<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BOSTON CHICKEN, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LOGO
BOSTON CHICKEN, INC.
14123 DENVER WEST PARKWAY, GOLDEN, COLORADO 80401-4086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
You are invited to attend the annual meeting of stockholders of Boston
Chicken, Inc. (the "Company"), which will be held at the Sheraton Denver West
Hotel and Conference Center, 360 Union Boulevard, Lakewood, Colorado, on
Wednesday May 20, 1998, at 10:00 a.m., Mountain Time, for the following
purposes:
1. To elect directors.
2. To transact any other business that may properly come before the
meeting.
Only stockholders of record at the close of business on March 27, 1998 are
entitled to vote at the meeting. A list of such stockholders will be
available, during normal business hours, for examination by any stockholder
for any purpose germane to the meeting at the Sheraton Denver West Hotel and
Conference Center, 360 Union Boulevard, Lakewood, Colorado, for a period of 10
days before the meeting.
Regardless of the size of your holdings, your vote is important. Whether or
not you intend to attend the meeting in person, we urge you to mark, date and
sign the enclosed proxy and return it in the envelope provided for that
purpose, which does not require postage if mailed in the United States.
/s/ Saad J. Nadhir
Co-Chairman of the Board
and Chief Executive Officer
Golden, Colorado
April 13, 1998
YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
BOSTON CHICKEN, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Boston Chicken, Inc. (the "Company") of proxies for use
at the annual meeting of stockholders of the Company to be held at the
Sheraton Denver West Hotel and Conference Center, 360 Union Boulevard,
Lakewood, Colorado, at 10:00 a.m., Mountain Time, on May 20, 1998, and at any
postponements or adjournments of the meeting. Proxies properly executed and
returned in a timely manner will be voted at the meeting in accordance with
the directions noted thereon. If no direction is indicated, proxies will be
voted (i) for the election of the nominees named herein as directors and (ii)
on other matters presented for a vote, in accordance with the judgment of the
persons acting under the proxies. Any stockholder giving a proxy has the power
to revoke it at any time before it is voted, either in person at the meeting,
by written notice to the Secretary of the Company, or by delivery of a later-
dated proxy.
Nominees for director receiving the affirmative vote of the holders of a
plurality of the shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), present in person or represented by proxy and
entitled to vote at the meeting will be elected as directors. In general,
approval of matters submitted to the stockholders for their consideration
requires the affirmative vote of the holders of a majority of the shares of
the Common Stock present in person or by proxy and entitled to vote at the
meeting. An automated system administered by the Company's transfer agent,
representatives of which will serve as inspectors of election, will be used to
tabulate the votes. Abstentions, directions to withhold authority and broker
non-votes are counted as shares present and entitled to vote in the
determination of whether the shares of Common Stock represented at the meeting
constitute a quorum. Pursuant to the Company's bylaws, abstentions are not
counted in tabulations of the votes cast on proposals presented to
stockholders.
The Company's principal executive offices are located at 14123 Denver West
Parkway, Golden, Colorado 80401-4086 (telephone 303/278-9500). Proxy materials
are expected to be mailed to stockholders beginning on or about April 13,
1998.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on March 27, 1998 are
entitled to vote at the annual meeting. The Common Stock is the only voting
stock of the Company outstanding, of which 71,464,290 shares were outstanding
as of the close of business on March 27, 1998. Each share of Common Stock is
entitled to one vote.
ELECTION OF DIRECTORS
Seven directors are to be elected at the meeting. The persons named below
have been nominated by the Board of Directors for election as directors for a
term expiring at the annual meeting of stockholders in 1999. All of the
nominees are currently directors of the Company.
The seven nominees for director receiving the highest number of votes cast
at the meeting will be elected. Unless otherwise instructed, properly executed
proxies that are returned in a timely manner will be voted for the election of
the Board's nominees. If, however, any of such nominees should be unable or
for good cause is unwilling to serve as a director, the proxies will be voted
for such other person as will be determined by the holders of the proxies in
their discretion, or the Board of Directors may make an appropriate reduction
in the number of directors to be elected.
<PAGE>
Saad J. Nadhir, age 44, rejoined the Company as Co-Chairman of the Board and
Chief Executive Officer in October 1997. Mr. Nadhir originally joined the
Company as Vice Chairman of the Board and a director in December 1991. He
became President in October 1995 and a Co-Chairman of the Board in December
1995 and held these offices until January 1997. Since January 1997, Mr. Nadhir
has served as the Chairman, Chief Executive Officer and President of
Progressive Food Concepts, Inc., currently a wholly-owned subsidiary of the
Company. From August 1990 until December 1991, he was Senior Vice President,
International Development of Blockbuster Entertainment Corporation
("Blockbuster"), and from August 1989 until August 1990, he was Vice
President, International Development of Blockbuster. Prior thereto, he was
General Counsel and Director of Development of Blockbuster Midwest from April
1988 until August 1989.
Scott A. Beck, age 39, has been a director of the Company since June 1992
and has served as Chairman or Co-Chairman of the Board since that date. Mr.
Beck became President of the Company in January 1997. From June 1992 until
October 1997, Mr. Beck served as Chief Executive Officer of the Company. Mr.
Beck has also served as Chairman of the Board of Einstein/Noah Bagel Corp., a
majority-owned subsidiary of the Company ("ENBC"), since July 1996 and has
served as a director of ENBC since March 1995. He was Vice Chairman of the
Board of Blockbuster from September 1989 until his retirement in January 1992
and Chief Operating Officer of Blockbuster from September 1989 to January
1991.
Mark W. Stephens, age 43, 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.
Arnold C. Greenberg, age 64, has been a director of the Company since
February 1991. He 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., a Fortune 500 manufacturer of recreational products
and toys.
J. Bruce Harreld, age 47, 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 Northwestern University since June
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 of Kraft, Inc. ("Kraft") from 1988 to
1989 and the President, Venture Division and the Senior Vice President,
Strategy and Development of Kraft from 1987 to 1988.
M Howard Jacobson, age 65, has been a director of the Company since February
1991. Since October 1991, he has been a Senior Advisor to Bankers Trust,
Private Bank. From August 1989 to August 1991, he was a Senior Advisor to
Prudential Bache Capital Funding. From 1987 to 1989, Mr. Jacobson was the
President of, and a consultant to, Idle Wild Farm, Inc. Prior to 1987, Mr.
Jacobson was President of Idle Wild Foods, Inc., a Fortune 500 company. Mr.
Jacobson also serves as a director of Allmerica Financial Corporation,
Stonyfield Farm, Inc. and Wyman-Gordon Company.
Peer Pedersen, age 73, 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 Waste Management, Inc., Aon Corporation, Extended Stay America,
Inc. and Latin America Growth Fund.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
FOREGOING NOMINEES FOR DIRECTOR.
2
<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT
The following table provides certain information regarding the ownership of
Common Stock as of March 27, 1998 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 and nominee for director; (iii) each executive
officer named in the Summary Compensation Table on page 7 (collectively, the
"named executive officers"); and (iv) all directors and executive officers as
a group. The beneficial ownership reflected in the table is calculated in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended ("Exchange Act"). Unless otherwise indicated, ownership includes sole
voting and investment power.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)
-----------------
NAME NUMBER PERCENT
- ---- --------- -------
<S> <C> <C>
Saad J. Nadhir(2)............................................. 2,651,492 3.7%
Scott A. Beck(3).............................................. 4,855,168 6.7%
Mark W. Stephens.............................................. 336,803 *
Dennis B. Mullen.............................................. 0 *
Joel M. Alam(4)............................................... 7,676 *
Arnold C. Greenberg........................................... 208,823 *
J. Bruce Harreld.............................................. 246,693 *
M Howard Jacobson(5).......................................... 296,624 *
Peer Pedersen(6).............................................. 691,119 *
Laurence M. Zwain............................................. 9,804 *
Franklin Resources, Inc.(7)................................... 8,389,771 11.7%
All directors and executive officers as a group
(excluding Messrs. Mullen and Zwain) (11 persons)............ 9,304,827 12.7%
</TABLE>
- --------
* Less than 1%.
(1) Includes shares subject to options which were exercisable within 60 days
of March 27, 1998 as follows: Mr. Nadhir--661,072; Mr. Beck--577,500; Mr.
Stephens--150,000; Mr. Alam--3,600; Mr. Greenberg--63,383; Mr. Harreld--
196,693; Mr. Jacobson--63,383; Mr. Pedersen--38,739; and all executive
officers and directors as a group (including such individuals)--1,762,348.
Includes shares subject to warrants which were exercisable within 60 days
of March 27, 1998 as follows: Mr. Stephens--9,803; Mr. Pedersen--24,510;
Mr. Zwain--9,804; and all executive officers and directors as a group
(including such individuals, except Mr. Zwain, who is no longer an
executive officer of the Company)--39,215. See "Certain Transactions--BC
Equity Funding, L.L.C. and Market Partners, L.L.C."
(2) Excludes 4,408,189 shares of Common Stock previously deemed to be
beneficially owned by Mr. Nadhir that were distributed to persons other
than Mr. Nadhir upon liquidation of (a) a trust, the trustee of which was
a corporation controlled by Messrs. Nadhir and Beck, (b) certain
partnerships, of which the general partner was the corporation referenced
in clause (a) above, and (c) the corporation referenced in clause (a)
above. Includes 817,399 shares of Common Stock held by limited liability
companies controlled by Mr. Nadhir.
(3) Excludes (i) 1,360,000 shares of Common Stock gifted by Mr. Beck to
charitable foundations and other charitable organizations during 1997 and
(ii) 3,327,874 shares of Common Stock previously deemed to be beneficially
owned by Mr. Beck that were distributed to persons other than Mr. Beck
upon liquidation of (x) a trust, the trustee of which was a corporation
controlled by Messrs. Beck and Nadhir, (y) certain partnerships, of which
the general partner was the corporation referenced in clause (x) above,
and (z) the corporation referenced in clause (x) above. Includes (i)
24,719 shares of Common Stock issuable upon conversion of $660,000
aggregate principal amount of the Company's 7 3/4% Convertible
Subordinated Debentures due 2004 (the "7 3/4% Debentures"), (ii) 2,664,343
shares held by limited liability companies controlled by Mr. Beck and
(iii) 10,610 shares owned by Mr. Beck's spouse, as to which he disclaims
beneficial ownership. In addition, the amount indicated in the table does
not reflect the sale by a lender to Mr. Beck of 2,032,880 shares of Common
Stock pledged by Mr. Beck to secure a loan, the proceeds of
3
<PAGE>
which were used by the lender to satisfy Mr. Beck's obligation under the
loan. The address for Mr. Beck is 14123 Denver West Parkway, Golden,
Colorado 80401-4086.
(4) Includes (i) 1,200 shares of Common Stock held jointly by Mr. Alam and his
spouse, (ii) 25 shares of Common Stock held by Mr. Alam's spouse, (iii)
2,451 shares of Common Stock subject to warrants held by Mr. Alam's spouse,
and (iv) 400 shares of Common Stock held by Mr. Alam's minor children. See
"Certain Transactions--BC Equity Funding, L.L.C. and Market Partners,
L.L.C."
(5) Includes 35,760 shares of Common Stock held by Mr. Jacobson's spouse and
excludes 40,800 shares held by Mr. Jacobson's children. Mr. Jacobson
disclaims beneficial ownership of the shares held by his children.
(6) Includes 12,472 shares of Common Stock issuable upon conversion of $330,000
aggregate principal amount of the Company's 7 3/4% Debentures.
(7) In February 1998, the Company received a copy of a statement on Schedule
13G filed pursuant to Rule 13d-1 under the Exchange Act by Franklin
Resources, Inc. ("Franklin Resources"), Charles B. Johnson, ("Charles
Johnson"), Rupert H. Johnson, Jr. ("Rupert Johnson") and Templeton Global
Advisers Limited ("Templeton") (collectively "Franklin"). The statement
indicated that certain open or closed-end investment companies or other
managed accounts which are advised by direct and indirect investment
subsidiaries of Franklin Resources beneficially own the shares of Common
Stock shown in the table above. The statement indicated that Franklin
Resources is a parent holding company, that Charles Johnson and Rupert
Johnson are principal shareholders of Franklin Resources, and that
Templeton is an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940. The address for Franklin Resources,
Charles Johnson and Rupert Johnson is 777 Mariners Island Boulevard, San
Mateo, California 94404 and the address for Templeton is Lyford Cay, P.O.
Box N-7759, Nassau Bahamas. The shares of Common Stock shown in the table
above include 497,371 shares of Common Stock issuable upon conversion of
$33,050,000 aggregate principal amount of the Company's outstanding
convertible debt and 4,900 shares of Common Stock over which Templeton has
sole dispositive power but no voting power.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than 10% of the
Common Stock, to file reports of ownership with the Securities and Exchange
Commission. These persons also are required to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of copies of
such forms received by it, the Company believes that John J. Todd, former Chief
Financial Officer--Boston Market Concept, and Mr. Zwain, a former Vice Chairman
of the Board and the President and Chief Executive Officer--Boston Market
Concept, each failed to timely file a Form 5 reporting transactions that
occurred in 1997 prior to their respective resignations from the Company. The
Company believes that all other filing requirements applicable to its executive
officers, directors and greater than 10% stockholders were complied with.
4
<PAGE>
OWNERSHIP OF EINSTEIN/NOAH BAGEL CORP. COMMON STOCK
The Company currently owns approximately 17.3 million shares (representing
51.9% at March 27, 1998) of the outstanding common stock of ENBC. The
following table provides the ownership of common stock of ENBC as of March 27,
1998 by (i) each director and nominee for director; (ii) the named executive
officers; 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(1)(2)
---------------
NAME NUMBER PERCENT
---- ------ -------
<S> <C> <C>
Saad J. Nadhir........................................... 23,060 *
Scott A. Beck(3)......................................... 131,652 *
Mark W. Stephens......................................... 144,440 *
Dennis B. Mullen......................................... 7,965 *
Joel M. Alam............................................. 12,809 *
Arnold C. Greenberg...................................... 25,000 *
J. Bruce Harreld......................................... 2,500 *
M Howard Jacobson(4)..................................... 1,000 *
Peer Pedersen............................................ 138,820 *
Laurence M. Zwain........................................ 2,391 *
All directors and executive officers as a group
(excluding Messrs. Mullen and Zwain) (11 persons)....... 502,189 1.5%
</TABLE>
- --------
* Less than 1%.
(1) Includes shares of ENBC common stock subject to options which are
exercisable within 60 days of March 27, 1998 as follows: Mr. Stephens--
9,176; Mr. Mullen--4,365; Mr. Alam--12,745; and all directors and
executive officers as a group (including such individuals, except Mr.
Mullen, who is no longer an executive officer of the Company)--41,839.
Also includes shares of ENBC common stock subject to options granted by
the Company which are exercisable within 60 days of March 27, 1998 as
follows: Mr. Nadhir--15,674; Mr. Stephens--31,334; and all executive
officers and directors as a group--47,008. 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. Pedersen--47,813; Mr.
Zwain--2,391 and all executive officers and directors as a group
(including such individuals, except Mr. Zwain)--103,245. See "Certain
Transactions--Einstein/Noah Bagel Corp." As of April 7, 1998, the exercise
price of all such options and warrants reflected in this Note 1 were in
excess of the closing price of common stock of ENBC as quoted on the
Nasdaq National Market.
(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. Mullen, Alam
and Zwain) 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 500 shares of ENBC common stock held by Mr. Jacobson's spouse and
excludes 1,500 shares held by Mr. Jacobson's children. Mr. Jacobson
disclaims beneficial ownership of the shares held by his children.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The four standing committees of the Board of Directors of the Company are
the Executive Committee, the Audit Committee, the Compensation Committee and
the Stock Option Committee, the functions and membership of which are
described below. The Board of Directors does not have a standing nominating
committee. The Board of Directors held an aggregate of 21 regular and special
meetings in 1997 and also acted by unanimous written consent two times.
5
<PAGE>
Executive Committee. The Executive Committee consists of three directors:
Messrs. Nadhir, Beck and Stephens. The Executive Committee met one time during
fiscal 1997 and acted by unanimous written consent nine times. The Executive
Committee has the same powers as the Board of Directors and may act when the
Board is not in session, subject to the limitations of the Delaware General
Corporation Law. However, the Executive Committee is not authorized to issue
shares of Common Stock, except that the Executive Committee may issue shares
of Common Stock having a fair market value not in excess of $5 million in
connection with business combination transactions.
Audit Committee. The Audit Committee consists of three non-employee
directors: Messrs. Greenberg, Jacobson and Pedersen. The Audit Committee met
one time during fiscal 1996 and one time during fiscal 1997 in connection with
the Company's 1996 fiscal year end audit and three times in 1998 in connection
with the Company's 1997 fiscal year end audit. The Audit Committee's functions
include making recommendations to the Board of Directors on the selection of
the Company's auditors, reviewing the arrangements for, and scope of, the
independent auditors' examination, meeting with the independent auditors, the
Board of Directors and certain officers of the Company to review the adequacy
of internal controls and reporting, and performing any other duties or
functions deemed appropriate by the Board of Directors.
Compensation Committee. The Compensation Committee consists of three non-
employee directors: Messrs. Greenberg, Jacobson and Pedersen. The Compensation
Committee met two times during fiscal 1997. The Compensation Committee is
responsible for establishing policies for, and making recommendations to, the
Board of Directors regarding salaries and certain other compensation to be
paid to certain officers of the Company. See "Report of the Compensation and
Stock Option Committees."
Stock Option Committee. The Stock Option Committee consists of two non-
employee directors: Messrs. Greenberg and Jacobson. The Stock Option Committee
met nine times during fiscal 1997 and also acted by unanimous written consent
one time. The Stock Option Committee is responsible for the administration of,
and the granting of all options under, the Company's Amended and Restated 1991
Employee Stock Option Plan, as amended (the "1991 Plan"), the Company's
Amended and Restated 1995 Employee Stock Option, as amended (the "1995 Plan"),
and the Company's 1997 Stock Option Plan, as amended (the "1997 Plan"). See
"Executive Compensation--1997 Stock Option Plan and Option Repricings" and
"Report of the Compensation and Stock Option Committees--Report on Stock
Option Exchange Program."
Mr. Harreld attended 13 of the 21 meetings held by the Board of Directors in
fiscal 1997. During the time each other current director served in such
capacity in fiscal 1997, no such director attended less than 75% of the
aggregate of all meetings of the Board of Directors and all meetings held by
committees of the Board of Directors on which such director served.
Nominations for election of directors are made by the Board of Directors
and, pursuant to the Company's bylaws, may be made by a committee appointed by
the Board or by any stockholder entitled to vote in the election of directors.
See "Submission of Stockholder Proposals for the 1999 Annual Meeting" for
procedures for nominations by stockholders.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for the fiscal years ended
December 28, 1997, December 29, 1996 and December 31, 1995 received by the
Company's Chief Executive Officer, the Company's four other most highly
compensated executive officers serving at the end of fiscal year 1997 and
Laurence M. Zwain, for whom disclosure would have been required but for the
fact that Mr. Zwain resigned from the Company in August 1997 (collectively,
the "named executive officers"). Scott A. Beck was the Chief Executive Officer
of the Company until October 1, 1997 when Saad J. Nadhir assumed that office.
The Company does not have a restricted stock award program or a long-term
incentive plan in which executive officers or directors of the Company may
participate.
<TABLE>
<CAPTION>
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL COMPEN- OPTIONS COMPEN-
POSITION YEAR SALARY BONUS SATION (#)(1) SATION
- ------------------ ---- -------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Saad J. Nadhir.......... 1997 $150,769(2) $ 0(2) $ 0 158,529 $110,762(3)
Co-Chairman of the
Board 1996 200,000 0 24,307(4) 50,000 34,555
and Chief Executive
Officer 1995 176,923 0 28,000(4) 19,355 19,409
Scott A. Beck........... 1997 457,693 0 0 209,413 0
Co-Chairman of the
Board 1996 200,000 0 0 50,000 0
and President 1995 176,923 0 0 19,355 0
Mark W. Stephens........ 1997 400,000 1,050,000(5) 0 192,451 0
Vice Chairman and 1996 353,846 0 4,213(4) 50,000 0
Chief Financial Officer 1995 176,923 0 4,000(4) 19,355 2,401
Dennis B. Mullen........ 1997 150,000 250,000 0 63,244 92,308(3)
Executive Vice
President-- 1996 -- -- -- -- --
Business Partner
Group(6) 1995 -- -- -- -- --
Joel M. Alam (7)........ 1997 175,962 175,000 0 52,140 86,046(8)
Senior Vice President,
General 1996 125,000 0 0 0 0
Counsel and Secretary 1995 125,673 0 0 0 0
Laurence M. Zwain....... 1997 276,923 78,461 0 33,922 153,846(9)
Former Vice Chairman of
the 1996 350,769 92,308 0 250,000 210,227(10)
Company and President
and Chief 1995 -- -- -- -- --
Executive Officer--
Boston Market Concept
</TABLE>
- --------
(1) Amounts reported for 1997 include the following number of options granted
during 1997 which were subsequently canceled in November 1997 in
connection with the Company's stock option exchange program as follows:
Mr. Nadhir--16,961; Mr. Beck--42,403; Mr. Stephens--33,922; Mr. Mullen--
26,066; and Mr. Alam--11,336. The option grants reported for 1996 and
1995 for each of such named executive officers were also subsequently
canceled in November 1997 in connection with the Company's stock option
exchange program. See "--1997 Stock Option Plan and Option Repricings"
and "Report of the Compensation and Stock Option Committees--Report on
Stock Option Exchange Program." The option grants to Mr. Zwain in 1997
and 1996 were subsequently canceled in August 1997 in connection with his
resignation from the Company.
(2) Amount reported for Mr. Nadhir's salary reflects, in part, the
proportionate amount of his $400,000 annual salary paid after Mr.
Nadhir's return to the Company as Co-Chairman and Chief Executive Officer
of the Company in October 1997. Mr. Nadhir voluntarily waived receipt of
a bonus of $400,000 for services rendered during 1997. See "Report of the
Compensation and Stock Option Committees--Chief Executive Officer
Compensation" and "Certain Transactions--Consulting and Other
Agreements."
(3) Amount reported for Mr. Nadhir represents reimbursement for living
expenses in Golden, Colorado. Amount reported for Mr. Mullen represents
relocation reimbursements.
(4) Constitutes taxable income in connection with personal use of aircraft
leased by Company calculated in accordance with Internal Revenue Service
requirements.
7
<PAGE>
(5) Includes $450,000 paid in January 1998 in connection with continuing in
the employment of the Company through fiscal year 1997. See "Report of
the Compensation and Stock Option Committees--Cash Compensation."
(6) Mr. Mullen served as Chief Financial Officer--Boston Market Concept
through January 1998.
(7) During 1996 and a portion of 1995, Mr. Alam was employed by ENBC and
provided no services to the Company. Accordingly, ENBC paid all of Mr.
Alam's salary in 1996 and approximately $84,135 of his salary for 1995.
(8) Constitutes taxable income in connection with the exercise of stock
options.
(9) Represent payments made during 1997 in connection with Mr. Zwain's
Transition and Consulting Agreement with the Company entered into in
connection with his resignation from the Company in August 1997. See
"Certain Transactions--Consulting and Other Agreements."
(10) Amount includes $209,227 in relocation reimbursements and $1,000 for
entering into a non-compete agreement.
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 28, 1997.
See "--1997 Stock Option Plan and Option Repricings" and "Report of the
Compensation and Stock Option Committees--Report on Stock Option Exchange
Program."
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL
GRANTED EXERCISE RATES OF STOCK
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION PRICE APPRECIATION
NAME GRANT GRANTED IN FISCAL YEAR PRICE DATE FOR OPTION TERM(1)
---- -------- ------- -------------- -------- ---------- -------------------
5% 10%
-------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Saad J. Nadhir.......... 1/8/97 16,961(2) 0.3% $35.3750 1/8/07 $377,334 $ 956,238
11/10/97 25,000(3) 0.5 8.9375 11/10/07 140,519 356,102
11/10/97 30,252(4) 0.6 8.9375 11/10/07 170,039 430,912
11/10/97 86,316(5) 1.7 8.9375 11/10/07 485,160 1,229,491
Scott A. Beck........... 1/8/97 42,403(2) 0.8 35.3750 1/8/07 943,346 2,390,623
11/10/97 25,000(3) 0.5 8.9375 11/10/07 140,519 356,102
11/10/97 30,252(4) 0.6 8.9375 11/10/07 170,039 430,912
11/10/97 111,758(5) 2.2 8.9375 11/10/07 628,163 1,591,889
Mark W. Stephens........ 1/8/97 33,922(2) 0.7 35.3750 1/8/07 754,668 1,912,476
11/10/97 25,000(3) 0.5 8.9375 11/10/07 140,519 356,102
11/10/97 30,252(4) 0.6 8.9375 11/10/07 170,039 430,912
11/10/97 103,277(5) 2.0 8.9375 11/10/07 580,494 1,471,085
Dennis B. Mullen........ 6/16/97 26,066(2) 0.5 15.6875 6/16/07 257,162 651,698
11/10/97 11,112(3) 0.2 8.9375 11/10/07 62,458 158,280
11/10/97 26,066(5) 0.5 8.9375 11/10/07 146,510 371,286
Joel M. Alam............ 3/4/97 11,336(2) 0.2 30.8750 3/4/07 220,112 557,808
11/10/97 13,334(3) 0.3 8.9375 11/10/07 74,947 189,930
11/10/97 16,134(4) 0.3 8.9375 11/10/07 90,685 229,814
11/10/97 11,336(5) 0.2 8.9375 11/10/07 63,717 161,471
Laurence M. Zwain....... 1/8/97 33,922(2) 0.7 35.3750 1/8/07 754,668 1,912,476
</TABLE>
- --------
(1) 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. As of April 7, 1998, the
exercise price of all options reflected in the above table were in excess
of the closing price of the Common Stock as quoted on the Nasdaq National
Market.
8
<PAGE>
(2) All such grants were canceled (i) in November 1997 in the case of the
named executive officers, other than Mr. Zwain, in connection with the
Company's stock option exchange program and (ii) in August 1997 in the
case of Mr. Zwain in connection with his resignation from the Company.
(3) Options granted become exercisable in full on November 10, 1998.
(4) Options granted become exercisable with respect to 50% of the total number
of shares on each of November 10, 1998 and November 10, 1999.
(5) Options granted become exercisable with respect to 33 1/3% of the total
number of shares on each of November 10, 1998, November 10, 1999 and
November 10, 2000.
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 28, 1997 and the fiscal year-end value of unexercised, in-the-
money options.
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNEXERCISED OPTIONS VALUE OF UNEXERCISED
ACQUIRED AT FISCAL YEAR-END IN-THE-MONEY OPTIONS
ON VALUE (#) AT FISCAL YEAR-END
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Saad J. Nadhir.......... 0 0 661,072/141,568 3,142,582/ 0
Scott A. Beck........... 0 0 577,500/167,010 2,671,766/ 0
Mark W. Stephens........ 0 0 150,000/158,529 154,688/ 0
Dennis B. Mullen........ 0 0 0/ 37,178 0/ 0
Joel M. Alam............ 9,900 86,046 3,600/ 40,804 3,713/ 0
Laurence M. Zwain....... 0 0 0/ 0 0/ 0
</TABLE>
1997 STOCK OPTION PLAN AND OPTION REPRICINGS
In August 1997, the Board of Directors adopted and approved the 1997 Plan
for use initially in connection with a proposed stock option exchange program
being considered by the Stock Option Committee. The 1997 Plan is administered
by the Stock Option Committee of the Board of Directors and provides the Stock
Option Committee with the authority to, among other things, determine: (a) the
persons to be granted options under the 1997 Plan, (b) the number of shares
subject to each option, (c) the time or times at which options will be
granted, (d) the option price of the shares subject to each option, and (e)
the time or times when each option becomes exercisable and the duration of the
exercise period. Options granted under the 1997 Plan have a term of 10 years,
subject to earlier termination as provided in the 1997 Plan. The number of
shares initially available for issuance under the 1997 Plan upon the exercise
of options was 7,646,663. This number represents the sum of (x) that number of
shares of Common Stock which were subject to outstanding options granted under
the 1995 Plan and the 1991 Plan (together, the "Existing Plans") that were
exchanged for options granted pursuant to the 1997 Plan on November 10, 1997
(the "Exchange Date") in connection with the Company's option exchange
program, and (y) that number of shares of Common Stock that were, as of the
Exchange Date, available for issuance under the Existing Plans but not subject
to options previously granted under the Existing Plans. In connection with the
adoption of the 1997 Plan, the Board of Directors amended the Existing Plans
to reduce the number of shares of Common Stock available for issuance pursuant
to options granted under those plans by 7,646,663 shares in the aggregate.
Thus, the aggregate number of shares of Common Stock available for issuance
under the Company's stock option plans was not increased as a result of the
adoption of the 1997 Plan. In March 1998, the Board of Directors increased the
number of shares of Common Stock issuable under the 1997 Plan by 2,000,000
shares.
Under the terms of the 1997 Plan, each outstanding option on the date of a
"Change in Control" shall be immediately exercisable in full on or after such
date during its term, without regard to any vesting schedule established
pursuant to the Plan. The term "Change in Control" includes certain mergers,
consolidations or
9
<PAGE>
reorganizations involving the Company, the sale of all or substantially all of
the assets of the Company, the acquisition by any person or group (as the
terms "person" and "group" are used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act and the rules and regulations promulgated thereunder) of
issued and outstanding voting securities of the Company having more than 50%
of the voting power of the issued and outstanding voting securities of the
Company, and certain changes in the composition of the Board of Directors.
In October 1997, the Stock Option Committee of the Board of Directors
authorized a stock option exchange program to provide all employees, including
executive officers, the opportunity to exchange existing options with exercise
prices in excess of the then fair market value of the Common Stock for new
options priced at fair market value on the date of exchange. On November 10,
1997, approximately 3.4 million vested and unvested outstanding options with
original exercise prices ranging from $11.1875 to $37.88 per share were
canceled in exchange for the grant of the same number of new options under the
1997 Plan with an exercise price of $8.9375 per share, the fair market value
of the Common Stock on the date of such exchange. The exchange of options held
by certain named executive officers is set forth in the table below. The
vesting schedule of the new options was determined according to the grant date
of the canceled options. New options issued in exchange for canceled options
originally granted from January 1, 1994 through November 14, 1994 vest 100% on
November 10, 1998. New options issued in exchange of canceled options
originally granted from November 15, 1994 through December 18, 1995 vest 50%
on each of November 10, 1998 and November 10, 1999. New options issued in
exchange for canceled options originally granted after December 18, 1995 vest
33 1/3% on each of November 10, 1998, November 10, 1999 and November 10, 2000.
10
<PAGE>
The following table provides information concerning all repricings of stock
options of all executive officers (including directors) since November 8, 1993
(when the Company became subject to the reporting requirements of the Exchange
Act). See "Report of the Stock Option and Compensation Committees--Report on
Stock Option Exchange Program."
<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES PRICE OF LENGTH OF
UNDER- COMMON EXERCISE ORIGINAL OPTION
LYING STOCK AT PRICE AT NEW TERM REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING (1)
- ---- -------- -------- --------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Saad J. Nadhir.......... 11/10/97 25,000 $8.9375 $18.0000 $8.9375 6 years 2 months
11/10/97 30,252 8.9375 14.8750 8.9375 7 years 1 month
11/10/97 19,355 8.9375 31.0000 8.9375 8 years 1 month
11/10/97 50,000 8.9375 25.3750 8.9375 8 years 8 months
11/10/97 16,961 8.9375 35.3750 8.9375 9 years 2 months
Scott A. Beck........... 11/10/97 25,000 8.9375 18.0000 8.9375 6 years 2 months
11/10/97 30,252 8.9375 14.8750 8.9375 7 years 1 month
11/10/97 19,355 8.9375 31.0000 8.9375 8 years 1 month
11/10/97 50,000 8.9375 25.3750 8.9375 8 years 8 months
11/10/97 42,403 8.9375 35.3750 8.9375 9 years 2 months
Mark W. Stephens........ 11/10/97 25,000 8.9375 18.0000 8.9375 6 years 2 months
11/10/97 30,252 8.9375 14.8750 8.9375 7 years 1 month
11/10/97 19,355 8.9375 31.0000 8.9375 8 years 1 month
11/10/97 50,000 8.9375 25.3750 8.9375 8 years 8 months
11/10/97 33,922 8.9375 35.3750 8.9375 9 years 2 months
Dennis B. Mullen........ 11/10/97 11,112 8.9375 18.0000 8.9375 6 years 2 months
11/10/97 26,066 8.9375 15.6875 8.9375 9 years 7 months
Joel M. Alam............ 11/10/97 13,334 8.9375 18.0000 8.9375 6 years 2 months
11/10/97 16,134 8.9375 14.8750 8.9375 7 years 1 month
11/10/97 11,336 8.9375 30.8750 8.9375 9 years 5 months
Mark A. Link............ 11/10/97 12,622 8.9375 18.0000 8.9375 6 years 2 months
11/10/97 5,372 8.9375 14.8750 8.9375 7 years 1 month
11/10/97 9,412 8.9375 17.0000 8.9375 7 years 5 months
11/10/97 8,065 8.9375 31.0000 8.9375 8 years 1 month
11/10/97 6,969 8.9375 35.8750 8.9375 8 years 6 months
11/10/97 10,000 8.9375 25.3750 8.9375 8 years 8 months
11/10/97 7,067 8.9375 35.3750 8.9375 9 years 2 months
11/10/97 4,000 8.9375 30.8750 8.9375 9 years 4 months
Mark R. Goldston (2).... 11/10/97 100,000 8.9375 16.0000 8.9375 8 years 2 months
11/10/97 100,000 8.9375 27.9375 8.9375 8 years 2 months
11/10/97 25,000 8.9375 25.3750 8.9375 8 years 8 months
11/10/97 362 8.9375 35.3750 8.9375 9 years 2 months
</TABLE>
- --------
(1) All options have a ten year term.
(2) Mr. Goldston resigned as a Vice Chairman of the Company in December 1997.
See "Certain Transactions--Consulting and Other Agreements."
DIRECTOR COMPENSATION
In addition to annual option grants to purchase shares of Common Stock
having a fair market value of $200,000 on the date of grant under the Amended
and Restated 1991 Stock Option Plan for Non-Employee Directors, directors who
are not officers or employees of, or consultants to, the Company receive $500
cash
11
<PAGE>
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.
In October 1997, in connection with the Company's proposed acquisition of BC
Equity Funding, L.L.C. ("BCEF") and Market Partners, L.L.C. ("Market
Partners"), funds which have invested in 11 of 14 area developers of the
Company, the Board of Directors established a special committee of the Board
(the "Special Committee") comprised of Messrs. Greenberg and Jacobson. In
connection with their service on the Special Committee, Messrs. Greenberg and
Jacobson are each entitled to receive $20,000 per month during their term as
members of the Special Committee. Messrs. Greenberg and Jacobson are also
entitled to be reimbursed for their expenses in connection with their service
on the Special Committee.
See also "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of the
Board of Directors during the fiscal year ended December 28, 1997: Arnold C.
Greenberg, M Howard Jacobson and Peer Pedersen.
No executive officer of the Company, except Scott A. Beck, Co-Chairman of
the Board, President and a director of the Company, and Mark R. Goldston,
formerly 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 was
President, Chief Executive Officer and a director of ENBC until his
resignation from such positions in December 1997.
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 a minority equity interest in BCEF and Market Partners. See
"Certain Transactions--BC Equity Funding, L.L.C. and Market Partners, L.L.C."
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Report of the
Compensation and Stock Option Committees" and "Performance Graph" will not be
deemed to be filed or to be proxy soliciting material or incorporated by
reference in any prior or future filings by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), or the Exchange Act.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
The Board of Directors has two standing committees responsible for executive
compensation matters. The Compensation Committee has overall responsibility
for cash compensation and the Stock Option Committee has overall
responsibility for stock option grants, including grant approval and plan
administration. The following report on executive compensation is furnished by
the members of such committees.
GENERAL POLICIES
The Company's compensation program is intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
corporate objectives in a highly competitive industry. It is the Company's
policy to provide incentives to its senior management to achieve both short-
term and long-term objectives. For 1997, the Company's executive compensation
consisted primarily of salary, incentive bonuses and stock options.
CASH COMPENSATION
For 1997, cash compensation for executive officers consisted of salary and,
in certain cases, a cash bonus. In prior years, bonuses generally have not
been part of the Company's overall executive compensation structure.
12
<PAGE>
The Company believes that base salaries for executives officers historically
have been low relative to (i) cash salaries of similarly sized or otherwise
comparable companies, (ii) the contributions of the executive officers in
developing the Boston Market system, and (iii) their experience,
responsibilities and achievements. As a result, the Company has historically
relied in large part on incentive compensation in the form of stock options.
However, due to a significant decline in the market price of the Company's
Common Stock during fiscal 1997, many of the stock options granted to
employees in early 1997 and in recent years had exercise prices substantially
in excess of the fair market value of the Common Stock during much of 1997. As
a result, in order to ensure that the Company would retain the services of
many of its employees, including executive officers, at a critical time in the
Company's history, it was determined that cash compensation, in the form of
salary and bonus, needed to be a larger portion of overall executive
compensation during fiscal 1997. In determining the amount of such
compensation, the Committee considered (i) the contribution of the executive
officers during 1997, (ii) their experience, responsibilities and
achievements, and (iii) the difficulty of replacing such individuals if they
left the employment of the Company at such a critical time in the Company's
history. In general for 1997, Messrs. Nadhir and Beck determined the base
salaries for executive officers (other than themselves and Mr. Stephens), and
the Compensation Committee determined the base salary for Messrs. Beck, Nadhir
and Stephens, based upon the foregoing objectives and measures. In addition,
in determining the amount of Mr. Stephens' bonus for fiscal 1997, the
Compensation Committee considered Mr. Stephens' substantial responsibility for
(i) the successful renegotiation of the Company's secured revolving credit
facility, which was completed in October 1997, and (ii) the Company's proposed
transition to a company-owned structure.
The Company anticipates that cash compensation, including bonuses based on
targeted performance objectives, will continue to play a larger role in
overall compensation of executive officers in the near future. For fiscal
1998, the Company has adopted a performance-based compensation policy
providing employees above the manager level with the opportunity to earn
incentive compensation, in addition to their annual base salary, based upon
achieving certain corporate and individual objectives. The corporate
objectives are based upon the Company achieving certain financial targets for
the fiscal year and the individual objectives, except with respect to
executive officers, will be jointly developed by the employee and his or her
supervisor. Individual objectives for executive officers will be determined by
the Compensation Committee based on the recommendations of management. In
addition, the Company also determined that for fiscal 1998, employees above
the manager level, including executive officers, would not receive salary
increases.
STOCK OPTIONS
The Stock Option and Compensation Committees have always considered
incentive compensation in the form of stock options to be an integral,
important and relatively large part of executive compensation in particular
and employee compensation generally. The Committee believes that stock options
directly align the interests of management with the Company's stockholders to
increase stockholder value over a period of years.
The granting of stock options is within the sole discretion of the Stock
Option Committee. Historically, the Stock Option Committee has exercised that
discretion in making grants annually near the beginning of each year. All
options granted have an exercise price equal to the fair market value of the
Common Stock on the grant date. The Stock Option Committee also previously
authorized automatic stock option grants to be made to executive officers and
other employees at the Company's support center upon commencement of
employment utilizing an approved formula that considered such factors as
salary and position with the Company. Such grants were pro-rated based upon an
individual's date of commencement of employment with the Company. In January
1998, in order to minimize potential dilution associated with the Company's
equity incentive compensation plans, the Stock Option Committee rescinded the
automatic grant policy. As a result, all future option grants will be made
only at the determination of the Stock Option Committee on an individual basis
based upon recommendations of management. The Stock Option Committee granted
options to executive officers and other employees of the Company in January
and March 1997.
REPORT ON STOCK OPTION EXCHANGE PROGRAM
The Company believes that it has historically paid lower than competitive
annual salaries to full-time employees, including executive officers. The
Company believes that most of its officers, upon joining the
13
<PAGE>
Company, experienced a significant reduction in annual cash compensation from
his or her prior employment. In lieu of paying comparable salaries, the
Company provided equity incentives in the form of stock options designed to
attract, motivate and retain employees. The Company has granted stock options
at exercise prices equal to the market price of the Common Stock on the date
of grant. In 1997, the Stock Option Committee realized that because certain
previously granted stock options had exercise prices significantly higher than
the fair market value of the Common Stock, employees now perceived those
options as having little value. The diminished value of those previously
granted stock options had a significant adverse effect on employee morale and
enthusiasm. This was exacerbated by significant reductions in support center
staff, thereby requiring remaining employees to assume significant additional
responsibilities. As a result, the Stock Option Committee believed that the
"underwater" stock options were no longer providing sufficient incentive to
induce employees to remain with the Company or motivate them towards improving
the Company's overall financial performance during a critical transition
period for the Company. In view of the diminished value of the stock options,
and in light of the significant role stock options have played in employees'
overall compensation, the Stock Option Committee determined that repricing
"underwater" stock options was in the best interest of the Company's
stockholders. After weighing the benefits and detriments of implementing such
a program, the Stock Option Committee decided to adopt the program because it
believed that it was a necessary tool to induce employees, including executive
officers, to remain with the Company and provide the additional efforts needed
during this very critical time in the Company's history. See "Executive
Compensation--1997 Stock Option Plan and Option Repricings."
CHIEF EXECUTIVE OFFICER COMPENSATION
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 served as the Chief Executive Officer of the Company until
October 1997 when Saad J. Nadhir assumed that office. Mr. Nadhir joined the
Company as Vice Chairman of the Board and a Director in December 1991. He
resigned as President and Co-Chairman of the Board in January 1997. He
rejoined the Company as Co-Chairman of the Board and Chief Executive Officer
in October 1997.
The Compensation Committee believes that Mr. Beck's entrepreneurial drive,
dedication, commitment and knowledge have been of vital importance to the
administration and operations of the Company. Similarly, the Compensation
Committee believes that Mr. Nadhir has made valuable contributions to the
Company.
Messrs. Beck's and Nadhir's compensation for fiscal 1997 consisted of base
salary and stock options. In considering the base salary for 1997 of Mr. Beck
as the Company's Chief Executive Officer prior to Mr. Nadhir's election to
that position, the Compensation Committee evaluated Mr. Beck's personal
performance with the Company, including his contribution to the development
and implementation of corporate strategy and commitment to the Company, and
the Company's performance with respect to factors such as developing and
growing the Boston Market system and revenue growth. In connection with Mr.
Nadhir's return to the Company as Chief Executive Officer in October 1997, the
Compensation Committee considered the same factors that it considered with
respect to Mr. Beck, and, in addition, Mr. Nadhir's expected role in
connection with the development and testing of an expanded Boston Market store
format. In respect of Messrs. Beck's and Nadhir's 1997 annual stock option
grant, the Stock Option Committee considered the same factors that were used
to determine stock option grants to all executive officers discussed above.
Mr. Nadhir was granted a $400,000 bonus, which he voluntarily waived, for
services performed in 1997. In determining to award Mr. Nadhir such a bonus,
the Compensation Committee considered Mr. Nadhir's role (i) in the development
of an expanded Boston Market concept currently being tested in Charlotte,
North Carolina and the potential application of that concept throughout the
existing store base and (ii) in connection with the Company's proposed
transition to a Company-owned structure. The Compensation Committee believes
that Messrs. Beck's and Nadhir's compensation, and in particular their
salaries, have been low relative to the compensation of similar executive
officers of similarly sized or otherwise comparable companies of which the
Compensation Committee members are aware.
14
<PAGE>
POLICY REGARDING SECTION 162(M)
In general, Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the tax deductibility of annual compensation paid to
certain executive officers of a publicly held corporation to $1 million,
subject to an exception for "performance-based" compensation plans as defined
under that Section. Generally, the Compensation Committee and Stock Option
Committee reserve the right to grant compensation to Company executives in
amounts it deems appropriate regardless of whether such compensation is
deductible for federal income tax purposes. When making decisions concerning
executive compensation, the Compensation Committee takes into account the
deduction limits under Section 162(m), as well as other factors, including
economic and industry trends, competition for talented executives and the
contributions of the executive officers to the development of the Company's
business. Options granted to executives in fiscal 1997 are potentially subject
to limits on permitted federal income tax deductions upon exercise of such
options, including under Section 162(m). The Stock Option Committee determined
to make the grants of options to executives in 1997 despite such options
potentially being subject to the $1 million cap on executive compensation. The
Stock Option Committee determined that such grants and the associated
incentives therefrom were more important to the Company and its stockholders
than the potential loss of related compensation deductions. Each of the
Compensation and Stock Option Committee's policy is to maintain, where
feasible, a compensation structure that will permit all executive compensation
to be tax deductible by the Company. However, each member of the Compensation
Committee and Stock Option Committee believes that it is vital for the
Company's long-term interest to ensure that talented individuals will continue
to serve the Company. Accordingly, the Committees may continue, in appropriate
circumstances, to authorize compensation that may not be deductible in its
entirety.
CONCLUSION
The Compensation Committee believes that performance-based cash compensation
will play a larger role in overall compensation of executive officers than it
has historically. The Stock Option Committee intends to continue the policy of
providing a portion of executive compensation in the form of incentive-based
compensation, such as stock options. The Committees believe that this
combination of compensation, with the equity incentives aligning the financial
interests of management with the financial interests of stockholders, provides
the proper incentives to retain, reward and attract high quality management.
The Committees intend to review the executive compensation structure at least
annually, increase salaries and make option grants, and provide additional
forms of incentive-based or fixed compensation, all as the Committees believe
appropriate to retain, reward and attract management with the necessary
experience to further the Company's growth.
COMPENSATION COMMITTEE MEMBERS STOCK OPTION COMMITTEE MEMBERS
Arnold C. Greenberg Arnold C. Greenberg
M Howard Jacobson M Howard Jacobson
Peer Pedersen
15
<PAGE>
PERFORMANCE GRAPH
The Company has determined that a peer group that is representative of its
line of business and its stage of commercial development is appropriate for
performance comparison purposes. The members of the peer group are Applebees
International, Inc., Au Bon Pain Co. Inc., Brinker International Inc.,
Buffets, Inc. (acquired Hometown Buffet, Inc. in September 1996), Checkers
Drive-In Restaurants, Inc., Cracker Barrel Old Country Store, Inc., Fresh
Choice, Inc., Koo Koo Roo, Inc., McDonald's Corp., Outback Steakhouse Inc.,
Papa John's International Inc., Pollo Tropical Inc., Rally's Hamburgers Inc.,
Sbarro Inc., Sonic Corp., Starbucks Corp., Taco Cabana, Inc., and Wendy's
International Inc. (the "Peer Group Index"). The following graph compares the
percentage change in the cumulative total returns on the Common Stock, the
Peer Group Index, and the Standard & Poor's 500 Index (assuming reinvestment
of any dividends) for the period beginning on November 8, 1993, the effective
date of the registration of the Common Stock under Section 12 of the Exchange
Act, and ending on December 26, 1997, the last day on which shares of Common
Stock traded on the Nasdaq National Market prior to December 28, 1997, the
last day of the Company's 1997 fiscal year.
COMPARISON OF CUMULATIVE RETURN
VS. PEER GROUP AND S&P 500 INDICES (1)
LOGO
<TABLE>
<CAPTION>
11/8/93 12/23/93 12/23/94 12/29/95 12/27/96 12/26/97
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Boston Chicken, Inc. $100 $190.00 $160.00 $321.30 $347.50 $ 65.60
Peer Group $100 $102.13 $ 93.28 $137.37 $144.55 $146.82
S&P 500 $100 $100.25 $101.57 $139.75 $171.83 $229.16
</TABLE>
- --------
(1) Assumes $100 invested on November 8, 1993 in Common Stock, the Peer Group
Index, and the S&P 500 Index. Historical results are not necessarily
indicative of future performance.
16
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH AREA DEVELOPERS
R&A Food Services, L.P. Lawrence Beck, Scott Beck's father, is a minority
investor in R&A Food Services, L.P. ("R&A"), the Company's area developer for
the Miami/Ft. Lauderdale, West Palm Beach/Ft. Pierce/Vero Beach, Ft.
Myers/Naples, Tampa/St. Petersburg and Orlando areas dominant of influence
("ADIs"), and a director of and minority stockholder in R&A Food Services,
Inc., the general partner of R&A. In fiscal 1997, the Company earned from R&A
an aggregate of $11.9 million in franchise, royalty, software license,
software maintenance, and accounting fees and rent. As of December 28, 1997,
the maximum commitment amount of the Company's loan to R&A was $98.5 million,
of which $93.2 million was outstanding as of such date. In addition, in fiscal
1997, the Company earned from R&A $6.8 million in interest on its loan with
the Company. In addition, in fiscal 1997, the Company purchased from R&A
special distribution rights granted pursuant to R&A's area development
agreement and each franchise agreement (which special distribution rights gave
R&A a right of first refusal on providing Boston Market products through
alternative distribution channels, such as grocery stores, within R&A's ADIs)
and certain real estate related assets for an aggregate of 326,453 shares of
Common Stock having a fair market value on the date of issuance of
approximately $5.9 million. The purchase price of the special distribution
rights was determined based on a valuation of such rights from an independent
third party and the purchase price of the real estate related assets was equal
to R&A's cost for such assets.
P&L Food Services, L.L.C. Lawrence Beck is the majority equity holder in P&L
Food Services, L.L.C. ("P&L"), the Company's area developer for the
Pittsburgh, Cleveland, and Youngstown ADIs. In fiscal 1997, the Company earned
from P&L an aggregate of $5.3 million in development, franchise, royalty,
software license, software maintenance, and accounting fees and rent. As of
December 28, 1997, the maximum commitment amount of the Company's loan to P&L
was $55.0 million, of which $48.2 million was outstanding as of such date. In
addition, in fiscal 1997, the Company earned from P&L $3.3 million in interest
on its loan with the Company.
BC Great Lakes, L.L.C. 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"), the Company's area developer for the Chicago, Milwaukee, Green Bay
and Detroit ADIs. Peer Pedersen, two family members of Dean L. Buntrock, who
resigned as a director of the Company in March 1998, and a Buntrock family
trust own indirect minority interests in BC Great Lakes as 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 1997, the
Company earned from BC Great Lakes an aggregate of $15.2 million in
development, franchise, royalty, software license, software maintenance,
accounting, and other fees and rent. As of December 28, 1997, the maximum
commitment amount of the Company's loan to BC Great Lakes was $115.1 million,
of which $112.7 million was outstanding as of such date. In addition, in
fiscal 1997, the Company earned from BC Great Lakes $9.6 million in interest
on its loan with the Company. In addition, in fiscal 1997 the Company
purchased from BC Great Lakes certain real estate related assets for an
aggregate of 44,307 shares of Common Stock having a fair market value on the
date of issuance of approximately $1.0 million. The purchase price of such
assets was equal to BC Great Lake's cost for such assets. In March 1998, the
Company converted its loan to BC Great Lakes into an 85% equity interest in BC
Great Lakes.
BC Northwest, L.P. Dennis B. Mullen, the Company's Executive Vice
President--Business Partner Group, owns a direct minority interest in BC
Northwest, L.P. ("BC Northwest"), the Company's area developer for the
Seattle/Tacoma, Spokane and Portland ADIs. Peer Pedersen, two members of Mr.
Buntrock's family and a Buntrock family trust own indirect minority interests
in BC Northwest as limited partners of BC Detroit/Seattle, which is a partner
of BC Northwest. In fiscal 1997, the Company earned from BC Northwest an
aggregate of $8.2 million in development, franchise, royalty, software
license, software maintenance, and accounting fees and rent. As of December
28, 1997, the maximum commitment amount of the Company's loan to BC Northwest
was $47.5 million, all of which was outstanding as of such date. In addition,
in fiscal 1997, the Company earned from BC Northwest $2.9 million in interest
on its loan with the Company.
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<PAGE>
BC Boston, L.P. Lawrence Beck and entities controlled by him own all of the
equity interests in BC Boston, L.P. ("BC Boston"), the Company's area
developer for the Boston metropolitan area. In fiscal 1997, the Company earned
from BC Boston an aggregate of $5.3 million in development, franchise,
royalty, software license, software maintenance, and accounting fees and rent.
As of December 28, 1997, the maximum commitment amount of the Company's loan
to BC Boston was $50.5 million, of which $43.3 million was outstanding as of
such date. In addition, in fiscal 1997, the Company earned from BC Boston $3.3
million in interest on its loan with the Company.
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"), the Company's area developer for the
Phoenix, Tucson, Las Vegas, Albuquerque and Salt Lake City ADIs. In fiscal
1997, the Company earned from BCE West an aggregate of $8.8 million in
franchise, royalty, software license, software maintenance, and accounting
fees and rent. As of December 28, 1997, the maximum commitment amount of the
Company's loan to BCE West was $54.3 million, of which $43.3 million was
outstanding as of such date. In addition, for the Company's 1997 fiscal year,
the Company earned from BCE West $3.4 million in interest on its loan with the
Company. In addition, in fiscal 1997, the Company purchased from BCE West
special distribution rights granted pursuant to BCE West's area development
agreement and each of its franchise agreements, and 20 Boston Market stores in
two separate transactions for an aggregate of 1,467,440 shares of Common Stock
having a fair market value on the dates of issuance of approximately $18.8
million. The purchase price of the special distribution rights was determined
based on a valuation of such rights by an independent third party, the
purchase price of 16 of the Boston Market stores was based on a multiple of
store cash flow negotiated between the parties, and the purchase price for the
remaining four Boston Market stores, which were each open less than a year,
was equal to BCE West's cost for such stores.
With respect to the transactions described above, the Company believes that
the terms of such transactions are no less favorable to the Company than were
or could have been reached with unaffiliated area developers of the Company.
BC EQUITY FUNDING, L.L.C. AND MARKET PARTNERS, L.L.C.
BCEF has invested an aggregate of approximately $56.7 million in preferred
equity interests of certain of the Company's area developers and has accrued
dividends through December 28, 1997 of $13.8 million. The terms of the
preferred equity interests generally require the area developer to redeem such
interests (including accrued dividends and redemption premiums) for cash upon
the occurrence of certain events, including the acquisition by the Company of
a majority equity interest in the area developer. 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 an
initial public offering of such area developer, the Company has agreed to
purchase the preferred equity interests from BCEF. Messrs. Nadhir, Stephens,
Pedersen, Buntrock and Link and Mr. Alam and his spouse each own a direct
equity interest in BCEF, and Scott Beck owns an indirect equity interest as a
limited partner and the sole general partner of a partnership that has
invested directly in BCEF. Such interests aggregate a minority of the
outstanding equity interest in BCEF.
Market Partners has invested an aggregate of approximately $75.0 million in
preferred equity interests of certain of the Company's area developers and has
accrued dividends through December 28, 1997 of $4.4 million. The terms of the
preferred equity interests generally require the area developer to redeem such
interests (including accrued dividends and redemption premiums) for cash upon
the occurrence of certain events, including the acquisition by the Company of
a majority equity interest in the area developer. Market Partners also holds
warrants to purchase 7% of the fully diluted common equity of eleven area
developers of the Company. 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
18
<PAGE>
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 and
Mr. Alam's spouse each own a direct equity interest in Market Partners. Such
interests aggregate a minority of the outstanding equity interest in Market
Partners.
Market Partners has also 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 in 1996. Under
the terms of Market Partners' limited liability company agreement, Market
Partners distributed such warrants to its equity owners in May 1997. 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--9,803 shares; Mr. Zwain--9,804
shares; Mr. Todd--4,902 shares; and Mr. Alam's spouse--2,451 shares.
In March 1998, the Company entered into an agreement with BCEF and Market
Partners to acquire BCEF and Market Partners. The agreement calls for the
Company to acquire BCEF and Market Partners through a proposed merger (the
"Merger") of BCEF and Market Partners with and into a wholly-owned subsidiary
of the Company for aggregate consideration of $126.8 million aggregate
liquidation preference of 10% Series A Exchangeable Preferred Stock of the
Company (the "Preferred Stock"), 3.5 million shares of Common Stock and $10.0
million in cash. Pursuant to the Merger (x) each issued and outstanding
membership interest of BCEF and Market Partners held by holders, other than
directors and officers of the Company at the effective time of the Merger
(including their spouses, parents, children and siblings, and entities
controlled by them) and certain other persons (collectively, "Excluded
Holders"), would be converted into the right to receive (i) shares of
Preferred Stock, (ii) shares of common stock of the Company, and (iii) cash,
equal to $10.0 million in the aggregate for all of such membership interests,
and (y) each issued and outstanding membership interest of BCEF and Market
Partners held by the Excluded Holders at the effective time of the Merger
would be converted into the right to receive (i) shares of Preferred Stock and
(ii) shares of common stock of the Company. In connection with the proposed
Merger, the Excluded Holders voluntarily agreed to, among other things, (i)
waive the right to receive their pro rata portion of the $10.0 million of cash
to be paid by the Company to the holders of BCEF and Market Partners in
connection with the Merger and (ii) not offer, sell, pledge or otherwise
dispose of the shares of Preferred Stock and common stock to be received by
them as consideration in the Merger for a period of 36 months from the closing
of the Merger. The 10% dividend payable quarterly on the Preferred Stock is
payable, at the Company's option, in either additional shares of Preferred
Stock or cash for a period of three years and is payable in cash thereafter.
The Preferred Stock is optionally redeemable by the Company at any time, in
cash, at redemption prices which start at 50% of the liquidation preference
and increase over time. The Preferred Stock is mandatorily redeemable in 2005
at a price of 110% of the liquidation preference. The terms of the Preferred
Stock also provide that in the event of certain transactions constituting a
"change of control" of the Company, each holder of the Preferred Stock will
have the option to require the Company to purchase all or any portion of the
holder's Preferred Stock at redemption prices which start at 65% of the
liquidation preference and increase overtime to 110% of the liquidation
preference. The Company has agreed to file with the Securities and
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<PAGE>
Exchange Commission within 60 days after the closing date of the Merger, a
shelf registration statement to register for resale the Preferred Stock and
common stock to be issued in the Merger. The transaction is subject to
approval of holders owning at least two-thirds of the membership interests of
each of BCEF and Market Partners, regulatory approvals and final
documentation. If the Merger has not occurred on or before June 30, 1998 as a
result of the willful failure of the Company to satisfy any conditions to the
Merger that are within its reasonable ability and control to satisfy, and
provided that neither BCEF nor Market Partners is in breach of the agreement
or has failed to satisfy such a condition, the Company will be obligated to
pay to the holders of the membership interests of each of BCEF and Market
Partners, other than Excluded Holders, a penalty in the aggregate amount of $5
million in cash.
EINSTEIN/NOAH BAGEL CORP.
ENBC has granted to the Company an option (the "ENBC Option") to maintain
ownership of shares of common stock of ENBC having up to 52% of the voting
power of all of the outstanding shares of capital stock of ENBC having the
power generally to vote in the election of directors. The ENBC Option is
exercisable at a per share exercise price equal to (i) the weighted average
price per share at which ENBC's common stock is issued or sold in a
transaction pursuant to which the ENBC Option becomes exercisable, in the case
of a transaction in which such price per share is readily ascertainable, or
(ii) in all other cases, the average of the closing sale prices for the common
stock on the Nasdaq National Market (or such other principal exchange or
market on which the common stock may then be trading) for the five trading
days ending on the fifth trading day prior to the date of the transaction
pursuant to which the ENBC Option becomes exercisable. The ENBC Option
terminates if (i) the Company sells or transfers shares of ENBC's 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's common stock
and the Company fails to acquire a sufficient number of shares of common stock
so that it owns at least a majority of the then outstanding shares of voting
stock of ENBC by July 31 of the calendar year next following the calendar year
in which such reduction occurs. In addition, the percentage ownership level of
52% is subject to reduction to the extent voluntary sales or transfers by the
Company reduce its ownership of the outstanding shares of voting stock of ENBC
to less than 52% but do not otherwise result in termination of the ENBC
Option. In determining the percentage ownership of the voting stock of ENBC
owned by the Company for purposes of the ENBC Option, the following shares are
excluded: (i) 599,086 shares of ENBC's common stock subject to options granted
by the Company and its subsidiaries, (ii) any shares of common stock held by
officers, directors or employees of the Company, and (iii) any shares of
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
purposes. Pursuant to such calculation, as of December 28, 1997, the Company
owned approximately 50.4% of the outstanding common stock of ENBC and had the
right to purchase 1,467,949 shares of common stock of ENBC at prices ranging
from $10.30 to $30.75 per share. ENBC also granted the Company, pursuant to a
registration rights agreement, five demand and unlimited piggyback
registration rights under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to shares of ENBC's common stock owned by the
Company.
The Company has also provided to ENBC an unsecured subordinated, non-
convertible credit facility providing for borrowings of up to $50.0 million.
As of April 7, 1998, there was no balance outstanding under the facility. The
loan terminates on June 14, 1998 if ENBC has not drawn any amounts under the
loan as of such date. Interest on the loan is based on the reference rate of
the Bank of America National Trust and Savings Association, plus 1.5%. Any
borrowings outstanding are payable on June 15, 2003. The Company may satisfy
its funding obligations under the loan facility in either 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 its obligations under the
loan facility and thereafter sold by ENBC. There can be no assurance that the
Company would have the resources available to fund, or that the Company would
use its available resources to fund, a draw under such facility. To date, ENBC
has not requested to draw upon such facility.
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<PAGE>
During fiscal 1997, the Company and ENBC were parties to fee service
agreements, pursuant to which the Company provided ENBC with accounting and
administration services and computer and communications services. The Company
continues to provide such services to ENBC. The Company and ENBC are also
parties to a sublease, pursuant to which ENBC is entitled to the non-exclusive
use of aircraft leased by the Company from an unaffiliated third party leasing
company. During 1997, the Company and ENBC were party to a second sublease for
the use of an airplane. 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 has an initial term of 5 years expiring in August 2001.
ENBC also reimburses the Company for a portion of the premiums the Company
pays for insurance policies covering directors and officers of the Company and
ENBC. During fiscal 1997, ENBC paid the Company $3.6 million pursuant to these
agreements. The Company's agreements with ENBC were negotiated at arms' length
and the Company believes that the terms of such agreements are as favorable to
the Company as those it would have with an unaffiliated third party.
On December 5, 1997, ENBC acquired an approximately 78% interest in
Einstein/Noah Bagel Partners, L.P. ("Bagel Partners"), the surviving entity of
the merger of five area developers of ENBC, by exercising its conversion and
option rights under its secured loan agreements with the area developers.
Bagel Store Development Funding, L.L.C. ("Bagel Funding"), a Delaware limited
liability company (formerly Einstein Bros. Equity Funding, L.L.C.), has
invested approximately $89.6 million in (and is currently a 21% owner of)
Bagel Partners. In connection with the transactions, the Bagel Partners
Partnership Agreement amended Bagel Funding's right to require Bagel Partners
to redeem Bagel Funding's interest in Bagel Partners (formerly the right to
require each of ENBC's area developers to redeem Bagel Funding's interest in
each such area developer) in certain circumstances (the "Put Rights"). The
Bagel Partners Partnership Agreement amended Bagel Funding's Put Rights as
follows: (i) the Put Rights do not become exercisable until December 5, 1999
and may be exercised thereafter if at any time during the eighteen-month
period commencing on December 5, 1999 ENBC does not consent to a public
offering of Bagel Partners equity or the termination of certain rights and
obligations under franchise or license agreements with ENBC upon request by
Bagel Funding; (ii) the Put Rights are exercisable prior to December 5, 1999
if there is a Change in Control (as defined in the Bagel Partners Partnership
Agreement) of ENBC and ENBC does not consent to a public offering of Bagel
Partners equity or the termination of certain rights and obligations under
franchise or license agreements with ENBC upon request by Bagel Funding, (iii)
the method of determining the valuation of Bagel Partners for purposes of
calculating the put price is a multiple of the annualized average cash flow
for the two fiscal quarters prior to the quarter in which the Put Rights are
exercised rather than a multiple of the annualized average cash flow for the
highest of the three prior fiscal quarters, (iv) the Bagel Funding unitholders
will receive resale registration rights upon exercise of the Put Rights in the
event that ENBC or Bagel Partners chooses to pay the purchase price of the
Bagel Partners units with shares of ENBC common stock, (v) the right of Bagel
Partners or ENBC to pay the purchase price of Bagel Partners units with shares
of the Company's Common Stock was eliminated, and (vi) upon an exercise of the
Put Rights, Bagel Partners or ENBC may purchase Bagel Funding's Bagel Partners
interest. ENBC is currently the manager of Bagel Funding. Scott Beck, Lawrence
Beck and Peer Pedersen own direct equity interests in Bagel Funding and Dean
Buntrock owns an indirect equity interest as a partner of a partnership that
invested directly in Bagel Funding. Such interests aggregate a minority of the
outstanding equity interest in Bagel Funding.
PROGRESSIVE FOOD CONCEPTS, INC.
In January 1997, the Company provided Progressive Food Concepts, Inc.
("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. Scott Beck, Co-Chairman and
President of the Company, and Saad Nadhir, Co-Chairman and Chief Executive
Officer of the Company, each purchased a 46.2% equity interest in PFCI. At the
time of PFCI's formation, Messrs. Beck and Nadhir publicly disclosed their
intention to transfer a significant portion of their shares of PFCI common
stock to other individuals as PFCI's business plan became more defined and was
implemented. PFCI's mission was to explore additional
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<PAGE>
opportunities in the home meal replacement market. As it became clear that
certain proprietary technology and rights owned by PFCI would likely have
direct application to the Boston Market store base, the Company decided to
acquire PFCI. In the third quarter of fiscal 1997, the Company acquired from
Messrs. Nadhir and Beck approximately an 85% ownership interest in PFCI, and
an option to purchase Messrs. Nadhir's and Beck's remaining PFCI interests,
for an aggregate of $2.0 million in cash and approximately $6.4 million in
notes. The purchase price was equal to Messrs. Nadhir's and Beck's original
cost for such interest plus an 8% interest factor, calculated from the date of
their original investments. Subsequently, the Company's ownership interest in
PFCI increased to 100% as a result of (i) PFCI's redemption of the 7.6%
interest in PFCI held by Harry's Farmers Market, Inc. for $2.5 million and
(ii) the Company's exercise of its option to purchase Messrs. Beck's and
Nadhir's remaining interests in PFCI for approximately $700,000 in cash, which
was equal to their original cost for such interests plus an 8% interest
factor, calculated from the date of their original investments. In connection
with the acquisition of the remaining interests of Messrs. Beck and Nadhir in
PFCI, the Company prepaid approximately $3.2 million of the $6.4 million of
notes payable, and Messrs. Beck and Nadhir agreed to extend the maturity date
of such notes. In fiscal 1997, the Company earned $0.5 million in interest on
its loan with PFCI prior to the Company's acquisition of PFCI.
STOCK OPTION AGREEMENTS
In April 1996, the Company granted an option to Laurence M. Zwain, a former
Vice Chairman of the Board and the President and Chief Executive Officer--
Boston Market Concept, to purchase 62,667 shares of common stock of ENBC owned
by it at an exercise price of $6.38 per share. Mr. Zwain's option terminated
in August 1997 in connection with his resignation from the Company. See "--
Consulting and Other Agreements."
In July 1996, the Company granted an option to John J. Todd, former Chief
Financial Officer--Boston Market Concept, to purchase 19,593 shares of common
stock of ENBC owned by it at an exercise price of $6.38 per share. In
connection with Mr. Todd's resignation from the Company, he exercised his
option with respect to 1,959 shares and his option with respect to the
remaining shares was terminated.
CONSULTING AND OTHER AGREEMENTS
The Company entered into a letter agreement with Mr. Nadhir in August 1997
in connection with Mr. Nadhir's proposed return to the Company as Chief
Executive Officer, which provided for, among other things, an annual base
salary of $400,000, annual bonus targets and the right to receive certain
equity incentives, including stock option and restricted stock grants in 1997
and future years. The letter agreement with Mr. Nadhir was subsequently
amended by the Company and Mr. Nadhir to provide that Mr. Nadhir would receive
compensation for 1997 as follows: (i) an annual base salary of $400,000, (ii)
a bonus of $400,000, which was not paid to Mr. Nadhir because he voluntarily
waived the payment thereof, and (iii) a grant of options to be made in 1998 to
acquire 750,000 shares of Common Stock, of which options to acquire 450,000
shares vest 100% on October 1, 1998 and options to acquire the remaining
300,000 shares vest ratably over four years. Of the options granted to Mr.
Nadhir, options to acquire 250,000 shares were granted in lieu of the
restricted stock award provided in the original letter agreement. The
provisions in Mr. Nadhir's original letter regarding future stock option
grants and restricted stock awards were terminated and are of no further
effect. Mr. Nadhir was also a participant in the option exchange program
offered to all employees of the Company in November 1997. See "Executive
Compensation--1997 Stock Option Plan and Option Repricings" and "Report of the
Compensation and Stock Option Committees--Report on Stock Option Exchange
Program."
The Company also entered into a letter agreement with Mr. Stephens in August
1997, which provided for, among other things, an annual base salary of
$400,000, annual bonus targets and the right to receive certain equity
incentives, including stock option and restricted stock grants in 1997 and
future years. The letter agreement with Mr. Stephens was subsequently amended
by the Company and Mr. Stephens to provide that Mr. Stephens would receive
compensation for 1997 as follows: (i) an annual base salary of $400,000, (ii)
a bonus of $950,000, $150,000 of which was paid to Mr. Stephens partially in
lieu of the restricted stock award provided in the original letter agreement,
and (iii) a grant of options to be made in 1998 to acquire 750,000 shares of
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<PAGE>
Common Stock, of which options to acquire 450,000 shares vest 100% on October
1, 1998 and options to acquire the remaining 300,000 shares vest ratably over
four years. Of the options granted to Mr. Stephens, options to acquire 250,000
shares were granted partially in lieu of the restricted stock award provided
in the original letter agreement. The provisions in Mr. Stephen's original
letter regarding future stock option grants and restricted stock awards were
terminated and are of no further effect. Mr. Stephens was also a participant
in the option exchange program offered to all employees of the Company in
November 1997. See "Executive Compensation--1997 Stock Option Plan and Option
Repricings" and "Report of the Compensation and Stock Option Committees--
Report on Stock Option Exchange Program."
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 agreed to pay Mr. Goldston a base salary of
$360,000 per year, with Mr. Goldston being eligible for a $400,000 bonus from
ENBC for 1997. ENBC paid Mr. Goldston a bonus of $400,000 for 1997 based upon
the achievement of mutually agreed upon reasonable performance goals. Pursuant
to the letter agreement, Mr. Goldston received during fiscal year 1997 an
annual stock option grant from ENBC to purchase 74,854 shares of ENBC common
stock, having an aggregate exercise price of $800,000.
In April 1996, the Company 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, an additional 33% of the total option became exercisable on the
first anniversary of the date of grant and the balance of the total option
will become exercisable on the second anniversary of the date of grant.
In December 1997, ENBC and Mr. Goldston entered into a Termination
Agreement, pursuant to which Mr. Goldston received $200,000 payable upon
execution of such agreement and $360,000 payable in 26 equal bi-weekly
installments in connection with Mr. Goldston's resignation as Chief Executive
Officer and as a director of ENBC. In addition, all options previously granted
by ENBC to purchase shares of ENBC common stock continue to vest for a period
of one year and remain exercisable for two years from the date of the
agreement. Mr. Goldston is not eligible for any future stock option grants
from ENBC.
In December 1997, the Company and Mr. Goldston entered into a Termination
Agreement, pursuant to which Mr. Goldston received $300,000 payable upon
execution of such agreement and $240,000 payable in 26 equal bi-weekly
installments in connection with Mr. Goldston's resignation as Vice Chairman of
the Board and as a director of the Company. In addition, (i) all options
previously granted by the Company to purchase shares of Common Stock continue
to vest in accordance with their terms and remain exercisable for a period of
one year after they have vested and (ii) all options previously granted by the
Company to purchase shares of ENBC common stock pursuant to that Option
Agreement dated April 8, 1996, continue to vest in accordance with their terms
for a period of one year and remain exercisable for two years from the date of
the termination agreement. Mr. Goldston is not eligible for any future stock
option grants from the Company.
In August 1997, the Company entered into a Transition and Consulting
Agreement with Mr. Zwain, pursuant to which he has agreed to perform certain
consulting services to the Company through August 28, 1998. In consideration
for such services, the Company has agreed to pay Mr. Zwain an aggregate of
$500,000 through August 28, 1998. In addition, all options granted by the
Company to purchase shares of the Company's Common Stock or ENBC common stock
were terminated.
In July 1997, the Company sold to certain investors, including Peer
Pedersen, Dean Buntrock's spouse and a Buntrock family trust, all of its
20,000 shares (after giving effect to a 25-to-1 reverse stock split) of Series
A Convertible Preferred Stock (the "Series A Stock") of Spincycle, Inc.
("Spincycle") owned by the Company. The Company sold the Series A Stock to
such investors for $199.25 per share, the same per share price paid to
Spincycle by third party investors not affiliated with Spincycle in June 1997
for shares of preferred stock of Spincycle with substantially the same terms
as the Series A Stock. The Company sold its investment in Spincycle because
such investment was unrelated to its core business. Such sale provided the
Company with an opportunity to liquidate an otherwise illiquid investment for
an aggregate gain of $1.5 million.
23
<PAGE>
With respect to Messrs. Goldston, Todd and Zwain, information required to be
included herein is presented for the periods during which each such person was
an executive officer and/or director of the Company.
LOANS TO EXECUTIVE OFFICERS
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 Bank of
America's reference rate in effect 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. The largest principal amount outstanding under the
loan during 1997 was $100,000.
In April 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 principal amount outstanding
under the loan during 1997 was $100,000. In connection with Mr. Todd's
resignation from the Company, the Company forgave the entire principal and
interest amounts due under the loan.
APPOINTMENT OF AUDITORS
The Board of Directors has selected the accounting firm of Arthur Andersen
LLP as the independent auditors of the Company for its current fiscal year
ending December 27, 1998, pursuant to the recommendation of the Audit
Committee. Arthur Andersen LLP has served as the Company's independent
auditors since 1992. Representatives of Arthur Andersen LLP are expected to
attend the annual meeting. They will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions
from stockholders.
SOLICITATION OF PROXIES
The Board of Directors is soliciting proxies through the use of the mail.
Directors, officers, and a small number of other employees of the Company may
also solicit proxies personally or by mail, telephone, facsimile, or
otherwise, but these individuals will not be compensated for such services.
Brokerage firms, banks, fiduciaries, voting trustees, or other nominees will
be requested to forward the soliciting material to the beneficial owners of
stock held of record by them and the Company has hired Morrow & Company to
coordinate the solicitation of proxies by and through such holders for a fee
of approximately $5,000 plus expenses. The Company will bear the cost of the
proxy solicitation.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material to be distributed by the Company in connection with the 1999 Annual
Meeting must do so no later than December 6, 1998. Any such proposal should be
submitted in writing to the Secretary of the Company at its principal
executive offices. In addition, the Company's bylaws require that in order for
any business to be properly brought before any meeting of stockholders,
including nominations for the election of directors, a stockholder must
provide written notice delivered to the Secretary of the Company at the
principal executive offices of the Company not less than 30 nor more than 60
days before the meeting date; provided, however, that in the event that less
than 40 days notice or prior public disclosure of the date of the meeting is
given or made to stockholders, the stockholder notice, in order to be timely,
must be received prior to the date of the meeting and not later than the close
of business on the tenth day following the day on which notice or disclosure
of the meeting date has been given or made. The stockholder notice must
include the stockholder's name and address as it appears on the Company's
records and the class and number of shares of the Company's capital stock
beneficially owned by such stockholder on the record date for the meeting. In
addition, (i) for proposals other than nominations for the election of
directors, such notice must include a description of the business desired to
be brought before the
24
<PAGE>
meeting, the reasons for conducting such business at the meeting, and any
material interest of the stockholder in such business, and (ii) for proposals
relating to stockholder nominations for the election of directors, such notice
must also include, with respect to each person nominated, the information
required by Regulation 14A under the Exchange Act.
OTHER MATTERS
Management knows of no other matters to be brought before the annual meeting
other than those described in this proxy statement. If any other business
should come before the meeting, it is intended that the persons named in the
enclosed proxy will vote the shares in accordance with their best judgment on
any such matter.
GENERAL
It is important that proxies be returned promptly. If you are unable to
attend the meeting, you are urged, regardless of the number of shares owned,
to date, sign and return without delay your proxy card in the enclosed
addressed envelope.
By Order of the Board of Directors
/s/ Saad J. Nadhir
Co-Chairman of the Board
and Chief Executive Officer
25
<PAGE>
-- --
7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
REVOCABLE REVOCABLE
PROXY PROXY
BOSTON CHICKEN, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 20, 1998--10:00 A.M. MOUNTAIN
TIME
The undersigned hereby appoints Saad J. Nadhir, Scott A. Beck and Mark W.
Stephens, or any of them, each with full power of substitution, to act as
proxies for the undersigned, and to vote all shares of Common Stock of Boston
Chicken, Inc. (the "Company"), which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of the Company to
be held on Wednesday, May 20, 1998, at 10:00 a.m., Mountain Time, at the
Sheraton Denver West Hotel and Conference Center, 360 Union Boulevard,
Lakewood, Colorado, and at any and all postponements and adjournments thereof,
as follows:
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES LISTED. IF
ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE
VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
ANNUAL MEETING.
[_] Check here if you plan to attend the Annual Meeting.
PLEASE MARK, SIGN, DATE, AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
^ FOLD AND DETACH HERE ^^
<PAGE>
-- --
BOSTON CHICKEN, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Election of Directors. Nominees: Scott A. Beck, Arnold C. Greenberg,
J. Bruce Harreld, M. Howard Jacobson, Saad J. Nadhir, Peer Pedersen and Mark
W. Stephens
-------------------------------------------------
(Nominee Exception)
For All
For Withheld Except
[_] [_] [_]
2. In their discretion, on such other business as may properly come before the
meeting.
The Board of Directors recommends a vote FOR the Nominees listed.
The undersigned acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy Statement
dated April 13, 1998, and the Annual Report to Stockholders.
Dated: _________________________________________________________________ , 1998
Signature(s)___________________________________________________________________
_______________________________________________________________________________
Please sign exactly as name appears on this card. when signing as attorney,
executor, administrator, trustee, guardian, corporate officer, or general
partner, please give your full title. if shares are held jointly, each holder
may sign but only one signature is required.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
<PAGE>
[LOGO] BOSTON CHICKEN, INC.
Vote by Internet
It's fast, convenient, your vote is immediately
confirmed and posted and you can get all
future materials by internet.
WWW.PROXYVOTE.COM
Just follow these 4 easy steps:
1 Read the accompanying
Proxy Statement and
voting form.
2 Go to website
WWW.PROXYVOTE.COM.
3 Enter your 12 digit
Control Number located
on your vote instruction
form.
4 Follow the simple
instructions.
Your vote is important!
Go to WWW.PROXYVOTE.COM
24 hours a day
Do not return Voting Form if you are voting by telephone or internet.
TWO NEW WAYS TO VOTE
Vote by Telephone
It's fast, convenient, and your vote is immediately
confirmed and posted.
CALL TOLL-FREE ON A TOUCH-TONE PHONE
using the 800 number shown in the upper left hand corner of the enclosed voting
form
Just follow these 4 easy steps:
1 Read the accompanying
Proxy Statement and
voting form.
2 Call the toll-free
number shown in the
upper left hand corner
of the enclosed voting
form.
3 Enter your 12 digit
Control Number located
on your vote instruction
form.
4 Follow the simple
recorded instructions.
Your vote is important!
Call 24 hours a day
