
Other Expense. The Company incurred a net expense of $6.6 million for the
first quarter of 1997 compared to a net expense of $2.8 million for the first
quarter of 1996. This increase was due to lower interest income earned in 1997
as a result of a lower cash balance during the quarter compared to the first
quarter of 1996 and
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the incurrence of interest expense in the first quarter of 1997 resulting from
borrowings on the Company's and ENBC's senior secured revolving credit
facilities. Included in other expense for the first quarter of 1997 was a $.7
million gain recognized as a result of ENBC issuing shares of its common stock
to third parties at prices per share greater than the Company's carrying value.
Income Taxes. The provision for income taxes for the first quarter of 1997 is
based upon the Company's anticipated tax rate.
Minority Interest. The minority interest in the earnings of subsidiaries of
$2.6 million for the first quarter of 1997 represents the minority ownership
interest in the earnings of ENBC and BCNY.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased to $144.9 million for 1996 from $55.5
million for 1995 and from $35.9 million for 1994. Income before non-cash
charges and credits increased to $99.4 million for 1996 compared to $65.4
million for 1995 and $26.2 million for 1994. The annual increases were due
primarily to increased net income. Cash provided from working capital was $45.5
million for 1996 compared with a decrease of working capital of $10.0 million
for 1995 and an increase in working capital of $9.8 million for 1994. The
change in working capital for 1996 compared to 1995 was primarily attributable
to increases in accounts payable and accrued expenses experienced as a result
of the general growth of the business. The working capital generated in 1994
resulted from an increase in accounts payable and accrued expenses due to the
general growth in the business and an increase in deferred franchise revenue
associated with executing franchise agreements for new stores.
Cash used in operations was $15.9 million for the first quarter of 1997
compared to cash provided from operations of $27.9 million for the first
quarter of 1996. Income before non-cash charges and credits increased to $40.2
million for the first quarter of 1997 compared to $25.4 million for the first
quarter of 1996 due primarily to increased net income and depreciation and
amortization. Cash provided from working capital was $2.5 million for the first
quarter of 1996 compared with cash used for working capital of $56.1 million
for the first quarter of 1997. The change in working capital in the first
quarter of 1997 compared to the first quarter of 1996 was primarily
attributable to payments of accounts payable and accrued expenses in the first
quarter of 1997.
Cash provided from financing activities over the past three years reflect the
Company's use of various sources of capital to fund its business. During 1996,
the Company sold 2,992,000 shares of its Common Stock for net proceeds of
approximately $100.3 million and ENBC sold 8,670,000 shares of ENBC common
stock, which raised net proceeds of $174.6 million, including purchases by the
Company of $45.9 million of shares of ENBC's common stock.
In 1996, the Company terminated its existing revolving credit facility and
entered into a new $110.0 million senior revolving credit facility. Borrowings
under the revolving credit facility bear interest at either the agent's
reference rate plus an applicable margin or the eurodollar rate plus an
applicable margin, at the Company's option. The revolving credit agreement is
secured by certain assets of the Company and expires in December 1999. The
Company also entered into a new $190.0 million senior secured credit facility,
structured as a master lease, which provides financing for equipment and real
estate for stores operated by the Company and its area developers. The 1996
master lease facility is accounted for as an operating lease, bears interest at
LIBOR plus an applicable margin, and has terms, including renewal options, of
between three and five years. As of December 29, 1996, the Company had utilized
approximately $149.0 million of the facility to retire the existing outstanding
balance under a prior master lease and to finance equipment and real estate for
new stores. Availability of borrowings under the Company's revolving credit
facility and the 1996 master lease facility is formula-based. In connection
with the revolving credit facility and the 1996 master lease facility, the
Company also entered into a facilities agreement, which contains affirmative,
negative, and financial covenants governing both such facilities. The revolving
credit facility and the 1996 master lease facility are also cross-
collateralized and cross-defaulted. As of December 29, 1996, the Company and
ENBC had $50.1 million and $50.7 million, respectively, available in cash and
cash equivalents. In addition, the Company and ENBC had $110.0 million and
$45.0 million, respectively, available under their revolving credit facilities.
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<PAGE>
During 1995, the Company completed the sale of LYONs, for which the Company
received gross proceeds of approximately $172.5 million and sold 10,350,000
shares of its Common Stock for net proceeds of approximately $342.0 million.
See Note 6 of Notes to Audited Consolidated Financial Statements. During 1994,
the Company issued $130.0 million of 4 1/2% Debentures. See Note 6 of Notes to
Audited Consolidated Financial Statements. During 1994, the Company also sold
6,900,000 shares of its Common Stock for net proceeds of approximately $120.0
million.
During the first quarter of 1997, the Company and ENBC borrowed an aggregate
of $65.3 million under their senior secured revolving credit facilities.
Subsequent to the end of the first quarter of 1997, the Company completed the
issuance of $287.5 million in aggregate principal amount of its 7 3/4%
Debentures and ENBC completed the issuance of $125.0 million in aggregate
principal amount of its 7 1/4% convertible subordinated debentures due 2004.
The Company and ENBC utilized a portion of such proceeds to retire the
outstanding balances under their senior secured revolving credit facilities.
During the first quarter of 1996, the Company received net proceeds of $87.4
million from issuance of shares of Common Stock.
The Company's primary use of capital reflects its goal of establishing brand
awareness and market leadership by providing partial financing to its area
developers for their use in store development and to finance their working
capital needs. As of April 20, 1997, the Company had secured loan commitments
to its Boston Market financed area developers aggregating $755.6 million of
which $622.7 million had been advanced. As of April 20, 1997, ENBC had secured
loan commitments to its area developers aggregating $359.9 million, of which
$211.7 million had been advanced. Net loan advances to area developers were
$378.3 million in 1996 (consisting of $1,198.8 million of loan advances, net of
$820.5 million of loan repayments), $210.2 million in 1995 (consisting of
$549.2 million of loan advances, net of $339.0 million of loan repayments), and
$156.4 million in 1994 (consisting of $224.9 million of loan advances, net of
$68.5 million of loan repayments).The annual increases in loan advances were
attributable to more stores being opened each year by the Company's and ENBC's
area developers and consolidation among area developers. Net loan advances to
area developers declined to $126.3 million for the first quarter of 1997
(consisting of $416.7 million of loan advances, net of $290.4 million of loan
repayments) from $138.7 million for the first quarter of 1996 (consisting of
$299.4 million of loan advances, net of $160.7 million of loan repayments). The
majority of the loan advance and repayment activity reflects the revolving
nature of the loans; that is, amounts are drawn and repaid on a regular basis
to optimize cash management. Certain notes to Boston Market area developers
which were issued with original maturities prior to fiscal 1999 have been
amended to change their due dates in connection with the significant expansion
in 1996 of the area developers' development schedules and/or in connection with
the contribution of additional equity capital to an area developer by third
parties. Other loan advances and repayments in 1996 and 1995 consisted
primarily of activity under the Company's convertible loan to ENBC prior to the
date of conversion of the loan.
As a result of executing the rapid expansion strategy required by the
Company, Boston Market financed area developers have incurred net losses in
each of the last three years. The net losses incurred over this three-year
period, which aggregated $156.5 million in 1996, $148.3 million in 1995, and
$51.3 million in 1994, include (a) depreciation and amortization charges of
approximately $93.0 million, (b) approximately $148.0 million attributable to
investment 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, 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. The
net loss amounts for each of the fiscal years represent the aggregate net loss
amounts for all financed area developers, the operations of which were not
consolidated into the Company's financial statements as of the date the Company
first reported such losses for such fiscal year. As a result of the foregoing
factors, as well as ongoing improvements to store operating performance and
increases in scale efficiencies, 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 the store base). 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 ADI, although the
rate of store development may vary within the rapid expansion phase. However,
as a result of the
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<PAGE>
reduction in the rate of store development, the Company expects that the rapid
expansion phase may be extended. 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 investment
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 debt and interest charges, the intensity
of 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 ADIs, the Company believes substantially all of its
financed area developers will remain in the rapid expansion phase during 1997
in most of their ADIs. The Company believes that the modification of its
marketing strategy away from high levels of price-promoted offers and media
spending to reduced levels of price-promoted offers and media spending will,
at least initially, negatively affect store-level profitability. Because
store-level profitability affects, in part, the amount of area developer
losses, the modification of the Company's marketing strategy may negatively
affect the amount of aggregate net losses that the area developers will incur
in 1997. The Company believes, however, that such negative effect may be
offset, in whole or in part, by reduced overhead expenses resulting from
centralized administrative functions and shared corporate and managerial
resources among area developers and reduced price-promoted offers and media
spending. See "The Company--Current Initiatives in the Boston Market System--
Organizational Strategy." 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 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 the completion of its rapid
expansion phase, such event could have a material adverse impact on the
Company's financial position and results of operations. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
The allowance for 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 that management deems
relevant at the time. Based upon this review and analysis, no allowance for
loan losses was required as of December 29, 1996 and April 20, 1997.
Area developer loans are typically convertible into a majority equity
interest in the area developer at a conversion price set forth in the loan
agreement, which is at a premium over the per unit price paid by investors in
the area developer for their equity, after the expiration of a moratorium
period, provided generally that 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 in any area developer 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
such stores versus receiving income as a franchisor, lender, and service
provider, the Company's ability to manage stores if necessary, the future
capital requirements of the area developer and its ability to raise a portion
of such capital, and the demand on Company resources. However, factors and
circumstances unique to a specific transaction may also impact the Company's
decision. 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. There can be no assurance that
the Company will exercise its future rights to acquire an equity interest in
any area developer to which it provides financing or that such exercise will
result in control of the area developer. The Company has no present intention
to convert any of its area developers' loans or otherwise acquire an equity
interest in any area developer.
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<PAGE>
In addition to providing financing to its area developers, the Company's
capital requirements relate to continued development of its corporate
infrastructure, which supports systemwide expansion, acquisition and
development of Company stores, and funding commitments to PFCI and any future
commitments to BMI. The Company has committed to provide PFCI a $17.0 million
convertible secured loan and expects to make a convertible secured loan to BMI.
See "The Company--Progressive Food Concepts, Inc." and "The Company--Boston
Market International." In 1996, the Company expended $50.5 million on its
corporate infrastructure and $49.3 million to acquire and develop Company
stores. During 1995 and 1994, the Company expended $24.9 million and $46.3
million, respectively, on its corporate infrastructure and $87.5 million and
$115.8 million, respectively, to develop Company stores and acquire real estate
for store development. These capital expenditures have been partially offset
with cash proceeds from selling Company stores as a result of the Company's
store seeding practice. The Company generated $54.1 million and $40.5 million
in 1995 and 1994, respectively, from selling Company stores to newly-formed
area developers. During 1996, ENBC generated $30.1 million from the sale of
ENBC company stores to newly-formed area developers. In addition to this
seeding program, the Company generated cash from financing land, building and
equipment of $45.4 million, $18.4 million, and $6.1 million in 1996, 1995, and
1994, respectively.
As of April 20, 1997, the Company had funded $6.9 million of its loan
commitment to PFCI. In the first quarter of 1997, the Company expended $7.4
million on its corporate infrastructure and $18.4 million for Boston Market and
ENBC store acquisition and development, including acquisition of real estate.
In the first quarter of 1996, the Company expended $20.9 million on its
corporate infrastructure and $6.2 million for Boston Market store development,
including acquisition of real estate. These capital expenditures have been
partially offset with cash proceeds from selling ENBC company stores as a
result of its store seeding practice. During the first quarter of 1997, ENBC
generated $3.6 million from the sale of ENBC company stores to a newly-formed
area developer. As of the end of the first quarter of 1997, both the Company
and ENBC have completed their store seeding programs; accordingly, neither the
Company nor ENBC anticipates receiving cash proceeds in the future from the
sale of stores to newly-formed area developers. In addition to this seeding
program, the Company generated cash from financing land, building and equipment
and from the sale of assets of $16.7 million and $1.1 million in the first
quarters of 1996 and 1997, respectively.
The Company anticipates that it and its area developers will have a need for
additional financing dependent primarily upon the number of stores opened, the
cost of such stores and store operating results. As of April 20, 1997, the
Company and its area developers had entered into area development agreements
that provide for the opening of 2,425 additional stores over the next five to
seven years. However, as a result of a number of factors, including the
availability and cost of capital to the restaurant industry in general and to
the Company in particular and recent store performance, as well as the possible
opportunity to integrate offerings of fresh, ready-to-heat prepared foods in
existing or future Boston Market stores, the Company and its area developers
have determined to reduce the rate of store development. Such reduction will
not alter the total number of stores committed to be opened under the existing
area development agreements, but will extend the period over which such stores
are to be developed. The Company expects that the reduction in store
development will result in the opening systemwide of 150 to 200 Boston Market
stores in fiscal year 1997 and 150 to 250 Boston Market stores in fiscal year
1998. The Company's original development objective was to open approximately
300 stores in each such fiscal year. The reduction in the rate of store
development will negatively impact earnings for 1997 and 1998. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
The Company also expects that BMI, its area developers, franchisees,
licensees, and/or joint venture partners, ENBC and its area developers, and
PFCI will have need for additional financing. However, on May 31, 1997, the
Company, BMI and Mr. Sun agreed to extend, until June 1, 1998, the period
during which such parties may negotiate and execute definitive agreements
providing for BMI's development of Boston Market stores and Mr. Sun's
sublicense from BMI. The extension resulted from Mr. Sun's desire to explore
the possible opportunity to integrate the offerings of fresh, ready-to-heat
prepared foods in Boston Market international stores and the Company's desire
to focus, in the short-run, on its domestic business. The delay in
international development will effect the amount of fees to be received by the
Company from BMI and the cost and expenses incurred by the Company in
connection with such development, which, in turn, will negatively impact
earnings for 1997 and 1998. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 6.
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The Company believes that none of the factors being considered by it and its
area developers and BMI in reviewing the rate of Boston Market store
development will effect the rate of ENBC's area developers' store development.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
The Company's capital requirements depend primarily upon the amount and
timing of borrowings under the loan agreements between the Company and its area
developers, ENBC, BMI and PFCI. The Company, ENBC and the other aforementioned
entities may seek additional funds from offerings of debt or equity securities.
There can be no assurance that the Company, ENBC or such entities will be able
to raise such funds on satisfactory terms when needed. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 6.
SEASONALITY
Historically, the Company has experienced lower average store revenue in the
months of January and February as a result of inclement weather.
IMPACT OF INFLATION
The Company and ENBC believe that inflation has not had a material impact on
its operations to date. Substantial increases in labor, employee benefits,
food, and other operating expenses could adversely affect the operations of
Boston Market, Einstein Bros. Bagels and Noah's New York Bagel stores.
37
<PAGE>
MANAGEMENT
Set forth below are the names and ages of the executive officers and
directors of the Company and summaries of their business experience. All
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. Executive officers are
elected by, and serve at the discretion of, the Board of Directors. The
executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Chairman of the Board, President and Chief
Scott A. Beck(1)............. 39 Executive Officer
Vice-Chairman of the Board and Chief
Mark W. Stephens(1).......... 42 Financial Officer
Laurence M. Zwain(1)......... 44 Vice-Chairman of the Board
Mark R. Goldston(1).......... 41 Vice-Chairman of the Board
Chief Financial Officer--Boston Market
Dennis Mullen................ 53 Concept
Senior Vice President, Co-General Counsel
Joel M. Alam................. 39 and Secretary
Senior Vice President, Co-General Counsel
Paul A. Strasen.............. 40 and Assistant Secretary
Mark A. Link................. 38 Vice President--Financial Reporting
Dean L. Buntrock(2).......... 65 Director
Arnold C. Greenberg(2)(3)(4). 63 Director
J. Bruce Harreld............. 46 Director
M Howard Jacobson(2)(3)(4)... 64 Director
Peer Pedersen(2)(3).......... 72 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Stock Option Committee.
Scott A. Beck joined the Company as Chairman of the Board, Chief Executive
Officer, and a director in June 1992 and has been Chairman or Co-Chairman since
that date. In January 1997, he also assumed the responsibilities of President
of the Company. He was Vice Chairman of the Board of Blockbuster Entertainment
Corporation ("Blockbuster") from September 1989 until his retirement in January
1992, and Chief Operating Officer from September 1989 to January 1991. From
June 1987 to August 1989, Mr. Beck was Managing Partner of Blockbuster's first
and largest franchisee ("Blockbuster Midwest") until its acquisition by
Blockbuster in 1989. Since 1980, Mr. Beck has served as President of Pace
Affiliates, Inc., an investment banking firm which he founded. Mr. Beck is the
Company's officer principally in charge of overseeing the Company's investment
in ENBC and serves as their Chairman of the Board.
Mark W. Stephens joined the Company as Chief Financial Officer in October
1993 and, in addition, became a Vice Chairman of the Board and a director in
December 1995. From November 1992 until October 1993, he was Managing Director
of Haas, Wheat & Partners Incorporated, a private investment firm. From April
1989 until November 1992, Mr. Stephens was a Senior Vice President of Grauer &
Wheat Investments, Inc. Prior thereto, Mr. Stephens was Senior Vice President
of Donaldson, Lufkin & Jenrette Securities Corporation from 1985 until 1989 and
Vice President of Merrill Lynch Private Capital from 1984 to 1985.
Laurence M. Zwain became a Vice Chairman of the Board and a director of the
Company in August 1996. In addition, Mr. Zwain served as President and Chief
Executive Officer of the Company's Boston Market division from January 1996
until May 1997. From November 1994 until joining the Company, Mr. Zwain served
as President and Chief Operating Officer of PepsiCo Restaurants International,
a division of PepsiCo, Inc. From September 1992 until November 1994, he served
as President and Chief Executive Officer of KFC International. From February
1991 until September 1992, he served as Senior Vice President of Operations for
KFC International. From October 1988 until February 1991, he served as Division
Vice President of Pizza Hut, Inc.'s
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<PAGE>
Western U.S. region. Mr. Zwain was Vice President of New Concepts for Pizza Hut
from 1987 to 1988, and served as Vice President of National Marketing for Pizza
Hut from 1986 to 1987. KFC and Pizza Hut, Inc. are subsidiaries of PepsiCo,
Inc.
Mark R. Goldston joined the Company in January 1996 to undertake various
special projects and became a Vice Chairman of the Board and a director in
August 1996. Mr. Goldston also serves as President, Chief Executive Officer and
a director of ENBC. From July 1994 to April 1996, Mr. Goldston was the Chairman
and Chief Executive Officer of The Goldston Group, a strategic advisory firm
which advises high-growth companies on improving performance and creating
operating leverage and efficiencies. From October 1991 to June 1994, Mr.
Goldston served as President and Chief Operating Officer of L.A. Gear, Inc.
Dennis Mullen joined the Company in June 1997 as Chief Financial Officer--
Boston Market Concept. From March 1994 until June 1997, he served as President
and Chief Executive Officer of BC Northwest, L.P., an area developer of the
Company. From November 1993 until March 1994, he was employed by the Company
and was responsible for developing Boston Market stores in the Pacific
Northwest. Prior thereto, he was Chairman, President and Chief Executive
Officer of Famous Restaurants, Inc. for approximately ten years.
Joel M. Alam became Senior Vice President, Co-General Counsel and Secretary
of the Company in May 1997. Mr. Alam also serves as a Senior Vice President of
ENBC, a position he has held since February 1997, and as Secretary of ENBC, a
position he has held since April 1995. From April 1995 to February 1997, he was
a Vice President of ENBC. From January 1994 to April 1995, he was Vice
President and Associate General Counsel of the Company and from May 1993 to
January 1994 he was Assistant General Counsel of the Company. Prior to that
time, Mr. Alam was an associate at the Chicago law firm of Bell, Boyd & Lloyd
from 1986 to May 1993.
Paul A. Strasen became Senior Vice President, Co-General Counsel and
Assistant Secretary of the Company in May 1997. Mr. Strasen also serves as a
Senior Vice President of ENBC, a position he has held since February 1997, and
General Counsel of ENBC, a position he has held since April 1995. From April
1995 to February 1997, he was a Vice President of ENBC. Prior to that time, he
was a partner at the Chicago law firm of Bell, Boyd & Lloyd from 1988 to April
1995.
Mark A. Link became Vice President--Financial Reporting of the Company in
March 1995 and became Principal Accounting Officer in December 1995. Mr. Link
joined the Company in December 1993 as Director of SEC and Financial Reporting
and served in that capacity until March 1995. From 1980 until December 1993,
Mr. Link was employed by Deloitte & Touche, LLP where he was a Senior Manager
for five years prior to joining the Company. Mr. Link is a certified public
accountant.
Dean L. Buntrock has been a director of the Company since October 1993. Mr.
Buntrock is a director of WMX Technologies, Inc. ("WMX") and has served as
Chairman of the Board of WMX since its founding in 1968. From 1968 until June
1996, Mr. Buntrock served as Chief Executive Officer of WMX and in February
1997, assumed the position of acting Chief Executive Officer of WMX. Mr.
Buntrock is a director of Waste Management International plc and Wheelabrator
Technologies Inc., both subsidiaries of WMX. He is also a director of First
Chicago NBD Corporation.
Arnold C. Greenberg has been a director of the Company since February 1991.
Mr. Greenberg is an attorney and has been a self-employed private investor and
business consultant since May 1988. From 1985 to May 1988, Mr. Greenberg was
the Chairman of the Board of Directors and Chief Executive Officer of Coleco
Industries, Inc.
J. Bruce Harreld became a director of the Company in June 1993. From
September 1993 until October 1995, he served as President of the Company. In
October 1995, Mr. Harreld became Senior Vice President--Strategy of
International Business Machines Corporation. Mr. Harreld has been Chairman of
JBH, Inc., management consultants, and an Adjunct Professor of Management of
the J.L. Kellogg School of Management of
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<PAGE>
Northwestern University since June 1993. From June 1993 until September 1993,
JBH, Inc. and Mr. Harreld provided services to the Company relating to systems
and process consulting, design and implementation management under a
consulting agreement that was terminated in September 1993. Mr. Harreld was
the Senior Vice President, Marketing and Information Services from 1992 to
1993 and the Senior Vice President/Chief Information Officer from 1989 to 1992
of Kraft General Foods, Inc. He was the Senior Vice President, Chief
Information Officer from 1988 to 1989 and the President, Venture Division and
the Senior Vice President, Strategy and Development from 1987 to 1988 of
Kraft, Inc.
M Howard Jacobson has been a director of the Company since February 1991.
Since October 1991, he has been a Senior Advisor to Bankers Trust, Private
Advisory Services. From August 1989 to August 1991, he was a Senior Advisor to
Prudential Bache Capital Funding. Prior thereto, Mr. Jacobson was President,
Treasurer and a director of Idle Wild Foods, Inc., a Fortune 500 company. Mr.
Jacobson also serves as a director of Allmerica Property and Casualty
Companies, Inc., Wyman-Gordon Company and Stonyfield Farm, Inc.
Peer Pedersen has been a director of the Company since January 1993. Mr.
Pedersen is managing partner of Pedersen & Houpt, P.C., a Chicago law firm,
where he has practiced law since 1957. Mr. Pedersen serves as a director of
WMX, Aon Corporation, Extended Stay America, Inc. and Latin America Growth
Fund.
PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
and economic ownership of Common Stock as of May 28, 1997 by: (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock; (ii) each director; (iii) each
executive officer named in the Summary Compensation Table below; and (iv) all
directors and executive officers as a group. The beneficial ownership
reflected in the following table is calculated in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended ("Exchange Act"). The
economic interest reflected in the following table is calculated as set forth
in footnote 1 thereto and represents shares of Common Stock in which the
individual has a pecuniary interest, i.e., the opportunity to profit or share
in any profit derived from a transaction in the Common Stock. Unless otherwise
indicated, ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OWNED COMMON STOCK OWNED
--------------------------- ---------------------------
ECONOMIC BENEFICIALLY ECONOMIC BENEFICIALLY
NAME INTEREST(1)(2) OWNED(2)(3) INTEREST(1)(2) OWNED(2)(3)
- ---- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
BC Midwest Trust(4)..... 5,261,430 5,261,430 8.0% 8.0%
Scott A. Beck(4)(5)..... 5,972,894 9,214,052 9.0% 13.9%
Saad J. Nadhir(4)(6).... 3,183,200 7,573,191 4.8% 11.4%
Mark W. Stephens........ 307,813 298,010 * *
Laurence M. Zwain....... 34,803 24,999 * *
Mark A. Link............ 16,963 14,512 * *
Thomas R. Sprague....... 26,161 26,498 * *
Dean L. Buntrock(7)..... 571,187 483,776 * *
Mark R. Goldston........ 112,499 112,499 * *
Arnold C. Greenberg..... 200,056 200,056 * *
J. Bruce Harreld........ 190,050 190,050 * *
M Howard Jacobson(8).... 252,097 287,857 * *
Peer Pedersen(9)........ 682,352 594,941 1.0% *
Putnam Investments,
Inc.................... (10) 4,738,484 (10) 7.2%
Chancellor LGT Asset
Management Inc.,
Chancellor LGT Trust
Company and LGT Asset
Management, Inc........ (10) 5,747,920 (10) 8.7%
T. Rowe Price
Associates, Inc........ (10) 3,764,850 (10) 5.7%
The TCW Group, Inc...... (10) 3,384,776 (10) 5.1%
All directors and
executive officers as a
group
(excluding Messrs.
Nadhir and Sprague) (13
persons)............... 8,368,009 11,445,596 12.5% 17.0%
</TABLE>
- --------
*Less than 1%.
40
<PAGE>
(1) Economic interest is calculated by including shares directly owned and, in
the case of individuals and all directors and executive officers as a
group, shares such individuals or group are entitled to receive (i) upon
exercise of outstanding options exercisable within 60 days of May 28, 1997,
(ii) as beneficiaries upon a liquidation of BC Midwest Trust, and (iii) as
members of Market Partners, L.L.C. ("Market Partners"). Based on the
current BC Midwest Trust accounts, the number of shares the following
individuals and all executive officers and directors as a group would be
entitled to receive as beneficiaries upon liquidation of the BC Midwest
Trust is as follows: Mr. Beck--2,242,017; Mr. Buntrock--62,901; Mr.
Nadhir--1,161,909; Mr. Pedersen--62,901; and all executive officers and
directors as a group (including such individuals, except Mr. Nadhir)--
2,367,819. Based on their current ownership interest in Market Partners,
the following individuals and all executive officers and directors as a
group would be entitled to receive warrants exercisable for the following
number of shares of Common Stock: Mr. Buntrock--24,510; Mr. Pedersen--
24,510; Mr. Stephens--9,803; Mr. Link--2,451; Mr. Zwain--9,804; and all
executive officers and directors as a group (including such individuals)--
71,078. Ownership of shares for Mr. Beck excludes 10,610 shares of Common
Stock owned by his spouse. Ownership of shares for Mr. Nadhir (i) excludes
29,334 shares of Common Stock beneficially owned by him, as to which he has
granted an option to purchase to an individual and (ii) excludes 50,000
shares of Common Stock owned by his spouse. Ownership of shares for Mr.
Sprague excludes 337 shares subject to options held by his spouse which
were exercisable within 60 days of May 28, 1997. Ownership of shares for
Mr. Jacobson excludes 35,760 shares held by his spouse.
(2) Includes shares subject to options which were exercisable within 60 days of
May 28, 1997 as follows: Mr. Beck--608,510; Mr. Buntrock--18,806; Mr.
Goldston--112,499; Mr. Greenberg--54,616; Mr. Harreld--140,050; Mr.
Jacobson--54,616; Mr. Link--14,512; Mr. Nadhir--692,082; Mr. Pedersen--
29,972; Mr. Sprague--26,161; Mr. Stephens--121,010; Mr. Zwain--24,999; and
all executive officers and directors as a group (including such
individuals, except Messrs. Nadhir and Sprague)--1,199,097.
(3) Beneficial ownership is calculated in accordance with Rule 13d-3 under the
Exchange Act. Unless otherwise indicated, ownership includes sole voting
and dispositive power. Shares of Common Stock beneficially owned by BC
Midwest Trust are shown as beneficially owned by Mr. Beck and Mr. Nadhir by
virtue of their ownership of shares of BC Midwest, Inc., the trustee of BC
Midwest Trust.
(4) The address for BC Midwest Trust is 4770 Baseline Road, Suite 380, Boulder,
Colorado 80303 and the address for Messrs. Beck and Nadhir is 14123 Denver
West Parkway, Golden, Colorado 80401-4086.
(5) Excludes 360,000 shares gifted by Mr. Beck to unrelated third party
entities in May, 1997 and includes 24,719 shares of Common Stock issuable
upon conversion of $660,000 aggregate principal amount of the Company's 7
3/4% Debentures.
(6) Includes 908,938 shares of Common Stock held by a limited liability company
of which Mr. Nadhir is the sole member and manager.
(7) Includes 12,472 shares of Common Stock issuable upon conversion of $333,000
aggregate principal amount of the Company's 7 3/4% Debentures.
(8) Ownership of shares for Mr. Jacobson excludes 40,800 shares owned by his
children, of which shares he disclaims beneficial ownership.
(9) Includes 12,472 shares of Common Stock issuable upon conversion of $333,000
aggregate principal amount of the Company's 7 3/4% Debentures.
(10) In February 1997, the Company received copies of statements on Schedule
13G filed pursuant to Rule 13d-1 under the Exchange Act by each of (i)
Putnam Investments, Inc. ("Putnam"), (ii) Chancellor LGT Asset Management,
Inc. ("Asset Management"), Chancellor LGT Trust Company ("Trust Company")
and LGT Asset Management, Inc. ("LGT Asset Management") (together,
"Chancellor"), (iii) T. Rowe Price Associates, Inc. ("Price Associates")
and (iv) The TCW Group, Inc. ("TCW Group") and Robert Day (together,
"TCW"). The Putnam statement indicated that Putnam, along with certain of
its investment management subsidiaries, shared voting power with respect
to 242,100 shares of Common Stock shown in the table above for Putnam and
shared dispositive power with respect to all of the shares of Common Stock
shown in the table above for Putnam. The statement for Putnam also
indicated that it is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940 (the "Advisers Act") and that
41
<PAGE>
it had filed the Schedule 13G on behalf of itself, Marsh & McLennan
Companies, Inc., Putnam's parent corporation, and certain of Putnam's
investment management subsidiaries, all of which are deemed beneficial
owners of the shares of Common Stock shown in the table above for Putnam.
The address for Putnam is One Post Office Square, Boston, Massachusetts
02109. The Chancellor statement indicated that Asset Management and Trust
Company, as investment advisers for various fiduciary accounts, and LGT
Asset Management, as the holding company for Asset Management, have sole
voting and dispositive power with respect to all of the shares of Common
Stock shown in the table above for Chancellor. The statement for Chancellor
also indicated that Asset Management is an investment adviser registered
under Section 203 of the Advisers Act and Trust Company is a bank as defined
in Section 3(a)(6) of the Exchange Act. The address for each of Asset
Management, Trust Company and LGT Asset Management is 1166 Avenue of the
Americas, New York, New York 10036. The Price Associates statement indicated
that Price Associates had sole voting power with respect to 140,050 shares
of Common Stock shown in the table above for Price Associates and had sole
dispositive power with respect to all of the shares of Common Stock shown in
the table above for Price Associates. The statement for Price Associates
also indicated that it is an investment adviser registered under Section 203
of the Advisers Act. The address for Price Associates is 100 East Pratt
Street, Baltimore, Maryland 21203. The TCW statement indicated that TCW
Group had sole voting and sole dispositive power with respect to all of the
shares of Common Stock shown in the table above for TCW Group and such
shares include 501,225 shares issuable upon the conversion of $58,750,000
aggregate principal amount at maturity of the Company's LYONs. The statement
for TCW Group indicated TCW had filed the Schedule 13G on behalf of itself,
Robert Day, who may be deemed to control TCW and other holders of shares of
Common Stock, and certain of TCW's investment management subsidiaries, all
of which are deemed beneficial owners of the shares of Common Stock shown in
the table above for TCW Group. The statement for TCW also indicated that TCW
is a parent holding company for purposes of Rule 13d-1 under the Exchange
Act. The address for TCW Group is 865 South Figueroa Street, Los Angeles,
California 90017 and for Mr. Day is 200 Park Avenue, Suite 2200, New York,
New York 10166.
OWNERSHIP OF EINSTEIN/NOAH BAGEL CORP. COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of ENBC's common stock as of May 28, 1997 by (i) each director; (ii)
each executive officer named in the Summary Compensation Table below; and (iii)
all directors and executive officers as a group. The beneficial ownership
reflected in the following table is calculated in accordance with Rule 13d-3
under the Exchange Act. Unless otherwise indicated, ownership includes sole
voting and investment power.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
--------------------
NAME NUMBER(1)(2) PERCENT
---- ------------ -------
<S> <C> <C>
Scott A. Beck(3).................................... 131,652 *
Saad J. Nadhir...................................... 23,060 *
Mark W. Stephens.................................... 116,532 *
Laurence M. Zwain................................... 13,548 *
Mark A. Link........................................ 7,299 *
Thomas R. Sprague(4)................................ 5,909 *
Dean L. Buntrock(5)................................. 100,712 *
Mark R. Goldston.................................... 277,092 *
Arnold C. Greenberg................................. 20,000 *
J. Bruce Harreld.................................... 2,500 *
M Howard Jacobson(6)................................ 1,000 *
Peer Pedersen....................................... 126,239 *
All directors and executive officers as a group
(excluding Messrs. Nadhir and Sprague) (13
persons)........................................... 855,037 2.6%
</TABLE>
- --------
*Less than 1%.
42
<PAGE>
(1) Includes shares of ENBC common stock subject to options granted by ENBC
which are exercisable within 60 days of May 28, 1997 as follows: Mr.
Goldston--13,903; Mr. Link--4,309; Mr. Stephens--4,588; and all directors
and executive officers as a group--61,604. Also includes shares of ENBC
common stock subject to options granted by the Company which are
exercisable within 60 days of May 28, 1997 as follows: Mr. Nadhir--15,674;
Mr. Stephens--7,834; Mr. Zwain--6,267; and Mr. Goldston--230,931; and all
executive officers and directors as a group (excluding Mr. Nadhir)--
245,032. See "Certain Transactions". Also includes the following shares of
ENBC common stock subject to warrants that the following individuals and
all executive officers and directors as a group have received as a result
of their ownership interest in Bagel Store Development Funding, L.L.C.: Mr.
Beck--55,432; Mr. Zwain--4,782; Mr. Buntrock--56,250; Mr. Pedersen--47,813;
and all executive officers and directors as a group--161,007. See "Certain
Transactions--Einstein/Noah Bagel Corp."
(2) Excludes the aggregate number of shares of common stock of ENBC owned by
the Company that may be deemed to be beneficially owned by such
individuals, because each such individual (other than Messrs. Nadhir, Link
and Sprague) may be deemed to be an affiliate of the Company. Each such
individual disclaims any beneficial ownership of such shares.
(3) Includes 17,948 shares held by a limited partnership, of which Mr. Beck is
the general partner.
(4) Includes 350 shares held by Mr. Sprague's spouse. Mr. Sprague disclaims
beneficial ownership of such shares.
(5) Includes 56,250 shares of ENBC common stock subject to warrants held by a
limited liability company of which Mr. Buntrock and his spouse own a
majority of the membership interests. See Footnote 1.
(6) Includes 500 shares of ENBC common stock held by Mr. Jacobson's spouse, of
which shares Mr. Jacobson disclaims beneficial ownership, and excludes
1,500 shares of ENBC common stock held by his children.
43
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for each of the fiscal years
ended December 29, 1996, December 31, 1995 and December 25, 1994 received by
the Company's Chief Executive Officer, the Company's four other most highly
compensated executive officers and Thomas R. Sprague, for whom disclosure would
have been required but for the fact Mr. Sprague resigned as Executive Vice
President of the Company in December 1996 (the "named executive officers"). The
Company does not have a restricted stock award program or a long-term incentive
plan.
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) (#) COMPENSATION
- ------------------ ---- -------- ------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Beck........... 1996 $200,000 $ 0 $ 0 50,000 $ 0
Chairman, President and
Chief 1995 176,923 0 0 19,355 0
Executive Officer 1994 149,998 0 0 55,252 0
Saad J. Nadhir(2)....... 1996 200,000 0 24,307 50,000 34,555(3)
Former Co-Chairman and
President 1995 176,923 0 28,000 19,355 19,409
1994 149,998 0 0 55,252 3,210
Mark W. Stephens........ 1996 353,846 0 4,213 50,000 0
Vice Chairman and 1995 176,923 0 4,000 19,355 2,401
Chief Financial Officer 1994 149,998 0 0 55,252 11,446
Laurence M. Zwain(4).... 1996 350,769 92,308 0 250,000 210,227(3)
Vice Chairman and
former President 1995 -- -- -- -- --
and Chief Executive 1994 -- -- -- -- --
Officer of the
Boston Market division
Mark A. Link............ 1996 125,072 0 0 16,969 0
Vice President--
Financial 1995 116,827 0 0 17,477 1,000
Reporting 1994 100,000 0 0 18,000 47,302
Thomas R. Sprague....... 1996 200,000 0 0 11,823 0
Former Executive Vice 1995 143,269 0 0 19,355 0
President 1994 130,898 0 0 29,468 25,444
</TABLE>
- --------
(1) Constitutes taxable income in connection with personal use of aircraft
leased by Company calculated in accordance with Internal Revenue Service
requirements.
(2) Mr. Nadhir resigned as Co-Chairman of the Board and President of the
Company in January 1997.
(3) Amount reported for Mr. Nadhir represents relocation reimbursements. Amount
reported for Mr. Zwain includes $209,227 in relocation reimbursements and
$1,000 for entering into a non-compete agreement.
(4) Mr. Zwain joined the Company in January 1996.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to the
named executive officers during the fiscal year ended December 29, 1996.
<TABLE>
<CAPTION>
PERCENT
OF
TOTAL
OPTIONS
GRANTED
TO POTENTIAL REALIZABLE VALUE
EMPLOYEES EXERCISE AT ASSUMED ANNUAL RATES OF
DATE OF OPTIONS IN FISCAL OR BASE EXPIRATION STOCK PRICE APPRECIATION FOR
GRANT(1) GRANTED(1) YEAR PRICE DATE OPTION TERM(2)
-------- ---------- --------- -------- ---------- -----------------------------
5% 10%
-------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott A. Beck........... 7/16/96 50,000 3.29% $25.3750 7/16/2006 $ 797,910 $ 2,022,061
Saad J. Nadhir.......... 7/16/96 50,000 3.29 25.3750 7/16/2006 797,910 2,022,061
Mark W. Stephens........ 7/16/96 50,000 3.29 25.3750 7/16/2006 797,910 2,022,061
Laurence M. Zwain....... 1/17/96 200,000 13.15 27.9375 1/17/2006 3,513,949 8,905,036
7/16/96 50,000 3.29 25.3750 7/16/2006 797,910 2,022,061
Mark A. Link............ 5/14/96 6,969 0.46 35.8750 5/14/2006 157,232 398,456
7/16/96 10,000 0.66 25.3750 7/16/2006 159,582 404,412
Thomas R. Sprague....... 7/16/96 11,823 0.78 25.3750 7/16/2006 186,674 478,136
</TABLE>
- --------
(1) Options granted become exercisable with respect to 10% of the total number
of shares on the first anniversary of the date of grant, an additional 20%
on the second anniversary of the date of grant, an additional 30% on the
third anniversary of the date of grant and the balance on the fourth
anniversary of the date of grant.
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock. There can be no assurance that the amounts reflected
in this table will be achieved.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for the named executive officers aggregated
information concerning each exercise of stock options during the fiscal year
ended December 29, 1996 and the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF VALUE OF UNEXERCISED
ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
EXERCISE REALIZED AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
-------- -------- ------------------------- -------------------------
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Scott A. Beck........... 0 0 551,010/151,097 $17,867,594/$2,661,840
Saad J. Nadhir.......... 0 0 634,582/151,097 20,696,707/ 2,661,840
Mark W. Stephens........ 0 0 108,510/166,097 2,945,747/ 3,003,093
Laurence M. Zwain....... 0 0 0/250,000 0/ 1,831,250
Mark A. Link............ 0 0 7,147/ 45,299 115,219/ 494,144
Thomas R. Sprague....... 75,109 $2,593,706 0/ 90,050 0/ 1,841,118
</TABLE>
DIRECTOR COMPENSATION
In addition to annual option grants to purchase shares of Common Stock having
a fair market value of $200,000 at the date of grant under the Amended and
Restated Stock Option Plan for Non-Employee Directors, directors who are not
officers or employees of, or consultants to, the Company receive $500 cash
compensation for each Board of Directors meeting at which they are present and
for each Committee meeting at which they are present not held in conjunction
with a meeting of the Board of Directors. Outside directors are also reimbursed
for their expenses for each Board and committee meeting attended.
See also "Certain Transactions."
45
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of the
Board of Directors during the year ended December 29, 1996: Arnold C.
Greenberg, M Howard Jacobson and Peer Pedersen.
No executive officer of the Company, except for Scott A. Beck, Chairman of
the Board, President, Chief Executive Officer and a director of the Company,
and Mark R. Goldston, a Vice Chairman of the Board and a director of the
Company, served as a member of the compensation committee or as a director of
any other entity, one of whose executive officers serves on the Compensation
Committee or is a director of the Company. Mr. Beck is Chairman of the Board
and a member of the compensation committee of ENBC's board of directors and Mr.
Goldston is President, Chief Executive Officer and a director of ENBC.
Mr. Pedersen has a minority equity interest in two of the Company's area
developers, which area developers are partially financed by the Company. Mr.
Pedersen also has an indirect, minority equity interest in BC Equity Funding,
L.L.C. ("BCEF") and Market Partners, which have invested in area developers
partially financed by the Company. In August 1996, Messrs. Greenberg, Jacobson
and Pedersen purchased shares of ENBC common stock from ENBC as follows: Mr.
Greenberg--12,500; Mr. Jacobson--500; and Mr. Pedersen--2,500. The aggregate
purchase price paid by Messrs. Greenberg, Jacobson and Pedersen were $203,575,
$7,905 and $39,525, respectively. See "Certain Transactions."
CERTAIN TRANSACTIONS
TRANSACTIONS WITH AREA DEVELOPERS
R&A Food Services, L.P. Lawrence Beck is a minority investor in R&A Food
Services, L.P. ("R&A") and a director of, and minority stockholder in, R&A Food
Services, Inc., the general partner of R&A. In fiscal 1996, R&A paid to the
Company an aggregate of approximately $8.6 million in franchise, royalty,
software license, software maintenance and accounting fees and rent. In
addition, in fiscal 1996, R&A paid to the Company $7.7 million in interest on
its loan with the Company. The Company believes that the terms of the area
development agreement and each franchise agreement entered into with R&A are as
favorable to the Company as those with other area developers of the Company.
The Company also believes that the terms of the secured loan agreement with R&A
are as favorable to the Company as those with other area developers of the
Company to whom the Company has loaned money.
P&L Food Services, L.L.C. Lawrence Beck is the majority equity holder in P&L
Food Services, L.L.C. ("P&L"). During fiscal 1996, P&L's development agreement
and secured loan agreement with the Company were amended to, among other
things, increase the number of stores under P&L's development obligation. In
connection with the execution of such amendments, the Company sold to P&L
Company stores located in the Columbus metropolitan area at net book value for
an aggregate purchase price of $5.5 million pursuant to an asset sale agreement
and entered into a franchise agreement with P&L for each such store. The
Company realized no significant gain or loss on such sale. In fiscal 1996, P&L
paid to the Company an aggregate of approximately $3.4 million in development,
franchise, royalty, software license, software maintenance and accounting fees
and rent. In addition, in fiscal 1996, P&L paid to the Company approximately
$3.0 million in interest on its loan with the Company and approximately $1.1
million for the purchase of a warrant to purchase shares of Common Stock. The
Company believes that the terms of the area development agreement and each
franchise agreement entered into with P&L are as favorable to the Company as
those with other area developers of the Company. The Company also believes that
the terms of the secured loan agreement with P&L are as favorable to the
Company as those with other area developers of the Company to whom the Company
has loaned money.
BC Great Lakes, L.L.C. Jeffry J. Shearer, a former Vice Chairman of the Board
and former director of the Company, Peer D. Pedersen, son of Peer Pedersen, a
director of the Company, and Lawrence Beck are each minority stockholders in BC
Chicago, Inc., which is the managing member of BC Great Lakes, L.L.C. ("BC
Great Lakes"). Peer Pedersen and Dean L. Buntrock, each of whom is a director
of the Company, two members
46
<PAGE>
of Mr. Buntrock's family, and a Buntrock family trust are limited partners of
BC Detroit/Seattle, L.P. ("BC Detroit/Seattle"), which is a partner of BC
Detroit, L.P., which is a member of BC Great Lakes. In fiscal 1996, BC Great
Lakes paid to the Company an aggregate of approximately $9.4 million in
development, franchise, royalty, software license, software maintenance,
accounting and other fees and rent. In addition, in fiscal 1996, BC Great Lakes
paid to the Company approximately $7.6 million in interest on its loan with the
Company. The Company believes that the terms of the area development and
franchise agreements with BC Great Lakes are as favorable to the Company as
those with other area developers of the Company. The Company also believes that
the terms of the secured loan agreement with BC Great Lakes are as favorable to
the Company as those with other area developers of the Company to whom the
Company has loaned money.
BC Northwest, L.P. BC Detroit/Seattle holds limited partnership interests in
BC Northwest, L.P. ("BC Northwest"). In fiscal 1996, BC Northwest paid to the
Company an aggregate of approximately $3.4 million in development, franchise,
royalty, software license, software maintenance and accounting fees and rent.
In addition, in fiscal 1996, BC Northwest paid to the Company approximately
$2.3 million in interest on its loan with the Company and approximately $.6
million for the purchase of a warrant to purchase shares of Common Stock. The
Company believes that the terms of the area development agreement and franchise
agreements with BC Northwest are as favorable to the Company as those with
other area developers of the Company. The Company also believes that the terms
of the secured loan agreement with BC Northwest are as favorable to the Company
as those with other area developers of the Company to whom the Company has
loaned money.
BC Boston, L.P. Lawrence Beck and entities controlled by him own all of the
equity interest in BC Boston, L.P. ("BC Boston"). In fiscal 1996, BC Boston
paid to the Company an aggregate of approximately $3.4 million in development,
franchise, royalty, software license, software maintenance and accounting fees
and rent. In addition, in fiscal 1996, BC Boston paid to the Company
approximately $2.8 million in interest on its loan with the Company and
approximately $.6 million for the purchase of a warrant to purchase shares of
Common Stock. The Company believes that the terms of the area development
agreement and franchise agreements with BC Boston are as favorable to the
Company as those with other area developers of the Company. The Company also
believes that the terms of the secured loan agreement with BC Boston are as
favorable to the Company as those with other area developers of the Company to
whom the Company has loaned money and sold assets.
BCE West, L.P. Lawrence Beck and entities controlled by him own a majority of
the limited partnership interests and all of the general partnership interests
of BCE West, L.P. ("BCE West"). In fiscal 1996, BCE West paid to the Company an
aggregate of approximately $5.8 million in franchise, royalty, software
license, software maintenance and accounting fees and rent. In addition, for
the Company's 1996 fiscal year, BCE West paid to the Company approximately $3.4
million in interest on its loan with the Company and approximately $1.1 million
for the purchase of a warrant to purchase shares of Common Stock. The Company
believes that the terms of the franchise agreements with BCE West are as
favorable to the Company as those with other area developers of the Company.
The Company also believes that the terms of the secured loan agreement with BCE
West are as favorable to the Company as those with other area developers of the
Company to whom the Company has loaned money.
BC Equity Funding, L.L.C. Through December 29, 1996, BCEF had invested an
aggregate of $58.3 million in certain area developers in the form of 10%
cumulative preferred equity, redeemable by the area developers at a premium
initially equal to 10% of the initial issue price, to be increased by 2% each
year up to a maximum of 20% of the initial issue price plus accrued dividends
(the "Redemption Price"). In the event the Company's
conversion and option rights under its secured loan agreement with any such
area developer expire unexercised and the Company does not consent to the area
developer's request to undertake a firm commitment underwritten public offering
of such area developer's equity, the Company has agreed to purchase the
preferred equity from BCEF at the Redemption Price. Messrs. Beck, Link, Nadhir,
Stephens and Shearer, each own a direct equity interest in BCEF and Messrs.
Buntrock and Pedersen own indirect equity interests as limited partners of
partnerships that have invested directly in BCEF. Such interests aggregate a
minority of the outstanding equity interest in BCEF.
47
<PAGE>
Market Partners, L.L.C. On September 16, 1996, Market Partners, a Delaware
limited liability company, raised $76.5 million to invest in certain area
developers of the Company. As part of such investments, twelve area developers
of the Company sold to Market Partners warrants to purchase 7% of the fully
diluted common equity of such area developers. The terms of each such warrant
permit the Company, at its option, to purchase such warrant from Market
Partners for a specified period after the Company makes a "controlling interest
acquisition" of such developer. A "controlling interest acquisition" is defined
as the acquisition by the Company of an equity interest in such area developer
that would require it, for accounting purposes, to consolidate the financial
results of such area developer or report such results under the equity method
of accounting, or the acquisition of a designated percentage of the Boston
Market stores developed by such area developer. The price to be paid by the
Company for each warrant is a formula price based on the area developer's
earnings before interest, taxes, depreciation and amortization for a specified
period preceding such purchase. If the Company elects not to purchase from
Market Partners the warrant of an area developer and the warrant is exercised,
the operating agreement for the area developer provides that the equity held by
all common equity holders of such area developer will be adjusted so that only
the Company and its affiliates will experience the dilution of their equity
holdings resulting from such exercise. In addition, the Company has covenanted
that it will not in such event, until such time as it has purchased from Market
Partners warrants of area developers having a specified number of Boston Market
stores whose results are taken into account in determining the purchase price
paid by the Company for the warrants (i) make any distribution of any kind to
the Company or any of its subsidiaries in respect of the common equity of such
area developer (except certain minimum tax distributions) or (ii) make any
payment in respect of the principal amount of any intercompany loan or advance.
This covenant does not prohibit payment of any other fee, cost, expense,
royalty, deposit, advertising contribution, software license fee or interest
payment made in connection with the area developer being a franchisee or area
developer of, or a borrower from, the Company. Messrs. Buntrock, Link,
Pedersen, Stephens, Zwain and John Todd, Chief Financial Officer of the Boston
Market division, each own a direct equity interest in Market Partners.
Market Partners has received from area developers in which it has made
investments, five-year warrants to purchase an aggregate of 750,000 shares of
the Company's Common Stock at an exercise price of $25 per share. Such warrants
were purchased by the area developers from the Company pursuant to a warrant
purchase agreement dated July 18, 1996 for an aggregate cash purchase price of
$7,327,500. Under the terms of Market Partners' limited liability company
agreement, Market Partners has distributed such warrants to its equity owners.
The following current and former executive officers and directors of the
Company received warrants from Market Partners exercisable for the following
number of shares of Common Stock: Mr. Buntrock--24,510 shares; Mr. Link--2,451
shares; Mr. Pedersen--24,510 shares; Mr. Stephens--9,804 shares; Mr. Zwain--
9,803 shares; and John Todd, the former Chief Financial Officer of the Boston
Market division--4,902 shares.
EINSTEIN/NOAH BAGEL CORP.
In March 1995, the Company made an investment in ENBC, which was created
through the combination of a number of leading regional bagel retailers. The
Company owns approximately 17.3 million shares (representing approximately 52%)
of the outstanding common stock of ENBC as of May 30, 1997. ENBC has granted to
the Company an option to purchase newly issued shares of ENBC common stock (for
cash or registered shares of the Company's Common Stock) that permits the
Company to maintain ownership of up to 52% of the outstanding shares of ENBC
common stock (the "ENBC Option"). In the event payment is made in registered
shares of the Company's Common Stock, the Company has agreed to guarantee the
price at which those shares can be sold at the market within a limited time
period. The ENBC Option will terminate if (i) the Company sells or transfers
shares of ENBC common stock and as a result owns less than a majority of the
then outstanding shares of ENBC's voting stock or (ii) the percentage of
outstanding shares of voting stock of ENBC owned by the Company is reduced
below 50% other than as a result of the Company's voluntary sale or transfer of
shares of ENBC common stock and the Company fails to acquire a sufficient
number of shares of ENBC common stock so that it owns at least a majority of
the then outstanding shares of voting stock of ENBC by July
48
<PAGE>
31 of the calendar year next following the calendar year in which such
reduction occurs. In calculating the percentage ownership of voting stock of
ENBC owned by the Company for purposes of the ENBC Option, such calculation
excludes from ownership by the Company (i) 701,177 shares of ENBC common stock
subject to options granted by the Company, (ii) any shares of ENBC common stock
held by officers, directors or employees of the Company, and (iii) any shares
of ENBC common stock held by any person or entity that would not be counted
under generally accepted accounting principles in determining whether the
Company owns a majority of the voting stock for consolidated financial
statement reporting purposes. Pursuant to such calculation, as of April 21,
1997, the Company owned approximately 50.4% of the outstanding common stock of
ENBC and has the right to purchase 1,109,368 shares of common stock of ENBC at
prices ranging from $23.28 to $30.75 per share. ENBC also granted to the
Company pursuant to a registration rights agreement, five demand and unlimited
piggyback registration rights under the Securities Act with respect to shares
of ENBC common stock owned by the Company.
The Company and ENBC are parties to a $50.0 million unsecured, subordinated,
non-convertible loan facility. As of May 30, 1997, there was no balance
outstanding under the facility. Interest on any loan will be based on the
reference rate of Bank of America Illinois plus an applicable margin. Any
borrowings outstanding under the facility are payable by ENBC on June 15, 2003.
The Company may satisfy a portion of its funding obligations under the loan
facility in cash or shares of Common Stock. The Company has agreed to guarantee
the price of any shares of Common Stock delivered to ENBC in satisfaction of
the Company's obligations under the loan facility and thereafter sold by ENBC.
During fiscal 1996, the Company and ENBC were also parties to a convertible
secured loan agreement and several fee service agreements, pursuant to which
the Company provided ENBC with certain infrastructure support services,
including accounting and administration services, financial services, real
estate services and computer and communication services. During fiscal 1996,
ENBC paid the Company an aggregate of approximately $10.2 million pursuant to
such agreements. The Company continues to provide ENBC with certain accounting
and administration and computer and communications services pursuant to such
agreements. ENBC and the Company are also parties to a sublease, pursuant to
which ENBC is entitled to the non-exclusive use of an aircraft leased by the
Company from an unaffiliated third party leasing company. During fiscal 1996,
ENBC paid the Company an aggregate of approximately $.5 million under the
sublease and a separate sublease between the Company and ENBC for an additional
aircraft, which sublease was terminated in June 1997. In addition, the Company
subleases to ENBC approximately 38,000 square feet of office space (and certain
common areas, including parking areas) for ENBC's support center located in
Golden, Colorado. The sublease currently provides for rental payments of
$38,000 per month and has an initial term of 15 years expiring in August 2011.
The Company's agreements with ENBC were negotiated at arms' length and the
Company believes that terms of such agreements are as favorable to the Company
as those that it would have with an unaffiliated third party.
Bagel Store Development Funding, L.L.C. ("Bagel Funding"), a Delaware limited
liability company, was formed in December 1995 to invest in area developers of
ENBC. Bagel Funding has raised $90.0 million and invested a total of $89.5
million in ENBC area developers. Bagel Funding has the right to require an area
developer to redeem Bagel Funding's equity interest in such area developer at a
pre-determined formula price based on the store level cash flow of the area
developer in the event: (i) ENBC acquires a majority equity interest in the
area developer pursuant to the exercise of its conversion or option rights
under the area developer's secured loan agreement; (ii) ENBC does not consent
to the area developer's request to undertake a firm commitment underwritten
public offering of such area developer's equity after ENBC's conversion and
option rights under its loan agreement with the area developer have expired
unexercised; or (iii) ENBC does not consent to the area developer's request to
terminate the area developer's area development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with
the area developer have expired unexercised. In the event the area developer
does not redeem Bagel Funding's equity interest when required to do so, ENBC
will be obligated to purchase from Bagel Funding its equity interest in the
area developer at the same price applicable to the area developer. ENBC is
currently the manager of Bagel Funding, but has no equity interest in Bagel
Funding. Scott Beck, Peer Pedersen and Laurence Zwain each own direct equity
interests in Bagel Funding and Mr. Buntrock owns an indirect equity interest as
a partner of a partnership that invested directly in Bagel Funding. Such
interests aggregate approximately 16.2% of the outstanding equity interest in
Bagel Funding.
49
<PAGE>
In fiscal 1996, ENBC area developers paid to the Company an aggregate of
$4,438,900 in software license and accounting fees pursuant to agreements for
such services between the Company and the ENBC area developers. The Company
believes that the terms of such agreements are as favorable to the Company as
the terms of similar agreements between the Company and the Company's area
developers.
In connection with ENBC's initial public offering in August 1996, executive
officers and directors of the Company purchased an aggregate of 51,862 shares
of ENBC common stock from ENBC in a concurrent non-underwritten public offering
at the initial public offering price net of the underwriters' discount as
follows: Mr. Alam--4,500 shares; Mr. Beck--8,612; Mr. Donald J. Bingle, former
Vice President, General Counsel and Secretary--2,500 shares; Mr. Buntrock--
2,000 shares; Mr. Goldston--3,750 shares; Mr. Greenberg--12,500 shares; Mr.
Harreld--2,500 shares; Mr. Jacobson--500 shares; Mr. Link--2,500 shares; Mr.
Nadhir--2,500 shares; Mr. Pedersen--2,000 shares; Mr. Shearer--2,500 shares;
Mr. Sprague--2,500 shares; Mr. Stephens--2,500 shares; Mr. Strasen--2,500
shares; Mr. Todd--2,500 shares; and Mr. Zwain--2,500 shares. Mr. Greenberg paid
the initial public offering price for 5,000 of the shares owned by him. See
also "Principal Stockholders and Securities Ownership of Management--Ownership
of Einstein/Noah Bagel Corp. Common Stock".
PROGRESSIVE FOOD CONCEPTS, INC.
The Company has provided PFCI with a $17.0 million secured loan that is
convertible, after a moratorium period and subject to PFCI meeting certain
financial performance criteria, into a majority equity interest in PFCI. See
"The Company--Progressive Food Concepts, Inc." Scott Beck and Saad Nadhir each
own a 46.2% equity interest in PFCI. Messrs. Beck and Nadhir have expressed
their intention to transfer a significant portion of their shares of PFCI
common stock to other persons as PFCI's business plan becomes more defined and
is implemented.
STOCK OPTION AGREEMENTS
In April 1996, the Company granted options to Messrs. Stephens and Zwain to
purchase 78,336 and 62,667 shares of common stock of ENBC owned by it,
respectively, at exercise prices of $6.38 per share. Each option is for a term
of five years and becomes exercisable with respect to 10% of the total number
of shares on the first anniversary of the date of grant, an additional 20% on
the second anniversary of the date of grant, an additional 30% on the third
anniversary of the date of grant, and the balance on the fourth anniversary of
the date of grant.
In April 1996, the Company also granted an option to Mr. Goldston to purchase
344,673 shares of common stock of ENBC owned by it at an exercise price of
$6.38 per share. Shares representing 34% of the total option were immediately
exercisable, and an additional 33% of the total option becomes exercisable on
each of the first and second anniversaries of the date of grant.
In July 1996, the Company granted options to Messrs. Nadhir and Todd to
purchase 156,740 and 19,593 shares of common stock of ENBC owned by it,
respectively, at exercise prices of $6.38 per share. Each option is for a term
of five years and becomes exercisable with respect to 10% of the total number
of shares on the first anniversary of the date of grant, an additional 20% on
the second anniversary of the date of grant, an additional 30% on the third
anniversary of the date of grant, and the balance on the fourth anniversary of
the date of grant.
CONSULTING AND OTHER AGREEMENTS
In fiscal year 1996, the Company granted to Mr. Goldston options under the
1995 Plan to purchase an aggregate of 100,000 shares of Common Stock at an
exercise price of $27.9375 per share, the fair market value of the Common Stock
on the date of grant. Such options vest in accordance with the terms of the
1995 Plan. In addition, the Company granted to Mr. Goldston options (outside of
the Company's employee option plans) to purchase an additional 100,000 shares
of Common Stock at an exercise price of $16.00 per share, the fair market value
of the Common Stock on the date of the grant. Such options are currently
exercisable. In consideration for certain consulting services rendered to the
Company by Mr. Goldston and a consulting firm of which Mr. Goldston was a
principal, the Company has paid an aggregate of $1,818,086 to such firm for
consulting services rendered during fiscal years 1995 and 1996.
50
<PAGE>
In April 1996, Mr. Goldston entered into a letter agreement with ENBC in
connection with his appointment as President and Chief Executive Officer of
ENBC, pursuant to which ENBC has agreed to pay Mr. Goldston a base salary of
$360,000 per year, with a guaranteed bonus of $400,000 for fiscal year 1996.
For fiscal year 1997, Mr. Goldston will be eligible for a $400,000 bonus from
ENBC, the receipt of which will be based upon the achievement of mutually
agreed upon reasonable performance goals. In addition, ENBC granted Mr.
Goldston options to purchase 114,030 shares of ENBC common stock at an
exercise price of $10.52 per share, the fair market value of the ENBC common
stock on the date of grant. Beginning in fiscal year 1997, Mr. Goldston will
be eligible for an annual stock option grant from ENBC to purchase, at a
minimum, that number of shares of ENBC common stock that have an aggregate
exercise price of $800,000. In connection with his employment, Mr. Goldston
also purchased 28,508 shares of ENBC common stock from ENBC at a purchase
price of $10.52 per share, the fair market value of the ENBC common stock on
the date of purchase.
In August 1996, the Company entered into a letter agreement with Jeffry J.
Shearer in connection with his resignation as a Vice-Chairman of the Board and
a director of the Company, pursuant to which the Company agreed that all
options granted him under the Company's 1991 Plan and 1995 Plan would continue
to vest in accordance with the terms of such Plans, unless otherwise
determined by the Company. As of December 29, 1996, Mr. Shearer had options to
purchase 747,502 shares of Common Stock subject to continued vesting pursuant
to the terms of the 1991 Plan and the 1995 Plan.
In November 1996 the Company entered into a consulting agreement with Donald
J. Bingle in connection with his resignation as Vice President, General
Counsel and Secretary of the Company, pursuant to which Mr. Bingle agreed to
continue as a part-time employee of the Company until February 14, 1997.
During such period, Mr. Bingle continued to receive his base salary. Pursuant
to the consulting agreement, Mr. Bingle resigned from the employment of the
Company effective February 14, 1997 and agreed, upon the Company's request, to
provide information, advice, and assistance to the Company concerning matters
that were within the scope of his knowledge and expertise during the course of
his employment by the Company. The initial term of the consulting agreement
expires February 14, 1998, provided that it will be automatically extended for
successive one year periods unless either party gives the other written notice
of termination at least sixty days prior to the applicable expiration date. In
consideration for such services, Mr. Bingle will be entitled to receive a
consulting fee at an annual rate of $50,000, plus reimbursement of reasonable
expenses. In addition, the Company has agreed that during the term of the
consulting agreement, all options granted to Mr. Bingle under the Company's
1991 Plan, 1995 Plan and any successor or subsequent similar plan under which
he receives or holds options would continue to vest in accordance with the
terms of such Plans. As of December 29, 1996, Mr. Bingle had options to
purchase 230,459 shares of Common Stock subject to continued vesting pursuant
to the terms of the 1991 Plan and the 1995 Plan. The Company has also agreed,
in the event any broad-based grant of stock options shall be made to employees
of the Company generally, to recommend to the Stock Option Committee of the
Board of Directors that Mr. Bingle receive a grant of stock options having a
value equal to two times his then current salary or annual consulting fee, as
applicable based upon the timing of such grant.
In December 1996, the Company entered into a letter agreement with Thomas R.
Sprague in connection with his resignation as Executive Vice President of the
Company, pursuant to which the Company agreed that all options granted him
under the Company's 1991 Plan and 1995 Plan would continue to vest in
accordance with the terms of such Plans until January 31, 1998. As of December
29, 1996, Mr. Sprague had options to purchase 90,050 shares of Common Stock
subject to continued vesting pursuant to the terms of the 1991 Plan and the
1995 Plan.
The Company has proposed to sell to certain investors, who include Peer
Pedersen and Dean Buntrock, directors of the Company, an aggregate of 500,000
shares of Series A Convertible Preferred Stock (the "Series A Stock") of
Spincycle, Inc. ("Spincycle") owned by the Company. The Company has offered to
sell the Series A Stock to such investors for $7.97 per share, the same per
share price paid to Spincycle by unaffiliated third party investors in June
1997 for shares of preferred stock of Spincycle with substantially the same
terms as the Series A Stock. The Company desires to sell its investment in
Spincycle because such investment is unrelated to its core business. Such sale
provides the Company with an opportunity to liquidate an otherwise illiquid
investment.
51
<PAGE>
LOANS TO EXECUTIVE OFFICERS
On April 23, 1996, the Company made a loan to Mr. Todd in the principal
amount of $100,000, the proceeds of which were used by Mr. Todd to finance
relocation costs. Interest on the principal amount of the loan accrues at the
reference rate announced by Bank of America Illinois from time to time plus 1%.
The principal balance of the loan and all accrued but unpaid interest thereon
are due and payable on April 22, 2000. The largest amount outstanding under the
loan during 1996 was $100,000.
On February 5, 1997, the Company made a loan to Mr. Link in the principal
amount of $100,000, the proceeds of which were used by Mr. Link to repay other
indebtedness. Interest on the principal amount of the loan accrues at the
reference rate announced by Bank of America Illinois from time to time plus 1%.
The principal balance of the loan and all accrued but unpaid interest thereon
are due and payable on March 1, 2002.
BOWANA AVIATION, INC.
During the fiscal year ended December 29, 1996, the Company and ENBC made
payments in an aggregate amount of $282,000 to Bowana Aviation, Inc. ("Bowana")
pursuant to lease agreements between Bowana and the Company and ENBC for the
use of Bowana's aircraft. Such lease agreements were terminated in July 1996.
Mr. Beck and Lawrence Beck own Bowana. The Company believes that the terms of
its use of Bowana's aircraft were at least as favorable to the Company as those
it could have obtained from an unaffiliated party.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 480,000,000 shares of
Common Stock, $.01 par value per share, and 20,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). At June 25, 1997,
there were 66,123,468 shares of Common Stock outstanding held of record by
approximately 2,900 stockholders. None of the Preferred Stock is outstanding.
The following description is a summary. Copies of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and Amended and
Restated Bylaws ("Bylaws") are exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Except as required by law or by the Certificate of Incorporation, holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of such holders of Common Stock. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors. Subject to preferences that may be applicable to any
then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Price Range of Common Stock and
Dividend Policy". In the event of a liquidation, dissolution, or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding Preferred Stock. Holders of Common Stock have no
preemptive rights. All outstanding shares of Common Stock are fully paid and
nonassessable. The Board of Directors may issue authorized shares of Common
Stock without further action by the stockholders.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 20,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges, and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series or the designation of such series. However, pursuant to the Certificate
of Incorporation, the holders of Preferred Stock would not have cumulative
voting rights with respect to the election of directors. The issuance of
Preferred could adversely affect the voting power of holders of Common Stock
and could have the effect of delaying, deferring, or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock.
CERTAIN CHARTER, BYLAW, AND OTHER PROVISIONS
The Certificate of Incorporation of the Company requires that any action
permitted to be taken by the stockholders of the Company must be effected at a
duly-called annual or special meeting of stockholders and may not be effected
by a written consent. In addition, the Bylaws of the Company require that
stockholders follow an advance notification procedure for stockholder
nominations of candidates for the Board of Directors and to present other
stockholder business to be considered at any meeting of the stockholders.
Specifically, for business properly to be brought before any meeting of
stockholders by a stockholder, the stockholder must deliver to the Secretary of
the Company a notice not less than 30 days nor more than 60 days prior to the
date of the meeting. If less than 40 days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, the notice must be
received by the Secretary of the Company prior to the date of the meeting and
not later than the close of business on the tenth day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, the stockholder's notice
must include certain specific information, including a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting. Stockholder nominations for election
of a director must comply with similar requirements and include all information
relating to the nominee that is required to be disclosed in solicitations of
proxies for election of directors or that is otherwise required pursuant to
Regulation 14A under the Exchange Act, including the nominee's consent to being
named in the
53
<PAGE>
proxy statement as a nominee and to serving as a director if elected. The
existence of these provisions in the Certificate of Incorporation and Bylaws
may have the effect of discouraging, delaying, deferring, or preventing a
change in control of the Company or removal of incumbent management even if
such change in control or removal could be beneficial to the Company's
stockholders generally.
The terms of the LYONs, the 4 1/2% Debentures and the 7 3/4% Debentures
provide that the Company will be required, as of 40 business days after the
occurrence of a Change in Control of the Company (occurring on or prior to June
1, 2000, in the case of the LYONs), to purchase for cash any LYON, 4 1/2%
Debenture or 7 3/4% Debenture, at the option of the Holder, for a Change in
Control Purchase Price equal to the Issue Price plus accrued Original Issue
Discount (in the case of a LYON), or 100% of the outstanding principal amount
thereof, plus accrued but unpaid interest (in the case of a 4 1/2% Debenture or
7 3/4% Debenture) through the Change in Control Purchase Date. The Change in
Control purchase features of the LYONs, the 4 1/2% Debentures and the 7 3/4%
Debentures may in certain circumstances have an anti-takeover effect. The
definition of "Change in Control" for purposes of the LYONs, the 4 1/2%
Debentures and the 7 3/4% Debentures is set forth in the respective Indenture
relating to the LYONs, the 4 1/2% Debentures and the 7 3/4% Debentures, which
are Exhibits to the Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
EXPERTS
The financial statements of the Company at December 31, 1995, at December 29,
1996 and for the fiscal years ended December 25, 1994, December 31, 1995, and
December 29, 1996 and the related financial statement schedule included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their reports thereon also included in this
Prospectus, and are included in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.
54
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and December 29, 1996.. F-3
Consolidated Income Statements for the fiscal years ended December 25,
1994, December 31, 1995, and December 29, 1996......................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years
ended December 25, 1994, December 31, 1995, and December 29, 1996...... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 25, 1994,
December 31, 1995, and December 29, 1996............................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Consolidated Balance Sheets at December 29, 1996 and April 20, 1997
(unaudited)............................................................ F-24
Consolidated Income Statements for the quarters ended April 21, 1996 and
April 20, 1997 (unaudited)............................................. F-25
Consolidated Statements of Cash Flows for the quarters ended April 21,
1996 and April 20, 1997 (unaudited).................................... F-26
Notes to Unaudited Consolidated Financial Statements.................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Chicken, Inc.:
We have audited the accompanying consolidated balance sheets of Boston
Chicken, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and December 29, 1996, and the related consolidated income statements,
statements of stockholders' equity and cash flows for the fiscal years ended
December 25, 1994, December 31, 1995, and December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boston Chicken, Inc. and
subsidiaries as of December 31, 1995 and December 29, 1996, and the results of
their operations and their cash flows for the fiscal years ended December 25,
1994, December 31, 1995, and December 29, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-2
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 310,436 $ 100,800
Accounts receivable, net........................... 13,445 22,438
Due from affiliates................................ 9,614 10,246
Notes receivable................................... 5,462 --
Prepaid expenses and other current assets.......... 1,536 4,050
Deferred income taxes.............................. 3,322 8,928
---------- ----------
Total current assets............................. 343,815 146,462
Property and Equipment, net.......................... 258,550 334,748
Notes Receivable..................................... 450,572 800,519
Deferred Financing Costs, net........................ 15,745 13,361
Goodwill, net........................................ -- 190,439
Other Assets, net.................................... 5,195 58,087
---------- ----------
Total assets..................................... $1,073,877 $1,543,616
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $ 12,292 $ 40,430
Accrued expenses................................... 9,095 36,547
Deferred franchise revenue......................... 8,945 10,656
---------- ----------
Total current liabilities........................ 30,332 87,633
Deferred Franchise Revenue........................... 2,072 7,740
Convertible Subordinated Debt........................ 129,872 129,841
Liquid Yield Option Notes............................ 177,306 182,613
Deferred Income Taxes................................ 16,631 40,216
Other Noncurrent Liabilities......................... 833 6,292
Minority Interest.................................... -- 153,441
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
480,000,000 shares; issued and outstanding:
59,129,301 shares in 1995 and 64,245,868 in 1996.. 591 642
Additional paid-in capital......................... 675,611 827,611
Retained earnings.................................. 40,629 107,587
---------- ----------
716,831 935,840
---------- ----------
Total liabilities and stockholders' equity....... $1,073,877 $1,543,616
========== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-3
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
(53 WEEKS)
<S> <C> <C> <C>
Revenue:
Royalties and franchise related fees.. $43,603 $ 74,662 $115,510
Company stores........................ 40,916 51,566 83,950
Interest income....................... 11,632 33,251 65,048
------- -------- --------
Total revenue....................... 96,151 159,479 264,508
Costs and Expenses:
Cost of products sold................. 15,876 19,737 31,160
Salaries and benefits................. 22,637 31,137 42,172
General and administrative............ 27,930 41,367 99,847
Provision for relocation.............. 5,097 -- --
------- -------- --------
Total costs and expenses............ 71,540 92,241 173,179
------- -------- --------
Income From Operations.................. 24,611 67,238 91,329
Other Income (Expense):
Interest expense, net................. (4,235) (13,179) (14,446)
Gain on issuances of subsidiary's
stock................................ -- -- 38,163
Other income, net..................... 74 314 137
------- -------- --------
Total other income (expense)........ (4,161) (12,865) 23,854
------- -------- --------
Income Before Income Taxes and Minority
Interest............................... 20,450 54,373 115,183
Income Taxes............................ 4,277 20,814 42,990
Minority Interest in (Earnings) of
Subsidiary............................. -- -- (5,235)
------- -------- --------
Net Income.............................. $16,173 $ 33,559 $ 66,958
======= ======== ========
Net Income Per Common and Equivalent
Share.................................. $ 0.38 $ 0.66 $ 1.01
======= ======== ========
Weighted Average Number of Common and
Equivalent Shares Outstanding.......... 42,861 50,972 66,501
======= ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year.......... $ 347 $ 447 $ 591
Issuance of common stock.............. 85 125 30
Conversion of convertible debt into
common stock......................... -- 1 --
Conversion of liquid yield option
notes into common stock.............. -- 1 3
Issuance of common stock in connection
with acquisitions.................... 11 12 5
Exercise of stock options............. 4 5 13
-------- -------- --------
Balance at end of year................ $ 447 $ 591 $ 642
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year.......... $103,662 $252,298 $675,611
Issuance of common stock, net of
offering cost of $1,475 in 1994,
$13,851 in 1995, and $848 in 1996.... 124,905 383,784 100,232
Conversion of convertible debt into
common stock......................... -- 127 31
Conversion of liquid yield option
notes into common stock.............. -- 3,232 8,192
Issuance of common stock in connection
with acquisitions.................... 19,920 30,675 14,709
Issuance of warrants.................. -- -- 8,373
Exercise of stock options, including
income tax benefits of $3,102 in
1994, $4,049 in 1995 and $15,204 in
1996................................. 3,811 5,495 20,463
-------- -------- --------
Balance at end of year................ $252,298 $675,611 $827,611
======== ======== ========
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year.......... $ (9,103) $ 7,070 $ 40,629
Net income............................ 16,173 33,559 66,958
-------- -------- --------
Balance at end of year................ $ 7,070 $ 40,629 $107,587
======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 16,173 $ 33,559 $ 66,958
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 6,074 11,442 22,887
Interest on liquid yield option notes. -- 8,075 13,793
Gain on issuances of subsidiary's
stock................................ -- -- (38,163)
Deferred income taxes................. 4,277 12,133 14,059
Minority interest..................... -- -- 5,235
Provision for write-down of assets.... -- -- 14,550
Loss (gain) on disposal of assets..... (368) 231 68
Changes in assets and liabilities,
excluding effects from acquisitions:
Accounts receivable and due from
affiliates........................... (7,800) (10,057) (7,193)
Accounts payable and accrued expenses. 13,724 3,661 48,674
Deferred franchise revenue............ 5,926 (303) 3,174
Other assets and liabilities.......... (2,088) (3,265) 868
--------- --------- -----------
Net cash provided by operating
activities........................... 35,918 55,476 144,910
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..... (163,622) (145,756) (115,062)
Proceeds from the sale of assets....... 62,342 80,910 86,320
Acquisition of other assets............ (5,175) (3,475) (22,370)
Issuance of notes receivable........... (225,282) (661,033) (1,467,065)
Repayment of notes receivable.......... 68,498 407,499 993,151
--------- --------- -----------
Net cash used in investing activities. (263,239) (321,855) (525,026)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and warrants.......................... 125,703 385,360 112,863
Proceeds from issuance of subsidiary's
common stock.......................... -- -- 135,422
Proceeds from issuance of convertible
subordinated debt..................... 130,000 -- --
Proceeds from issuance of liquid yield
option notes.......................... -- 172,464 --
Increase in deferred financing costs... (7,615) (6,313) (3,799)
Proceeds from revolving credit
facilities............................ 96,130 229,240 43,250
Repayments of revolving credit
facilities............................ (96,130) (229,240) (117,256)
--------- --------- -----------
Net cash provided by financing
activities........................... 248,088 551,511 170,480
--------- --------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents...................... 20,767 285,132 (209,636)
Cash and Cash Equivalents, beginning
of year.............................. 4,537 25,304 310,436
--------- --------- -----------
Cash and Cash Equivalents, end of
year................................. $ 25,304 $ 310,436 $ 100,800
========= ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................... $ 3,395 $ 7,195 $ 7,131
========= ========= ===========
Income taxes paid...................... $ -- $ 3,299 $ 5,055
========= ========= ===========
NON-CASH TRANSACTIONS:
Tax benefit of stock options exercised. $ 3,102 $ 4,049 $ 15,204
========= ========= ===========
Conversion of notes receivable into
equity interests...................... $ -- $ -- $ 123,500
========= ========= ===========
Conversion of convertible subordinated
notes and liquid yield option notes,
net of related deferred financing
costs, into common stock.............. $ -- $ 3,361 $ 8,226
========= ========= ===========
Issuance of common stock and note
payable for net assets acquired....... $ 19,931 $ 30,687 $ 21,562
========= ========= ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Boston Chicken, Inc. ("BCI") franchises and operates food service stores
under the Boston Market brand name which specialize in fresh, convenient meal
solutions featuring home style entrees, sandwiches, freshly prepared
vegetables, salads, and other side dishes. BCI's majority-owned subsidiary,
Einstein/Noah Bagel Corp. ("ENBC"), operates and franchises specialty retail
stores that feature fresh-baked bagels, proprietary cream cheeses, specialty
coffees and teas, and creative soups, salads, and sandwiches. Unless otherwise
indicated, BCI and its subsidiaries (excluding ENBC), are hereinafter referred
to collectively as the "Company".
At December 29, 1996, there were 1,087 Boston Market stores systemwide in
the United States, consisting of 982 franchise stores and 105 Company stores.
In 1994 and 1995, in connection with its practice of opening new stores to
seed development in targeted markets, the Company sold 54 and 91 Company
stores, respectively, to area developers or franchisees of the Company. At
December 29, 1996, there were 315 ENBC stores systemwide in the United States,
consisting of 301 franchise stores and 14 ENBC company stores. In 1996, ENBC
sold 59 ENBC company stores (since conversion of the Company's loan to ENBC on
June 17, 1996) to its area developers. The Company discontinued its practice
of seeding stores in new markets in 1995, and ENBC anticipates discontinuing
its practice of seeding stores in new markets in 1997. Pursuant to the
provisions of its franchise agreements, the Company is obligated to allow
franchisees to utilize its trademarks, copyrights, recipes, operating
procedures, and other elements of the Boston Market system in the operation of
franchised Boston Market stores. ENBC has a similar obligation under its
franchise agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries (including ENBC). All material intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's and ENBC's fiscal year is the 52/53-week period ending on the
last Sunday in December, and normally consists of 13 four-week periods. The
first quarter consists of four periods, and each of the remaining three
quarters consists of three periods, with the first, second, and third quarters
ending 16 weeks, 28 weeks, and 40 weeks, respectively, into the fiscal year.
Fiscal years 1994 and 1996 each contained 52 weeks, or 13 four-week periods.
Fiscal year 1995 contained 53 weeks.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit, and highly
liquid instruments purchased with maturities of three months or less.
Inventories
Inventories, which are classified in prepaid expenses and other current
assets, are stated at the lower of cost (first-in, first-out) or market and
consist of food, paper products, and supplies.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization has been
calculated using the straight-line method with buildings and improvements
being depreciated over 15 to 30 years, leasehold improvements being amortized
over the lesser of their useful lives or their lease term, including option
periods, furniture, fixtures, equipment, and computer software being
depreciated over three to eight years, and pre-opening costs being depreciated
over one year.
F-7
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment additions include acquisitions of property and
equipment, costs incurred in the development and construction of new stores,
major improvements to existing stores, and costs incurred in the development
and purchase of computer software. Pre-opening costs consist primarily of
salaries and other direct expenses relating to the set-up, initial stocking,
training, and general store management activities incurred prior to the
opening of new stores.
Expenditures for maintenance and repairs are charged to expense as incurred.
Development costs for franchised stores are expensed when the store opens.
Long-Lived Assets
The Company and ENBC evaluate whether events and circumstances have occurred
that indicate revision to the remaining useful life or the remaining balances
of long-lived assets may be appropriate. Such events and circumstances
include, but are not limited to, change in business strategy or change in
current and long-term projected operating performance. When factors indicate
that the carrying amount of an asset may not be recoverable, the Company
estimates the future cash flows expected to result from the use of such asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset, the Company will recognize an impairment loss equal to the
excess of the carrying amount over the fair value of the asset.
Deferred Financing Costs
Deferred financing costs are amortized over the period of the related
financing, which ranges from two to 20 years.
Revenue Recognition
Revenue from Company stores and from ENBC company stores is recognized in
the period during which related food and beverage products are sold. Royalties
are recognized in the same period that related franchise store revenue is
generated. Revenue derived from initial franchise fees and area development
fees is recognized when the franchised store opens. Interest, real estate
services, and software maintenance fees are recognized as earned. Lease income
is recognized over the life of the lease on a straight-line basis. Software
license income is recognized as the software is placed in service. The
components of royalties and franchise related fees are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------
DEC. DEC.
25, 31, DEC. 29,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Royalties........................................... $17,421 $34,841 $ 55,821
Initial franchise and area development fees......... 13,057 13,712 18,715
Lease and real estate services income............... 5,361 17,939 27,537
Software license and maintenance fees............... 6,480 7,723 13,104
Other............................................... 1,284 447 333
------- ------- --------
Total royalties and franchise related fees...... $43,603 $74,662 $115,510
======= ======= ========
</TABLE>
Per Share Data
Earnings per share are computed based upon the weighted average number of
common stock and common equivalent shares outstanding during the period.
F-8
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Issuances of Subsidiaries' Stock
Changes in the Company's proportionate interest in the net assets of its
subsidiaries that result from issuances of the subsidiaries' stock are
recognized in earnings as gains or losses in the period during which such
issuances occur.
Advertising Costs
Advertising costs are expensed in the period incurred.
Employee Stock Options
The Company and ENBC account for their employee stock options in accordance
with the intrinsic value method prescribed by Accounting Principles Board No.
25. Required pro forma disclosures of compensation expense determined under
the fair value method of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), are presented in
Note 11.
Employee Benefit Plan
The Company and ENBC each have a 401(k) plan to which neither the Company
nor ENBC makes a contribution.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 amounts to
conform with the 1996 presentation.
3. ACQUISITIONS
In April 1996, the Company delivered 450,640 shares of common stock with a
market value of approximately $15.0 million and a $6.8 million promissory note
to acquire the equity interests of certain investors in Mid-Atlantic
Restaurant Systems L.P. ("Mid-Atlantic"), its Boston Market area developer for
the Philadelphia area. As part of this transaction, the Company assumed $38.5
million in liabilities owed to third parties. The transaction resulted in the
Company acquiring a 93% equity interest in Mid-Atlantic. Subsequent to the
Company acquiring its interest in Mid-Atlantic, Mid-Atlantic acquired 100% of
the equity interest in New Jersey Rose, L.L.C., the Boston Market area
developer for the southern New Jersey area ("New Jersey Rose") for a purchase
price of $13.4 million, including the assumption of $1.1 million in
liabilities owed to third parties. Also, in June 1996, the Company converted
its $120.0 million loan to ENBC into shares of common stock of ENBC and
subsequently invested an additional $45.9 million in ENBC common stock,
resulting in an ownership interest of approximately 53% of the outstanding
shares of common stock of ENBC as of March 7, 1997. These transactions have
been accounted for as purchases, and, accordingly, the purchase prices were
allocated to identified assets and liabilities based upon their fair values at
the date of the transactions, resulting in goodwill of $110.1 million on the
ENBC transactions and $81.4 million on the Mid-Atlantic transactions, both of
which are being amortized over a 35-year life. The operating results of each
acquisition are included in consolidated net income from the date of
acquisition.
F-9
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents the unaudited pro forma results of operations as if
the purchase transactions described above had occurred at the beginning of the
periods presented (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Revenue............................................... $257,248 $326,758
Net income (loss)..................................... $(11,025) $ 53,733
Net income (loss) per share........................... $ (0.23) $ 0.80
</TABLE>
This pro forma information does not purport to be indicative of the results
of operations that actually would have been reported if the transactions had
occurred at the beginning of the periods presented. The pro forma information
is not intended to be a projection of future results or trends.
4. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA
Accounts receivable are net of an allowance for doubtful accounts of
$486,000 at December 31, 1995 and $424,000 at December 29, 1996.
<TABLE>
<CAPTION>
DEC. 31, 1995 DEC. 29, 1996
------------- -------------
<S> <C> <C>
Property and equipment consist of (in
thousands of dollars):
Land..................................... $106,244 $104,914
Buildings and improvements............... 92,935 148,642
Furniture, fixtures, equipment, and
computer
software................................ 64,338 98,817
Development in progress.................. 5,170 5,184
Pre-opening costs........................ 163 248
-------- --------
268,850 357,805
Less: Accumulated depreciation and
amortization............................ (10,300) (23,057)
-------- --------
Total property and equipment, net...... $258,550 $334,748
======== ========
</TABLE>
Included in land and buildings and improvements are $171.0 million (net of
accumulated depreciation and amortization of $3.7 million) and $183.1 million
(net of accumulated depreciation and amortization of $6.1 million) of assets
leased to others at December 31, 1995 and December 29, 1996, respectively.
Accumulated amortization at December 29, 1996 on goodwill was $4.3 million.
<TABLE>
<CAPTION>
DEC. 31, 1995 DEC. 29, 1996
------------- -------------
<S> <C> <C>
Accrued expenses consist of (in thousands
of dollars):
Accrued payroll and fringe benefits...... $1,556 $ 4,090
Accrued interest......................... 2,538 2,888
Accrued F.A.S.T. Track conversion costs.. -- 14,778
Accrued real estate disposition costs.... -- 5,866
Accrued other............................ 5,001 8,925
------ -------
Total accrued expenses................. $9,095 $36,547
====== =======
</TABLE>
F-10
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------
DEC.
25, DEC. 31, DEC. 29,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Interest expense, net consists of (in thousands
of
dollars):
Interest income................................ $ 1,592 $ 2,173 $ 6,427
Interest expense............................... (5,827) (15,352) (20,873)
------- -------- --------
Interest expense, net........................ $(4,235) $(13,179) $(14,446)
======= ======== ========
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and Cash Equivalents
The carrying value approximates fair value due to the length of maturity of
the investments.
Notes Receivable
The estimated fair value of notes receivable, including the conversion
option (See Note 10), is based on the discounted value of the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings.
Debt
The fair value of debt instruments is based on prices as quoted on the
Nasdaq SmallCap Market as reported by the Wall Street Journal (Western
Edition).
The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 29, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents............... $310,436 $310,436 $100,800 $100,800
Notes Receivable........................ 456,034 456,034 800,519 800,519
Convertible Subordinated Debt........... 129,872 154,872 129,841 163,600
Liquid Yield Option Notes............... 177,306 228,148 182,613 232,334
</TABLE>
6. DEBT
The Company and ENBC each have a revolving bank credit facility. The
Company's facility provides for borrowings of up to $110.0 million through
December 1, 1999, and ENBC's facility provides for borrowings up to $45.0
million through April 30, 1998. Borrowings under the Company's facility are
subject to a borrowing formula and may be either floating rate loans with
interest at the agent's base rate plus an applicable margin or eurodollar rate
loans with interest at the eurodollar rate plus an applicable margin.
Borrowings under ENBC's facility may be either floating rate loans with
interest at the agent's base rate plus an applicable margin or eurodollar rate
loans with interest at the eurodollar rate plus an applicable margin. In
addition, a commitment fee applicable to each facility (.25% for the Company's
facility and .5% for ENBC's facility) of the average daily unused portion of
the loan is required. The credit facility agreements contain covenants that,
among other things, restrict other borrowings, prohibit cash dividends,
require specified store-level sales, and require maintenance of specified cash
flow ratios. As of December 29, 1996, no amount was outstanding under either
facility. The Company's facility and its 1996 master lease facility (See Note
9) are collateralized by assets with a net book value of $795.4 million and
ENBC's facility is collateralized by substantially all of its assets.
F-11
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In February 1994, the Company issued $130.0 million of 4 1/2% convertible
subordinated debentures due February 1, 2004. Interest is payable semiannually
on February 1 and August 1 of each year. The debentures are convertible at any
time prior to maturity into shares of the Company's common stock at a
conversion rate of $27.969 per share, subject to adjustment under certain
conditions. The debentures may be redeemed at the option of the Company
initially at 103.15% of their principal amount and at declining prices
thereafter, plus accrued interest. In 1995 and 1996, $128,000 and $31,000 of
convertible subordinated debentures were converted into 4,576 shares and 1,107
shares of common stock, respectively.
In June 1995, the Company completed the sale of $828.0 million aggregate
principal amount at maturity of Liquid Yield Option Notes due June 1, 2015
("LYONs") for which the Company received gross proceeds of approximately
$172.5 million. The LYONs are zero-coupon subordinated notes that were sold at
an issue price of $208.29 per $1,000 principal amount due at maturity,
representing an 8% yield. Each LYON is convertible at the option of the holder
at any time on or prior to maturity into 8.532 shares of common stock of the
Company. In the event the holder exercises the option to convert, the holder
will not receive any payment for the accrued original issue discount. The
Company will purchase the LYONs at the option of the holder as of June 1,
2000, June 1, 2005, and June 1, 2010, for a purchase price per LYON of
$308.32, $456.39, and $675.57, respectively. The Company may elect to pay the
purchase price in cash or common stock or a combination thereof. Commencing on
June 1, 2000, the LYONs are redeemable at the option of the Company for cash,
at a price equal to the original issue price plus accrued original issue
discount through the redemption date. In 1995 and 1996, $3.2 million and $8.2
million of LYONs were converted into 127,980 shares and 328,942 shares of
common stock, respectively.
7. INCOME TAXES
The primary components that comprise the deferred tax assets and liabilities
at December 31, 1995 and December 29, 1996 are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
DEC. 31, 1995 DEC. 29, 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued expenses........... $ 841 $ 7,502
Deferred franchise revenue...................... 3,495 6,355
Other noncurrent liabilities.................... 181 730
ENBC net operating loss carryforward............ -- 6,648
Write-off of intangible assets that are
amortizable for tax............................ -- 1,582
Alternative minimum tax credit.................. 827 --
Other........................................... 651 1,411
-------- --------
Total deferred tax assets..................... 5,995 24,228
Deferred tax liabilities:
Gain on issuances of subsidiary's stock......... -- (14,883)
Property and equipment.......................... (18,340) (13,400)
Goodwill........................................ -- (8,678)
Other........................................... (964) (8,273)
-------- --------
Total deferred tax liabilities................ (19,304) (45,234)
-------- --------
(13,309) (21,006)
Valuation allowance............................. -- (10,282)
-------- --------
Net deferred tax liability.................... $(13,309) $(31,288)
======== ========
</TABLE>
F-12
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------
DEC. DEC. DEC.
25, 31, 29,
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current:
Federal................................................ $ -- $ 7,784 $24,359
State.................................................. -- 897 4,572
------ ------- -------
-- 8,681 28,931
Deferred:
Federal................................................ 3,614 10,743 11,841
State.................................................. 663 1,390 2,218
------ ------- -------
4,277 12,133 14,059
------ ------- -------
$4,277 $20,814 $42,990
====== ======= =======
</TABLE>
For the years ended December 25, 1994, December 31, 1995, and December 29,
1996, the Company recognized income tax benefits pertaining to the exercise of
stock options of $3,102,000, $4,049,000, and $15,204,000, respectively, which
are accounted for as a direct increase to additional paid-in capital and do
not reduce reported income tax expense.
The Company's conversion of its loan to ENBC resulted in the recognition of
a deferred tax asset of $14.8 million, which amount has been offset by a
valuation allowance due to the uncertainty in realizing the benefits of the
deferred tax asset. During 1996, the Company recognized $2.5 million of the
deferred tax asset as a reduction of the goodwill which resulted from the ENBC
loan conversion. As of December 29, 1996, the Company had a deferred tax asset
of $10.3 million associated with ENBC's temporary differences, which amount
has been offset by a valuation allowance. The decrease in the valuation
allowance from the date of conversion to December 29, 1996 results from
realization of a portion of the deferred tax asset. ENBC files a separate tax
return from the Company. As of December 29, 1996, ENBC has a net operating
loss carryforward of $17.0 million that begins to expire in 2010.
The difference between the Company's actual tax provision and the tax
provision that would result from applying the statutory federal income tax
rate to income before income taxes and minority interest is attributable to
the following (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------
DEC. DEC. DEC.
25, 31, 29,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Income tax expense at statutory rate.............. $ 6,953 $19,031 $40,314
State taxes, net of Federal benefit............... 818 1,740 4,492
Tax attributes of minority interest in earnings of
subsidiary....................................... -- -- (2,042)
Other............................................. 26 43 226
Change in valuation allowance..................... (3,520) -- --
------- ------- -------
Provision for income taxes........................ $ 4,277 $20,814 $42,990
======= ======= =======
</TABLE>
8. NATIONAL AND LOCAL ADVERTISING FUNDS
The Company administers a National Advertising Fund (the "Fund") to which
all stores make contributions based on individual franchise agreements (2% of
net revenue). Collected amounts are spent primarily on developing marketing
and advertising materials for use systemwide. In addition, the Company
maintains Local
F-13
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Funds ("LAFs") that provide comprehensive advertising and sales
promotion support (primarily television and radio media time) for stores in
particular markets. Periodic contributions are made by all stores (a minimum
of 4% of net revenue). The Company disburses funds and accounts for all
transactions related to such Fund and LAFs. Such amounts are not segregated
from the cash resources of the Company; however, consistent with Statement of
Financial Accounting Standards No. 45 "Accounting for Franchise Fee Revenue",
such amounts are accounted for separately and are not included in the
financial statements of the Company because the Company acts only as an agent
for its franchisees in placing orders for advertising and paying related
invoices out of such accounts.
The Fund had an accumulated deficit of $9.6 million at December 31, 1995 and
$15.2 million at December 29, 1996, which were funded by advances from the
Company, $9.6 million and $10.2 million of which were recorded in Due from
Affiliates at December 31, 1995 and December 29, 1996, respectively, and $5.0
million of which was recorded in Notes Receivable at December 29, 1996. The
amounts classified in Due from Affiliates are short term advances to the Fund
to be repaid within the next fiscal year. The amount classified in Notes
Receivable is due October 1998 and bears interest at the applicable reference
rate of Bank of America Illinois as established from time to time (8.25% at
December 29, 1996) and is payable each four-week period.
ENBC, as agent for its franchisees, administers similar national and local
advertising funds. ENBC accounts for these funds in a similar manner.
9. COMMITMENTS AND CONTINGENCIES
Through December 29, 1996, BC Equity Funding, L.L.C. ("BCEF") had invested
an aggregate of $58.3 million in certain Boston Market area developers in the
form of 10% cumulative preferred equity, redeemable by the area developers at
a premium initially equal to 10% of the initial issue price, to be increased
by 2% each year up to a maximum of 20% of the initial issue price plus accrued
dividends (the "Redemption Price"). In the event the Company's conversion and
option rights under its secured loan agreement with any of these area
developers expire unexercised (See Note 10) and the Company does not consent
to an area developer's request to undertake a firm commitment underwritten
public offering of the stock of such area developer, the Company has agreed to
purchase the preferred equity of such area developer from BCEF at the
Redemption Price.
Through December 29, 1996, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested an aggregate of $70.2 million in ENBC's area developers
in the form of common equity. 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 its
loan into or otherwise acquires a majority equity interest in the area
developer; (ii) ENBC does not consent to the area developer's request to
undertake a firm commitment underwritten public offering of stock of the area
developer after ENBC's conversion and option rights under its loan agreement
with the area developer have expired unexercised; or (iii) ENBC does not
consent to the area developer's request to terminate the area developer's area
development and franchise agreements with ENBC after ENBC's conversion and
option rights under its loan agreement with the area developer have expired
unexercised.
The Company has entered into two master lease facilities (the "1995
Facility" and the "1996 Facility") for the purpose of leasing equipment and
real estate for stores owned by the Company and its area developers. Financing
available under the 1995 Facility is $95.6 million and financing available
under the 1996 Facility is $190.0 million. Both the 1995 Facility and the 1996
Facility bear interest at LIBOR plus an applicable margin and have terms,
including renewal options, of between three and five years and contain a
purchase option. The 1996 Facility is cross-collateralized and cross-defaulted
with the Company's revolving credit facility (See Note 6). The Company
subleases a majority of the leased assets to its area developers. The
subleases to area developers contain substantially the same terms as the
master leases. The Company would be contingently liable for $192.6 million if
it utilized the entire amount available under the facilities and elected not
to purchase the leased assets or renew the leases. Such contingent obligation
would be reduced by a portion of the proceeds received by the lessor on the
sale of the leased assets and payments received from the sublessees.
F-14
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases sites for stores and for its support center in Golden,
Colorado. Lease terms are generally five years, with two or three five-year
renewal options. Most of the leases contain escalation clauses and common area
maintenance charges.
The Company also purchases or leases real estate and equipment that it then
leases, subleases, or assigns to an area developer or franchisee. The leases,
subleases, and assignment terms to area developers and franchisees are
negotiated at arm's length on commercially reasonable terms. The Company is
contingently liable for all lease costs, including common area maintenance
charges.
The following is a schedule of future minimum rental payments that are
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year, sublease proceeds, guarantees and
assignments, and rental receipts due under leases on property and equipment
owned by the Company as of December 29, 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
MINIMUM
NET RENTAL RECEIPTS
MINIMUM MINIMUM GUARANTEES ON PROPERTY AND
RENTAL SUBLEASE RENTAL AND EQUIPMENT OWNED
PAYMENTS PROCEEDS PAYMENTS ASSIGNMENTS BY THE COMPANY
-------- -------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
1997..................... $ 73,802 $ 74,095 $ -- $ 12,822 $ 18,675
1998..................... 57,114 57,178 -- 12,048 18,359
1999..................... 24,003 23,153 850 11,089 18,475
2000..................... 22,032 20,942 1,090 10,591 19,003
2001..................... 18,373 17,924 449 16,640 19,465
Later Years.............. 82,802 68,432 14,370 67,552 88,323
-------- -------- ------- -------- --------
$278,126 $261,724 $16,759 $130,742 $182,300
======== ======== ======= ======== ========
</TABLE>
Rent expense, net of sublease income, under operating leases was $3,242,000,
$4,495,000, and $4,637,000 for fiscal years 1994, 1995, and 1996,
respectively.
The Company has entered into an agreement with a poultry supplier relating
to the production of two chicken processing facilities. The agreement expires
in 2001, and contains two two-year and one one-year renewal options.
ENBC has entered into a supply agreement relating to the purchase of certain
minimum levels of cream cheese, which expires in October 2000, or earlier in
certain circumstances. The agreement requires ENBC, its subsidiaries, area
developers, and other authorized purchasers to purchase the lesser of 160,000
pounds of cream cheese per week or 60% of their requirements for cream cheese
(excluding certain requirements that may be satisfied through other
commitments and certain requirements of acquired companies). The price per
pound is determined over the term of the contract based upon production costs.
The Company has become 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 consolidated
financial position or results of operations.
10. AREA DEVELOPER FINANCING
The Company currently offers convertible secured debt financing to certain
Boston Market area developers to partially finance store development and
working capital needs. Only developers that are developing a significant
portion of an area of dominant influence or metropolitan area of a major city
and that 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 toward developing stores prior to drawing on its
revolving loan facility provided by the Company, with advances permitted during
a two-or three-year draw period (or additional draw period in the event of a
loan amendment) in a predetermined maximum amount, generally equal to three to
four times the amount of the area developer's contributed capital. Upon
expiration of
F-15
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the applicable reference rate of Bank of America
Illinois as established from time to time (8.25% at December 29, 1996 and an
average rate of 8.27% for 1996) plus 1%, and is payable each four-week 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 financings 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 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 developer commitment or in the event of the defaults set
forth below 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, which is at a premium over
the per unit price paid by investors in the area developer for their equity
investments made concurrently with the execution of the loan agreement or
subsequent amendments thereto. Default provisions contained in the area
developer loans typically include default in payment of principal and
interest, breach of a representation or warranty or of any covenant contained
in the loan agreement or security instruments, bankruptcy or bankruptcy-
related act of the borrower, resignation or termination of key management
personnel, default under the area development agreement, termination of three
or more franchise agreements, dissolution or liquidation, material adverse
change in financial condition, default of other indebtedness, the master
lease, sublease or any real estate lease, a judgment in excess of $100,000
(not satisfied, vacated or covered by insurance) and the invalidity or
termination of any security instrument. The conversion price is negotiated at
arms' length with each area developer and, at December 29, 1996, the average
conversion premium was approximately 17% 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 by 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. The conversion price is negotiated at arms' length
with each area developer and, at December 29, 1996, the average conversion
premium was approximately 12% over the per unit price paid by the investors in
the ENBC area developer for their equity investment made concurrently with the
execution of the loan agreement or subsequent amendment thereto.
In March 1997, the Company converted its loan to BC New York, L.L.C.
("BCNY") into a majority equity interest in BCNY. Additionally, the Company
has agreed to acquire an additional 11% of the equity of BCNY from the current
BCNY equity holders for approximately $15.0 million. After giving effect to
the conversion, and assuming the Company purchases the additional 11% of the
equity of BCNY, the Company will have an equity interest in BCNY of
approximately 84%. The BCNY transaction added 118 Boston Market stores,
operating in the metropolitan New York area, northern New Jersey, and
Connecticut, to the Company store base. As of the date of conversion, total
loan advances to BCNY were $80.0 million.
There can be no assurance that the Company or ENBC will exercise future
rights to convert their loans to any other area developers or acquire an
equity interest in any other area developers to which they provide financing,
or that such exercise or acquisition will result in a majority interest in
such area developer.
F-16
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(B) COMMITMENTS TO EXTEND AREA DEVELOPER FINANCING
The following tables summarize loan commitments, loan availability,
outstanding loan balances (included in Notes Receivable on the Company's
balance sheets) and contributed capital for Boston Market and ENBC area
developers (in thousands of dollars, except number of area developers):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
BOSTON MARKET:
Number of area developers receiving financing...... 17 15
Loan commitments................................... $ 614,094 $ 838,043
Loan availability.................................. (202,676) (190,778)
--------- ---------
Loans outstanding (included in Notes Receivable)... $ 411,418 $ 647,265
========= =========
Contributed capital................................ $ 200,268 $ 286,413
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
ENBC:
Number of area developers receiving financing................... 11
Loan commitments................................................ $ 283,200
Loan availability............................................... (142,446)
---------
Loans outstanding (included in Notes Receivable)................ $ 140,754
=========
Contributed capital............................................. $ 75,765
=========
</TABLE>
The following tables summarize area developer financing activity of Boston
Market area developers during fiscal years 1995 and 1996 and of ENBC area
developers from conversion (June 17, 1996) through December 29, 1996 (in
thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
BOSTON MARKET:
Area developer loan balances, beginning of year... $ 201,266 $ 411,418
Additional loan advances.......................... 549,174 1,044,861
Loan repayments................................... (339,022) (766,114)
Loans converted into equity or eliminated in
consolidation..................................... -- (42,900)
--------- ----------
Area developer loan balances, end of year......... $ 411,418 $ 647,265
========= ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
DECEMBER 29,
1996
------------
<S> <C>
ENBC:
Area developer loan balances, at conversion (June 17, 1996) of
the Company loan.............................................. $ 41,224
Loan advances.................................................. 153,961
Loan repayments................................................ (54,431)
----------
Area developer loan balances, end of year...................... $ 140,754
==========
</TABLE>
The majority of the loan advance and repayment activity reflects the
revolving nature of the loans, that is, amounts are drawn and repaid on a
regular basis to optimize cash management.
F-17
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The principal maturities of the aforementioned receivables are as follows
(in thousands of dollars):
<TABLE>
<S> <C>
1997............................................................. $ --
1998............................................................. 16,471
1999............................................................. 61,006
2000............................................................. 71,004
2001............................................................. 78,802
Thereafter....................................................... 560,736
--------
$788,019
========
</TABLE>
(C) CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Three Boston Market area developers accounted for approximately 14%, 13%,
and 12% of the Boston Market area developers' notes receivable balance at
December 29, 1996 and no other Boston Market area developer individually
accounted for 10% or more of such notes receivable balance as of such date.
Five ENBC area developers accounted for approximately 21%, 17%, 15%, 10%, and
10% of the ENBC area developers' notes receivable balance at December 29, 1996
and no other ENBC area developer individually accounted for 10% or more of
such notes receivable balance as of such date.
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 that
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 December
29, 1996.
The following table sets forth certain combined financial information as of
the dates indicated provided to the Company by Boston Market financed area
developers. During 1995, six financed area developers were formed, and their
data have been included in the table for 1995 from the dates of their
respective formation. During 1996, two financed area developers were formed,
and their data have been included in the table for 1996 from the dates of
their respective formation and two financed area developers combined with two
other financed area developers with geographically contiguous territories. The
table excludes Mid-Atlantic and New Jersey Rose for both years and BCNY for
1996, the loans to which have been converted into equity or eliminated in
consolidation (in thousands, except number of financed area developers and
store data):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
BOSTON MARKET FINANCED AREA DEVELOPERS:
Total number of financed area developers............ 15 14
Total number of financed area developer stores open. 627 841
Balance sheet data:
Total gross assets................................ $513,926 $ 640,534
Total debt:
To the Company.................................. 372,071 555,105
To third parties (including capital lease obli-
gations)....................................... 14,456 23,797
Total other liabilities (including trade
payables)........................................ 105,129 105,635
Total stockholder/partner/member deficit.......... (9,891) (102,754)
</TABLE>
F-18
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Statement of operations data:
Gross revenue.................................... $ 491,341 $ 865,082
Income (loss) from continuing operations......... (148,338) (156,505)
Statement of cash flows data:
Cash flows from (used in) operating activities... $ (76,926) $(128,819)
Cash flows from (used in) investing activities... (193,100) (82,307)
Cash flows from (used in) financing activities... 269,746 212,366
--------- ---------
Net change in cash............................. $ (280) $ 1,240
========= =========
</TABLE>
The following table sets forth certain combined financial information as of
the dates indicated provided to ENBC by its financed area developers (in
thousands, except number of financial area developers and store data). During
1995, two financed area developers were formed, and their data have been
included in the table for 1995 from the dates of their respective formation.
During 1996, ten financed area developers were formed, and their data have
been included in the table for 1996 from the dates of their respective
formation, and one financed area developer combined with one other financed
area developer with geographically contiguous territory.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
ENBC FINANCED AREA DEVELOPERS:
Total number of financed area developers.......... 2 11
Total number of financed area developer stores
open............................................. 13 301
Balance sheet data:
Total gross assets.............................. $ 9,262 $ 221,156
Total debt:
To ENBC....................................... 3,538 140,754
To third parties.............................. -- --
Total other liabilities (including trade
payables)...................................... 3,011 37,033
Total partner/member equity..................... 2,676 33,847
<CAPTION>
FISCAL YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Statement of operations data:
Gross revenue................................... $ 768 $ 109,940
Income (loss) from continuing operations........ (1,324) (40,592)
Statement of cash flows data:
Cash flows from (used in) operating activities.. $ 1,616 $ (16,382)
Cash flows from (used in) investing activities.. (8,064) (187,955)
Cash flows from (used in) financing activities.. 7,038 205,756
------- ---------
Net change in cash............................ $ 590 $ 1,419
======= =========
</TABLE>
11. STOCKHOLDERS' EQUITY
In August 1994, the Company completed the public sale of 6,900,000 shares of
its common stock, receiving net proceeds of approximately $120.0 million.
In November 1994, the Company sold to BC Midwest L.P. 1,542,852 shares of
common stock, receiving net proceeds of approximately $4.5 million.
F-19
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1995, the Company completed the public sale of 10,350,000 shares
of its common stock, receiving net proceeds of approximately $342.0 million.
Warrants
The Company has issued warrants to purchase 819,600 shares of common stock
to third parties exercisable at prices ranging from $25.00 to $37.75. The
warrants expire at various dates through December 2001.
Stock Option Plans
The Company has employee stock option plans (the "Employee Plans") under
which options to purchase up to 12,240,000 shares of common stock may be
granted. Under the terms of the Employee Plans, the Company may annually grant
options to certain employees and officers of, and consultants to, the Company.
The option price is equal to the fair market value of the stock on the date of
the grant and each option has a term of ten years. The options generally vest
at a rate of 10% at the end of the first year, an additional 20% at the end of
the second year, an additional 30% at the end of the third year, with the
balance vesting at the end of the fourth year from the date of the grant.
The Company also maintains a stock option plan for non-employee directors
(the "Directors Plan") under which options to purchase up to 360,000 shares of
common stock may be granted. Under the terms of the Directors Plan, the
Company automatically grants to each director who is not an officer or
employee of the Company, options to purchase shares having a fair market value
of $200,000 at the date of grant, each time they are elected or reelected as a
director of the Company. The option price is equal to the fair market value of
the stock on the date of grant and each option generally has a term of ten
years. The options are exercisable at the end of one year of service from the
date of grant.
ENBC has an employee stock option plan under which options to purchase up to
5,500,000 shares of common stock of ENBC may be granted. ENBC also has a stock
option plan for non-employee directors under which options to purchase up to
100,000 shares of common stock of ENBC may be granted. The terms of these
plans are similar to the Company's plans, however, option grants to each
director who is not an officer or employee of the Company are limited to a
market value of $50,000 at the date of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Company's stock
option plans. Had employee compensation expense for the Company's plans been
determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the Company's net income
and net income per common and equivalent share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net income--as reported................................... $33,559 $66,958
Net income--pro forma..................................... $33,015 $62,638
Net income per common and equivalent share--as reported... $ 0.66 $ 1.01
Net income per common and equivalent share--pro forma..... $ 0.65 $ 0.95
</TABLE>
F-20
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Expected volatility..................................... 38.0% 37.1%
Risk-free interest rate................................. 6.8% 6.3%
Expected lives.......................................... 5 years 5 years
Dividend yield.......................................... 0 0
</TABLE>
Activity under the option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF COMPANY OPTIONS SHARE EXERCISE PRICE
-------------------------------- --------------------
1994 1995 1996 1994 1995 1996
--------- --------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Company plans:
Options outstanding at
beginning of fiscal
year................. 6,698,024 8,140,421 8,668,265 $ 2.59 $ 5.81 $ 8.36
Options Granted....... 2,362,133 1,141,955 1,647,550 14.70 24.37 26.31
Options Exercised..... (384,905) (539,899) (1,343,647) 1.85 2.68 3.94
Options Forfeited..... (534,831) (74,212) (267,787) 4.19 21.07 15.13
--------- --------- ---------- ------ ------ ------
Options outstanding at
end of fiscal year..... 8,140,421 8,668,265 8,704,381 $ 5.81 $ 8.36 $12.33
========= ========= ========== ====== ====== ======
Options exercisable at
end of fiscal year..... 1,302,984 2,693,143 4,152,163
========= ========= ==========
</TABLE>
Information on options outstanding and options exercisable as of December
29, 1996, is as follows:
<TABLE>
<CAPTION>
COMPANY OPTIONS
COMPANY OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING WEIGHTED EXERCISE
CONTRACTUAL AVERAGE PRICE
NUMBER OF LIFE EXERCISE NUMBER OF PER
RANGE OF EXERCISE PRICES OPTIONS (YEARS) PRICE OPTIONS SHARE
- ------------------------ --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00-$ 3.00................ 2,752,263 5.27 $ 1.56 2,707,263 $ 1.55
$ 3.00-$ 6.00................ 1,721,579 6.29 4.02 860,402 4.11
$12.00-$15.00................ 940,955 7.92 14.88 256,131 14.88
$15.01-$18.00................ 871,962 7.55 17.43 199,973 17.37
$18.01-$21.00................ 178,940 7.66 19.59 47,695 19.54
$21.01-$24.00................ 53,662 8.58 23.32 13,486 22.67
$24.01-$27.00................ 971,085 9.50 25.36 4,529 24.97
$27.01-$30.00................ 313,109 9.05 27.96 237 29.69
$30.01-$33.00................ 711,133 9.02 31.24 60,497 31.00
$33.01-$36.00................ 186,042 9.28 34.66 1,950 34.78
$36.01-$39.00................ 3,651 9.30 36.36 -- --
--------- ---- ------ --------- ------
8,704,381 7.06 $12.33 4,152,163 $ 4.41
========= ==== ====== ========= ======
</TABLE>
F-21
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE SHARE
ENBC EXERCISE
OPTIONS PRICE
--------- -------------
<S> <C> <C>
ENBC plans:
Outstanding as of the date of conversion (June 17,
1996).............................................. 3,410,734 $ 6.50
Granted........................................... 239,714 12.57
Exercised......................................... (47,440) 5.89
Canceled.......................................... (124,933) 7.98
--------- ------
Outstanding as of December 29, 1996................. 3,478,075 $ 6.87
========= ======
Exercisable as of December 29, 1996................... 275,824 $ 5.93
========= ======
</TABLE>
Information on options outstanding and exercisable as of December 29, 1996,
is as follows:
<TABLE>
<CAPTION>
ENBC OPTIONS
ENBC OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING WEIGHTED EXERCISE
CONTRACTUAL AVERAGE NUMBER PRICE
NUMBER OF LIFE EXERCISE OF PER
RANGE OF EXERCISE PRICES OPTIONS (YEARS) PRICE OPTIONS SHARE
- ------------------------ --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 5.88......................... 1,616,739 8.46 $ 5.88 257,700 $5.88
$ 6.00-$ 9.00.................. 1,433,755 9.04 6.58 18,124 6.54
$ 9.01-$12.00.................. 417,411 9.41 11.36 -- --
$12.01-$15.00.................. 8,109 9.58 15.00 -- --
$27.01-$30.00.................. 685 9.70 29.13 -- --
$30.01-$33.00.................. 1,376 9.76 32.63 -- --
--------- ---- ------ ------- -----
3,478,075 8.81 $ 6.87 275,824 $5.93
========= ==== ====== ======= =====
</TABLE>
As of December 29, 1996, the Company had 22,328,419 shares of common stock
reserved for issuance upon exercise of stock options and warrants and
conversion of convertible subordinated debentures and LYONs.
12. RELATED-PARTY TRANSACTIONS
The Company and ENBC have entered into secured loan, area development and
franchise agreements with certain area developers in which certain directors
and certain current and former officers of the Company, ENBC and members of
their families have a direct or indirect equity interest. In addition, certain
officers and directors of the Company, and members of their immediate
families, have a direct or indirect equity interest in ENBC. The Company has
also entered into loan agreements with ENBC. These entities have paid
approximately $11.3 million, $20.0 million, and $41.0 million in national and
local advertising contributions in 1994, 1995, and 1996. The Company and ENBC
(since conversion on June 17, 1996) have also sold to certain of these
entities, stores, inventory, equipment, and other miscellaneous assets,
including reimbursement of the Company's and ENBC's general and administrative
costs and expenses, common stock, and warrants to purchase common stock for
which they received approximately $47.1 million, $14.6 million, and $30.5
million in 1994, 1995, and 1996, respectively. The Company believes that the
terms of these agreements are as favorable to the Company as those with other
area developers of the Company.
The Company has paid to one of these area developers $146,000 in 1994 and
$100,000 in 1995 for various services.
Pursuant to Statement of Financial Accounting Standards No. 57, all Company
and ENBC financed area developers may be deemed to be related parties as a
result of the lending and franchise relationships with their
F-22
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
area developers. Total royalties and franchise related fees earned from all
financed area developers were $27.9 million, $59.9 million, and $110.9 million
in 1994, 1995, and 1996, respectively. Total interest income earned from all
financed area developers was $11.6 million, $32.0 million, and $57.1 million,
in 1994, 1995, and 1996, respectively. Total notes receivable from all
financed area developers were $411.4 million and $788.0 million at December
31, 1995 and December 29, 1996, respectively.
Certain officers and directors of the Company have an equity interest in
ENBC. For the Company's 1995 fiscal year, ENBC paid to the Company
approximately $1.2 million for the purchase of furniture, equipment, and other
miscellaneous assets. In addition, ENBC paid to the Company approximately $3.0
million and $7.6 million in software license, software maintenance, real
estate, financial advisory, accounting fees, and interest on its loan with the
Company during fiscal 1995 and 1996 (prior to conversion on June 17, 1996),
respectively.
Certain officers and directors of the Company are officers and minority
investors in BCEF, having invested $7.3 million of an aggregate of $60.0
million at December 29, 1996. The Company has been engaged by BCEF to be its
manager for which it received fees of $375,000 in 1995 and $125,000 in 1996.
Neither the Company nor ENBC has an equity interest in BCEF.
Certain officers and directors of the Company are investors in Bagel
Funding, having invested $15.2 million of an aggregate of $75.0 million at
December 29, 1996. ENBC is the manager of Bagel Funding. Bagel Funding paid
$250,000 to ENBC (since conversion on June 17, 1996) in its capacity as
manager during 1996. Neither the Company nor ENBC has an equity interest in
Bagel Funding.
Certain officers and directors of the Company have an equity interest in
Market Partners, L.L.C. ("Market Partners"), having invested $9.0 million of
an aggregate of $38.3 million at December 29, 1996. As of such date, Market
Partners had invested $35.6 million in certain area developers of the Company.
Neither the Company nor ENBC has an equity interest in Market Partners.
A director/officer and a former director/officer of the Company control BC
Midwest Trust, successor to the interests previously held by BC Midwest L.P.
During 1994, 1995, and 1996, the Company paid approximately $528,000,
$662,000, and $282,000, respectively, to Bowana Aviation, Inc. ("Bowana") for
the use of aircraft. The Company's chief executive officer and a relative
owned Bowana. The Company believes that the amounts charged are at rates at
least comparable to those charged by third parties.
13. ENBC EQUITY OFFERINGS
During 1996, from the date of the conversion of the Company's loan to ENBC,
ENBC issued approximately 8.9 million shares of its common stock to third
parties pursuant to an initial and a subsequent public offering, a concurrent
non-underwritten public offering, and through the exercise of stock options
and warrants at prices ranging from $5.88 per share to $28.58 per share. Prior
to these transactions, the Company held approximately a 70% interest in ENBC,
and subsequent to these transactions at December 29, 1996, the Company held
approximately a 54% interest in ENBC. These transactions generated a pretax
gain of approximately $38.2 million as a result of ENBC issuing shares of
common stock at prices per share greater than the Company's carrying value.
Deferred income taxes have been provided on the gain.
14. RELOCATION
In September 1994, the Company consolidated its four Chicago-based support
center facilities into a single facility and relocated to Golden, Colorado.
The cost of the relocation, including moving personnel and facilities,
severance payments, and the write-off of vacated leasehold improvements, was
$5.1 million.
F-23
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER APRIL 20,
29, 1996 1997
---------- ----------
ASSETS
------ (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 100,800 $ 2,443
Accounts receivable, net.............................. 22,438 18,388
Due from affiliates................................... 10,246 9,218
Inventories........................................... 2,585 4,661
Prepaid expenses and other current assets............. 1,465 2,106
Deferred income taxes................................. 8,928 10,248
---------- ----------
Total current assets................................ 146,462 47,064
Property and Equipment, net............................. 334,748 398,130
Notes Receivable........................................ 800,519 852,834
Deferred Financing Costs, net........................... 13,361 12,431
Goodwill, net........................................... 190,439 259,585
Other Assets, net....................................... 58,087 65,873
---------- ----------
Total assets........................................ $1,543,616 $1,635,917
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable...................................... $ 40,430 $ 13,776
Accrued expenses...................................... 36,547 25,646
Deferred franchise revenue............................ 10,656 11,226
---------- ----------
Total current liabilities........................... 87,633 50,648
Deferred Franchise Revenue.............................. 7,740 6,761
Senior Secured Revolvers................................ -- 65,300
Convertible Subordinated Debt........................... 129,841 129,520
Liquid Yield Option Notes............................... 182,613 187,051
Deferred Income Taxes................................... 40,216 43,053
Other Noncurrent Liabilities............................ 6,292 9,384
Minority Interests...................................... 153,441 175,211
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 480,000,000
shares; issued and outstanding: 64,245,868 in 1996
and 65,020,051 in 1997............................... 642 650
Additional paid-in capital............................ 827,611 839,304
Retained earnings..................................... 107,587 129,035
---------- ----------
935,840 968,989
---------- ----------
Total liabilities and stockholders' equity.......... $1,543,616 $1,635,917
========== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-24
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------
APRIL APRIL
21, 20,
1996 1997
------- -------
<S> <C> <C>
Revenue:
Company stores.............................................. $ 1,314 $50,092
Royalties and franchise related fees........................ 28,046 41,432
Interest income............................................. 17,987 25,240
------- -------
Total revenue............................................. 47,347 116,764
Costs and Expenses:
Cost of products sold....................................... 480 18,744
Salaries and benefits....................................... 7,509 21,911
General and administrative.................................. 10,811 30,088
------- -------
Total costs and expenses.................................. 18,800 70,743
------- -------
Income from Operations........................................ 28,547 46,021
Other Expense:
Interest expense, net....................................... (2,900) (7,229)
Gain on issuance of subsidiary's stock...................... -- 701
Other income (expense), net................................. 109 (26)
------- -------
Total other expense....................................... (2,791) (6,554)
------- -------
Income Before Income Taxes and Minority Interest.............. 25,756 39,467
Income Taxes.................................................. 10,107 15,433
Minority Interest in (Earnings) of Subsidiaries............... -- (2,586)
------- -------
Net Income.................................................... $15,649 $21,448
======= =======
Net Income Per Common and
Equivalent Share............................................. $ 0.24 $ 0.32
======= =======
Weighted Average Number of Common
and Equivalent Shares Outstanding............................ 64,317 67,966
======= =======
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-25
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------
APRIL APRIL
21, 1996 20, 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 15,649 $ 21,448
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 4,214 10,868
Interest on liquid yield option notes................... 4,193 4,464
Deferred income taxes................................... 1,535 1,517
Gain on sale of subsidiary's stock...................... -- (701)
Minority interest....................................... -- 2,586
Gain on disposal of assets.............................. (157) --
Changes in assets and liabilities, excluding effects
from acquisition:
Accounts receivable and due from affiliates........... (684) 5,830
Accounts payable and accrued expenses................. 2,383 (56,699)
Deferred franchise revenue............................ 2,152 (409)
Other assets and liabilities.......................... (1,368) (4,808)
-------- --------
Net cash provided by (used in) operating activities. 27,917 (15,904)
-------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment...................... (27,060) (28,524)
Proceeds from the sale of assets........................ 16,683 4,659
Acquisition of other assets............................. (5,834) (4,314)
Issuance of notes receivable............................ (508,163) (425,290)
Repayments of notes receivable.......................... 254,196 295,631
-------- --------
Net cash used in investing activities............... (270,178) (157,838)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................. 87,356 2,285
Proceeds from issuance of subsidiary's common stock..... -- 8,206
Increase in deferred financing costs.................... (48) (406)
Proceeds from revolving credit facilities............... -- 219,500
Repayments of revolving credit facilities............... -- (154,200)
-------- --------
Net cash provided by financing activities........... 87,308 75,385
-------- --------
Net Decrease in Cash and Cash Equivalents................. (154,953) (98,357)
Cash and Cash Equivalents, beginning of period............ 310,436 100,800
-------- --------
Cash and Cash Equivalents, end of period.................. $155,483 $ 2,443
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-26
<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 29, 1996 and notes related thereto. The financial statements
and notes thereto 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 April 20, 1997 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/A for the year ended December 29, 1996. The consolidated
results of operations for the quarter ended April 20, 1997 are not necessarily
indicative of the results expected for the full year.
2. AREA DEVELOPER FINANCING
The Company currently offers convertible secured debt financing to certain
Boston Market area developers to partially finance store development and
working capital needs. Only developers that are developing a significant
portion of an area of dominant influence or metropolitan area of a major city
and that 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 toward developing stores prior to
drawing on its revolving loan facility provided by the Company, with advances
permitted during a two- or three-year draw period (or additional draw period
in the event of a loan amendment) in a predetermined maximum amount, generally
equal to three 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 the applicable
reference rate of Bank of America Illinois as established from time to time
(8.5% at April 20, 1997 and an average rate of 8.3% for the quarter ended
April 20, 1997) plus 1%, and is payable each four-week 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.
Einstein/Noah Bagel Corp. ("ENBC") offers secured debt financings 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 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 developer commitment or in the event of the defaults set
forth below 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 negotiated at arm's length
with each area developer, which is at a 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. Default provisions contained in the area developer loans typically
include default in payment of principal and interest, breach of a
representation or warranty or of any covenant contained in the loan agreement
or security instruments, bankruptcy or bankruptcy-related act of the borrower,
resignation or termination of key management personnel, default under the area
development agreement, termination of three or more franchise agreements,
dissolution or liquidation, material adverse change in financial condition,
default of other indebtedness, the master lease, sublease or any real estate
lease, a judgment in excess of $100,000 (not satisfied, vacated or covered by
insurance) and the invalidity or termination of any security instrument. To
the extent such loan is not fully
F-27
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
On average, upon conversion or exercise of the option, the Company would own
approximately a 65% interest in each of its area developers.
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. On average, upon conversion or exercise of the option,
ENBC would own approximately an 80% interest in each of its area developers.
In March 1997, the Company converted its loan to BC New York, L.L.C.
("BCNY") into a majority equity interest in BCNY. Additionally, the Company
has agreed to acquire an additional 11% of the equity of BCNY from the current
BCNY equity holders for approximately $15.0 million. After giving effect to
the conversion, and assuming the Company purchases the additional 11% of the
equity of BCNY, the Company will have an equity interest in BCNY of
approximately 84%. The BCNY transaction added 118 Boston Market stores,
operating in the metropolitan New York area, northern New Jersey, and
Connecticut, to the Company store base. As of the date of conversion, total
loan advances to BCNY were $80.0 million. As part of this transaction, the
Company assumed $5.8 million in liabilities owed to third parties. The
transaction has been accounted for as a purchase, and, accordingly, the
purchase price was allocated to identified assets and liabilities based upon
their fair values at the date of the transaction, resulting in goodwill of
$72.6 million (based upon a preliminary allocation), which is being amortized
over a 35-year life. The operating results of BCNY are included in
consolidated net income from the date of acquisition.
The following represents the unaudited pro forma results of operations as if
the purchase transaction described above had occurred at the beginning of the
Company's fiscal year (in thousands of dollars, except per share data):
<TABLE>
<S> <C>
Revenue......................... $146,539
Net income...................... 18,294
Net income per share............ $ 0.27
</TABLE>
There can be no assurance that the Company or ENBC will exercise future
rights to convert their loans to any other area developers or acquire an
equity interest in any other area developers to which they provide financing,
or that such exercise or acquisition will result in a majority interest in
such area developer.
(b) Commitments to Extend Area Developer Financing
The following tables summarize loan commitments, loan availability,
outstanding loan balances (included in Notes Receivable on the Company's
balance sheets) and contributed capital for Boston Market and ENBC area
developers (in thousands of dollars, except number of area developers):
<TABLE>
<CAPTION>
DECEMBER 29, APRIL 20,
1996 1997
------------ ---------
<S> <C> <C>
BOSTON MARKET:
Number of area
developers receiving
financing.............. 15 15
Loan commitments........ $ 838,043 $ 755,620
Loan availability....... (190,778) (132,946)
--------- ---------
Loans outstanding
(included in Notes
Receivable)............ $ 647,265 $ 622,674
========= =========
Contributed capital..... $ 286,413 $ 290,694
========= =========
ENBC:
Number of area
developers receiving
financing.............. 11 12
Loan commitments........ $ 283,200 $ 359,900
Loan availability....... (142,446) (148,158)
--------- ---------
Loans outstanding
(included in Notes
Receivable)............ $ 140,754 $ 211,742
========= =========
Contributed capital..... $ 75,765 $ 95,227
========= =========
</TABLE>
F-28
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize area developer financing activity of Boston
Market and ENBC area developers (in thousands of dollars):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
BOSTON MARKET:
Area developer loan balances, beginning of
quarter....................................... $ 411,418 $ 647,265
Additional loan advances....................... 299,402 292,451
Loan repayments................................ (160,656) (237,042)
Loans converted into equity or eliminated in
consolidation................................. -- (80,000)
--------- ---------
Area developer loan balances, end of quarter... $ 550,164 $ 622,674
========= =========
</TABLE>
<TABLE>
<CAPTION>
QUARTER
ENDED
APRIL 20,
1997
---------
<S> <C>
ENBC:
Area developer loan balances, beginning of quarter......... $ 140,754
Loan advances.............................................. 124,298
Loan repayments............................................ (53,310)
---------
Area developer loan balances, end of quarter............... $ 211,742
=========
</TABLE>
The majority of the loan advance and repayment activity reflects the
revolving nature of the loans, that is, amounts are drawn and repaid on a
regular basis to optimize cash management.
(c) Credit Risk and Allowance for Loan Losses
Two Boston Market area developers accounted for approximately 15% and 13% of
the Boston Market area developers' notes receivable balance at April 20, 1997
and no other Boston Market area developer individually accounted for 10% or
more of such notes receivable balance as of such date. Three ENBC area
developers accounted for approximately 16%, 15%, and 12% of the ENBC area
developers' notes receivable balance at April 20, 1997 and no other ENBC area
developer individually accounted for 10% or more of such notes receivable
balance as of such date.
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 that
management deems relevant at the time. Based upon this review and analysis, no
allowance for loan losses was required as of December 29, 1996 and April 20,
1997.
The following tables set forth certain combined audited financial
information as of the dates indicated provided annually to the Company by
Boston Market financed area developers. During 1995, six financed area
developers were formed, and their data have been included in the table for
1995 from the dates of their respective formation. During 1996, two financed
area developers were formed, and their data have been included in the table
for 1996 from the dates of their respective formation and two financed area
developers combined with two other financed area developers with
geographically contiguous territories. The table excludes Mid-Atlantic and New
Jersey Rose for both years and BCNY for 1996, the loans to which have been
converted into equity or eliminated in consolidation (in thousands, except
number of financed area developers and store data):
F-29
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
BOSTON MARKET FINANCED AREA DEVELOPERS:
Total number of financed area developers......... 15 14
Total number of financed area developer stores
open............................................ 627 841
Balance sheet data:
Total gross assets............................. $513,926 $ 640,534
Total debt:
To the Company............................... 372,071 555,105
To third parties (including capital lease
obligations)................................ 14,456 23,797
Total other liabilities (including trade
payables)..................................... 105,129 105,635
Total stockholder/partner/member deficit....... (9,891) (102,754)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Statement of operations data:
Gross revenue................................ $ 491,341 $ 865,082
Income (loss) from continuing operations..... (148,338) (156,505)
Statement of cash flows data:
Cash flows from (used in) operating
activities.................................. $ (76,926) $(128,819)
Cash flows from (used in) investing
activities.................................. (193,100) (82,307)
Cash flows from (used in) financing
activities.................................. 269,746 212,366
--------- ---------
Net change in cash......................... $ (280) $ 1,240
========= =========
</TABLE>
The following tables set forth certain combined audited financial
information as of the dates indicated provided annually to ENBC by its
financed area developers. During 1995, two financed area developers were
formed, and their data have been included in the table for 1995 from the dates
of their respective formation. During 1996, ten financed area developers were
formed, and their data have been included in the table for 1996 from the dates
of their respective formation and one financed area developer combined with
one other financed area developer with geographically contiguous territory.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
ENBC FINANCED AREA DEVELOPERS:
Total number of financed area developers....... 2 11
Total number of financed area developer stores
open.......................................... 13 301
Balance sheet data:
Total gross assets........................... $9,262 $221,156
Total debt:
To ENBC.................................... 3,538 140,754
To third parties........................... -- --
Total other liabilities (including trade
payables)................................... 3,011 37,033
Total partner/member equity.................. 2,676 33,847
</TABLE>
F-30
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Statement of operations data:
Gross revenue................................ $ 768 $ 109,940
Income (loss) from continuing operations..... (1,324) (40,592)
Statement of cash flows data:
Cash flows from (used in) operating
activities.................................. $ 1,616 $ (16,382)
Cash flows from (used in) investing
activities.................................. (8,064) (187,955)
Cash flows from (used in) financing
activities.................................. 7,038 205,756
------- ---------
Net change in cash......................... $ 590 $ 1,419
======= =========
</TABLE>
3. PROGRESSIVE FOOD CONCEPTS, INC.
The Company has provided a $17.0 million convertible loan to Progressive
Food Concepts, Inc. ("PFCI") on terms substantially similar to those provided
to Boston Market area developers (see note 2). As of April 20, 1997, $6.9
million was outstanding under the loan agreement. PFCI has entered into a
series of agreements with Harry's Farmers Market, Inc. ("Harry's"), an
operator of retail food stores in the Atlanta area. Scott Beck, the Company's
Chairman of the Board, President and Chief Executive Officer, and Saad J.
Nadhir, the former Co-Chairman of the Board and President of the Company, each
own a 46.2% equity interest in PFCI, and Harry's owns a 7.6% interest in PFCI.
Messrs. Beck and Nadhir have expressed their intention to transfer a
significant portion of their shares of PFCI common stock to other persons, who
may include area developers of the Company, as PFCI's business plan becomes
more defined and is implemented.
4. ROYALTIES AND FRANCHISE RELATED FEES
Royalties and franchise related fees are comprised of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
Royalties............................................. $14,776 $20,856
Lease and real estate services income................. 7,968 9,244
Initial franchise and area developer fees............. 2,692 6,865
Software license and maintenance fees................. 2,610 4,467
------- -------
$28,046 $41,432
======= =======
</TABLE>
5. COMMITMENTS
Through April 20, 1997, BC Equity Funding, L.L.C. ("BCEF") had invested an
aggregate of $58.3 million in certain Boston Market area developers in the
form of 10% cumulative preferred equity, redeemable by the area developers at
a premium initially equal to 10% of the initial issue price, to be increased
by 2% each year up to a maximum of 20% of the initial issue price plus accrued
dividends (the "Redemption Price"). In the event the Company's conversion and
option rights under its secured loan agreement with any of these area
developers expire unexercised and the Company does not consent to an area
developer's request to undertake a firm commitment underwritten public
offering of the stock of such area developer, the Company has agreed to
purchase the preferred equity of such area developer from BCEF at the
Redemption Price.
Through April 20, 1997, Bagel Store Development Funding, L.L.C. ("Bagel
Funding") had invested an aggregate of $89.5 million in ENBC's area developers
in the form of common equity. ENBC is obligated to
F-31
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 its loan into or otherwise acquires a majority equity
interest in the area developer; (ii) ENBC does not consent to the area
developer's request to undertake a firm commitment underwritten public
offering of stock of the area developer after ENBC's conversion and option
rights under its loan agreement with the area developer have expired
unexercised; or (iii) ENBC does not consent to the area
developer's request to terminate the area developer's area development and
franchise agreements with ENBC after ENBC's conversion and option rights under
its loan agreement with the area developer have expired unexercised.
6. SUBSEQUENT EVENTS
In April 1997, the Company issued in a public offering $287.5 million of 7
3/4% convertible subordinated debentures due May 1, 2004. Interest is payable
semi-annually on May 1 and November 1 of each year beginning November 1, 1997.
The debentures are convertible at any time prior to maturity into shares of
the Company's common stock at a conversion rate of $26.70 per share, subject
to adjustments under certain conditions. The debentures may be redeemed at the
option of the Company beginning May 1, 2000 initially at 104.43% of their
principal amount and at declining prices thereafter, plus accrued interest.
In May 1997, ENBC issued in a private offering $125.0 million of 7 1/4%
convertible subordinated debentures due June 1, 2004. Interest is payable
semi-annually on June 1 and December 1 of each year beginning December 1,
1997. The debentures are convertible at any time prior to maturity into shares
of ENBC's common stock at a conversion rate of $21.25 per share, subject to
adjustments under certain conditions. The debentures may be redeemed at the
option of ENBC beginning June 1, 2000 initially at 104.14% of their principal
amount and at declining prices thereafter, plus accrued interest.
7. 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.
8. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 requires disclosure of basic and
diluted earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the weighted-
average number of common shares outstanding for the reporting period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. The pro forma
earnings per share for the quarters ended April 21, 1996 and April 20, 1997,
utilizing the requirements of SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
APRIL 21, APRIL 20,
1996 1997
--------- ---------
<S> <C> <C>
Basic earnings per share.............................. $0.26 $0.33
Diluted earnings per share............................ $0.24 $0.31
</TABLE>
F-32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby. All amounts are estimates except the SEC
registration fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 22,677
Legal Fees and Expenses......................................... 20,000
Accountants' Fees and Expenses.................................. 5,000
Printing and Engraving Expenses................................. 50,000
Miscellaneous................................................... 7,323
--------
Total....................................................... $105,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees, and agents of the Company;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees, and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
The Company's Certificate of Incorporation, a copy of which is Exhibit 4.1
hereto, provides for indemnification of the Company's officers and directors
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law. The Company maintains directors and officers insurance
covering its executive officers and directors.
The Company's Certificate of Incorporation eliminates, to the fullest extent
permitted by Delaware law, liability of a director to the Company or its
stockholders for monetary damages for a breach of such director's fiduciary
duty of care except for liability where a director (a) breaches his or her
duty of loyalty to the Company or its stockholders, (b) fails to act in good
faith or engages in intentional misconduct or knowing violation of law, (c)
authorizes payment of an illegal dividend or stock repurchase, or (d) obtains
an improper personal benefit. While liability for monetary damages has been
eliminated, equitable remedies such as injunctive relief or rescission remain
available. In addition, a director is not relieved of his or her
responsibilities under any other law, including the federal securities laws.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 10, 1994, pursuant to the exercise by BC Midwest L.P. of an
option granted by the Company to BC Midwest L.P. on October 30, 1991, the
Company issued and sold to BC Midwest L.P. 1,542,852 shares of Common Stock
for an aggregate purchase price of $4,499,985. The above-mentioned securities
were sold to that accredited investor without registration under the
Securities Act, in reliance upon the exemptions in Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") and Rule 506 of
Regulation D promulgated under the Securities Act.
II-1
<PAGE>
On January 12, 1995, the Company granted an option to purchase 100,000
shares of Common Stock to a Vice Chairman of the Board of the Company. The
exercise price of such option is $16.00 per share. Such option was granted
without registration under the Securities Act in reliance on Section 4(2) of
the Securities Act and Rule 506 of Regulation D.
On March 24, 1995, pursuant to stock purchase agreements with Einstein/Noah
Bagel Corp. (formerly known as Progressive Bagel Concepts, Inc.), a Delaware
corporation ("ENBC"), the Company issued and sold to ENBC an aggregate of
811,766 shares of Common Stock for an aggregate purchase price of $13,800,000.
The above-mentioned securities were sold to that accredited investor without
registration under the Securities Act, in reliance upon the exemptions in
Section 4(2) of the Securities Act and Rule 506 of Regulation D.
On March 31, 1995, pursuant to a stock purchase agreement with ENBC, the
Company issued and sold to ENBC and aggregate of 331,852 shares of Common
Stock for an aggregate purchase price of $5,600,000. The above-mentioned
securities were sold to that accredited investor without registration under
the Securities Act in reliance upon the exemptions in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
On August 10, 1995, pursuant to a stock purchase agreement with ENBC, the
Company issued and sold to ENBC and aggregate of 155,340 shares of Common
Stock for an aggregate purchase price of $4,000,000. The above-mentioned
securities were sold to that accredited investor without registration under
the Securities Act in reliance upon the exemptions in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
Pursuant to a warrant purchase agreement dated July 18, 1996, the Company
issued and sold from September 27, 1996 through 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 in reliance on Section
4(2) of the Securities Act and Rule 506 of Regulation D.
On December 12, 1996, the Company issued a warrant to purchase an aggregate
of 69,600 shares of Common Stock. The warrant has an exercise price of $37.75
per share and is exercisable at any time through December 12, 2001. The
warrant was issued without registration under the Securities Act in reliance
on Section 4(2) of the Securities Act and Rule 506 of Regulation D.
ITEM 16. EXHIBITS.
(a) A list of the exhibits included or incorporated by reference as part of
this Registration Statement is set forth in the Exhibit Index which
immediately precedes such exhibits, and is hereby incorporated by reference
herein.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................. II-4
Schedule II--Valuation and Qualifying Accounts........................ II-5
</TABLE>
ITEM 17. UNDERTAKINGS.
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
II-2
<PAGE>
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b)-(g)Not applicable.
(h) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(i)(1)For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of the prospectus filed by the Registrant pursuant to 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(j) Not applicable.
II-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Chicken, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Boston Chicken, Inc. and subsidiaries
as of December 31, 1995 and December 29, 1996, and for the fiscal years ended
December 25, 1994, December 31, 1995, and December 29, 1996 included in this
Registration Statement Form S-1, and have issued our report thereon dated
March 18, 1997. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The supplemental schedule
listed in Part II, Item 16 of this Registration Statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
II-4
<PAGE>
SCHEDULE II
BOSTON CHICKEN, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED
AT TO COSTS BALANCE
BEGINNING AND AT END OF
CLASSIFICATIONS OF PERIOD EXPENSES DEDUCTIONS(a) PERIOD
- --------------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended December 29,
1996:
Allowance for Doubtful
Accounts...................... $1,042,585 $402,307 $1,020,892 $ 424,000
Fiscal year ended December 31,
1995:
Allowance for Doubtful
Accounts...................... 246,193 796,392 -- 1,042,585
Fiscal year ended December 25,
1994:
Allowance for Doubtful
Accounts...................... 323,234 186,510 263,551 246,193
</TABLE>
- --------
(a) Deductions represent recoveries of doubtful accounts and write-offs of
uncollectible accounts.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS REGISTRATION STATEMENT, OR AMENDMENT
THERETO, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN GOLDEN, COLORADO ON JUNE 25, 1997.
Boston Chicken, Inc.
By: /s/ Scott A. Beck
---------------------------------
Scott A. Beck
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Scott A. Beck and
Mark W. Stephens, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including post-effective amendments) to this
registration statement necessary or advisable to enable the registrant to
comply with the Securities Act of 1933, as amended, and any rules,
regulations, and requirements of the Securities and Exchange Commission in
respect thereof, which amendments may make such other changes in the
registration statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT, OR AMENDMENT THERETO, HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON JUNE 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Scott A. Beck Chairman of the Board, President, Chief
- ------------------------------------------- Executive Officer and Director (Principal
Scott A. Beck Executive Officer)
/s/ Mark W. Stephens Vice Chairman of the Board, Chief Financial
- ------------------------------------------- Officer
Mark W. Stephens and Director (Principal Financial Officer)
Vice Chairman of the Board
- -------------------------------------------
Lawrence M. Zwain
/s/ Mark R. Goldston Vice Chairman of the Board and Director
- -------------------------------------------
Mark R. Goldston
/s/ Mark A. Link Vice President--Financial Reporting
- ------------------------------------------- (Principal Accounting Officer)
Mark A. Link
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
Director
- -------------------------------------------
Dean L. Buntrock
/s/ Arnold C. Greenberg Director
- -------------------------------------------
Arnold C. Greenberg
/s/ J. Bruce Harreld Director
- -------------------------------------------
J. Bruce Harreld
/s/ M Howard Jacobson Director
- -------------------------------------------
M Howard Jacobson
/s/ Peer Pedersen Director
- -------------------------------------------
Peer Pedersen
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS NUMBER
------- -------- ----------
<C> <S> <C>
3.1(a) Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (Reg. No.
33-71930)).
3.1(b) Certificate of Amendment to Certificate of Incorporation
dated May 14, 1996 of the Company (incorporated by
reference to Exhibit 3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 21, 1996).
3.2 Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-81001).
4.1(a) Certificate of Incorporation of the Company, as amended
(included in Exhibit 3.1(a)).
4.1(b) Certificate of Amendment to Certificate of Incorporation
(included in Exhibit 3.1(b)).
4.2 Amended and Restated Bylaws of the Company (included in
Exhibit 3.2).
4.3 Indenture dated as of February 1, 1994 by and between the
Company and Harris Trust and Savings Bank, as Trustee,
which includes as Exhibit A the form of Debenture for the
Company's 4 1/2% Convertible Subordinated Debentures Due
2004 (the "4 1/2% Debenture Indenture") (incorporated by
reference to Exhibit 4.1 to the Company's 1993 annual
report on Form 10-K).
4.4 Secured Revolving Credit Agreement dated as of December
9, 1996 among the Company, Bankers Trust Company, as
Documentation Agent, Bank of America Illinois, as Agent,
and the Lenders Named Therein ("Credit Agreement")
(incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (Reg. No.
333-22917)).
4.5(a) Facilities Agreement dated as of December 9, 1996 among
the Company, Bank of America Illinois, as Agent for
Certain Lenders, and General Electric Capital Corporation
("Facilities Agreement") (incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on
Form S-3 (Reg. No. 333-22917)).
4.5(b) Amendment No. 1 to Facilities Agreement dated February
28, 1997 ("Amendment No. 1 to Facilities Agreement")
among the Company, Bank of America Illinois, as Agent for
Certain Lenders, and General Electric Capital
Corporation. (incorporated by reference to Exhibit 4.5(b)
to the Company's 1996 annual report on Form 10-K).
4.6 Concurrent Private Placement Agreement dated November 8,
1993 (incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-73870)).
4.7 Second Amended and Restated Piggyback Registration
Agreement dated November 8, 1993 (incorporated by
reference to Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-73870)).
4.8 Form of Certificate for Common Stock (incorporated by
reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-69256)).
4.9 Stock Purchase Agreements dated as of March 24, 1995 by
and between the Company and Einstein/Noah Bagel Corp.
("ENBC"), formerly known as Einstein Bros. Bagels, Inc.,
formerly known as Progressive Bagel Concepts, Inc. (the
"ENBC Stock Purchase Agreements") (incorporated by
reference to Exhibit 4.10 to the Company's 1994 annual
report on Form 10-K).
4.10 Stock Purchase Agreement dated March 31, 1995 by and
between the Company and ENBC (the "Third ENBC Stock
Purchase Agreement") (incorporated by reference to
Exhibit 4.11 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-79280)).
</TABLE>
Exhibit-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS NUMBER
------- -------- ----------
<C> <S> <C>
4.11 Registration Rights Agreements dated as of March 24, 1995
between the Company and ENBC (incorporated by reference
to Exhibit 4.11 to the Company's 1994 annual report on
Form 10-K).
4.12 Registration Rights Agreement dated as of March 31, 1995
by and between the Company and ENBC (incorporated by
reference to Exhibit 4.13 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-79280)).
4.13 Indenture dated as of June 1, 1995 by and between the
Company and Chemical Bank, as Trustee, which includes as
an Exhibit the form of LYON for the Company's Liquid
Yield Option Notes due 2015 (the "LYONs Indenture")
(incorporated by reference to Exhibit 4.14 to the
Company's Registration Statement on Form S-3 (Reg. No.
33-93872)).
4.14 Stock Purchase Agreement dated August 10, 1995 by and
between the Company and ENBC (the "Fourth ENBC Stock
Purchase Agreement") (incorporated by reference to
Exhibit 4.15 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-96230)).
4.15 Registration Rights Agreement dated August 10, 1995 by
and between the Company and ENBC (incorporated by
reference to Exhibit 4.16 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-96230)).
4.16 Warrant Purchase Agreement dated as of July 18, 1996 by
and between the Company and Market Partners, L.L.C.
("Market Partners"), including the form of Warrant
(incorporated by reference to Exhibit 4.17 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-15389)).
4.17 Registration Rights Agreement dated as of 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 (Reg. No.
333-15389)).
4.18 Warrant Certificate of the Company dated December 12,
1996 issued to General Electric Capital Corporation
(incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement on Form S-3 (Reg. No.
333-22917)).
4.19 Registration Rights Agreement dated as of December 12,
1996 by and between the Company and General Electric
Capital Corporation (incorporated by reference to Exhibit
4.19 to the Company's Registration Statement on Form S-3
(Reg. No. 333-22917)).
4.20 Indenture dated as of April 28, 1997 by and between the
Company and Bankers Trust Company, as Trustee, which
includes as an Exhibit the form of Debenture for the
Company's 7 3/4% Convertible Subordinated Debentures due
2004 (the "7 3/4% Debenture Indenture") (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 20,
1997).
5* Opinion of Bell, Boyd & Lloyd.
10.1 Credit Agreement (included in Exhibit 4.4).
10.2(a) Facilities Agreement (included in Exhibit 4.5(a)).
10.2(b) Amendment No. 1 to Facilities Agreement (included in
4.5(b)).
10.3 4 1/2% Debenture Indenture (included in Exhibit 4.3).
10.4 Amended and Restated 1991 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-69256)).
10.5(a) 1995 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-81001))
10.5(b) Amendment to 1995 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 20, 1997).
</TABLE>
- --------
*Previously filed.
Exhibit-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS+ NUMBER
------- --------- ----------
<C> <S> <C>
10.6 Amended and Restated 1991 Stock Option Plan for Non-
Employee Directors (the "Directors Plan") (incorporated
by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-69256)).
10.7 Amendment to Directors Plan dated as of December 7, 1995
(incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-81001)).
10.8 Concurrent Private Placement Agreement dated November 8,
1993 (included in Exhibit 4.6).
10.9(a) Aircraft Dry Leases dated November 15, 1993 between the
Company and Bowana Aviation, Inc. ("Bowana")
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-73870)).
10.9(b) Letter Agreement dated May 19, 1994 between the Company
and Bowana amending the Aircraft Dry Leases dated
November 15, 1993 (incorporated by reference to Exhibit
10.9(b) to the Company's Registration Statement on Form
S-1 (Reg. No. 33-79280)).
10.10 Boston Chicken Relocation Programs for Officers
(incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994).
10.11(a) Accounting and Administration Services Agreement by and
between the Company and ENBC (incorporated by reference
to Exhibit 10.14 to the Company's 1994 annual report on
Form 10-K).
10.11(b) Amended and Restated Accounting and Administration
Services Agreement dated as of May 28, 1996 between the
Company and ENBC (incorporated by reference to Exhibit
10.12(a) to the Registration Statement on Form S-1 of
ENBC (Registration No. 333-04725)).
10.11(c) First Amendment to Amended and Restated Accounting and
Administration Services Agreement dated as of June 17,
1996 between the Company and ENBC (incorporated by
reference to Exhibit 10.12(b) to the Registration
Statement on Form S-1 of ENBC (Registration No. 333-
04725)).
10.12(a) Financial Services Agreement by and between the Company
and ENBC (incorporated by reference to Exhibit 10.15 to
the Company's 1994 annual report on Form 10-K).
10.12(b) First Amendment to Financial Services Agreement dated as
of March 7, 1996 between the Company and ENBC
(incorporated by reference to Exhibit 10.13(b) to the
Registration Statement on Form S-1 of ENBC (Registration
No. 333-04725)).
10.12(c) Financial Services Termination Agreement dated as of May
28, 1996 between the Company and ENBC (incorporated by
reference to Exhibit 10.13(c) to the Registration
Statement on Form S-1 of ENBC (Registration No. 333-
04725)).
10.13(a) Real Estate Services Agreement by and between the
Company and ENBC (incorporated by reference to Exhibit
10.16 to the Company's 1994 annual report on Form 10-K).
10.13(b) Amended and Restated Real Estate Services Agreement
dated as of May 28, 1996 between the Company and ENBC
(incorporated by reference to Exhibit 10.14(a) to the
Registration Statement on Form S-1 of ENBC (Registration
No. 333-04725)).
10.13(c) Amended and Restated Real Estate Service Termination
Agreement dated as of June 17, 1996 between the Company
and ENBC (incorporated by reference to Exhibit 10.14(b)
to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
</TABLE>
- --------
+ In the case of incorporation by reference to documents filed by ENBC,
ENBC's file number under the Securities Exchange Act is 0-21097.
Exhibit-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS+ NUMBER
------- --------- ----------
<C> <S> <C>
10.14(a) Computer and Communication Services Agreements by and
between the Company and ENBC (incorporated by reference
to Exhibit 10.17 to the Company's 1994 annual report on
Form 10-K).
10.14(b) Amended and Restated Computer and Communications Systems
Services Agreement dated as of June 17, 1996 between the
Company and ENBC (incorporated by reference to Exhibit
10.15(a) to the Registration Statement on Form S-1 of
ENBC (Registration No. 333-04725)).
10.14(c) First Amendment to the Amended and Restated Computer
Communications Systems Services Agreement dated as of
June 17, 1996 between the Company and ENBC (incorporated
by reference to Exhibit 10.15(b) to the Registration
Statement on Form S-1 of ENBC (Registration No. 333-
04725)).
10.15 ENBC Stock Purchase Agreements (included in Exhibit
4.9).
10.16 Third ENBC Stock Purchase Agreement (included in Exhibit
4.10).
10.17 Fourth ENBC Stock Purchase Agreement (included in
Exhibit 4.14).
10.18(a) Amended and Restated Loan Agreement dated May 17, 1996
between the Company and ENBC (incorporated by reference
to Exhibit 10.1(a) to ENBC's Registration Statement on
Form S-1 (Reg. No. 333-04725)).
10.18(b) First Amendment to the Amended and Restated Loan
Agreement between the Company and ENBC dated July 19,
1996 (incorporated by reference to Exhibit 10.1(b) to
the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
10.18(c) Second Amendment to the Amended and Restated Loan
Agreement between the Company and 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)).
10.18(d) Secured demand note of ENBC dated January 30, 1996, in
favor of the Company (incorporated by reference to
Exhibit 10.23(d) to the Company's 1995 annual report on
Form 10-K).
10.18(e) First Amendment to Secured Demand Note of ENBC dated as
of March 7, 1996 (incorporated by reference to Exhibit
10.3(b) to ENBC's Registration Statement on Form S-1
(Reg. No. 333-04725)).
10.19 LYONs Indenture (included in Exhibit 4.13).
10.20 Form of Area Development between the Company and its
Area Developers (incorporated by reference to Exhibit 99
to the Company's Current Report on Form 8-K dated April
10, 1996).
10.21 Form of Franchise Agreement between the Company and
Boston Market Franchisees (incorporated by reference to
Exhibit 99 to the Company's Current Report on Form 8-K
dated April 10, 1996).
10.22 Form of Secured Loan Agreement between the Company and
Area Developers partially financed by the Company
(incorporated by reference to Exhibit 99 to the
Company's Current Report on Form 8-K dated April 10,
1996).
10.23 Letter Agreement dated January 15, 1996 relating to
employment of Laurence M. Zwain (incorporated by
reference to Exhibit 10.23 to the Company's 1996 annual
report on Form 10-K).
</TABLE>
- --------
+ In the case of incorporation by reference to documents filed by ENBC, ENBC's
file number under the Securities Exchange Act is 0-21097.
Exhibit-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS+ NUMBER
------- --------- ----------
<C> <S> <C>
10.24 Consulting Agreement dated October 14, 1995, between the
Company and J. Bruce Harreld (incorporated by reference
to Exhibit 10.30 to the Company's 1995 annual report on
Form 10-K).
10.25 Merger Agreement dated as of January 22, 1996, as
amended, among ENBC, NNYB Acquisition Corporation,
Noah's New York Bagels, Inc. ("Noah's"), and the
shareholders of Noah's (incorporated by reference to
Exhibit 2.5 to the Registration Statement on Form S-1 of
ENBC (Registration No. 333-04725)).
10.26 Purchase and Supply Agreement (Amended and Restated as
of April 1, 1996) between the Company and Hudson Foods,
Inc. (incorporated by reference to Exhibit 10 to Form
10-Q for the quarter ended March 30, 1996 filed by
Hudson Foods, Inc., Commission File No. 1-9050).
10.27 Letter Agreement dated April 5, 1996 between ENBC and
Mark R. Goldston (incorporated by reference to Exhibit
10.18 to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
10.28 Concurrent Private Placement Agreement and Registration
Agreement dated August 1, 1996 between the Company and
ENBC (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 14, 1996).
10.29 Option Agreement between the Company and Mark W.
Stephens dated as of April 23, 1996 (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 14,
1996).
10.30 Option Agreement between the Company and Laurence M.
Zwain dated as of April 23, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 14,
1996).
10.31 Option Agreement between the Company and Mark R.
Goldston dated as of April 23, 1996 (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 14,
1996).
10.32(a) 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 to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
10.32(b) 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)).
10.32(c) Second Amendment dated April 29, 1997 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 10.5(c) to
ENBC's 1997 annual report on Form 10-K/A (Exchange Act
File No. 0-21097)).
10.32(d) Third Amendment dated May 20, 1997 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 10.2 to
ENBC's Quarterly Report on Form 10-Q for the quarter
ended April 20, 1997 (Exchange Act File No. 0-21097)).
10.33 Option Agreement dated August 27, 1996 among ENBC,
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 to ENBC's
Registration Statement on Form S-1 (Registration No.
333-12395)).
</TABLE>
- --------
+ In the case of incorporation by reference to documents filed by ENBC,
ENBC's file number under the Securities Exchange Act is 0-21097.
Exhibit-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS+ NUMBER
------- --------- ----------
<C> <S> <C>
10.34 Project and Approved Supplier Agreement among Harlan
Bagel Supply Company, Harlan Bakeries, Inc. and ENBC
(incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form S-1 of ENBC (Registration
No. 333-04725)).
10.35 Right of First Refusal Agreement among ENBC, 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)).
10.36 Warrant Purchase Agreement (included in Exhibit 4.16).
10.37 Option Agreement between the Company and Saad J. Nadhir
dated as of July 25, 1996 (incorporated by reference to
Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 6, 1996).
10.38 Option Agreement between the Company and John Todd dated
as of July 29, 1996 (incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 6, 1996).
10.39 Letter Agreement between the Company and Jeffry J.
Shearer dated as of August 19, 1996 (incorporated by
reference to Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 6,
1996).
10.40 Fifth Amended and Restated Limited Liability Company
Agreement of Bagel Store Development Funding, L.L.C.
dated as of April 14, 1997 (incorporated by reference to
Exhibit 10.17 to ENBC's annual report on Form 10-K/A
(Exchange Act File No. 0-21097)).
10.41 Concurrent Offering Purchase Agreement dated November
26, 1996 between the Company and ENBC (incorporated by
reference to Exhibit 10.41 to the Company's 1996 annual
report on Form 10-K).
10.42 Consulting Agreement dated November 13, 1996 between the
Company and Donald J. Bingle (incorporated by reference
to Exhibit 10.42 to the Company's 1996 annual report on
Form 10-K).
10.43 Letter Agreement dated December 27, 1996 between the
Company and Thomas R. Sprague (incorporated by reference
to Exhibit 10.43 to the Company's 1996 annual report on
Form 10-K).
10.44(a) Master Lease Agreement No. 2 dated as of December 9,
1996 between the Company, as Lessee, and General
Electric Capital Corporation, for itself and as Agent
for certain participants (incorporated by reference to
Exhibit 10.44(a) to the Company's 1996 annual report on
Form 10-K).
10.44(b) Amendment No. 1 dated as of February 28, 1997 to Master
Lease Agreement No. 2 between the Company, as Lessee,
and General Electric Capital Corporation, for itself and
as Agent for certain participants (incorporated by
reference to Exhibit 10.44(b) to the Company's 1996
annual report on Form 10-K).
10.44(c) Amendment No. 2 dated as of March 18, 1997 to Master
Lease Agreement No. 2 between the Company, as Lessee,
and General Electric Capital Corporation, for itself and
as Agent for certain participants (incorporated by
reference to Exhibit 10.44(c) to the Company's annual
report on Form 10-K/A filed with the Commission on April
25, 1997).
10.45 Secured Loan Agreement dated as of January 31, 1997
between the Company and HFMI Acquisition Corporation,
now known as Progressive Food Concepts, Inc.
(incorporated by reference to Exhibit 10.45 to the
Company's 1996 annual report on Form 10-K).
</TABLE>
- --------
+ In the case of incorporation by reference to documents filed by ENBC, ENBC's
file number under the Securities Exchange Act is 0-21097.
Exhibit-6
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBITS+ NUMBER
------- --------- ----------
<C> <S> <C>
10.46(a) Master Lease Agreement dated as of September 27, 1995
between the Company, as Lessee, and General Electric
Corporation, for itself and as Agent for certain
participants ("Master Lease Agreement No. 1")
(incorporated by reference to Exhibit 10(c) to the
Company's quarterly report on Form 10-Q for the quarter
ended October 1, 1995).
10.46(b) Amendment No. 1 dated as of September 28, 1995 to Master
Lease Agreement No. 1 between the Company, as Lessee,
and General Electric Capital Corporation, for itself and
as Agent for certain participants (incorporated by
reference to Exhibit 10.46(a) to the Company's annual
report on Form 10-K/A filed with the Commission on April
25, 1997).
10.46(c) Amendment No. 2 dated as of December 9, 1996 to Master
Lease Agreement No. 1 between the Company, as Lessee,
and General Electric Capital Corporation, for itself and
as Agent for certain participants (incorporated by
reference to Exhibit 10.46(b) to the Company's annual
report on Form 10-K/A filed with the Commission on April
25, 1997).
10.46(d) Amendment No. 3 dated as of March 18, 1997 to Master
Lease Agreement No. 1 between the Company, as Lessee,
and General Electric Capital Corporation, for itself and
as Agent for certain participants (incorporated by
reference to Exhibit 10.46(c) to the Company's annual
report on Form 10-K/A filed with the Commission on April
25, 1997).
10.47 7 3/4% Debenture Indenture (included in Exhibit 4.20).
10.48 Indenture dated as of May 29, 1997 by and between ENBC
and Bankers Trust Company, as Trustee, which includes as
Exhibits the forms of Debenture for ENBC's 7 1/4%
convertible subordinated debentures due 2004
(incorporated by reference to Exhibit 4.1 to ENBC's
Current Report on Form 8-K dated as of May 22, 1997)
(Exchange Act File No. 0-21097).
11.1 Statement re Computation of Earnings Per Share
(incorporated by reference to Exhibit 11 to the
Company's 1996 annual report on Form 10-K).
11.2 Statement re Computation of Earnings Per Share
(incorporated by reference to Exhibit 11 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 20, 1997).
21 Subsidiaries of the Company (incorporated by reference
to Exhibit 21 to the Company's 1996 annual report on
Form 10-K).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Bell, Boyd & Lloyd (included in Exhibit 5).
27 Financial Data Schedule (incorporated by reference to
Exhibit 27 to the Company's Quarterly Report on Form 10-
Q for the quarter ended April 20, 1997).
99.1 Form of Amended and Restated Agreements between the
Company and BC Equity Funding, L.L.C. (incorporated by
reference to Exhibit 99.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 14,
1996).
99.2 Form of Agreement between ENBC and Bagel Funding, L.L.C.
relating to ENBC's purchase of Bagel Funding's interest
in area developers (incorporated by reference to Exhibit
10.30 to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
99.3 Uniform Franchise Offering Circular dated March 25, 1997
(incorporated by reference to Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 20, 1997).
</TABLE>
- --------
+ In the case of incorporation by reference to documents filed by ENBC, ENBC's
file number under the Securities Exchange Act is 0-21097.
Exhibit-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the use of our
reports dated March 18, 1997, on our audits of the consolidated financial
statements of Boston Chicken, Inc. and subsidiaries, and to all references to
our firm included in or made a part of this registration statement on Form S-1.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Denver, Colorado
June 25, 1997
