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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22802
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BOSTON CHICKEN, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3904053
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14103 DENVER WEST PARKWAY
P.O. BOX 4086
Golden, CO 80401-4086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 278-9500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, $.01 PAR VALUE
4 1/2 % CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
7 3/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
LIQUID YIELD OPTION NOTES DUE 2015
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days: Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
STOCKHOLDERS WHO WERE NOT AFFILIATES (AS DEFINED BY REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION) OF THE REGISTRANT WAS APPROXIMATELY
$391,999,032 AT MARCH 20, 1998 (BASED ON THE CLOSING SALE PRICE ON THE NASDAQ
NATIONAL MARKET ON MARCH 20, 1998, AS REPORTED BY NASDAQ). AT MARCH 20, 1998,
THE REGISTRANT HAD ISSUED AND OUTSTANDING AN AGGREGATE OF 71,464,290 SHARES OF
ITS COMMON STOCK OF RECORD.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's proxy statement for the Annual
Meeting of Stockholders to be held on May 20, 1998 described in Part III hereof
are incorporated by reference in this report.
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-K UNDER "ITEM 1. BUSINESS", "ITEM 3. LEGAL
PROCEEDINGS", "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", AND ELSEWHERE IN THIS FORM 10-K CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF BOSTON
CHICKEN, INC. (THE "COMPANY") AND EINSTEIN/NOAH BAGEL CORP. AND THEIR RESPECTIVE
AREA DEVELOPERS, FRANCHISEES AND LICENSEES, BOSTON MARKET(R) STORES, EINSTEIN
BROS.(R) BAGELS AND NOAH'S NEW YORK BAGELS STORES, AND PROGRESSIVE FOOD
CONCEPTS, INC. TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: STORE PERFORMANCE (INCLUDING
SALES AND PROFIT MARGINS); SUCCESS OF THE PROPOSED ELIMINATION OF THE AREA
DEVELOPER STRUCTURE; COMPETITION; SUCCESS OF OPERATING INITIATIVES; DEVELOPMENT
AND OPERATING COSTS; ADVERTISING AND PROMOTIONAL EFFORTS; BRAND AWARENESS;
ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT OFFERINGS (E.G., MENU ITEMS AND
PRICING STRUCTURES); CHANGES IN BUSINESS STRATEGY; CHANGES IN DEVELOPMENT PLANS;
AVAILABILITY AND COST OF CAPITAL; FOOD, LABOR AND EMPLOYEE BENEFIT COSTS;
CHANGES IN GOVERNMENT REGULATIONS; REGIONAL WEATHER CONDITIONS; AND OTHER
FACTORS REFERENCED IN THIS FORM 10-K AND IN THE COMPANY'S OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE CAUTIONARY STATEMENTS MADE PURSUANT TO
THE REFORM ACT HEREIN AND ELSEWHERE BY THE COMPANY SHOULD NOT BE CONSTRUED AS
EXHAUSTIVE OR AS ANY ADMISSION REGARDING THE ADEQUACY OF DISCLOSURES MADE BY THE
COMPANY PRIOR TO THE EFFECTIVE DATE OF THE REFORM ACT. THE COMPANY CANNOT
ALWAYS PREDICT WHAT FACTORS WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. IN ADDITION, READERS ARE
URGED TO CONSIDER STATEMENTS THAT INCLUDE THE TERMS "BELIEVES", "BELIEF",
"EXPECTS", "PLANS", "OBJECTIVES", "ANTICIPATES", "INTENDS" OR THE LIKE TO BE
UNCERTAIN AND FORWARD-LOOKING. ALL CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE
READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR.
ALL FORWARD-LOOKING STATEMENTS RELATING TO THE PROPOSED ELIMINATION OF THE
AREA DEVELOPER STRUCTURE AND THE TRANSITION OF THE BOSTON MARKET SYSTEM TO A
COMPANY-OWNED STRUCTURE DISCUSSED HEREIN ARE SUBJECT TO, AMONG OTHER THINGS,
REGULATORY APPROVAL AND APPROVAL OF THE HOLDERS OWNING AT LEAST TWO-THIRDS OF
THE INTERESTS OF EACH OF BC EQUITY FUNDING, L.L.C. AND MARKET PARTNERS, L.L.C.
THERE CAN BE NO ASSURANCE THAT THE TRANSITION TO A COMPANY-OWNED STRUCTURE WILL
BE ACHIEVED.
ITEM 1. BUSINESS
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE REFORM ACT.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ABOVE FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
GENERAL
The Company franchises and operates retail food service stores under the
Boston Market brand name that specialize in fresh, convenient meals featuring
home style entrees of chicken, turkey, ham and meat loaf, as well as sandwiches
and a variety of freshly prepared vegetables, salads and other side dishes. As
of December 28, 1997, the Boston Market system included 1,166 stores located in
38 states and the District of Columbia, 847 of which were owned by area
developers financed in part by the Company, 307 of which were owned by the
Company or its subsidiaries and 12 of which were owned by other franchisees.
See "--Area Developers." The Company also owns a 51.9% interest in
Einstein/Noah Bagel Corp. ("ENBC") (Nasdaq: ENBX), an operator of specialty
retail bagel stores.
Boston Market stores combine the fresh, flavorful and appealing meals
associated with traditional home cooking with the convenience associated with
fast food. Primary entrees include rotisserie roasted chicken and turkey breast,
double-glazed baked ham and double-sauced meat loaf. Side dishes designed to
complement these entrees include mashed potatoes made from scratch, corn,
stuffing, creamed spinach, butternut squash, garlic and dill potatoes, baked
beans, macaroni and cheese, cranberry walnut relish, cinnamon apples and a
variety of chilled salads. Boston Market
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stores also offer a variety of freshly carved chicken, turkey, ham and meat loaf
sandwiches under the Boston Carver(R) brand name; fresh-baked chicken pot pies;
chicken and other soups; beverages; desserts; and other items.
The Company was originally incorporated in Massachusetts in 1985 and had 33
stores operating under the Boston Chicken(R) name in December 1991 when certain
members of the Company's current management made their initial investment in the
Company. Management believed the initial Boston Chicken concept contained key
elements necessary to capitalize on the growing home meal replacement market.
The key elements were high quality, home style foods, provided in a convenient
and affordable manner with an emphasis on carry out for dinner. Subsequent to
management's initial investment, the Company focused its efforts primarily on
establishing a standardized store prototype, streamlining operating procedures
and creating a network of area developers through which significant new store
development could be rapidly achieved in major markets throughout the United
States.
By the end of the 1994 fiscal year, the Company and its area developers had
534 stores open and had achieved significant development momentum in 23 major
markets throughout the United States. With its area developer network in place
and development momentum established, the Company began to explore evolution of
the Boston Chicken concept in ways it believed would further capitalize on the
home meal replacement market. In early 1995, the Company introduced roasted
turkey, double-glazed baked ham and double-sauced meat loaf dinner entrees to
complement its signature rotisserie roasted chicken and to add variety to its
dinner-based offerings. Upon introduction of the new entrees, the Company and
its area developers changed the name of Boston Chicken stores to Boston Market
to better reflect the variety of complete meals offered and establish a broader
brand platform from which the Company could further capitalize on the home meal
replacement market.
With the new dinner-based entrees successfully deployed throughout the
Boston Market system, the Company began to examine ways to leverage these new
entrees into the lunch daypart. Historically, Boston Market stores did not have
a product offering designed specifically for lunch, and the Company believed
that such an offering could potentially enhance the return on store assets.
Accordingly, in early 1996, the Company began expansion of its lunch offerings
through the introduction of a new line of high quality sandwiches marketed under
the Boston Carver brand. In pursuing this line of business, the Company
recognized that it would be competing more directly with quick service
restaurants whose businesses are primarily based around the lunch daypart. Given
the intensely competitive nature of quick service restaurants and the level of
price promotions that characterize the lunch daypart, the Company believed it
needed to aggressively advertise and promote the new line to achieve market
presence and a successful launch of the Boston Carver brand. The launch of the
Boston Carver line and the high level of price-promoted offers associated
therewith were successful as measured by store sales and increased customer
transactions. Based upon the initial success of the price-promoted offers and
high levels of advertising targeted at the lunch daypart, the Company adopted
the same marketing strategy targeted at its core dinner business. Accordingly,
during 1996, the Company's marketing efforts began to include multiple messages
for lunch and dinner products running simultaneously and a heightened level of
price-promoted offers, all requiring increased media spending.
Based upon the success of the Boston Carver sandwich launch, in early 1997,
the Company introduced the Extreme Carver(TM) line of sandwiches, which
specifically targeted frequent fast food users with a more indulgent product
that included bacon, melted cheese and specialty sauces. Again, to achieve the
desired market presence, the Company introduced the Extreme Carver product line
with significant price-promotions and high levels of advertising. At the same
time, the Company continued its strategy of marketing its dinner products
through price-promoted offers with high levels of advertising spending.
During the first quarter of 1997, the Company was unable to determine the
continued effectiveness of its marketing strategy due to mixed sales results
experienced over the course of the quarter and a sharp increase during the
quarter in the level of price competition among the Company's principal lunch
competitors, quick service restaurants. However, during the second quarter of
1997, systemwide average store sales experienced a decline. The Company believes
the decline was attributable to increasingly ineffective price-promoted offers
despite high levels of media spending, the cannibalistic effect of those price-
promoted offers on its core individual meal business and the relative
ineffectiveness of the Extreme Carver product introduction. The Company now also
believes that its lunch oriented discounting strategy was inconsistent with the
Company's home meal replacement brand position.
In an attempt to address the decline in sales, beginning in the third
quarter of 1997, the Company modified its marketing strategy away from high
levels of price-promoted offers and media spending with multiple messages and a
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lunch focus to reduced levels of price-promoted offers and media spending with a
unified brand message and an emphasis on food quality and dinner products. The
Company also eliminated the Extreme Carver line of sandwiches and its Kids'
Market program, which was designed to compete with quick service restaurants by
including toys with meals for children. Later in 1997, the Company introduced
enhancements to its core menu consistent with its home meal replacement roots,
including an improved double-marinated chicken, an improved pot pie and new side
dishes. In addition, the Company renewed a program of rotating side dishes for
added variety.
The Company also believes that customer service and overall quality of
operations suffered as a result of the complexity and increased traffic
associated with the high levels of price-promoted offers. To address the
declining customer experience and improve operations at Boston Market stores,
the Company and its area developers slowed new store development in 1997 to
better enable the system to focus on operations and enhance the profitability of
the existing store base. In addition, the Company and its area developers
closed 74 underperforming stores. During the fourth quarter of 1997, as a
result of the Company's decision to transition to a company-owned structure and
the plan to potentially integrate elements of the expanded Boston Market store
currently in test in Charlotte, North Carolina, the Company and its area
developers determined to stop further store development for 1998, including the
Company's plans for international development. See "--The Expanded Boston
Market Store Test and Potential Application to the Boston Market System" and "--
Elimination of Area Developer Structure."
THE EXPANDED BOSTON MARKET STORE TEST AND POTENTIAL APPLICATION TO THE BOSTON
MARKET SYSTEM
Background. In January 1997, the Company assisted in the formation of
Progressive Food Concepts, Inc. ("PFCI"). PFCI's mission was to explore
additional opportunities in the home meal replacement market. The Company and
PFCI determined that Harry's Farmers Market, Inc. ("Harry's"), an operator
of specialty retail food stores in the Atlanta, Georgia area, had developed one
of the best domestic store models, the Harry's-in-a-Hurry retail format, for
providing a full range of meal solutions for the home meal replacement market.
In January 1997, PFCI entered into a series of agreements with Harry's pursuant
to which PFCI acquired certain rights to use proprietary information of Harry's
and obtained complete access to Harry's personnel, information and facilities
for the purpose of developing a business model based upon the know-how obtained
through these agreements.
In July 1997, in conjunction with PFCI, the Company converted an existing
Boston Market store in Charlotte, North Carolina to test the consumer appeal and
acceptance of an expanded product offering based on the know-how obtained by
PFCI through its investment in Harry's ("Charlotte test"). The expanded product
offering included desserts and bakery items including cakes, pies, cookies and
fresh breads; an extensive salad bar that featured, in addition to traditional
salad ingredients, a variety of premium fresh cold foods; significant
refrigerated retail space that held a number of pre-packaged products including
salads, sandwiches and desserts, fresh ready-to-heat and ready-to-cook meals
produced by Harry's Atlanta-based production facility, and a limited offering of
retail beverages and other retail foods. The converted store also continued to
feature the traditional ready-to-eat Boston Market product offerings. Consumer
response to the first converted store was positive, and the store experienced
significant increases in net sales after conversion to the expanded store
format. However, the ability to provide fresh, ready-to-heat meals, produced by
Harry's Atlanta-based production facility for the first store, on a nationwide
basis is dependent on the development of a nationwide supply chain that
currently does not exist and would take significant time to create. To permit
more immediate application of the expanded store elements of the Charlotte test
to the existing Boston Market store base, the Company determined to delay the
development of such supply chain and continue the development of the Charlotte
test without the fresh, ready-to-heat product offerings.
In November 1997, the Company converted a second Boston Market store in the
Charlotte, North Carolina area with a modified set of expanded offerings, all of
which could be replicated nationwide using the existing Boston Market supply
chain. The second store included a dedicated dessert and bakery case, pre-
packaged products and the full selection of traditional ready-to-eat Boston
Market products. In addition, the second store also included a grill used to
cook a variety of grilled entrees and sandwiches, and a fresh-tossed salad
station, which replaced the salad bar from the first store. The test was
conducted without the benefit of television advertising targeted at the expanded
offerings. Since conversion, the second store's net weekly per store average
("WPSA") revenue has averaged greater than 30% above net WPSA revenue for the
system. Net WPSA revenue represents the weekly per store average revenue
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after customer coupons and discounts and employee discounts, based upon the
actual number of days the store is open during the reporting period.
In early 1998, based upon these results, the remaining five stores in the
Charlotte, North Carolina area, as well as the initial store that was converted
in July 1997, were converted to a format substantially similar to the second
test store. In March 1998, the Company commenced television advertising in the
Charlotte area to promote the new offerings and assess the impact that
television advertising would have on sales and consumer acceptance.
The Company believes that the conversion of Boston Market stores to
incorporate elements of the Charlotte test presents a significant opportunity to
improve the return on the existing Boston Market store base. While early sales
results have been favorable, the converted stores have not yet experienced the
store-level cash flow the Company believes is necessary to justify a nationwide
rollout of the expanded format. The Company believes that store-level cash flow
has been affected by inefficiencies associated with the test, including, but not
limited to, continuous modification and refinement of the menu, which adversely
affects food costs and increases employee training, which, in turn, adversely
affects labor costs. Further, continuous modification of store layout has also
increased employee training costs and other operating costs. The Company is
currently (i) finalizing the menu, (ii) finalizing the layout of the expanded
store prototype, and (iii) completing operating standards for the expanded store
format. The Company believes that based upon progress to date, it will be
successful in achieving the store-level cash flow necessary to justify
additional conversions of Boston Market stores to the expanded store format. In
anticipation of achieving the requisite levels of store-level cash flow, the
Company is currently planning to convert during the second half of 1998
approximately 75-100 Boston Market stores located in four to seven markets to
the expanded store format. The cost to convert an existing Boston Market store
to the expanded store format is currently estimated to be in the range of
$60,000 - $80,000 per store. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 1.
Based upon the results of the additional converted stores, the Company will
make a decision regarding a nationwide rollout of the expanded Boston Market
store format. Such decision will be based primarily upon net WPSA levels, store-
level cash flow, the success of the Company's efforts to eliminate the area
developer structure and the cost of and ability to finance store conversions.
See "--Elimination of Area Developer Structure" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources." There can be no assurance that the Company will be successful in
refining the expanded store format so as to justify additional store conversions
or that the Company will have the financial resources to convert all or a
portion of the current store base to the expanded store format. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
The PFCI Transaction. Upon formation of PFCI, the Company provided PFCI
with a $17.0 million convertible secured loan. 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, and Harry's
purchased a 7.6% 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.
In January 1997, PFCI provided Harry's with two credit facilities (the
"Loans"): (i) a $12.0 million refinancing loan, all of which was outstanding as
of December 28, 1997 (the "Refinancing Loan"), and the proceeds of which were
used by Harry's to repay indebtedness and (ii) a $5.5 million development loan,
$1.5 million of which was outstanding as of December 28, 1997 (the "Development
Loan"). Upon the request of Harry's, PFCI is obligated, subject to certain
conditions, to advance an additional $2.0 million of the Development Loan on
each of May 3, 1998 and November 3, 1998 (or at any time after such dates and
prior to January 31, 2002). Proceeds of the Development Loan are to be used by
Harry's to fund (i) expenditures in connection with the development of a
business model for the improvement and expansion of Harry's business and
facilities, (ii) the refurbishment of existing Harry's Farmers Market
megastores and Harry's-in-a-Hurry stores, and (iii) the development of new
Harry's-in-a-Hurry stores. Subject to certain conditions, PFCI has the option,
after July 30, 1998 and until April 2002, to contribute to Harry's the principal
amount of the Loans in exchange for approximately 13% of the common voting
equity of Harry's on a fully diluted basis as of November 1997. Subject to
certain exceptions, PFCI is obligated not later than January 31, 2002 to
contribute the principal amount of the Refinancing Loan to Harry's in exchange
for approximately 9% of the common voting equity of Harry's on a fully diluted
basis as of November 1997.
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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 interest held by Harry's 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.
ELIMINATION OF AREA DEVELOPER STRUCTURE
Background. The Company has historically relied on its area developers to
develop, own and operate Boston Market Stores. See "--Area Developers." The
area developer structure allowed the Company and its area developers to build a
significant store base and establish national awareness of the Boston Market
brand in a short period of time. However, in October 1997, after a substantial
review of the current structure of the Boston Market system by the Company's
management, the Company's board of directors recommended that the Company
eliminate the area developer structure and change to a structure in which Boston
Market stores are owned by the Company. The board of directors further
recommended that becoming a company-owned system could be best achieved by the
Company first acquiring BC Equity Funding, L.L.C. ("BCEF") and Market Partners,
L.L.C. ("Market Partners"), entities that hold preferred equity interests in 11
of the Company's 14 area developers. The board of directors' recommendation to
eliminate the area developer structure and become a company-owned system was
based primarily upon its determination that a simplified legal and financial
structure would: (i) provide clearer paths of managerial control, which could
yield greater management effectiveness; (ii) facilitate the Company's ability to
form and deploy expansion capital; (iii) reduce annual taxes; and (iv)
unencumber the Company's ability to deliver products under the Boston Market
brand into alternative distribution channels. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 1.
. Provide clearer paths of managerial control. Elimination of the area
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developer structure is expected to provide clearer paths of managerial control,
which the Company believes should yield greater organizational effectiveness and
eliminate the complexities and inefficiencies associated with managing the
system through 14 separate area developer legal entities.
. Facilitate ability to form and deploy expansion capital. Elimination of
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the area developer structure, which will give the Company effective control of
the assets and operations now controlled by area developers, will put the
Company in a better position to obtain capital on acceptable terms for use by
the Boston Market system, including capital to fund the potential nationwide
rollout of the expanded Boston Market store format. See "--The Expanded Boston
Market Store Test and Potential Application to the Boston Market System."
Further, so long as the area developer structure remains in place, the Company
is limited by the terms of its credit facilities in the amount of loans it can
provide to its area developers to a multiple of area developer contributed
capital, which limits the Company's ability to deploy capital to its area
developers for any purpose. See "--Area Developers" and "--Consequences of Not
Eliminating the Area Developer Structure."
. Reduce Annual Taxes. The Company believes that eliminating the current
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structure and consolidating the entire Boston Market system's results of
operations will result in a more efficient tax structure. Any transaction or
series of transactions in which the Company acquires its area developers would
result in the Company recording a substantial amount of store-related fixed
assets and goodwill. Due primarily to significant non-cash expenses of
depreciation and the amortization of tax deductible goodwill, the Company would
expect to report a net loss for Federal income tax purposes for at least the
1998 fiscal year.
. Unencumber the Company's ability to deliver products under the Boston
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Market brand into alternative distribution channels. Owning 100% of the area
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developer assets would enable the Company to control certain special
distribution rights now owned by area developers, which could permit the Company
to leverage the Boston Market brand in grocery stores and other distribution
channels outside the existing Boston Market store base. Under the agreements
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governing the current area developer arrangements, the area developers generally
have a right of first refusal on the Company's ability to provide certain Boston
Market products in alternative distribution channels. The Company believes that
selling Boston Market branded products outside Boston Market stores could
provide significant additional revenue sources for the Company in the future.
The board of directors appointed a special committee of independent
directors ("Special Committee"), which determined that elimination of the area
developer structure and the move to a company-owned system was in the best
interests of the Company and its creditors and stockholders (collectively, the
"securityholders"). The Special Committee's determination was based upon its
business judgment that implementation of the Company's business plan, including
the potential rollout of the expanded Boston Market store format, was in the
best interests of the Company and its securityholders. The Special Committee
also determined that implementation of the Company's business plan could best be
accomplished by eliminating the area developer structure. In reaching that
conclusion, the Special Committee relied upon its analysis of the following
factors: (i) the liquidity constraints imposed on the Company by the current
legal structure; (ii) the need to obtain control of the Boston Market system to
protect the Company and its securityholders in the event the Company is
unsuccessful in implementing its business plan; and (iii) the financing and tax
benefits outlined by the board of directors.
Reasons for the Acquisition of BCEF and Market Partners. The Special
Committee determined that the acquisition of BCEF and Market Partners was the
necessary first step in achieving a comprehensive solution to the objective of
eliminating the area developer structure. Before making this determination, the
Special Committee considered various alternatives to the acquisition of BCEF and
Market Partners. In considering these alternatives, the Special Committee
focused on whether such alternatives were in the best interests of the Company
and its securityholders, the effect of each such alternative on each class of
the Company's securityholders, the potential of each such alternative to
maximize value for the Company's securityholders and the probability that an
alternative could be successfully accomplished. Specifically, the Special
Committee examined each alternative giving consideration to the following: (i)
the value of any consideration that may be given to the holders of BCEF and
Market Partners in light of the Company's financial condition, and the
particular value that may be given to officers and directors of the Company in
their capacity as investors in BCEF and Market Partners; (ii) the speed with
which the elimination of the area developer structure could be accomplished;
(iii) the disruption to the overall Boston Market system (e.g., relations with
suppliers, landlords and creditors) of each alternative and the impact of that
disruption on securityholder value; and (iv) the risks associated with each
alternative to the Company and its securityholders.
In considering the various alternatives, the Special Committee acknowledged
that the terms of the preferred equity investments made by BCEF and Market
Partners in the Company's area developers generally require an area developer to
redeem such equity investments (including accrued dividends and redemption
premiums) for cash upon the occurrence of certain events, including any
acquisition by the Company of a majority equity interest in the area developer
through conversion of the Company's convertible loan to the area developer or
otherwise. At December 28, 1997, the cash obligation of such area developers to
BCEF and Market Partners (including accrued and unpaid dividends and redemption
premiums) totaled approximately $177 million. Because the area developers would
be unable to fund such redemption without additional capital resources from the
Company, and because the Company would be unable to fund such additional capital
requirements due to, among other things, the Company's operational cash
requirements, the Special Committee determined that the conversion of the
Company's loans (and the resulting triggering of the redemption obligations) was
not a viable approach to achieving the objectives of becoming a company-owned
system.
Among the other alternatives considered by the Special Committee were the
following: (i) solicitation of consents from the holders of membership interests
in BCEF and Market Partners to waive the cash redemption feature of BCEF's and
Market Partners' investments in the area developers upon the Company's
conversion of the convertible loans or other acquisition of a controlling
interest in the area developers (which alternative could not be successfully
negotiated with the committee elected by the holders of BCEF and Market Partners
to negotiate on behalf of BCEF and Market Partners ("Pooled Preferred
Negotiating Committee"); (ii) the declaration of a non-monetary default (upon
its occurrence) under the convertible loan agreements with the area developers
and foreclosure on the equity pledged as collateral to secure the loans; and
(iii) the acquisition of BCEF and Market Partners in exchange for various forms
and amounts of consideration, including the forms and amounts of consideration
eventually negotiated with the Pooled Preferred Negotiating Committee. In
connection with the last alternative listed above, the Special Committee
considered the appropriate form and amount of consideration to be received by
officers and directors of the Company who had invested in BCEF and Market
Partners. The Special Committee also considered the potential liquidity and
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litigation risks associated with each alternative. After the Special Committee
and its financial and legal advisors examined the alternatives described above
and after extensive negotiation with the Pooled Preferred Negotiating Committee,
upon the recommendation of the Special Committee, in March 1998, the board of
directors authorized the Company to enter into the agreement negotiated by the
Special Committee with the Pooled Preferred Negotiating Committee to acquire
BCEF and Market Partners on the terms described below.
Terms of the Acquisition of BCEF and Market Partners. 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 of the Company 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 over time to 110% of the liquidation preference. The Company has agreed
to file with the Securities and 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.
Conversion of Area Developer Loans and Acquisition of Minority Interests.
If the acquisition of BCEF and Market Partners is consummated, the Company
anticipates that it will convert its loans to the 10 area developers that have
waived the moratorium on conversion and in which BCEF and Market Partners have
an interest. The remaining area developer in which BCEF and Market Partners
have an interest, BC Northwest, L.P., the Company's area developer for the
Pacific Northwest ("BC Northwest"), has not waived the loan conversion
moratorium. The Company is currently negotiating the waiver of the loan
conversion moratorium with BC Northwest.
In March 1998, the Company converted its loans to BC Great Lakes, L.L.C.,
the Company's area developer for the Great Lakes region ("BC Great Lakes"), into
an 85% equity interest in BC Great Lakes. Neither BCEF nor Market Partners has
a preferred equity investment in BC Great Lakes. At the time of the conversion,
BC Great Lakes owned 113 Boston Market stores in five states. The loan
conversion results in the Company and its subsidiaries owning a total of 416
Boston Market stores at March 30, 1998. With respect to the two remaining area
developers in which BCEF and Market Partners do not have preferred equity
investments, the Company is currently negotiating conversions of its loans to
these area developers, both of which loans are currently convertible. However,
each of these area developers has outstanding equity interests with certain
rights that the Company is seeking to eliminate or alter prior to the conversion
of its loans.
Upon obtaining a majority equity interest in any area developer, the
Company will effectively control the affairs and policies of such area
developer, including access to cash generated from operations. The minority
equity holders in such area developer will retain certain rights requiring their
consent to various transactions, including, among other things, entering into
extraordinary transactions, such as a merger, consolidation or the sale of all
or substantially all of the area developer's assets. In addition, so long as
such minority interests remain outstanding, the Company may be subject to claims
that transactions between the Company and such area developer, such as the
elimination or limitation of the area developer's special distribution rights,
involve conflicts of interests. The Company will seek to acquire the remaining
minority interests in such area developers, which will require the Company to
negotiate with the equity holders of each of its area developers. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
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As part of the proposed transaction to acquire BCEF and Market Partners,
the Company has agreed not to pay cash or issue equity senior to the Preferred
Stock for any interest in any of the area developers in which BCEF and/or Market
Partners have investments. There can be no assurance the Company will be
successful in acquiring the minority equity interests in any of its area
developers, that the Company will be successful in negotiating the waiver of the
loan conversion moratorium with BC Northwest or that the Company will be
successful in negotiating a loan conversion with the two remaining area
developers. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
Consequences of Not Eliminating the Area Developer Structure. The Company
believes that the elimination of the area developer structure is critical to the
future success of its business. If the area developer structure remains in
place, the Company is limited by the terms of its credit facilities in the
amount of loans it can provide to its area developers to a multiple of area
developer contributed capital. Without the contribution of additional third-
party capital to the Company's area developers, the Company will be unable to
provide its traditional form of debt financing to the area developers, and such
area developers may be unable to satisfy their obligations to the Company. In
such event, the Company would likely pursue its rights as a lender, which may
include foreclosure or conversion of its loan. In the event the Company elects
to foreclose its loan, the Company believes such foreclosure may result in one
or more of such area developers seeking protection under applicable bankruptcy
laws, which the Company believes would adversely affect its ability to access
its revolving credit facility. In the event the Company were to convert its
loans, BCEF and Market Partners could require the converted area developers to
redeem their investment for cash, which the area developers would be unable to
fund without additional capital resources from the Company. In such event, the
Company also would be unable to fund such additional capital requirements due
to, among other things, the Company's operational cash requirements. To the
extent the Company is not successful in its efforts to eliminate the area
developer structure, the Company believes that, in addition to not gaining the
benefits described above associated with a simplified legal and financial
structure, it could materially adversely affect its liquidity position, which in
turn, could adversely affect its ability to meet its financial obligations and
execute its business plan, including the potential rollout of the expanded store
format developed in the Charlotte test. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources. SEE ALSO "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE
1.
AREA DEVELOPERS
The Company has made convertible loans to its area developers to partially
finance store development and working capital needs. The Company also provides
to certain area developers various equipment and real estate leasing programs.
See Notes 9 and 10 of Notes to Consolidated Financial Statements. The Company's
loan agreements with its area developers provide for a revolving loan, with
advances permitted during a two or three-year draw period (or additional draw
period in the event of a loan amendment) in a predetermined maximum amount equal
to three to four times the amount of the area developer's contributed capital.
The loans are typically convertible into a majority equity interest in the area
developer after the expiration of a moratorium period, provided generally that
the area developer has completed not less than 80% of its area development
commitment, or in the event of certain defaults. The loans are convertible at a
conversion price set forth in the loan agreement, which price is at a premium
over the per unit price paid by investors in the area developer for their
equity investments. The Company may currently convert its loans to all but one
of its area developers. See "--Elimination of Area Developer Structure-
Conversion of Area Developer Loans and Acquisition of Minority Interests."
Each area developer also enters into an area development agreement that
provides for the opening of a specified number of stores within a defined
geographic territory in accordance with a schedule of dates. Area developers
are required to pay a development fee of $5,000 per store in addition to a
$35,000 store franchise fee required by the franchise agreement. Area
development agreements generally provide that the area developer has the
exclusive right to develop and open Boston Market stores within the specified
territory during the term of the development schedule. In connection with the
determination by the Company and its area developers to stop further store
development for 1998, the Company agreed to suspend the area developers'
development obligations under their respective area development agreements.
Each store operated by an area developer is subject to a franchise
agreement between the area developer and the Company. Franchise agreements
typically provide for payment of a $35,000 per store franchise fee (less any
applicable franchise deposit), a 5% royalty on net revenue (gross revenue minus
sales/service taxes, customer refunds and coupons, and the portion of employee
meals not charged to the employee), a 2% national advertising fund contribution,
a 4% local advertising fund contribution and a $10,000 minimum grand opening
expenditure. Under the majority of applicable franchise agreements, the local
advertising fund contribution may be increased by .25% per calendar year up
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to an aggregate 5% local advertising fund contribution. The Company has sought
and received from certain of its area developers commitments for higher
advertising expenditures.
The Company's franchise agreements generally provide that the Company may
from time to time specify computer hardware and software for use in the stores,
including the use of licensed software designated or created by or for the
Company and its franchisees. The Company charges a one-time $15,000 fee for its
licensed software for store systems, plus approximately $1,500 for certain
specified third-party software purchased through the Company. Current franchise
agreements also generally provide for a maintenance fee to the Company of $323
per four-week accounting period for modifications and enhancements made to the
licensed software and certain other maintenance and support services.
Upon acquisition of a majority equity interest in each area developer, the
area development and franchise agreements are expected to remain in place, and
the Company would consolidate the area developers' operations in its financial
statements. Consequently, the franchise and related fees earned by the Company
(including interest, royalties, real estate related fees, software fees and
other fees) from such area developer would be eliminated in consolidation. The
operating results of the area developer (primarily store revenue, less expenses)
would be included in the Company's financial results. Such results would be
adjusted for any remaining minority interest in such area developer not acquired
by the Company. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE
1.
MARKETING
The Boston Market system utilizes television, radio, newspapers, signage,
direct mail and in-store point-of-purchase displays to market its business.
Both Company and franchise stores contribute to a national advertising fund to
pay for the development of advertising material and to a local advertising fund
to pay for advertising in their respective markets. See "--Area Developers."
As part of the Company's strategic redirection, in the second half of 1997,
the Boston Market system reduced advertising spending, changed from multiple
message advertising to food-focused brand-oriented advertising, lowered the
level of discounting through a decreased reliance on price-promoted offers and
implemented selected price increases across the system. While the Company
believes that these changes, combined with its increased focus on operations,
will result in improved brand positioning and long-term sales growth, the
changes resulted in decreased sales during 1997 compared to the prior year.
While systemwide net WPSA revenue showed improvement during the fourth quarter
of 1997 versus the third quarter of 1997, systemwide net WPSA revenue during the
first quarter of 1998 has been below the Company's expectations, and there can
be no assurance that the change in marketing strategy will have the intended
favorable long term results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
SEE ALSO "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
COMPETITION
The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than the Company and with substantially longer operating
histories. The Company believes that it competes with national, regional, and
local take-out food service companies, quick service restaurants, casual full-
service dine-in restaurants, delicatessens, cafeteria-style buffets and prepared
food stores, as well as with supermarkets and convenience stores. The Company
believes that Boston Market stores compete favorably in the important factors of
taste, food quality, convenience, customer service and value. The Company
believes that variety is a primary factor influencing customer trial and
frequency. As a result, the Company has historically expanded its menu offerings
and continually evaluates the Boston Market menu in its attempt to maximize
customer trial and frequency. See "-The Expanded Boston Market Store Test and
Potential Application to the Boston Market System."
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product and local competitive factors.
Multi-unit food service chains such as the Company can also be substantially
adversely affected by publicity resulting from food quality, illness, injury or
other
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health concerns (including food-borne illness claims) or operating issues
stemming from one store or a limited number of stores, whether or not the
Company is liable, or that affect suppliers or vendors to some or all of the
Company's stores, regardless of whether such matters directly affect the
Company's operations. Claims relating to foreign objects in food, food-borne
illness, or operating issues are common in the food service industry and a
number of such claims may exist at any given time. The Company attempts to
manage or adapt to these factors, but it should be recognized that some or all
of these factors could cause the Company and some or all of its area developers
and franchisees to be adversely affected.
VENDORS
The Company maintains relationships with a variety of suppliers of
proteins, fresh vegetables, fruits, and other produce, spices and seasonings,
paper and plastic products, smallwares, furniture, equipment, fixtures and
other items and services. The Company has a national account relationship with
Marriott Distribution Services Corporation, which provides for deliveries of
food, paper, plastic and smallware products to participating stores several
times a week at a negotiated standardized mark-up above cost. The Company has
entered into supply arrangements with Tyson Foods, Inc. and its subsidiary under
which the Boston Market system purchases a significant portion of its chicken,
turkey and ham needs. The Boston Market system utilizes a number of other
suppliers of these products, and the Company believes that alternative sources
are available if current suppliers are unable to provide adequate quantities of
these or other products or services at acceptable prices. The Boston Market
system is subject to potential shortages or interruptions in supply caused by
transportation strikes, adverse weather, or other conditions which could
adversely affect the availability, quality and cost of ingredients. Certain
vendors have provided funds to the Boston Market system's national advertising
fund to be used for advertising, marketing and promotions.
TRADEMARKS AND SERVICE MARKS
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including Boston
Market(R), Boston Chicken(R), Boston Carver(R) and the current Boston Market
logo. In addition, the Company has trademark applications pending for a number
of additional trademarks and service marks, primarily designations of particular
food products and services with a "Boston" appellation.
In addition, the Company has registered or made application to register its
name (or, in certain cases, its name in connection with additional words or
graphics) in more than 70 foreign countries and is currently registering the
Boston Market(R) name or logo in most of such countries, although there can be
no assurance that any mark is registrable in every country in which registration
is sought. The Company considers its intellectual property rights to be
important to its business and actively defends and enforces them.
ENBC owns a number of Federal trademarks and service mark registrations and
has Federal trademark applications pending for additional trademarks and service
marks. ENBC has made application to register certain of its trademarks in
approximately 70 foreign countries.
REGULATION
Boston Market stores are required to comply with Federal, state and local
government regulations applicable to consumer food service businesses generally,
including those relating to the preparation and sale of food, minimum wage
requirements, overtime, working and safety conditions, and citizenship
requirements, as well as regulations relating to zoning, construction, health,
business licensing and employment. The Company believes that it and its area
developers and franchisees are in material compliance with these regulations.
Certain states and the Federal Trade Commission ("FTC") require a
franchisor to transmit specified disclosure statements to potential franchisees
before granting a franchise. Additionally, some states require the franchisor to
register its franchise with the state before it may offer a franchise. The
Company believes that its Uniform Franchise Offering Circular (together with any
applicable state versions or supplements) complies with both the FTC guidelines
and all applicable state laws regulating franchising in those states in which it
has offered franchises.
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ENBC
General. In March 1995, the Company made an investment in ENBC, which was
created through the combination of a number of leading regional bagel retailers.
ENBC owns and operates specialty retail stores that feature fresh-baked bagels,
proprietary cream cheeses, specialty coffee and teas, creative soups, salads and
bagel sandwiches and other related products, primarily under the Einstein Bros.
Bagels brand name and also under the Noah's New York Bagels brand name. The
Company owns approximately 17.3 million shares (representing approximately
51.9%) of the outstanding common stock of ENBC as of December 28, 1997. As of
such date, ENBC had 574 stores in operation.
ENBC's development strategy included the use of an area developer
organization. In December 1997, ENBC converted its loans to its area developers
into a majority equity interest in the area developers, and the area developers
merged into a single entity known as Einstein/Noah Bagel Partners, L.P. ("Bagel
Partners"). ENBC owns 78% of Bagel Partners.
Relationship with Boston Chicken. 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 has also provided to ENBC an unsecured subordinated, non-
convertible credit facility providing for borrowings of up to $50.0 million. As
of March 20, 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.
EMPLOYEES
As of March 20, 1997, the Company and ENBC had approximately 12,470
employees, including approximately 400 employed at their support centers in
Golden, Colorado, and approximately 12,070 employed as salaried or hourly
personnel at stores owned by the Company and ENBC. None of the Company's
employees are represented by any labor union or covered by any collective
bargaining contract. Certain operations of ENBC's conducted in northern
California at stores operated under the Noah's New York Bagels brand have from
time to time been the subject of union organizing activities. One store in the
San Francisco Bay area is currently in union contract negotiations and another
Bay area store has received a petition for a union election. Union affiliation
may have a negative impact upon employee relations and labor costs.
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EXECUTIVE OFFICERS
Set forth below are the names and ages of the executive officers of the
Company, the positions they hold with the Company, and summaries of their
business experience. Executive officers are elected by, and serve at the
discretion of, the board of directors. The executive officers of the Company
are as follows:
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 PFCI. 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.
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 of directors 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 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 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.
Larry D. Hohl, age 43, became President of the Boston Market Concept of the
Company in March 1998. From August 1995 to March 1998, Mr. Hohl served as
Chief Executive Officer of BCE West, L.P., the Company's area developer for the
Southwest region. From April 1994 to August 1995, Mr. Hohl served as Chief
Executive Officer of Antigua Sportswear, and from April 1992 to April 1994, he
served as Vice President of Nike, Inc. From November 1989 to April 1992, Mr.
Hohl was Division Vice President of Pizza Hut, Inc.
Gary A. Graves, age 38, became Executive Vice President-Finance of the
Company in March 1998. From October 1996 to March 1998, Mr. Graves served as
president of BC Great Lakes, L.L.C., the Company's area developer for the Great
Lakes region. From December 1994 to October 1996, Mr. Graves was Division Vice
President of Pizza Hut, Inc., and from August 1992 to November of 1994, he was
Vice President of Pizza Hut, Inc.
Joel M. Alam, age 40, has served as a Senior Vice President, General
Counsel and Secretary of the Company since May 1997. Mr. Alam served as a Senior
Vice President of ENBC from February 1997 until December 1997 and as Secretary
of ENBC from April 1995 until December 1997. From April 1995 to February 1997,
he was a Vice President of ENBC. From January 1994 to April 1995, he was Vice
President and Associate General Counsel of the Company and from May 1993 to
January 1994, he was Assistant General Counsel of the Company. Prior to that
time, Mr. Alam was an associate at the Chicago law firm of Bell, Boyd & Lloyd
from May 1986 to May 1993.
Mark A. Link, age 39, became Vice President-Financial Reporting of the
Company in March 1995 and became Principal Accounting Officer in December 1995.
Mr. Link joined the Company in December 1993 as Director of SEC and Financial
Reporting and served in that capacity until March 1995. From 1980 until December
1993, Mr. Link was employed by Deloitte & Touche, LLP where he was a Senior
Manager for five years prior to joining the Company. Mr. Link is a certified
public accountant.
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ITEM 2. PROPERTIES
The Company and ENBC lease their support centers (containing their
principal executive offices, Boston Market test kitchen and ENBC test bakery),
which are located in approximately 157,000 square feet of space in Golden,
Colorado in two separate buildings. As a result of recent reductions in its
support center staff, the Company has consolidated most of its staff into one of
the two buildings and is attempting to sublease the majority of the second
building to a new tenant. The Company and ENBC consider their offices to be in
good condition.
The Company and ENBC also own or lease land or buildings for their company
stores. In certain circumstances, the Company owns or leases land or buildings
which it then leases or subleases to its area developers. Stores leased are
typically leased under "triple net" leases that require payment of real estate
taxes, maintenance costs, and insurance premiums and, in a few cases,
percentage rent based on sales in excess of specified amounts. Generally,
leases have initial terms of five years with options to renew for three
additional five year periods.
ITEM 3. LEGAL PROCEEDINGS
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE REFORM ACT. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1 FOR ADDITIONAL FACTORS
RELATING TO SUCH STATEMENTS.
The Company and ENBC, like others in the food service business, are from
time to time the subject of complaints, threat letters, or litigation from
customers alleging illness, injury, or other food quality, health (including
food-borne illness claims), or operational concerns. Claims relating to foreign
objects in food, food-borne illness or operating issues are common in the food
service industry, and a number of such claims may exist at any given time.
Adverse publicity resulting from such allegations may materially adversely
affect the Company and ENBC and one or more of their brands, regardless of
whether such allegations are valid or whether the Company or ENBC are liable. In
addition, the Company and ENBC encounter complaints and allegations from current
or former employees or others from time to time, as well as other matters which
are common for large businesses such as the Company and ENBC. The Company does
not believe that any such matters of which it is aware are material to the
Company individually or in the aggregate, but matters may arise which could
adversely affect the Company or its business operations.
The Company, three of its executive officers who are also directors (the
"Individual Defendants"), certain investment banking firms which had
underwritten securities offerings by the Company (the "Underwriter Defendants")
and Arthur Andersen, LLP, the Company's independent public accountants ("Arthur
Andersen"), are defendants in a class action lawsuit filed in the United States
District Court for the District of Colorado (the "federal proceeding"). The
federal proceeding is comprised of separate actions that were consolidated into
one action for pre-trial purposes on August 8, 1997. The Company, the
Individual Defendants, the Underwriter Defendants and Arthur Andersen are
defendants in a separate class action lawsuit filed in Jefferson County District
Court in the State of Colorado (the "state proceeding"). The state proceeding
is comprised of two separate actions that were consolidated into one action on
November 13, 1997. Also on November 13, 1997, the judge in the state proceeding
agreed to stay the state proceeding until resolution of the federal proceeding.
The complaints in the federal proceeding and the state proceeding allege, among
other things, that the Company and the other defendants violated Sections 11,
12(2) and 15 of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 10(b) of the Securities Act of 1934, as amended (the "Exchange
Act"), and Rule 10b-5 promulgated thereunder, as well as certain similar
provisions of Colorado state securities statutes. The plaintiffs are seeking,
among other things, (i) to certify each of the complaints as a class action on
behalf of all persons who purchased securities of the Company during the
purported class period, (ii) an award of unspecified compensatory damages,
interests and costs to all members of the purported class and (iii) equitable
relief permitted by law, equity or federal or state statutes. On February 10,
1998, the Company filed a motion to dismiss the complaint in the federal
proceeding. The Company believes that the complaints are without merit and
intends to vigorously defend against the allegations made in such complaints.
ENBC, certain of its current and former executive officers and directors,
the underwriters in ENBC's initial public offering and Arthur Andersen, ENBC's
independent public accountants, are defendants in a class action lawsuit filed
in the United States District Court for the District of Colorado. The lawsuit
is comprised of separate actions that have been consolidated into one action for
pre-trial purposes. In addition, an action was filed in state court in
Jefferson
13
<PAGE>
County, Colorado, against ENBC and certain of the other defendants, although
such action has been stayed pending resolution of the federal case. The
complaints in such actions allege, among other things, that ENBC and the other
defendants violated Sections 11, 12(2) and 15 of the Securities Act and Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as certain similar
provisions of Colorado state law. In each case, the plaintiffs are seeking,
among other things, (i) to certify their complaint as a class action on behalf
of all persons who purchased common stock of ENBC during the purported class
period, (ii) an award of unspecified compensatory damages, interest and costs to
all members of the purported class, and (iii) equitable relief permitted by law,
equity or federal or state statutes. On February 10, 1998, ENBC filed a motion
to dismiss the complaint in the federal case. ENBC believes the complaints are
without merit and intends to vigorously defend against the allegations made in
the complaints.
In July 1997, GFI America, Inc., a former vendor of processed beef products
to the Company and its area developers, initiated an action against the Company
by filing a complaint in the District Court for Hennepin County, Minnesota. In
the complaint, the plaintiff asserted various causes of action including
misappropriation of trade secrets, breach of contract, breach of fiduciary duty,
fraud, promissory estoppel, equitable estoppel and violation of Minnesota trade
secrets law arising from the Company's decision to stop purchasing processed
beef products from plaintiff and commence purchasing such products from another
vendor. The plaintiff sought injunctive relief and unspecified damages,
reasonable attorneys' fees and costs, and such other relief available under
state law. The Company removed the matter to federal court, and in October
1997, the court denied the plaintiff's motion for injunctive relief. The
Company filed a motion to dismiss the complaint in September 1997. The
Company's motion to dismiss is pending, and discovery continues. The Company
believes the complaint is without merit and intends to vigorously defend against
the allegations made in the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 1997.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE FOLLOWING TABLE SETS FORTH THE HIGH AND LOW SALES PRICES OF THE COMMON
STOCK DURING EACH OF THE COMPANY'S FISCAL QUARTERS FOR THE LAST TWO YEARS AS
QUOTED ON THE NASDAQ NATIONAL MARKET AS REPORTED BY NASDAQ.
<TABLE>
<CAPTION>
High Low
--------- ---------
1997:
<S> <C> <C>
First Quarter (ended April 20, 1997)........... $ 38 - 1/4 $ 24 - 3/8
Second Quarter (ended July 13, 1997)........... 25 - 1/2 10 - 5/8
Third Quarter (ended October 5, 1997).......... 15 - 5/8 11 - 5/8
Fourth Quarter (ended December 28, 1997)....... 15 - 9/16 6
1996:
First Quarter (ended April 21, 1996)........... 37 - 5/8 27 - 3/8
Second Quarter (ended July 14, 1996)........... 37 27 - 1/4
Third Quarter (ended October 6, 1996).......... 36 - 3/8 24 - 1/8
Fourth Quarter (ended December 29, 1996)....... 41 - 1/2 31 - 3/8
</TABLE>
As of March 1, 1998, there were approximately 3,900 record holders of the
common stock.
The Company does not pay cash dividends on its common stock and the board of
directors intends to continue a policy of retaining earnings for use in the
Company's operations. The Company does not anticipate paying any cash dividends
on its common stock in the foreseeable future. In addition, the Company's
current senior credit facilities prohibit the payment of cash dividends on its
common stock.
During the fourth quarter of 1997, the Company issued warrants to purchase an
aggregate of 86,051 shares of the Company's common stock. The warrants have an
exercise price of $7.03 per share and are exercisable at any time through
December 2000. Such warrants were issued in lieu of cash fees otherwise payable
by the Company to certain lenders in connection with the amendment of the
Company's senior credit facilities in October 1997. During the fourth quarter
of 1997, the Company also amended the terms of an existing warrant to purchase
an aggregate of 69,600 shares of the Company's common stock to adjust the
exercise price from $37.75 per share to $10.56 per share. The warrant is
exercisable at anytime through December 2001. This warrant is held by one of
the Company's lenders and was amended in connection with the amendment of the
Company's senior credit facilities in October 1997. All of the foregoing
warrants were issued without registration under the Securities Act in reliance
on section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
under the Securities Act.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and store data
for the Company. This data should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included in Item 8
hereof and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 hereof.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED (1)
-------------------------------------------------------------------------------
DEC. 27, DEC. 25, DEC. 31, DEC. 29, DEC. 28,
1993 1994 1995 1996 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands except per share data and number of stores)
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue:
Company stores........................ $ 29,849 $ 40,916 $ 51,566 $ 83,950 $ 261,077
Royalties and franchise related fees.. 11,551 43,603 74,662 115,510 117,857
Interest income....................... 1,130 11,632 33,251 65,048 83,434
----------- --------- --------- ---------- ----------
Total revenue.................... 42,530 96,151 159,479 264,508 462,368
Costs and expenses:
Cost of products sold.................... 11,287 15,876 19,737 31,160 94,736
Salaries and benefits.................... 15,437 22,637 31,137 42,172 109,424
General and administrative............... 13,879 33,027 41,367 99,847(2) 292,534(3)
Provision for loan losses................ - - - - 128,000
Losses of Boston Chicken area
developers............................... - - - - 49,352(4)
----------- --------- --------- ---------- ----------
Total costs and expenses.......... 40,603 71,540 92,241 173,179 674,046
----------- --------- --------- ---------- ----------
Income (loss) from operations............ 1,927 24,611 67,238 91,329 (211,678)
Other income (expense)................... (280) (4,161) (12,865) 23,854(5) (36,414)
----------- --------- --------- ---------- ----------
Income (loss) before income taxes
and minority interest.............. 1,647 20,450 54,373 115,183 (248,092)
Minority interest in (earnings) loss of
subsidiaries....................... - - - (5,235) 15,785
Income taxes (benefit)................... - 4,277 20,814 42,990 (8,415)
----------- --------- --------- ---------- ----------
Net income (loss)........................ $ 1,647 $ 16,173 $ 33,559 $ 66,958 $ (223,892)
=========== ========= ========= ========== ==========
Basic earnings (loss) per share.......... $0.06 $0.43 $0.71 $1.07 $(3.32)
Diluted earnings (loss) per share........ $0.06 $0.38 $0.66 $0.99 $(3.32)
Weighted average number of common
and equivalent shares outstanding:
Basic............................. 25,810 37,830 47,312 62,857 67,339
Diluted........................... 33,113 42,879 51,072 71,143 67,339
STORE DATA (UNAUDITED):
Systemwide Boston Market
store revenue (6)..................... $146,992 $ 370,913 $ 754,488 $1,099,756 $1,197,016
Number of Boston Market stores........ 217 534 829 1,087 1,166
Systemwide Einstein/Noah Bagel
store revenue (7)..................... $ 26,410(8) $ 138,251 $ 302,995
Number of Einstein/Noah Bagel stores.. 60 315 574
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
DEC. 27, DEC. 25, DEC. 31, DEC. 29, DEC. 28,
1993 1994 1995 1996 1997
---------------- --------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)...... $ 2,788 $ 32,049 $ 313,483 $ 58,829 $ (8,157)
Notes receivable............... 45,716 202,500 456,034 800,519 609,175
Total assets................... 110,064 426,982 1,073,877 1,543,616 2,005,127
Long-term debt................. - 130,000 307,178 312,454 763,462
Stockholders' equity........... $ 94,906 $ 259,815 $ 716,831 $ 935,840 $ 802,675
</TABLE>
_____________________
(1) The Company's fiscal year is the 52/53-week period ending on the last
Sunday in December and normally consists of 13 four-week periods. The
fiscal year ended December 31, 1995 includes 53 weeks of operations.
(2) Includes special charges of approximately $38.0 million.
(3) Includes special charges of approximately $120.0 million.
(4) Represents losses of area developers in which BCEF and Market Partners have
preferred equity interests from the date the Company announced its intent
to acquire BCEF and Market Partners.
(5) Includes special gains of approximately $38.2 million.
(6) Includes net revenue for all stores in the Boston Market system.
(7) Includes net revenue for all stores in the ENBC system.
(8) Reflects period from March 24, 1995 (inception) through December 31, 1995.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE REFORM ACT. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1 FOR ADDITIONAL FACTORS
RELATING TO SUCH STATEMENTS.
GENERAL
The Company's results of operations and its financial condition, as of and
for the year ended December 28, 1997, have been materially affected by three
major developments relating to the Company's business: (i) the redirection of
the Company's business and marketing strategy to refocus on its core home meal
replacement brand equities; (ii) the Company's and its area developers' mutual
decision to slow new store development and close underperforming stores, and
subsequent determination to stop new store development for 1998; and (iii) the
determination of the Company to move to a structure in which Boston Market
stores are owned by the Company instead of being owned by the Company's area
developers. See "Business-General" and "Business-Elimination of Area Developer
Structure." In addition, during the fourth quarter of 1997, ENBC, the Company's
51.9% owned subsidiary, converted from a franchised system to a company-owned
system. See "Business-ENBC." The Company expects that its results of operations
for 1998 will be materially affected by such developments, which will
significantly affect the comparability of the Company's results of operations to
prior reporting periods.
As a result of these developments, the Company incurred a number of special
charges. The charges, which aggregated $127.4 million, included the cost of
closing stores and disposing of real estate, the discontinuation of computer
software, hardware and other store-related programs associated with its former
strategic direction, provisions for vendor commitments which were tied to rapid
new store development and higher sales volumes and establishing an allowance to
recover the advances made by the Company to fund deficits of the national
advertising fund. The Company also incurred a $128.0 million charge for
potential loan losses in 1997 after a determination that portions of its loans
to certain of its area developers may not be recoverable. See "--Results of
Operations-Fiscal Year 1997 Compared to Fiscal Year 1996-Consolidated Results of
Operations-Provision for Loan Losses."
The move to a company-owned system has significantly impacted the Company's
results of operations and financial position. Commencing from the date the
Company announced its intent to acquire BCEF and Market Partners, the Company
recognized, in a single line item on its consolidated statement of operations,
the net losses of the area developers in which BCEF and Market Partners have
preferred equity investments. Such losses, which aggregated $49.4 million,
include $42.0 million of special charges and non-cash charges taken by these
area developers which primarily relate to store closings. The Company continues
to charge such area developers royalties, franchise and related fees and
interest, but the Company no longer recognizes these payments as revenue. As a
result, the area developers' net losses recognized by the Company have been
correspondingly reduced by the amount of the royalties, franchise and related
fees and interest not recognized by the Company. Further, if the acquisition of
BCEF and Market Partners is approved by the holders thereof, the Company
anticipates that it will convert its loans to, and seek to acquire the remaining
minority equity interests in, its area developers. See "Business-Elimination of
Area Developer Structure-Conversion of Area Developer Loans and Acquisition of
Minority Interests." Upon obtaining a majority equity interest in each such area
developer, the Company would consolidate such area developer's results of
operations and financial position into its financial statements, resulting in
the revenue historically generated by the Company as lender, franchisor and
service provider being replaced with revenue and operating expenses from store
operations. Finally, any transaction or series of transactions in which the
Company acquires its area developers would result in the Company recording a
substantial amount of store-related fixed assets and goodwill. Due primarily to
significant depreciation charges associated with an increased Company store base
and significant goodwill amortization charges which would result from the
transactions, the Company would expect to report a net loss in 1998. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
While the timing of the acquisition of BCEF and Market Partners is uncertain,
the Company expects to complete the acquisition by the end of the second quarter
of 1998. The acquisition of BCEF and Market Partners and any
18
<PAGE>
subsequent acquisition of a majority equity interest in each area developer will
have a material impact on the Company's financial statements. The Boston Market
area developers have incurred net losses of $257.3 million in 1997 (excluding
$80.0 million in store closure charges) and $155.5 million in 1996 (excluding
$1.0 million in store closure charges). Such losses include royalties, franchise
and related fees and interest paid to the Company ($124.0 million in 1997 and
$113.9 million in 1996) and depreciation and amortization charges ($45.8 million
in both 1997 and 1996). The net loss amounts for each of the fiscal years
represent the aggregate net loss amounts for all area developers, the
operations of which were not consolidated into the Company's financial
statements as of the date the Company first reported such losses for such fiscal
year. While a 100% company-owned structure would eliminate royalties, franchise
and related fees and interest paid to the Company, there can be no assurance
that a company-owned system can achieve profitability. In addition, in the event
the Company is unsuccessful in eliminating the area developer structure, the
Company believes its liquidity position could be materially adversely affected.
See "--Liquidity and Capital Resources." SEE ALSO "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 1.
The Company believes that systemwide cash flow will be affected less by the
transition to a company-owned system than will the Company's consolidated
results of operations. The Company's current objective is to achieve Boston
Market systemwide cash flow for fiscal 1998 of between $75 million and $100
million. Systemwide cash flow consists of earnings before income taxes,
depreciation and amortization expenses and financing expenses for the Boston
Market system. Systemwide cash flow is dependent upon a number of factors,
including the number of Boston Market stores in operation systemwide, net weekly
per store average ("WPSA") revenue and cash flow of such stores and systemwide
overhead expenses. Net WPSA revenue represents the weekly per store average
revenue after customer coupons and discounts and employee discounts, based upon
the actual number of days the stores are open in the reporting period. The
Company's systemwide cash flow objective assumes net WPSA revenue levels of
between $19,000 and $20,000 for fiscal year 1998, with store cash flow margins
between 14% to 16% of net revenue. The Company's cash flow objective also
assumes that systemwide overhead for 1998 will be between $85 million and $95
million, excluding severance costs. There can be no assurance that the Boston
Market system will achieve the net WPSA revenue, cash flow margins or systemwide
overhead levels necessary to achieve its systemwide cash flow objective.
Systemwide cash flow should not be considered an alternative to operating or net
income as an indicator of the Company's operational performance, nor as an
alternative to cash flows from operating activities as a measure of liquidity,
in each case determined in accordance with generally accepted accounting
principles. See "--Liquidity and Capital Resources." SEE ALSO "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
The Company's future financial condition and results of operations are subject
to uncertainties relating to certain litigation against the Company. See Note 9
to Notes to Consolidated Financial Statements. Because such litigation is at a
preliminary stage, the Company is unable to make a meaningful estimate of any
loss that could result from an unfavorable outcome in any such litigation. The
Company believes that all such litigation is without merit and intends to
vigorously defend against the allegations contained therein. SEE ALSO "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
RESULTS OF OPERATIONS
Fiscal Year 1997 Compared to Fiscal Year 1996
The Boston Market System
Total systemwide Boston Market net revenue was $1.2 billion for fiscal 1997
compared to $1.1 billion for fiscal 1996. The increase in systemwide net
revenue was due to an increase in the number of Boston Market stores (an average
of 1,154 for 1997 compared to 930 for 1996) offset by lower systemwide net WPSA
revenue per Boston Market store ($19,871 for 1997 compared to $22,461 for 1996).
The Company believes the decline in systemwide net WPSA revenue was primarily
attributable to an ineffective marketing strategy utilized during the first half
of the year, followed by sharp reductions in coupons and discounts and media
spending during the second part of the year. The cost of promoted offers in the
Boston Market system, net of vendor allowances, expressed as a percentage of
systemwide gross revenue, was 6.9% for the first half of 1997 compared to 3.8%
for the second half of 1997. Media spending for the Boston Market system
declined from $81.3 million during the first half of 1997 to $43.7 million
during the second half of 1997.
19
<PAGE>
Results of Company Stores
The following table sets forth store performance data for the Boston Market
stores owned by the Company and its subsidiaries ("Company stores") for fiscal
1996 and 1997 (excluding three Denver test stores in 1996 and one Denver test
store in 1997) (in thousands of dollars, except numbers of stores and net WPSA
revenue). Such amounts exclude unallocated capital charges, income taxes and
non-store overhead costs, including accounting, administration and discretionary
advertising:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------------
December 29, 1996 December 28, 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Company stores
at year end...................... 104 306
Net WPSA revenue for the year..... $ 23,643 $ 20,181
Net sales......................... $ 73,512.7 100.0% $231,248.4 100.0%
Food and paper costs.............. 27,441.7 37.3% 84,666.3 36.6%
Salaries and benefits............. 18,470.6 25.1% 58,197.9 25.2%
Operating expenses................ 5,656.8 7.7% 22,250.3 9.6%
Occupancy and advertising costs... 8,080.8 11.0% 31,303.5 13.5%
---------- -------- ---------- --------
Store cash flow................... $ 13,862.8 18.9% $ 34,830.4 15.1%
========== ======== ========== ========
</TABLE>
The increase in net sales was due to a higher average number of stores
operating during 1997, partially offset by lower net revenue per store. The
average number of Company stores for 1997 was 231 compared to 64 for 1996. The
Company believes the factors contributing to the overall Boston Market system's
decrease in net WPSA revenue also contributed to the decline in Company store
net WPSA revenue. See "--The Boston Market System."
Store cash flow increased $21.0 million for 1997 compared to 1996 due to an
increase in the number of Company stores, however, store cash flow margins
decreased from 18.9% for 1996 to 15.1% for 1997. While Company stores were able
to manage their variable and semi-variable costs (food and paper costs and
salary and benefits) as net WPSA revenue declined, rent, utilities and other
relatively fixed store operating costs resulted in decreased store margins.
Consolidated Results of Operations
Revenue. Total revenue increased $197.9 million or 75% for 1997 compared to
1996. Revenue from Company stores increased $177.1 million or 211% for 1997
compared to 1996, with Company stores accounting for $156.5 million of the
increase and ENBC company stores accounting for the remaining $20.6 million of
the increase. Interest income increased $18.4 million or 28% for 1997 compared
to 1996 due to higher outstanding loan balances associated primarily with the
additional stores opened by Boston Market and ENBC area developers and
investment overhead incurred by such area developers. Royalties and franchise
related fees increased $2.3 million or 2% for 1997 compared to 1996. As a
result of the Company's intent to acquire BCEF and Market Partners, the Company,
beginning in October 1997, stopped recognizing royalties, franchise and related
fees and interest from 11 of its 14 area developers. Also, as a result of
certain area developers generating insufficient cash on a cumulative basis from
store operations, capital contributions and other sources (excluding borrowings
from the Company) to pay royalties, interest and franchise fees when due, the
Company has not recognized approximately $5.3 million of revenue during the
fourth quarter of 1997. Further, ENBC's conversion to a company-owned system
has resulted in revenue historically generated by ENBC as a lender, franchisor
and service provider being replaced with revenue and operating expenses from
ENBC store operations. Consequently, royalties, franchise related fees and
interest income will account for a smaller percentage of total revenue in 1998
and future years.
Cost of Products Sold. As a result of a higher average number of Company
stores operating during the year, cost of products sold increased $63.6 million
or 204% for 1997 compared to 1996. Cost of products sold, as a percentage of
net revenue, declined from 37.1% for 1996 to 36.3% for 1997 as a result of price
increases introduced in the third quarter of 1997, operational improvements in
food usage and purchasing efficiencies.
20
<PAGE>
Salaries and Benefits. Salaries and benefits increased $67.3 million or 160%
for 1997 compared to 1996, primarily as a result of the higher average number of
Company stores operating in 1997. The increase was also due to the inclusion of
ENBC employees for the entire reporting period in 1997 compared to only a
portion of the reporting period in 1996 and a special charge of $7.4 million
relating to workforce reductions to streamline the Boston Market support center
organization.
General and Administrative. Included in general and administrative expenses
for 1997 were special charges of $120.0 million primarily for asset write-downs
and provisions associated with the Company's strategic redirection and the
moratorium on new store development. Also included in general and administrative
expenses for 1997 were special charges of $15.5 million incurred by ENBC
primarily in connection with its transition to a company-owned system. Included
in general and administrative expenses for 1996 were special charges of $38.0
million for asset write-downs and a provision to purchase certain store
equipment from Boston Market area developers. Absent these items, general and
administrative expenses increased $95.2 million or 154% for 1997 compared to
1996. The increases in general and administrative expenses, exclusive of the
special charges, included $61.5 million associated with operating a larger
Company store base and $23.0 million of greater depreciation and amortization
expense resulting primarily from the acquisition of Company stores and ENBC's
conversion to a company-owned system. In addition, the increase was due to the
inclusion of ENBC's general and administrative expenses for the entire reporting
period in 1997 compared to only a portion of the reporting period in 1996.
Provision for Loan Losses. The Company established a $128.0 million
provision for potential loan losses in 1997 after a determination that portions
of its loans to certain of its area developers may not be recoverable. The
provision for potential loan losses was based upon a number of factors that
management deemed relevant, including the use of loan proceeds, the form and
amount of consideration proposed in the acquisition of BCEF and Market Partners,
and evaluations regarding the cost and availability of capital and the value of
the collateral securing the loans. There can be no assurance that the Company's
loan recoverability analysis will not result in the Company establishing
additional provisions for potential loan losses in subsequent quarters. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
Losses of Boston Chicken, Inc.'s Area Developers. Since October 1997, the
Company has recognized, in a single line item on its statement of operations,
the net losses of the area developers in which BCEF and Market Partners have
preferred equity interests. Such losses, which aggregated $49.4 million, include
$42.0 million of special charges and non-cash charges taken by these area
developers, which primarily relate to store closures. Such amount represents the
net losses (reduced by the amount of royalties, franchise and related fees and
interest not recognized by the Company) of the area developers commencing from
the date the Company announced its intent to acquire BCEF and Market Partners in
October 1997. The Company will continue to recognize the area developer net
losses in a single line item on its statement of operations until it has
acquired a majority equity interest in such area developers through conversion
of its convertible loans to such area developers or other acquisition by the
Company of such area developers. Upon acquisition of a majority equity interest
in an area developer, the Company will then consolidate such area developer's
results of operations in its financial statements.
Other Income (Expense). The Company incurred other expenses of $36.4 million
in 1997 compared to other income of $23.9 million in 1996. Interest expense,
net increased from $14.4 million in 1996 to $38.2 million in 1997 primarily as a
result of the Company's issuance in 1997 of $287.5 million of convertible
subordinated debentures and ENBC's issuance of $125.0 million of convertible
subordinated debentures and lower interest income earned in 1997 compared to
1996. Offsetting interest expense were gains of $38.2 million in 1996 and $0.2
million in 1997, as a result of ENBC issuing shares of its common stock to
third parties at prices per share greater than the Company's carrying value.
See Note 13 of Notes to Consolidated Financial Statements.
Income Taxes. Based upon the Company's pretax loss of $248.1 million, the
Company was entitled to a tax benefit of $94.9 million. However, primarily as a
result of the uncertainty of having sufficient future taxable income to utilize
the losses generated in the current year, the income tax benefit for 1997 was
limited to $8.4 million.
Minority Interest. The combined minority interest in losses of majority-owned
subsidiaries of the Company was $15.8 million in 1997 as a result of the
allocation of losses incurred by the Company's majority-owned subsidiaries to
the minority investors in such subsidiaries.
21
<PAGE>
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenue. Total revenue increased $105.0 million or 66% for 1996 compared to
1995. Royalties and franchise related fees increased $40.8 million or 55%,
primarily attributable to higher royalties resulting from an increase in revenue
from Boston Market franchised stores and the inclusion of ENBC royalties from
the date of conversion of the Company's loan to ENBC into shares of ENBC common
stock. Total Boston Market systemwide store revenue increased due primarily to
an increase in the number of Boston Market stores open and higher average
revenue per store. ENBC's royalties and franchise related fees accounted for
37% of the increase in royalty and franchise related fees for 1996. Interest
income increased $31.8 million or 96% compared to 1995 due to higher outstanding
loan balances associated primarily with the increases in stores opened by Boston
Market and ENBC area developers. ENBC's interest income from area developer
financing accounted for 16% of the increase in interest income.
Revenue from Company stores is significantly affected by the average number of
such stores operating in the periods being compared. The average number of
Company stores for 1996 was 64 compared to 37 for 1995. This change in average
number of stores is attributable to the timing of the sale of stores to area
developers in 1995 and the acquisition of stores from area developers in 1996.
Revenue from Company stores increased $32.4 million or 63% for 1996 compared to
1995. The increase for the fiscal year was due to a combination of a higher
average number of Company stores operating during fiscal 1996 and the inclusion
of ENBC's company stores from the date of conversion of the ENBC loan. Revenue
from ENBC company stores accounted for 24% of the increase in store revenue for
the fiscal year.
Cost of Products Sold. As a result of a higher average number of Company
stores operating during the year, cost of products sold increased $11.4 million
or 58% for 1996 compared to 1995. ENBC's company stores accounted for 24% of
the increase in cost of products sold for the fiscal year. Cost of products
sold, as a percentage of Company store revenue, decreased from 38.3% in 1995 to
37.1% in 1996. The decrease in the percentage was attributable to the inclusion
of ENBC's company stores (from the date of conversion of the ENBC loan) which
have a lower cost of sales than Boston Market stores and improved management of
waste and operational variability at Boston Market stores.
Salaries and Benefits. Salaries and benefits increased $11.0 million or 35%
for 1996 compared to 1995, primarily as a result of the higher average number of
Company stores operating in 1996. The increase was also due to the inclusion of
ENBC employees from the date of conversion of the Company's loan to ENBC and an
increased number of employees at the Company's support center necessary to
support systemwide expansion. ENBC accounted for 39% of the increase in
salaries and benefits for the year.
General and Administrative. Included in general and administrative expenses
for 1996 were special charges of approximately $38.0 million for asset write-
downs and a provision to purchase certain store equipment from Boston Market
area developers. Absent these items, general and administrative expenses
increased $20.5 million or 50% for 1996. The increase for the year was
primarily attributable to greater depreciation and amortization expense, an
increase in the general and administrative expenses at the support center
necessary to support systemwide expansion, and inclusion of ENBC's general and
administrative expenses from the date of conversion of the Company's loan to
ENBC. Excluding the non-recurring charges, ENBC accounted for 38% of the
increase in general and administrative expenses for the year. The increase in
depreciation and amortization expense was primarily attributable to a higher
fixed asset base reflecting the Company's and ENBC's investment in support
center infrastructure as well as the goodwill associated with the acquisition of
the interest in Mid-Atlantic Restaurant Systems L.P. and the conversion of the
ENBC loan.
Other Income (Expense). Included in other income (expense) for the year was a
$38.2 million gain recognized as a result of ENBC issuing shares of its common
stock to third parties at prices per share greater than the Company's carrying
value. See Note 13 of Notes to Consolidated Financial Statements. Absent this
gain, the Company had a net expense of $14.3 million compared to a net expense
of $12.9 million in 1995. This increase was due to additional interest expense
incurred in 1996 resulting from the Company's Liquid Yield Option Notes due June
1, 2015 ("LYONs") being outstanding during all of 1996 versus only a portion of
the year in 1995.
Income Taxes. The provision for income taxes for 1996 reflects the Company's
expected effective tax rate.
Minority Interest. The minority interest in the earnings of subsidiary of
$5.2 million for 1996 represents the minority ownership interest in the earnings
of ENBC.
22
<PAGE>
Fiscal Year 1995 Compared to Fiscal Year 1994
Revenue. Total revenue increased $63.3 million or 66% for 1995 compared to
1994. Royalty and franchise related fees increased $31.1 million or 71%
primarily due to an increase in royalties attributable to the larger base of
franchise stores operating systemwide, from 493 stores at December 25, 1994 to
826 stores at December 31, 1995 and an increase in lease and real estate
services income. Interest income increased as a result of increased loans made
to certain area developers.
Revenue from Company stores increased $10.7 million or 26% for 1995 due to a
combination of a higher average number of Company stores open and higher average
store revenue during 1995. The Company had three Company stores at December 31,
1995, compared to 41 at December 25, 1994. During 1995, the Company sold 91
Company stores that it had opened to seed development in start-up markets prior
to executing area development agreements for such markets. The Company's
seeding program concluded in 1995 as a result of the completion of its
nationwide area developer network.
Cost of Products Sold. Cost of products sold increased $3.9 million or 24%
for 1995 compared to 1994 primarily due to an increase in the number of Company
stores open and higher average store revenue during the year.
Salaries and Benefits. Salaries and benefits increased $8.5 million or 38% in
1995 compared to 1994. The increase resulted from an increase in the number of
employees at the Company's support center necessary to support systemwide
expansion and an increase in the number of employees at Company stores due to a
higher average number of Company stores open during the year.
General and Administrative. General and administrative expenses increased
$13.4 million or 48% for 1995 compared to 1994. The increase is attributable to
the continued development of the Company's support center infrastructure
necessary to support systemwide expansion and higher general and administrative
expenses at Company stores resulting from a higher average number of Company
stores open during the year.
Other Expense. The Company incurred other expense of $12.9 million in 1995
compared to other expense of $4.2 million in 1994. This increase reflects
higher net interest expense, primarily attributable to the Company's 4 1/2%
convertible subordinated debentures, which were outstanding during all of 1995,
interest expense on the Company's LYONs commencing in June 1995, and short-term
borrowings under its credit facility, partially offset by higher interest
income.
Income Taxes. The provision for income taxes for 1995 reflects the Company's
expected effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Historic Sources and Uses of Cash
The Company's primary sources of capital have been from issuance of equity
and debt securities and internally generated cash from operations. In 1997, the
Company issued $287.5 million in aggregate principal amount of its 7 3/4%
convertible subordinated debentures due 2004, and ENBC issued $125.0 million in
aggregate principal amount of its 7 1/4% convertible subordinated debentures due
2004. In 1996, the Company generated approximately $100.3 million from the
issuance of common stock, and ENBC raised net proceeds of $174.6 million from
the sale of its common stock, including purchases by the Company of $45.9
million of shares of ENBC's common stock. During 1995, the Company completed
the sale of LYONs, for which the Company received gross proceeds of
approximately $172.5 million and sold shares of its common stock for net
proceeds of approximately $342.0 million. Cash provided from operations
generated $58.2 million, $144.9 million and $55.5 million in 1997, 1996 and
1995, respectively.
The Company's primary use of capital has been to fund loan obligations to
its financed area developers. As of December 28, 1997, the Company had secured
loan commitments to its Boston Market area developers aggregating $842.1
million, of which $800.0 million had been advanced. As of December 28, 1997,
ENBC had converted all of its loans to its area developers. Net loan advances to
both Boston Market and ENBC area developers were $478.8 million in 1997
(consisting of $1,284.6 million of loan advances, net of $805.8 million of loan
repayments), $378.3 million in 1996
23
<PAGE>
(consisting of $1,198.8 million of loan advances, net of $820.5 million of loan
repayments), and $210.2 million in 1995 (consisting of $549.2 million of loan
advances, net of $339.0 million of loan repayments). The annual increases in
loan advances were attributable to new store development and the funding of
development overhead incurred by the Company's and ENBC's area developers and
consolidation among area developers.
During 1997, the Company added 118 Boston Market stores to its Company
store base by converting its loan to BC New York, L.L.C. ("BCNY") into a 73%
equity interest in BCNY. As of the date of the conversion, total loan advances
to BCNY were $80.0 million. Also during 1997, the Company added 53 Boston
Market stores to its Company store base by converting its loan to Mayfair
Partners, L.P. ("Mayfair") into a 73% equity interest in Mayfair. As of the date
of the conversion, total loan advances to Mayfair were $56.0 million. Also
during the year, the Company issued approximately 0.5 million shares of its
common stock to acquire the remaining minority interest in Mid-Atlantic
Restaurant Systems L.P. and a portion of the minority interest in BCNY. During
1997, the Company issued approximately 3.8 million shares of its common stock to
acquire additional Boston Market stores, real estate and other assets from
various area developers and convertible debt securities from one of its area
developers under its loan agreement with such area developer. The Company
believes that as of December 28, 1997, substantially all of the shares of the
common stock issued in the above transactions were sold by the area developers,
with the area developers using a majority of the proceeds of the sales to pay
down their outstanding indebtedness to the Company.
The Company's other uses of capital have included development of its
corporate infrastructure, acquiring real estate and developing Company stores
and ENBC company stores, which expenditures aggregated $44.7 million, $99.8
million and $112.4 million in 1997, 1996 and 1995, respectively. These capital
expenditures have been partially offset with cash proceeds primarily from
selling Company stores and ENBC company stores and financing land, building and
equipment, which proceeds aggregated $12.1 million, $75.5 million and $72.5
million in 1997, 1996 and 1995, respectively.
Expected Sources and Uses of Cash
For 1998, the Company expects that its primary sources of cash will be from
store operations and borrowings under its revolving credit facility. In 1997,
the Company's senior lenders amended the Company's senior secured credit
facilities to, among other things, modify the financial covenants, collateral
and availability under the facilities. The revised financial covenants use
systemwide performance measures including average weekly net revenue (average
weekly gross revenue net of customer coupons and discounts) ("average weekly net
revenue"), systemwide store cash flow, systemwide overhead and systemwide cash
flow. In connection with the amendment to its senior credit facilities, the
Company was required to (i) pledge to the lenders additional collateral, (ii)
amend its secured loan agreements with a majority of its area developers to
terminate the moratorium on the Company's ability to convert such loans into a
majority equity interest in the area developers and (iii) limit to $10.0 million
the Company's use of cash consideration in any acquisition of BCEF and Market
Partners. Subject to compliance with the revised financial covenants, the
amended revolving credit facility provides for an $85.0 million maximum
commitment, $10.0 million of which was outstanding at March 20, 1998. The $10.0
million was drawn to fund an escrow established in connection with the
acquisition of BCEF and Market Partners.
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 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 of the Company and $10.0 million in
cash. 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 transaction is subject to approval of holders
owning at least two-thirds of the interests of each of BCEF and Market Partners,
regulatory approvals and final documentation. The Company expects to incur
costs related to the transaction of between $8 million and $10 million. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
24
<PAGE>
As a result of the Company's decision to transition to a company-owned
structure and the plan to potentially integrate elements of the Charlotte test
into existing Boston Market stores, the Company and its area developers
determined to stop new store development. Consequently, the Company's primary
use of capital in 1998 by the Boston Market system will be to satisfy its
current liabilities, maintain existing stores, refine prototypes of the expanded
Boston Market store, retrofit portions of the existing store base to
incorporate elements of the expanded Boston Market store format and continue
investments in the corporate infrastructure. However, to the extent the Company
is unsuccessful in eliminating its area developer structure, the provisions of
the Company's credit facilities that limit the amount of loans the Company can
provide to its area developers may result in the Company being unable to provide
its traditional form of debt financing to its area developers. As a result,
such area developers may be unable to satisfy their obligations to the Company.
If the Company attempts to foreclose its loans to such area developers, the
Company believes that such foreclosures may result in one or more of such area
developers seeking protection under applicable bankruptcy laws, which the
Company believes would adversely affect its ability to access its revolving
credit facility. Thus, to the extent the Company is not successful in its
efforts to eliminate its area developer structure, the Company believes its
liquidity position could be materially adversely affected, which in turn, could
adversely affect the Company's ability to meet its financial obligations and
execute its business plan. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 1.
The Company's current objective is to achieve average systemwide net WPSA
revenue levels of between $19,000 and $20,000 for fiscal year 1998. Based on
such levels, the Company believes that it will have sufficient liquidity through
1998 from cash from operations and borrowings under the revolving credit
facility to meet its financial obligations and execute its business plan,
including the contemplated conversion of 75-100 Boston Market stores to the
expanded Boston Market store format. SEE "SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS" ON PAGE 1.
The facilities agreement governing the Company's revolving credit facility and
its other senior credit facilities require average weekly net revenue of at
least $17,500 for the first quarter of fiscal 1998, $18,000 for the second
quarter of fiscal 1998, $18,500 for the third quarter of fiscal 1998 and $19,000
for the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999.
Thereafter, average weekly net revenue is required to be at least $20,000.
Systemwide average weekly net revenue for the first 12 weeks of the first
quarter of fiscal 1998 has been below the Company's expectations and below the
level required for the entire quarter by the covenant in the facilities
agreement. The Company believes net average weekly revenue levels were below
expectations for such period primarily because of the limited success of new
casseroles and the resulting diversion of focus from the Company's core products
and adverse regional weather conditions. While the Company believes, based upon
its experience with the historical pattern of the Boston Market system's first
quarter's sales and the marketing programs in place during the remainder of the
quarter, that the Boston Market system can achieve sufficient improvement in
average weekly net revenue during the remainder of the quarter to comply with
the financial covenant, there can be no assurance that average weekly net
revenue will improve or that the Company will comply with the financial
covenant. If the Company is in violation of the facilities agreement, the
Company will be unable to draw on its revolving credit facility. To the extent
the Company does not have borrowing availability under the revolving credit
facility, the Company will be required to obtain additional sources of capital,
obtain an amendment to its revolving credit facility or otherwise restructure
its existing indebtedness. If the Company is unable to obtain additional
capital, obtain an amendment to its revolving credit facility or otherwise
restructure its outstanding indebtedness, the Company may not be able to meet
its obligations. In addition, if the Company is in violation of the facilities
agreement, upon action of the required number of lenders, the outstanding
principal balances under the Company's revolving credit facility and other
senior credit facilities, which in the aggregate totaled approximately $241.8
million as of March 20, 1998 may be accelerated. Any such acceleration would
also permit holders of other senior and subordinated debt of the Company to
exercise their remedies, which include acceleration of their debt which in the
aggregate totaled approximately $621.4 million as of March 20, 1998. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 1.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time sensitive software may recognize a date using
the "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations. The
Company is currently assessing the impact to its operations of addressing the
Year 2000 issues. Based upon its preliminary assessment, the Company believes
that its internal systems and those supplied to it by
25
<PAGE>
third parties are or will be Year 2000 compliant by the year 2000 without any
material additional expense. Year 2000 considerations may, however, impact
vendors or financial institutions with which the Company has relationships,
indirectly affecting the Company. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 1.
SEASONALITY
Historically, the Company has experienced lower average store revenue in the
months of January and February as a result of inclement weather.
IMPACT OF INFLATION
The Company and ENBC believe that inflation has not had a material impact on
its operations to date. Substantial increases in labor, employee benefits, food
and other operating expenses could adversely affect the operations of Boston
Market, Einstein Bros. Bagels and Noah's New York Bagel stores.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
The following table shows quarterly financial results for fiscal 1996 and 1997.
The first quarter consists of four four-week periods and the second, third and
fourth quarters consist of three four-week periods.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
- -----
Revenue......................... $116,764 $116,596 $110,826 $ 118,182
Income (Loss) from Operations... 46,021 39,846 31,559 (329,104)
Net Income (Loss)............... 21,448 17,238 10,964 (273,542)
Basic Earnings (Loss) per
Share........................ $ 0.33 $ 0.26 $ 0.16 $ (3.83)
Diluted Earnings (Loss) per
Share........................ $ 0.31 $ 0.25 $ 0.16 $ (3.83)
1996:
- -----
Revenue......................... $47,347 $64,561 $74,310 $78,290
Income from Operations.......... 28,547 29,860 19,513 13,409
Net Income...................... 15,649 15,916 17,300 18,093
Basic Earnings per Share...... $ 0.26 $ 0.25 $ 0.27 $ 0.28
Diluted Earnings per Share...... $ 0.24 $ 0.23 $ 0.25 $ 0.26
</TABLE>
27
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................... 29
Consolidated Financial Statements:
Consolidated Balance Sheets at December 29, 1996 and December 28, 1997.... 30
Consolidated Statements of Operations for the fiscal years ended
December 31, 1995, December 29, 1996, and December 28, 1997.............. 31
Consolidated Statements of Stockholders' Equity for the fiscal years
ended December 31, 1995, December 29, 1996, and December 28, 1997........ 32
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1995, December 29, 1996, and December 28, 1997.............. 33
Notes to Consolidated Financial Statements................................ 34
Report of Independent Public Accountants on Schedule........................ 58
Supplemental Schedule....................................................... 59
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Chicken, Inc.:
We have audited the accompanying consolidated balance sheets of Boston
Chicken, Inc. (a Delaware corporation) and subsidiaries as of December 29, 1996
and December 28, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended December 31,
1995, December 29, 1996 and December 28, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boston Chicken, Inc. and
subsidiaries as of December 29, 1996 and December 28, 1997, and the results of
their operations and their cash flows for the fiscal years ended December 31,
1995, December 29, 1996 and December 28, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 18, 1998
(except Notes 6, 10 and
15 as to which the date
is March 30, 1998)
29
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------------- -------------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents................................. $ 100,800 $ 90,559
Accounts receivable, net.................................. 22,438 13,894
Due from affiliates, net.................................. 10,246 -
Inventories............................................... 2,585 16,132
Prepaid expenses and other current assets................. 1,465 1,436
Deferred income taxes..................................... 8,928 2,353
------------------- -------------------
Total current assets.................................. 146,462 124,374
Property and Equipment, net.................................... 334,748 530,582
Notes Receivable, net-Boston Chicken, Inc...................... 654,432 609,175
Notes Receivable-Einstein/Noah Bagel Corp...................... 146,087 -
Deferred Financing Costs, net.................................. 13,361 24,570
Goodwill, net.................................................. 190,439 639,364
Other Assets, net.............................................. 58,087 77,062
------------------- -------------------
Total assets......................................... $1,543,616 $2,005,127
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable.......................................... $ 40,430 $ 33,205
Accrued expenses.......................................... 33,817 85,207
Other current liabilities................................. 2,730 14,119
Deferred franchise revenue................................ 10,656 -
------------------- -------------------
Total current liabilities............................ 87,633 132,531
Deferred Franchise Revenue..................................... 7,740 5,723
Convertible Subordinated Debt-Boston Chicken, Inc.............. 129,841 417,020
Convertible Subordinated Debt-Einstein/Noah Bagel Corp......... - 125,000
Liquid Yield Option Notes...................................... 182,613 197,442
Senior Term Loan-Einstein/Noah Bagel Corp...................... - 24,000
Deferred Income Taxes.......................................... 40,216 2,353
Other Noncurrent Liabilities................................... 6,292 44,753
Minority Interests............................................. 153,441 253,630
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock----$.01 par value; authorized 20,000,000
shares; no shares issued and outstanding................. - -
Common Stock----$.01 par value; authorized 480,000,000
shares; issued and outstanding: 64,245,868 shares in 1996
and 71,400,179 in 1997................................. 642 714
Additional paid-in capital................................. 827,611 918,266
Retained earnings (deficit)................................ 107,587 (116,305)
------------------- -------------------
935,840 802,675
------------------- -------------------
Total liabilities and stockholders' equity........... $1,543,616 $2,005,127
=================== ===================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
30
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
-------------------- -------------------- ----------------------
(53 WEEKS)
<S> <C> <C> <C>
Revenue:
Company stores............................. $ 51,566 $ 83,950 $ 261,077
Royalties and franchise related fees....... 74,662 115,510 117,857
Interest income............................ 33,251 65,048 83,434
-------------------- -------------------- ----------------------
Total revenue........................... 159,479 264,508 462,368
Costs and Expenses:
Cost of products sold...................... 19,737 31,160 94,736
Salaries and benefits...................... 31,137 42,172 109,424
General and administrative................. 41,367 99,847 292,534
Provision for loan losses.................. - - 128,000
Losses of Boston Chicken Inc.'s area
developers.............................. - - 49,352
-------------------- -------------------- ----------------------
Total costs and expenses................ 92,241 173,179 674,046
-------------------- -------------------- ----------------------
Income (Loss) from Operations................ 67,238 91,329 (211,678)
Other Income (Expense):
Interest expense, net...................... (13,179) (14,446) (38,209)
Gain on issuances of subsidiary's
stock.................................... - 38,163 192
Other income, net.......................... 314 137 1,603
-------------------- -------------------- ----------------------
Total other income (expense)............ (12,865) 23,854 (36,414)
-------------------- -------------------- ----------------------
Income (Loss) Before Income Taxes
and Minority Interest................... 54,373 115,183 (248,092)
Income Taxes (Benefit)....................... 20,814 42,990 (8,415)
Minority Interest in (Earnings) Loss
of Subsidiaries......................... - (5,235) 15,785
-------------------- -------------------- ----------------------
Net Income (Loss)............................ $ 33,559 $ 66,958 $(223,892)
==================== ==================== ======================
Basic Earnings (Loss) Per Share.............. $0.71 $1.07 $(3.32)
==================== ==================== ======================
Diluted Earnings (Loss) Per Share............ $0.66 $0.99 $(3.32)
==================== ==================== ======================
Weighted Average Number of
Shares Outstanding:
Basic.................................... 47,312 62,857 67,339
==================== ==================== ======================
Diluted.................................. 51,072 71,143 67,339
==================== ==================== ======================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
31
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------------
December 31, December 29, December 28,
1995 1996 1997
------------------- ------------------- ---------------------
<S> <C> <C> <C>
COMMON STOCK ($.01 par value)
Balance at beginning of year............... $ 447 $ 591 $ 642
Issuance of common stock................... 125 30 -
Conversion of convertible debt
into common stock........................ 1 - -
Conversion of liquid yield option
notes into common stock.................. 1 3 -
Issuance of common stock in
connection with acquisitions............. 12 5 48
Stock options.............................. 5 13 24
------------------- ------------------- ---------------------
Balance at end of year..................... $ 591 $ 642 $ 714
=================== =================== =====================
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year............... $252,298 $675,611 $ 827,611
Issuance of common stock, net of
offering cost of $13,851 in 1995 and
$848 in 1996............................. 383,784 100,232 -
Conversion of convertible debt
into common stock........................ 127 31 321
Conversion of liquid yield option
notes into common stock.................. 3,232 8,192 26
Issuance of common stock in
connection with acquisitions............. 30,675 14,709 63,899
Issuance of warrants....................... - 8,373 319
Stock options, including
income tax benefits of $4,049 in 1995,
$15,204 in 1996, and $18,189 in 1997..... 5,495 20,463 26,090
------------------- ------------------- ---------------------
Balance at end of year..................... $675,611 $827,611 $ 918,266
=================== =================== =====================
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year............... $ 7,070 $ 40,629 $ 107,587
Net income (loss).......................... 33,559 66,958 (223,892)
------------------- ------------------- ---------------------
Balance at end of year..................... $ 40,629 $107,587 $(116,305)
=================== =================== =====================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
32
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------
December 31, 1995 December 29, 1996 December 28, 1997
---------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)...................................... $ 33,559 $ 66,958 $ (223,892)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization........................ 11,442 22,887 45,896
Interest on liquid yield option notes................ 8,075 13,793 14,829
Gain on issuances of subsidiary's stock............. - (38,163) (192)
Deferred income taxes................................ 12,133 14,059 (31,288)
Minority interest.................................... - 5,235 (15,785)
Warrant and option expense........................... - - 1,254
Provision for loan losses............................ - - 128,000
Provision for write-down of assets................... - 14,550 102,922
Revenue not recognized from Boston Chicken, Inc.'s
area developers..................................... - - 21,019
Losses of Boston Chicken, Inc.'s area
developers........................................... - - 49,352
Loss (gain) on disposal of assets.................... 231 68 (1,485)
Changes in assets and liabilities, excluding
effects from acquisitions:
Accounts receivable and due from affiliates....... (10,057) (7,193) 6,764
Accounts payable, accrued expenses
and other current liabilities..................... 3,661 48,674 (52,886)
Deferred franchise revenue........................ (303) 3,174 (9,057)
Other assets and liabilities...................... (3,265) 868 22,738
-------- -------- --------
Net cash provided by operating activities...... 55,476 144,910 58,189
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment..................... (145,756) (115,062) (44,743)
Proceeds from the sale of assets....................... 80,910 86,320 12,141
Acquisition of other assets............................ (3,475) (22,370) (7,696)
Issuance of notes receivable........................... (661,033) (1,467,065) (1,292,026)
Repayment of notes receivable.......................... 407,499 993,151 814,159
-------- -------- --------
Net cash used in investing activities.......... (321,855) (525,026) (518,165)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock
and warrants........................................... 385,360 112,863 11,341
Proceeds from issuance of subsidiary's common stock.... - 135,422 10,475
Proceeds from issuance of convertible
subordinated debt...................................... - - 412,500
Proceeds from issuance of liquid
yield option notes..................................... 172,464 - -
Increase in deferred financing costs................... (6,313) (3,799) (14,581)
Proceeds from credit facilities........................ 229,240 43,250 313,200
Repayments of credit facilities....................... (229,240) (117,256) (283,200)
-------- -------- --------
Net cash provided by financing activities.............. 551,511 170,480 449,735
-------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents....................................... 285,132 (209,636) (10,241)
Cash and Cash Equivalents, beginning of year.......... 25,304 310,436 100,800
-------- -------- --------
Cash and Cash Equivalents, end of year................. $ 310,436 $ 100,800 $ 90,559
======== ======== ========
</TABLE>
33
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Supplemental Cash Flow Information:
<S> <C> <C> <C>
Interest paid.......................................... $ 7,195 $ 7,131 $ 24,794
======= ======== ========
Income taxes paid...................................... $ 3,299 $ 5,055 $ 1,792
======= ======== ========
Non-Cash Transactions:
Tax benefit of stock options exercised................... $ 4,049 $ 15,204 $ 18,189
======= ======== ========
Conversion of notes receivable into equity interests
and acquired assets...................................... $ - $123,500 $468,665
======= ======== ========
Conversion of convertible subordinated notes and
liquid yield option notes, net of related deferred
financing costs, into common stock....................... $ 3,361 $ 8,226 $ 347
======= ======== ========
Issuance of common stock and note payable
for net assets and equity interests acquired............. $30,687 $ 21,562 $ 67,128
======= ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
34
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Boston Chicken, Inc. ("BCI") franchises and operates food service stores under
the Boston Market brand name which specialize in fresh, convenient meal
solutions featuring home style entrees, sandwiches, freshly prepared vegetables,
salads, and other side dishes. BCI's majority-owned subsidiary, Einstein/Noah
Bagel Corp. ("ENBC"), operates specialty retail stores that feature fresh-baked
bagels, proprietary cream cheeses, coffees and teas, and soups, salads and
sandwiches. Unless otherwise indicated, BCI and its subsidiaries (excluding
ENBC), are hereinafter referred to collectively as the "Company".
At December 28, 1997, there were 1,166 Boston Market stores systemwide in the
United States, consisting of 859 franchise stores and 307 stores owned by the
Company. In 1995, the Company sold 91 Boston Market stores to area developers
of the Company. In 1996 and 1997, the Company acquired 103 and 211 Boston
Market stores, respectively, from area developers and other franchisees of the
Company. Pursuant to the provisions of its franchise agreements, the Company's
franchisees utilize the Company's trademarks, copyrights, recipes, operating
procedures, and other elements of the Boston Market system in the operation of
franchised Boston Market stores. At December 28, 1997, there were 574 ENBC
stores in the United States, all of which were owned by a majority-owned
subsidiary of ENBC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of BCI and its subsidiaries (including ENBC).
All material intercompany accounts and transactions have been eliminated in
consolidation.
Fiscal Year. The Company's and ENBC's fiscal year is the 52/53-week period
ending on the last Sunday in December, and normally consists of 13 four-week
periods. The first quarter consists of four periods, and each of the remaining
three quarters consists of three periods, with the first, second, and third
quarters ending 16 weeks, 28 weeks, and 40 weeks, respectively, into the fiscal
year. Fiscal years 1996 and 1997 each contained 52 weeks, or 13 four-week
periods. Fiscal year 1995 contained 53 weeks.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments purchased with maturities of three
months or less.
Inventories. Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of food, paper and plastic products, and supplies.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method with buildings
and improvements being depreciated over 12 to 30 years, leasehold improvements
being amortized over the lesser of their useful lives or their lease term,
including option periods, furniture, fixtures, equipment, and computer software
being depreciated over three to eight years, and pre-opening costs being
depreciated over one year.
Property and equipment include acquisitions of property and equipment, costs
incurred in the development and construction of new stores, major improvements
to existing stores, and costs incurred in the development and purchase of
computer software. Pre-opening costs consist primarily of salaries and other
direct expenses relating to the set-up, initial stocking, training, and general
store management activities incurred prior to the opening of new stores.
35
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The Accounting Standards Executive Committee of the AICPA has issued for
comment a proposed statement of position ("SOP") titled "Reporting on the Costs
of Start-up Activities." If issued as proposed, the new standard would require
the Company to prospectively expense pre-opening costs as incurred. As
currently proposed, the new SOP would not require restatement of prior periods
and would be applied as of the beginning of the fiscal year in which the SOP is
first adopted. Initial application would be reported as a cumulative effect of
a change in accounting principle. The Company and ENBC do not anticipate the
SOP will have a material impact on the Company's financial statements.
Expenditures for maintenance and repairs are charged to expense as incurred.
Development costs for franchised stores are expensed when the store opens.
Goodwill. Goodwill is amortized over a 35-year life.
Long-Lived Assets. The Company and ENBC evaluate whether events and
circumstances have occurred that indicate revision to the remaining useful life
or the remaining balances of long-lived assets may be appropriate. Such events
and circumstances include, but are not limited to, change in business strategy
or change in current and long-term projected operating performance. When
factors indicate that the carrying amount of an asset may not be recoverable,
the Company and ENBC estimate the future cash flows expected to result from the
use of such asset and its eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss equal to the excess of the
carrying amount over the fair value of the asset will be recognized.
Deferred Financing Costs. Deferred financing costs are amortized over the
period of the related financing, which ranges from two to 20 years.
Revenue Recognition. Revenue from Company stores and from ENBC stores is
recognized in the period during which related food and beverage products are
sold. Royalties are recognized in the same period that related franchise store
revenue is generated. Revenue derived from initial franchise fees and area
development fees is recognized when the franchised store opens. Interest, real
estate services, and software maintenance fees are recognized as earned. Lease
income is recognized over the life of the lease on a straight-line basis.
Software license income is recognized as the software is placed in service.
Pursuant to Statement of Financial Accounting Standards No. 45, "Accounting for
Franchise Fee Revenue", commencing with the Company's and ENBC's announcements
in October 1997 of their intent to transition from franchised to company-owned
systems, both the Company and ENBC stopped recognizing initial franchise and
area development fees for the opening of new stores. Further, commencing with
the Company's announcement in October 1997 of its intent to acquire BC Equity
Funding, L.L.C. ("BCEF") and Market Partners, L.L.C. ("Market Partners"), the
Company ceased recognizing all royalties, franchise and related fees and
interest income from area developers in which BCEF and Market Partners have
preferred equity interests. Finally, if an area developer generates insufficient
cash on a cumulative basis from store operations, capital contributions and
other sources (excluding borrowings from the Company) to pay royalties, interest
and franchise fees when due, the Company will not recognize such fees. The
Company continues to charge the area developer royalties, franchise and related
fees and interest but no longer recognizes these payments as revenue. The
components of royalties and franchise related fees recognized as revenue are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------------------
DEC. 31, DEC. 29, DEC. 28,
1995 1996 1997
---------------- ------------------ ------------------
<S> <C> <C> <C>
Royalties............................................. $34,841 $ 55,821 $ 57,446
Initial franchise and area development fees........... 13,712 18,715 15,528
Lease and real estate services income................. 17,939 27,537 25,352
Software license and maintenance fees................. 7,723 13,104 19,531
Other................................................. 447 333 -
---------------- ------------------ ------------------
Total royalties and franchise related fees....... $74,662 $115,510 $117,857
================ ================== ==================
</TABLE>
36
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Per Share Data. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Under the new standard, the Company was required to change the method
used to compute earnings (loss) per share and to restate prior periods
presented. A dual presentation of basic and diluted earnings (loss) per share
is now presented. Basic earnings (loss) per share are computed based upon the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share are computed based upon the weighted average number of
common shares and dilutive Company securities outstanding during the period.
Issuances of Subsidiaries' Stock. Changes in the Company's proportionate
interest in the net assets of its subsidiaries that result from issuances of the
subsidiaries' stock are recognized in operations as gains or losses in the
period during which such issuances occur.
Advertising Costs. Advertising costs are expensed in the period incurred.
Advertising expenses, principally contributions to the National and Local
Advertising Funds (See Note 8), were $3.8 million, $6.0 million and $25.9
million in 1995, 1996 and 1997, respectively.
Employee Stock Options. The Company and ENBC account for their employee stock
options in accordance with the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees".
Required pro forma disclosures of compensation expense determined under the fair
value method of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), are presented in Note 11.
Employee Benefit Plan. The Company and ENBC each have a 401(k) plan to which
neither the Company nor ENBC makes a contribution.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications. Certain reclasssifications have been made to the 1996
amounts to conform with the 1997 presentation.
3. ACQUISITIONS
In a series of transactions that occurred during the period from March through
August 1997, the Company acquired a 74% equity interest in BC New York, L.L.C.
("BCNY") through conversion of its loan to BCNY, and in consideration for the
issuance of 165,793 shares of its common stock with a market value at the time
of issuance of approximately $2.0 million and $0.3 million in cash. The BCNY
transaction added 118 Boston Market stores in the metropolitan New York area,
northern New Jersey, and Connecticut, to the Company store base. As of the date
of conversion, total loan advances to BCNY were $80.0 million. As part of this
transaction, the Company assumed approximately $13.2 million in liabilities owed
to third parties. The transactions have been accounted for as purchases, and,
accordingly, the purchase prices were allocated to identified assets and
liabilities based upon their fair values at the date of the transactions,
resulting in goodwill of approximately $64.0 million, which is being amortized
over a 35-year life.
In August 1997, the Company converted its loan to Mayfair Partners, L.P.
("Mayfair") into a 73% equity interest in Mayfair. The Mayfair transaction
added 53 Boston Market stores in Washington, D.C., northern Virginia and
portions of Maryland to the Company store base. As of the date of the
transaction, total loan advances to Mayfair were $56.0 million. As part of this
transaction, the Company assumed approximately $12.7 million in liabilities owed
to third parties. The transaction has been accounted for as a purchase, and,
accordingly, the purchase price was allocated to identified assets and
liabilities based upon their fair values at the date of the transaction,
resulting in goodwill of approximately $56.0 million, which is being amortized
over a 35-year life.
37
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In August 1997, the Company purchased from Saad Nadhir, the Company's Co-
Chairman of the Board and Chief Executive Officer and Scott Beck, the Company's
Co-Chairman and President, approximately an 85% equity interest in Progressive
Food Concepts, Inc. ("PFCI"), and a option to purchase Messrs. Nadhir's and
Beck's remaining PFCI interests, for an aggregate of $2.0 million in cash and
notes in the principal amount of approximately $6.4 million. The purchase price
was equal to Messrs. Nadhir's and Beck's original cost for such interests in
PFCI plus an 8% interest factor, calculated from the date of their original
investment. In November 1997, the Company's ownership interest in PFCI increased
to 100% as a result of (i) PFCI's redemption of the interest held by Harry's for
$2.5 million and (ii) the Company's exercise of its option to purchase Messrs.
Nadhir's and Beck'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 investment. 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. Nadhir and Beck agreed to extend the
maturity date of the remaining balance of such notes. As part of the
acquisition, the Company assumed approximately $1.0 million in liabilities owed
to third parties. The transactions have been accounted for as purchases, and,
accordingly, the purchase prices were allocated to identified assets and
liabilities based upon their fair values at the date of the transactions,
resulting in goodwill of approximately $9.2 million, which is being amortized
over a 35-year life.
In three transactions occurring in August and September 1997, the Company
purchased from BCE West, L.P., an area developer of the Company, 20 Boston
Market stores in the Denver metropolitan area and related assets. The Company
issued 1,467,440 shares of its common stock, with an aggregate market value at
the time of issuance of approximately $18.3 million, for these assets. The
transactions have been accounted for as purchases, and, accordingly, the
purchase prices were allocated to identified assets and liabilities based upon
their fair values at the date of the transactions, resulting in goodwill of
approximately $11.8 million, which is being amortized over a 35-year life.
In a series of transactions occurring in July and August 1997, the Company
purchased the remaining equity interests in Mid-Atlantic Restaurant Systems L.P.
("Mid-Atlantic"), resulting in Mid-Atlantic becoming a wholly-owned subsidiary
of the Company. The Company issued 298,037 shares of its common stock, with an
aggregate market value at the time of issuance of approximately $3.9 million,
for the equity interests. The transactions have been accounted for as a
purchase, and, accordingly, the purchase prices were allocated to identified
assets and liabilities based upon their fair values at the date of the
transactions, resulting in goodwill of approximately $6.6 million, which is
being amortized over a 35-year life.
Finally, in December 1997, ENBC converted its outstanding loans to its area
developers into a majority equity interest in the area developers. In addition,
ENBC purchased additional area developer equity interests by exercising its
option under each of the loan agreements to purchase the amount of equity
available under the unfunded portion of the area developer loans, and four of
ENBC's five area developers; Colonial Bagels, L.P. ("Colonial"), Great Lakes
Bagels, L.P. ("Great Lakes"), Gulfstream Bagels, L.P. ("Gulfstream") and Sunbelt
Bagels, L.L.C. ("Sunbelt") merged into the surviving area developer, Noah's
Pacific, L.L.C. ("Noah's"), now known as Einstein/Noah Bagel Partners, L.P.
("Bagel Partners"). As a result of the loan conversions, the exercise of the
option to acquire additional equity and the area developer merger, ENBC owns
approximately 78% of Bagel Partners, with the remaining minority interest owned
by Bagel Store Development Funding, L.L.C. ("Bagel Funding") and area developer
management. The transactions have been accounted for as purchases, and,
accordingly, the purchase prices were allocated to identified assets and
liabilities based upon an estimate of their fair values at the date of the
transactions. The goodwill resulting from each transaction, as shown below,
(based upon a preliminary allocation) is being amortized over a 35-year life.
The following is a summary of each area developer acquisition (in thousands of
dollars):
38
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
<TABLE>
<CAPTION>
LOAN OPTION LIABILITIES
AREA DEVELOPER CONVERTED EXERCISE ASSUMED GOODWILL
- ------------------------- ------------------ ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Colonial................. $46,000 $ - $12,433 $56,337
Great Lakes.............. 87,812 8,688 19,952 76,713
Gulfstream............... 69,927 16,373 8,918 54,618
Sunbelt.................. 50,200 - 6,956 47,428
Noah's................... 76,862 3,738 19,785 61,685
</TABLE>
In connection with the acquisitions, in January 1998, ENBC issued options to
purchase 2,516,829 shares of its common stock, with an estimated fair value of
$7.8 million, in exchange for options to purchase limited partnership interests
in Bagel Partners at an exchange rate of one share of its common stock for every
15 units of Bagel Partners limited partnership interest. The options have an
exercise price of $6.00 per share.
The financial statements include the results of operations for all of the
acquired entities from their respective dates of acquisition. The following
represents the unaudited pro forma results of operations as if the purchase
transactions described above had occurred at the beginning of the periods
presented (in thousands of dollars, except per share data):
1996 1997
---------------- ----------------
Revenue.................. $475,800 $ 755,838
Net income (loss)........ 34,397 (291,783)
Basic earnings (loss) per
share.................... $ 0.53 $ (4.26)
Diluted earnings (loss)
per share................ $ 0.52 $ (4.26)
4. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA
Accounts Receivable, net
Accounts receivable are net of an allowance for doubtful accounts of $424,000
at December 29, 1996 and $1,160,000 at December 28, 1997.
Property and Equipment, net and Goodwill, net
<TABLE>
<CAPTION>
DEC. 29, 1996 DEC. 28, 1997
------------------- -------------------
Property and equipment consist of (in thousands of
dollars):
<S> <C> <C>
Land................................................. $104,914 $101,685
Buildings and improvements........................... 148,642 288,154
Furniture, fixtures, equipment, and computer
software.......................................... 98,817 178,408
Development in progress.............................. 5,184 -
Pre-opening costs.................................... 248 1,142
------------------- -------------------
357,805 569,389
Less: Accumulated depreciation and amortization..... (23,057) (38,807)
------------------- -------------------
Total property and equipment, net.......... $334,748 $530,582
=================== ===================
</TABLE>
39
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Included in property and equipment are $183.1 million (net of accumulated
depreciation and amortization of $6.1 million) and $168.3 million (net of
accumulated depreciation and amortization of $7.8 million) of assets leased to
others at December 29, 1996 and December 28, 1997, respectively.
Accumulated amortization at December 29, 1996 and December 28, 1997 on
goodwill was $4.3 million and $12.9 million, respectively.
Accrued Expenses
<TABLE>
<CAPTION>
Dec. 29, 1996 Dec. 28, 1997
------------------- -------------------
Accrued expenses consist of (in thousands of dollars):
<S> <C> <C>
Accrued payroll and fringe benefits.................. $ 4,090 $21,833
Accrued interest..................................... 2,888 7,153
Accrued store equipment conversion costs............. 14,778 -
Accrued vendor obligations........................... - 13,761
Accrued store and real estate disposition costs...... 5,866 19,769
Accrued other........................................ 6,195 22,691
------------------- -------------------
Total accrued expenses..................... $33,817 $85,207
=================== ===================
</TABLE>
Other Current Liabilities
<TABLE>
<CAPTION>
Dec. 29, 1996 Dec. 28, 1997
------------------- -------------------
Other current liabilities consist of (in thousands of
dollars):
<S> <C> <C>
Notes payable and current portion of long-term debt.. $ 6 $13,851
Federal and state income taxes payable............... 2,724 268
------------------- -------------------
Total other current liabilities............ $2,730 $14,119
=================== ===================
</TABLE>
Interest Expense, net
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------------
Dec. 31, 1995 Dec. 29, 1996 DEC. 28, 1997
--------------------- -------------------- ---------------------
<S> <C> <C> <C>
Interest expense, net consists of (in thousands of
dollars):
Interest income...................................... $ 2,173 $ 6,427 $ 5,706
Interest expense..................................... (15,352) (20,873) (43,915)
--------------------- -------------------- ---------------------
Interest expense, net...................... $(13,179) $(14,446) $(38,209)
===================== ==================== =====================
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents. The carrying value approximates fair value due to
the length of maturity of the investments.
Notes Receivable. The estimated fair value of notes receivable, including the
conversion option (See Note 10), is based on the discounted value of the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings.
Debt. The fair value of publicly-traded debt instruments is based on publicly
quoted market prices. The fair value of ENBC's senior term loan is based upon
the discounted value of the future cash flows using ENBC's current cost of
capital.
40
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The estimated fair values of the Company's financial instruments are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 28, 1997
------------------------------------------- -------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents........... $100,800 $100,800 $ 90,559 $ 90,559
Notes Receivable.................... 800,519 800,519 609,175 609,175
Convertible Subordinated Debt-BCI... 129,841 163,600 417,020 250,599
Convertible Subordinated Debt-ENBC.. - - 125,000 82,188
Liquid Yield Option Notes........... 182,613 232,334 197,442 115,925
Senior Term Loan-ENBC............... - - 30,000 30,000
</TABLE>
6. DEBT
Company Revolving Facility
The Company has a revolving bank credit facility providing for borrowings of
up to $85.0 million through December 1, 1999. Borrowings under the Company's
facility are subject to a borrowing formula and may be either floating rate
loans with interest at the agent's base rate, plus an applicable margin, or
eurodollar rate loans with interest at the eurodollar rate, plus an applicable
margin. A commitment fee of 0.50% of the average daily unused portion of the
loan is required. The credit facility agreement contains covenants that, among
other things, restrict other borrowings, prohibit cash dividends, limit
systemwide overhead and require maintenance of specified systemwide average
weekly net revenue per store and systemwide store cash flow.
Specifically, the facility requires average weekly net revenue of at least
$17,500 for the first quarter of fiscal 1998, $18,000 for the second quarter of
fiscal 1998, $18,500 for the third quarter of fiscal 1998 and $19,000 for the
fourth quarter of fiscal 1998 and the first quarter of fiscal 1999. Thereafter,
average weekly net revenue is required to be at least $20,000. Systemwide
average weekly net revenue for the first 12 weeks of the first quarter of fiscal
1998 has been below the Company's expectations and below the level required for
the entire quarter by the covenant in the facility. The Company believes net
average weekly revenue levels were below expectations for such period primarily
because of the limited success of new casseroles and the resulting diversion of
focus from the Company's core products and adverse regional weather conditions.
While the Company believes, based upon its experience with the historical
pattern of the Boston Market system's first quarter's sales and the marketing
programs in place during the remainder of the quarter, that the Boston Market
system can achieve sufficient improvement in average weekly net revenue during
the remainder of the quarter to comply with the financial covenant, there can be
no assurance that average weekly net revenue will improve or that the Company
will comply with the financial covenant. If the Company is in violation of the
facility, the Company will be unable to draw on its revolving credit facility.
To the extent the Company does not have borrowing availability under the
revolving credit facility, the Company will be required to obtain additional
sources of capital, obtain an amendment to its revolving credit facility, or
otherwise restructure its existing indebtedness. If the Company is unable to
obtain additional capital, obtain an amendment to its revolving credit facility
or otherwise restructure its outstanding indebtedness, the Company may not be
able to meet its obligations. In addition, if the Company is in violation of the
facilities agreement, upon action of the required number of lenders, the
outstanding principal balances under the Company's revolving credit facility and
other senior credit facilities may be accelerated. Any such acceleration would
also permit holders of other senior and subordinated debt of the Company to
exercise their remedies, which include acceleration of their debt. The Company's
facility also limits the use of cash consideration in any acquisition of BCEF
and Market Partners to $10.0 million (See Note 15). As of December 28, 1997, the
Company had $4.0 million in letters of credit outstanding which were issued
under the credit facility. The Company's facility and its 1996 master lease
facility (See Note 9) are collateralized by substantially all of its assets.
ENBC Revolving Facility and Term Loan
ENBC has a $25.0 million revolving bank credit facility, none of which was
outstanding at December 28, 1997 and a term loan facility under which $30.0
million was outstanding at December 28, 1997. Both facilities expire in October
2000. Borrowings under the credit facility are subject to a borrowing base
formula. Interest on both facilities is at the agent's base rate, plus an
applicable margin, or at the eurodollar rate, plus an applicable margin. The
interest rate at December 28, 1997 was 9.0%. A commitment fee of 0.50% of the
average daily unused portion of the credit facility is required. Both facilities
contain covenants that, among other things, restrict other borrowings, prohibit
cash dividends, and require maintenance of specified average weekly store net
sales and cash flow ratios and limit overhead levels. Both facilities are
collateralized by substantially all of ENBC's assets. The term loan facility
requires quarterly principal payments of $1.5 million which began on March 1,
1998, and continue through October 2000, at which time the outstanding balance
is due.
Company Subordinated Debt
In February 1994, the Company issued $130.0 million of 4 1/2% convertible
subordinated debentures due February 1, 2004. Interest is payable semiannually
on February 1 and August 1 of each year. The debentures are convertible at any
time prior to maturity into shares of the Company's common stock at a conversion
rate of $27.969 per share, subject to adjustment under certain conditions. The
debentures may be redeemed at the option of the Company initially at 103.15% of
their principal amount and at declining prices thereafter, plus accrued
interest. In 1996 and 1997, $31,000 and $321,000 of convertible subordinated
debentures were converted into 1,107 shares and 11,475 shares of common stock,
respectively. In addition, the Company is required, as of 40 business days
after the occurrence of a Change in Control (as defined in the indenture
relating to the debentures) to purchase all or any part of any debenture at the
option of the debenture holder.
41
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In April 1997, the Company issued $287.5 million of 7 3/4% convertible
subordinated debentures due May 1, 2004. Interest is payable semiannually on
May 1 and November 1 of each year. The debentures are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion rate
of $26.70 per share, subject to adjustments under certain conditions. The
debentures may be redeemed at the option of the Company beginning May 1, 2000,
initially at 104.43% of their principal amount and at declining prices
thereafter, plus accrued interest. In addition, the Company is required, as of
40 business days after the occurrence of a Change in Control (as defined in the
indenture relating to the debentures) to purchase all or any part of any
debenture at the option of the debenture holder.
In June 1995, the Company completed the sale of $828.0 million aggregate
principal amount at maturity of Liquid Yield Option Notes due June 1, 2015
("LYONs") for which the Company received gross proceeds of approximately $172.5
million. The LYONs are zero-coupon subordinated notes that were sold at an
issue price of $208.29 per $1,000 principal amount due at maturity, representing
an 8% yield. Each LYON is convertible at the option of the holder at any time
on or prior to maturity into 8.532 shares of common stock of the Company. In
the event the holder exercises the option to convert, the holder will not
receive any payment for the accrued original issue discount. The Company is
obligated to purchase the LYONs at the option of the holder as of June 1, 2000,
June 1, 2005, and June 1, 2010, for a purchase price per LYON of $308.32,
$456.39, and $675.57, respectively. The Company may elect to pay the purchase
price in cash, common stock of the Company or a combination thereof.
Commencing on June 1, 2000, the LYONs are redeemable at the option of the
Company for cash, at a price equal to the original issue price plus accrued
original issue discount through the redemption date. In 1996 and 1997, $8.2
million and $26,000 of LYONs were converted into 328,942 shares and 955 shares
of common stock, respectively. In addition, the Company is required, as of 40
business days after the occurrence of a Change in Control (as defined in the
indenture relating to the LYONs) to purchase all or any part of any LYONs at the
option of the LYONs holder.
ENBC Subordinated Debt
In May 1997, ENBC issued $125.0 million of 7 1/4% convertible subordinated
debentures due June 1, 2004. Interest is payable semiannually on June 1 and
December 1 of each year. The debentures are convertible at any time prior to
maturity into shares of ENBC's common stock at a conversion rate of $21.25 per
share, subject to adjustments under certain conditions. The debentures may be
redeemed at the option of ENBC beginning June 1, 2000, initially at 104.14% of
their principal amount and at declining prices thereafter, plus accrued
interest. In addition, ENBC is required, as of 40 business days after the
occurrence of a Change in Control (as defined in the indenture relating to the
debentures) to purchase all or any part of any debenture at the option of the
debenture holder.
42
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. INCOME TAXES
The primary components that comprise the deferred tax assets and liabilities
at December 29, 1996 and December 28, 1997 are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
DEC. 29, 1996 DEC. 28, 1997
---------------------- --------------------
Deferred tax assets:
<S> <C> <C>
Notes receivable, net..................................... $ - $ 75,291
Property and equipment.................................... - 10,286
Accounts payable and accrued expenses..................... 7,502 11,928
Deferred franchise revenue................................ 6,355 2,232
Other noncurrent liabilities.............................. 730 3,081
ENBC net operating loss carryforward...................... 6,648 2,410
Intangible assets......................................... 1,582 1,349
Other..................................................... 1,411 3,943
---------------------- --------------------
Total deferred tax assets............................ 24,228 110,520
Deferred tax liabilities:
Gain on issuances of subsidiary's stock................... (14,883) (14,958)
Property and equipment.................................... (13,400) -
Goodwill.................................................. (8,678) (5,714)
Other..................................................... (8,273) (6,082)
---------------------- --------------------
Total deferred tax liabilities....................... (45,234) (26,754)
---------------------- --------------------
(21,006) 83,766
Valuation allowance....................................... (10,282) (83,766)
---------------------- --------------------
Net deferred tax liability........................... $(31,288) $ -
====================== ====================
</TABLE>
Income taxes consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------
DEC. 31, DEC. 29, DEC. 28,
1995 1996 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Current:
Federal................................. $ 7,784 $24,359 $ 20,796
State................................... 897 4,572 6,857
------------------ ------------------ -------------------
8,681 28,931 27,653
Deferred:
Federal................................. 10,743 11,841 (32,368)
State................................... 1,390 2,218 (3,700)
------------------ ------------------ -------------------
12,133 14,059 (36,068)
------------------ ------------------ -------------------
$20,814 $42,990 $ (8,415)
================== ================== ===================
</TABLE>
For the years ended December 31, 1995, December 29, 1996 and December 28,
1997, the Company recognized income tax benefits pertaining to the exercise of
stock options of $4,049,000, $15,204,000, and $18,189,000, respectively, which
are accounted for as a direct increase to additional paid-in capital and do not
reduce reported income tax expense.
As of December 29, 1996 and December 28, 1997, ENBC had net deferred tax
assets of $10.3 million and $9.8 million, respectively, both amounts which were
fully offset by a valuation allowance due to uncertainty regarding realization
of the related tax benefits. The decrease in the valuation allowance of
$478,000 in 1997 was due to the utilization of a portion of ENBC's operating
loss carryforwards, offset by allowances on deferred tax assets added during
1997. During 1996 and 1997, ENBC utilized $2.5 million and $10.0 million,
respectively, of operating loss carryforwards which had been fully offset by a
valuation allowance. The tax benefit from the reduction in the valuation
allowance has
43
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
been treated as a reduction of goodwill. ENBC files a separate tax return from
the Company. As of December 28, 1997, ENBC had remaining operating loss
carryforwards available to reduce future taxable income of approximately $6.2
million that begin to expire in 2010. As of December 28, 1997, the Company had
a net deferred tax asset of $74.0 million, which amount was fully offset by a
valuation allowance due to uncertainty regarding realization of the related tax
benefits.
The difference between the Company's actual tax provision and the tax
provision that would result from applying the statutory federal income tax rate
to income (loss) before income taxes and minority interest is attributable to
the following (in thousands of dollars):
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------------------
Dec. 31, DEC. 29, DEC. 28,
1995 1996 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Income tax expense (benefit) at
statutory rate.......................... $19,031 $40,314 $(86,832)
State taxes (benefit), net of federal
amounts................................. 1,740 4,492 (8,039)
Tax attributes of minority interest
in (earnings) losses of subsidiaries.... - (2,042) 5,157
Other...................................... 43 226 3,860
Change in valuation allowance.............. - - 77,439
------------------ ------------------ ------------------
Provision (benefit) for income taxes....... $20,814 $42,990 $ (8,415)
================== ================== ==================
</TABLE>
8. NATIONAL AND LOCAL ADVERTISING FUNDS
The Company administers a National Advertising Fund (the "Fund") to which all
stores contribute 2% of net revenue. Collected amounts are spent primarily on
developing marketing and advertising materials for use systemwide. The Company
also maintains Local Advertising Funds ("LAFs") that provide advertising and
sales promotion support (primarily television and radio media time) for stores
in particular markets. Periodic contributions are made by all stores (a minimum
of 4% of net revenue). The Company disburses funds and accounts for all
transactions related to the Fund and LAFs. Such amounts are not segregated from
the cash resources of the Company; however, consistent with Statement of
Financial Accounting Standards No. 45 "Accounting for Franchise Fee Revenue",
such amounts are accounted for separately and are not included in the financial
statements of the Company because the Company acts only as an agent for its
franchisees in placing orders for advertising and paying related invoices out of
such accounts.
The Fund had an accumulated deficit of $15.2 million at December 29, 1996 and
$12.9 million at December 28, 1997, which were funded by advances from the
Company, $10.2 million and $12.9 million of which were recorded in Due from
Affiliates at December 29, 1996 and December 28, 1997, respectively, and $5.0
million of which was recorded in Notes Receivable at December 29, 1996. The
amount advanced as of December 28, 1997 has been offset by an allowance for
uncollectible amounts.
9. COMMITMENTS AND CONTINGENCIES
Through December 28, 1997, BCEF had invested an aggregate of $56.7 million in
certain Boston Market area developers in the form of 10% cumulative preferred
equity, redeemable by the area developers at a premium initially equal to 10% of
the initial issue price, to be increased by 2% each year up to a maximum of 20%
of the initial issue price plus accrued dividends (the "Redemption Price"). In
the event the Company's conversion and option rights under its secured loan
agreement with any of these area developers expire unexercised (See Note 10) and
the Company does not consent to an area developer's request to undertake a firm
commitment underwritten public offering of the stock of such area developer, the
Company has agreed to purchase the preferred equity of such area developer from
BCEF at the Redemption Price (See Note 15).
Through December 28, 1997, Bagel Funding had invested a total of approximately
$89.6 million (representing an approximate 21% equity interest) in Bagel
Partners. Bagel Funding has the right to require Bagel Partners or ENBC to
44
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
redeem Bagel Funding's equity interest in Bagel Partners at a pre-determined
formula price based on the store level cash flow of Bagel Partners in the event
that, at any time after December 5, 1999 and prior to June 5, 2001, ENBC does
not consent to a public offering of such equity interests or the termination of
certain rights and obligations under franchise and license agreements between
ENBC and Bagel Partners. Such rights become exercisable prior to December 5,
1999 if there is a Change in Control (as defined in the Bagel Partners'
partnership agreement) of ENBC. ENBC or Bagel Partners may pay the purchase
price for such equity interests in cash, shares of ENBC's common stock, or any
combination thereof.
The Company has entered into two master lease facilities (the "1995 Facility"
and the "1996 Facility") for the purpose of leasing equipment and real estate
for stores owned by the Company and its area developers. As of December 28,
1997, the total amount outstanding under the 1995 Facility and 1996 Facility was
$237.8 million. Both the 1995 Facility and the 1996 Facility have implicit
interest rates of LIBOR plus an applicable margin and have terms, including
renewal options, of between three and five years and contain a purchase option.
The 1996 Facility is cross-collateralized and cross-defaulted with the Company's
revolving credit facility (See Note 6). The Company subleases a majority of the
leased assets to its area developers. The subleases to area developers contain
substantially the same terms as the master leases. The Company is contingently
liable for $172.4 million, if it elects not to purchase the leased assets or
renew the leases. Such contingent obligation would be reduced by a portion of
the proceeds received by the lessor on the sale of the leased assets and
payments received from the subleases.
The Company and ENBC lease sites for stores and for their support centers in
Golden, Colorado. Lease terms generally range from five to ten years, with two
or three five-year renewal options. Most of the leases contain escalation
clauses and common area maintenance charges.
The Company and ENBC also purchase or lease real estate and equipment that
they then lease, sublease, or assign to an area developer, franchisee or other
parties. The leases, subleases, and assignment terms to area developers,
franchisees or other parties are negotiated at arm's length on commercially
reasonable terms. The Company is contingently liable for all lease costs,
including common area maintenance charges.
The following is a schedule of future minimum rental payments that are
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year, sublease proceeds, guarantees and
assignments, and rental receipts due under leases on property and equipment
owned by the Company and ENBC as of December 28, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
MINIMUM
RENTAL RECEIPTS ON
NET PROPERTY AND
MINIMUM MINIMUM GUARANTEES EQUIPMENT
RENTAL SUBLEASE RENTAL AND OWNED
PAYMENTS PROCEEDS PAYMENTS ASSIGNMENTS BY THE COMPANY
---------------- --------------- ----------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1998................ $103,389 $ 53,600 $ 49,789 $ 10,962 $ 14,972
1999................ 66,936 21,418 45,518 10,594 15,344
2000................ 55,145 6,196 48,949 10,379 16,046
2001................ 49,912 5,890 44,022 16,739 16,464
2002................ 43,755 5,365 38,390 11,161 16,523
Later Years......... 184,232 22,752 161,480 64,686 65,987
---------------- --------------- ----------------- ------------------ ----------------------
$503,369 $115,221 $388,148 $124,521 $145,336
================ =============== ================= ================== ======================
</TABLE>
Rent expense, net of sublease income, under operating leases was $4,495,000,
$4,637,000 and $20,596,000 for fiscal years 1995, 1996, and 1997, respectively.
The Company and ENBC have entered into agreements with certain vendors which
provide for minimum purchases over specified terms. Such agreements call for
retroactive rate adjustments or cash settlement in the event of purchase
shortfalls. Management believes that the ultimate settlement of such
commitments will not have a material impact on the consolidated financial
position or results of operations.
45
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The Company, two executive officers who are also directors (the "Individual
Defendants"), certain investment banking firms which had underwritten
securities offerings by the Company (the "Underwriter Defendants") and the
Company's independent public accountants are defendants in a class action
lawsuit filed in the United States District Court for the District of Colorado
(the "federal proceeding"). The federal proceeding is comprised of separate
actions that were consolidated into one action for pre-trial purposes on August
8, 1997. The Company, the Individual Defendants, the Underwriter Defendants and
the Company's independent public accountants, are defendants in a separate class
action lawsuit filed in Jefferson County District Court in the State of Colorado
(the "state proceeding"). The state proceeding is comprised of two separate
actions that were consolidated into one action on November 13, 1997. Also on
November 13, 1997, the judge in the state proceeding agreed to stay the state
proceeding until resolution of the federal proceeding. The complaints in the
federal proceeding and the state proceeding allege, among other things, that the
Company and the other defendants violated Sections 11, 12(2) and 15 of the
Securities Act of 1933, as amended, and Section 10(b) of the Securities Act of
1934, as amended, and Rule 10b-5 promulgated thereunder, as well as certain
similar provisions of Colorado state securities statutes. The plaintiffs are
seeking, among other things, (i) to certify each of the complaints as a class
action on behalf of all persons who purchased securities of the Company during
the purported class period, (ii) an award of unspecified compensatory damages,
interests and costs to all members of the purported class period and (iii)
equitable relief permitted by law, equity or federal or state statutes. On
February 10, 1998, the Company filed a motion to dismiss the complaint in the
federal case. The Company believes that the complaints are without merit and
intends to vigorously defend against the allegations made in such complaints.
ENBC, certain of its current and former executive officers and directors, the
underwriters in ENBC's initial public offering and the ENBC's independent public
accountants are defendants in a class action lawsuit filed in the United States
District Court for the District of Colorado. The lawsuit is comprised of
separate actions that were consolidated into one action for pre-trial purposes.
ENBC and certain of the other defendants are also defendants in a class action
lawsuit filed in state court in Jefferson County Colorado, although such action
has been stayed pending resolution of the federal case. The complaints allege,
among other things, that ENBC and the other defendants violated Sections 11,
12(2) and 15 of the Securities Act of 1933, as amended, and Section 10(b) of the
Securities Exchange Act of 1934, as amended and Rule 10b-5 promulgated
thereunder, as well as certain similar provisions of Colorado state securities
statutes. In each case, the plaintiffs are seeking, among other things, (i) to
certify their complaint as a class action on behalf of all persons who purchased
the securities of ENBC during the purported class period, (ii) an award of
unspecified compensatory damages, interest and costs to all members of the
purported class and (iii) equitable relief permitted by law, equity or federal
or state statutes. On February 10, 1998, ENBC filed a motion to dismiss the
complaint in the federal case. ENBC believes that the complaints are without
merit and intends to vigorously defend against the allegations made in such
complaints.
In July 1997, GFI America, Inc. a former vendor of processed beef products to
the Company and its area developers initiated an action against the Company by
filing a complaint in the District Court of Hennepin County, Minnesota. In the
complaint, the plaintiff asserted various causes of action including
misappropriation of trade secrets, breach of unilateral and bilateral contract,
breach of fiduciary duty, fraud, promissory estoppel, equitable estoppel and
violation of Minnesota trade secrets law arising from the Company's decision to
stop purchasing processed beef products from plaintiff and commence purchasing
such products from another vendor. The plaintiff sought injunctive relief and
unspecified damages, reasonable attorney's fees and costs, and such other relief
available under state law. The matter was removed to federal court, and in
October 1997, the court denied the plaintiff's motion for injunctive relief. The
Company filed a motion to dismiss the complaint in September 1997. The Company's
motion to dismiss is pending, and discovery continues. The Company denies the
material allegations asserted in the complaint and intends to vigorously defend
against the complaint.
The Company and ENBC have become subject to other various lawsuits, claims,
and other legal matters in the course of conducting its business, including its
business as a franchisor. The Company and ENBC believe that the outcome of such
other lawsuits, claims, and other legal matters will not have a material impact
on the Company's consolidated financial position or results of operations.
46
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. AREA DEVELOPER AND OTHER FINANCING
Area Developer Financing
The Company offers convertible and non-convertible secured debt financing to
Boston Market area developers to partially finance store development and working
capital needs. Advances under the facility are permitted in a predetermined
maximum amount, generally equal to three to four times the amount of the area
developer's contributed capital. Upon expiration of the draw period, the loan
converts to an amortizing term loan payable in periodic installments, sometimes
with a final balloon payment. The Company may extend the draw and repayment
periods, subject to the area developer purchasing additional development rights,
contributing additional capital, or in connection with other amendments to the
loan agreement. Interest is set at the applicable reference rate of Bank of
America National Trust and Savings Association as established from time to time
(8.5% at December 28, 1997 and an average rate of 8.4% for 1997) plus 1%, and is
payable each four-week period. The loan is secured by a pledge of substantially
all of the assets of the area developer and generally by a pledge of the equity
interests of the owners of the developer.
(a) LOAN CONVERSION OPTION
The Company may convert all or any portion of the loan amount after a
moratorium period (generally two years from execution or subsequent amendment of
the loan) and generally after the area developer has completed not less than 80%
of its area developer commitments or in the event of certain defaults and
generally up to the later of full repayment of the loan or a specified date in
the agreement, into equity in the area developer at the conversion price set
forth in the loan agreement, which is at a premium over the per unit price paid
by the investors in the area developer for their equity investment made
concurrently with the execution of the loan agreement or subsequent amendments
thereto. The Company has received from all but one of its area developers, a
waiver of the moratorium period. Default provisions contained in the area
developer loans typically include default in payment of principal and interest,
breach of a representation or warranty or of any covenant contained in the loan
agreement or security instruments, bankruptcy or bankruptcy-related act of the
borrower, resignation or termination of key management personnel, default under
the area development agreement, termination of three or more franchise
agreements, dissolution or liquidation, material adverse change in financial
condition, default of other indebtedness, the master lease, sublease or any real
estate lease, a judgment in excess of $100,000 (not satisfied, vacated or
covered by insurance) and the invalidity or termination of any security
instrument. To the extent such loan is not fully drawn or has been drawn and
repaid, the Company has a corresponding option to acquire, at the loan
conversion price, the amount of additional equity it could have acquired by
conversion of the loan, had the loan been fully drawn. On average, upon
conversion or exercise of the option, the Company would own approximately an 80%
interest in each of its area developers.
In March 1998, the Company converted its loan to Great Lakes, L.L.C.
("Great Lakes") into an 85% equity interest in Great Lakes. The Great Lakes
transaction added 113 Boston Market stores, operating in Chicago, Detroit,
Milwaukee, Toledo and parts of Indiana to the Company store base. As of the date
of the transaction, total loan advances to Great Lakes were $119.2 million.
47
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(b) COMMITMENTS TO EXTEND AREA DEVELOPER FINANCING
The following tables summarize loan commitments, loan availability,
outstanding loan balances (included in Notes Receivable on the Company's balance
sheets) and contributed capital for Boston Market and ENBC area developers (in
thousands of dollars, except number of area developers):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------------- -------------------
<S> <C> <C>
BOSTON MARKET:
- --------------
Number of area developers receiving financing............. 15 14
Loan commitments.......................................... $ 838,043 $842,148
Loan availability......................................... (190,778) (42,105)
------------------- -------------------
Loans outstanding (included in Notes Receivable).......... $ 647,265 $800,043
=================== ===================
Contributed capital....................................... $ 286,413 $276,104
=================== ===================
DECEMBER 29,
1996
-------------------
ENBC:
- -----
Number of area developers receiving financing............. 11
Loan commitments.......................................... $ 283,200
Loan availability......................................... (142,446)
-------------------
Loans outstanding (included in Notes Receivable).......... $ 140,754
===================
Contributed capital....................................... $ 75,765
===================
</TABLE>
The following tables summarize area developer financing activity of Boston
Market area developers during fiscal years 1996 and 1997 and of ENBC area
developers from conversion (June 17, 1996) through December 29, 1996 and during
fiscal 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
------------------- --------------------
<S> <C> <C>
Boston Market:
- --------------
Area developer loan balances, beginning of year........... $ 411,418 $ 647,265
Additional loan advances.................................. 1,044,861 925,386
Loan repayments........................................... (766,114) (636,589)
Loans converted into equity or eliminated
in consolidation....................................... (42,900) (136,019)
------------------- --------------------
Area developer loan balances, end of year................. $ 647,265 $ 800,043
=================== ====================
FISCAL YEARS ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
------------------- --------------------
ENBC:
- -----
Area developer loan balances, at conversion
(June 17, 1996) of the Company loan or beginning $ 41,224 $ 140,754
of year................................................
Loan advances............................................. 153,961 359,218
Loan repayments........................................... (54,431) (169,171)
Loans converted into equity............................... - (330,801)
-------------------- -------------------
Area developer loan balances, end of year................. $140,754 $ -
==================== ===================
</TABLE>
48
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The majority of the loan advance and repayment activity reflects the revolving
nature of the loans, that is, amounts are drawn and repaid on a regular basis to
optimize cash management.
The principal maturities of the aforementioned receivables are as follows (in
thousands of dollars):
1998.............................. $ 72
1999.............................. 252
2000.............................. 2,631
2001.............................. 4,747
2002.............................. 4,770
Thereafter........................ 787,571
---------------------
$800,043
=====================
(c) AREA DEVELOPER INFORMATION
Three Boston Market area developers accounted for approximately 14%, 12%, and
10% of the Boston Market area developers' notes receivable balance at December
28, 1997 and no other Boston Market area developer individually accounted for
10% or more of such notes receivable balance as of such date.
A loan is considered impaired if it is probable that the Company will be
unable to collect all contractual principal and interest when due. As of
December 28, 1997, the Company believed that all the area developer loans may be
impaired. Once a loan is deemed impaired, the Company determines the ultimate
collectibility of the loan without regard to the contractual terms of the
existing loan. Such evaluation resulted in a provision for potential loan losses
of $128.0 million, which related to nine of the area developer loans aggregating
$503.4 million. No provision for potential loan losses was deemed necessary for
the remaining five area developer loans which had an aggregate balance of $296.6
million. The Company did not have any impaired loans at December 29, 1996. The
provision for potential loan losses for 1997 was based upon management's review
of use of loan proceeds, the form and amount of consideration proposed in the
acquisition of BCEF and Market Partners (See Note 15) and evaluations regarding
the cost and availability of capital and the value of the collateral securing
the loans. The provision for potential loan losses does not relieve the area
developer of their obligation to repay their indebtedness to the Company. The
balance at the beginning of fiscal 1997, average balance for the year and
balance at the end of the year, of all of the Company's 14 area developer loans,
was $518.9 million, $690.5 million and $800.0 million, respectively. The Company
recognizes interest income on impaired loans, if in its judgement, the interest
is ultimately collectible. Total interest income for 1997 recognized on impaired
loans was $55.3 million, all of which has been collected by the Company. The
total interest income the Company would have earned based upon the contractual
terms of the loans was $56.5 million in 1997. The activity in the allowance for
loan losses for 1997 was as follows (in thousands of dollars):
Balance at December 29, 1996............. $ -
Provision for loan losses............... 128,000
Loan write-offs.......................... -
------------------
Balance at December 28, 1997............. $ 128,000
==================
Commencing from the date the Company announced its intent in October 1997, to
acquire BCEF and Market Partners, the Company has recognized in a single line
item on its consolidated statement of operations, the net losses of the area
developers in which BCEF and Market Partners have preferred equity interests,
which aggregated $49.4 million. The Company continues to charge such area
developers royalties, franchise and related fees and interest, but no longer
recognizes these payments as revenue. The area developer net losses recognized
by the Company have been correspondingly reduced by the amount of the royalties,
franchise and related fees and interest not recognized by the Company, which
amounts aggregated $15.7 million. In addition, if an area developer generates
insufficient cash on a cumulative basis from store operations, capital
contributions and other sources (excluding borrowings from the Company) to pay
royalties, interest and franchise fees when due, the Company will not recognize
such fees, which amounts
49
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aggregated $5.3 million in 1997. The area developer losses and revenue not
recognized by the Company have been presented as a reduction of the notes
receivable balance from area developers in the accompanying balance sheet.
As a result of the foregoing, the Boston Market area developer notes receivable
balance as of December 28, 1997, is summarized as follows (in thousands of
dollars):
Notes Receivable.................. $ 800,043
Provision for loan losses......... (128,000)
Losses of area developers......... (49,352)
Revenue from area developers not
recognized........................ (21,019)
--------------------
Notes Receivable, net............. $ 601,672
====================
The following tables set forth certain combined financial information provided
to the Company by Boston Market financed area developers. During 1996, two
financed area developers were formed, and their data have been included in the
table for 1996 from the dates of their respective formation and two financed
area developers combined with two other financed area developers with
geographically contiguous territories. The table excludes Mid-Atlantic, New
Jersey Rose, L.L.C., and BCNY for both years and Mayfair and Great Lakes for
1997, the loans to which have been converted into equity or eliminated in
consolidation (in thousands, except number of financed area developers and store
data):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------------- -------------------
<S> <C> <C>
Boston Market Financed Area Developers:
- ---------------------------------------
Total number of financed area developers.................. 14 13
Total number of financed area developer stores open....... 841 734
Balance sheet data:
Total gross assets..................................... $ 640,534 $ 516,300
Total debt:
To the Company...................................... 555,105 687,366
To third parties (including capital lease 23,797 20,462
obligations).......................................
Total other liabilities (including trade payables)..... 105,635 108,974
Total stockholder/partner/member deficit............... (102,754) (377,960)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
-------------------- -------------------
<S> <C> <C>
Statement of operations data:
Gross revenue.......................................... $ 865,082 $ 801,792
Income (loss) from continuing operations............... (156,505) (337,342)
Statement of cash flows data:
Cash flows from (used in) operating activities......... $(128,819) $(244,435)
Cash flows from (used in) investing activities......... (82,307) (35,555)
Cash flows from (used in) financing activities......... 212,366 272,555
-------------------- -------------------
Net change in cash................................ $ 1,240 $ (7,435)
==================== ===================
</TABLE>
50
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables set forth certain combined financial information as of
December 29, 1996, and the year then ended, provided to ENBC by its financed
area developers. During 1996, ten financed area developers were formed, and
their data have been included in the table for 1996 from the dates of their
respective formation and one financed area developer combined with one other
financed area developer with geographically contiguous territory.
<TABLE>
<CAPTION>
Dec. 29,
1996
-------------------
<S> <C>
ENBC Financed Area Developers:
- ------------------------------
Total number of financed area developers.................. 11
Total number of financed area developer stores open....... 301
Balance sheet data:
Total gross assets..................................... $221,156
Total debt:
To ENBC............................................. 140,754
To third parties.................................... -
Total other liabilities (including trade payables)..... 37,033
Total partner/member equity............................ 33,847
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DEC. 29,
1996
-------------------
<S> <C>
Statement of operations data:
Gross revenue.......................................... $ 109,940
Income (loss) from continuing operations............... (40,592)
Statement of cash flows data:
Cash flows from (used in) operating activities......... $ (16,382)
Cash flows from (used in) investing activities......... (187,955)
Cash flows from (used in) financing activities......... 205,756
-------------------
Net change in cash................................ $ 1,419
===================
</TABLE>
Other Financing
PFCI has provided Harry's Farmers Market, Inc. ("Harry's") with two credit
facilities (the "Loans"): (i) a $12.0 million refinancing loan, all of which was
outstanding as of December 28, 1997 (the "Refinancing Loan"), and the proceeds
of which were used by Harry's to repay other indebtedness and (ii) a $5.5
million development loan, $1.5 million of which was outstanding as of December
28, 1997 (the "Development Loan"). PFCI is obligated upon the request of
Harry's, subject to certain conditions, to advance an additional principal
amount of $2.0 million of the Development Loan on each of May 3, 1998 and
November 3, 1998 (or at any time after such dates and prior to January 31,
2002). Proceeds of the Development Loan are to be used by Harry's to fund (i)
expenditures in connection with the development of a business model for the
improvement and expansion of Harry's business and facilities, (ii) the
refurbishment of existing Harry's Farmers Market megastores and Harry's in a
Hurry stores, and (iii) the development of new Harry's in a Hurry stores. The
Loans bear interest at 5% per annum until January 31, 2002, and thereafter at a
per annum rate equal to the rate designated by Bank of America National Trust
and Savings Association as its reference rate plus 1%. Interest only is payable
quarterly on the Loans until January 31, 2002, after which date the Loans become
an amortized term loan payable in 20 equal quarterly installments of principal
and interest unless otherwise exchanged as described below.
51
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Subject to certain conditions, PFCI has the option, after July 30, 1998 and
until April 2002, to contribute to Harry's the principal amount of the Loans in
exchange for approximately 13% of the common voting equity of Harry's, on a
fully diluted basis as of December 28, 1997. Subject to certain exceptions,
PFCI is obligated, not later than January 31, 2002, to contribute the principal
amount of the Refinancing Loan to Harry's in exchange for approximately 9.0% of
the common voting equity of Harry's on a fully diluted basis as of December 28,
1997. As of December 28, 1997, the carrying value of the outstanding balance of
the Refinancing Loan was $6.0 million and the carrying value of the Development
Loan was $1.5 million.
11. STOCKHOLDERS' EQUITY
In December 1995, the Company completed the public sale of 10,350,000
shares of its common stock, receiving net proceeds of approximately $342.0
million.
Warrants
The Company has issued warrants to purchase 905,651 shares of common stock to
third parties exercisable at prices ranging from $7.03 to $25.00. The warrants
expire at various dates through December 2001.
Stock Option Plans
The Company has stock option plans (the "Plans") under which options to
purchase up to 17,240,000 shares of common stock may be granted. Under the
terms of the Plans, the Company may grant options to certain employees and
officers and directors of, and consultants to, the Company. The option price is
equal to the fair market value on the date of the grant and each option has a
term of ten years. The options vesting period is determined at the time of the
stock option grant by the Stock Option Committee of the board of directors.
Except with respect to the stock option exchange program described below,
options granted to date generally vest at either 10% at the end of the first
year, an additional 20% at the end of the second year, an additional 30% at the
end of the third year and the balance vesting at the end of the fourth year from
the date of the grant or vest ratably over a four-year period. The Company's
1997 stock option plan provides for 100% vesting of all outstanding options upon
the occurrence of a Change in Control (as defined in the option plan). As of
December 28, 1997, approximately 3.2 million options were outstanding under the
1997 stock option plan.
In October 1997, the Stock Option Committee of the board of directors
authorized a stock option exchange program to provide employees the opportunity
to exchange existing options for new options priced at fair market value on the
date of exchange. Approximately 3.4 million vested and unvested outstanding
options with original exercise prices ranging from $11.19 to $37.88 per share
were canceled in exchange for the grant of the same number of new options with
an exercise price of $8.94 per share. The vesting schedule of the new options
was determined based on the grant date of the canceled options. New options
issued upon cancellation of options originally granted from January 1, 1994
through November 14, 1994 vest 100% on November 10, 1998. New options issued
upon cancellation of 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 upon cancellation of options originally granted after
December 18, 1995, vest 33% on each of November 10, 1998, November 10, 1999 and
November 10, 2000.
The Company also maintains a stock option plan for non-employee directors (the
"Directors Plan") under which options to purchase up to 360,000 shares of common
stock may be granted. Under the terms of the Directors Plan, the Company
automatically grants to each director who is not an officer or employee of the
Company, options to purchase shares having a fair market value of $200,000 at
the date of grant, each time they are elected or reelected as a director of the
Company. The option price is equal to the fair market value of the stock on the
date of grant and each option generally has a term of ten years. The options are
exercisable at the end of one year of service from the date of grant.
ENBC has employee stock option plans under which options to purchase up to
11,813,146 shares of common stock of ENBC may be granted. ENBC also has a stock
option plan for non-employee directors under which options to purchase up to
100,000 shares of common stock of ENBC may be granted. The terms of these plans
are generally similar to the
52
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's plans, however, option grants to each director who is not an officer
or employee of the Company are limited to a market value of $50,000 at the date
of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Company's stock
options granted at fair market value to employees. Had employee compensation
expense for the Company's plans been determined based on the fair value at the
grant date for awards in 1995, 1996 and 1997 consistent with the provisions of
SFAS No. 123, the Company's net income (loss) and basic and diluted earning
(loss) per share would have been as indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net income (loss) - as reported.......... $33,559 $66,958 $(223,892)
Net income (loss) - pro forma............ $33,015 $62,638 $(237,438)
Basic earnings (loss) per share -
as reported........................... $ 0.71 $ 1.07 $ (3.32)
Basic earnings (loss) per share -
pro forma............................. $ 0.70 $ 1.01 $ (3.59)
Diluted earnings (loss) per share -
as reported............................ $ 0.66 $ 0.99 $ (3.32)
Diluted earnings (loss) per share -
pro forma.............................. $ 0.65 $ 0.94 $ (3.59)
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Expected volatility...................... 38.0% 37.1% 45.0%
Risk-free interest rate.................. 6.8% 6.3% 6.2%
Expected lives........................... 5 years 5 years 5 years
Dividend yield........................... 0 0 0
</TABLE>
Activity under the option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARE
NUMBER OF COMPANY OPTIONS EXERCISE PRICE
----------------------------------------------- ---------------------------------
1995 1996 1997 1995 1996 1997
--------- ---------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Company plans:
Options outstanding at
beginning of fiscal year. 8,140,421 8,668,265 8,704,381 $ 5.81 $ 8.36 $12.33
Options granted.......... 1,141,955 1,647,550 5,079,441 24.37 26.31 14.66
Options exercised....... (539,899) (1,343,647) (2,298,410) 2.68 3.94 3.04
Options forfeited........ (74,212) (267,787) (5,123,291) 21.07 15.13 23.68
--------- ---------- ---------- ------ ------ ------
Options outstanding at
end of fiscal year....... 8,668,265 8,704,381 6,362,121 $ 8.36 $12.33 $ 8.53
========= ========== ========== ====== ====== ======
Options exercisable at
end of fiscal year....... 2,693,143 4,152,163 2,566,891 $ 3.25 $ 4.41 $ 5.13
========= ========== ========== ====== ====== ======
</TABLE>
53
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Information on Company options outstanding and options exercisable as of
December 28, 1997, is as follows:
<TABLE>
<CAPTION>
COMPANY OPTIONS OUTSTANDING COMPANY OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE PRICE
EXERCISE PRICE OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS PER SHARE
- ----------------- --------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 3.00 1,261,960 4.24 $ 1.54 1,241,960 $ 1.53
3.01 - 6.00 949,347 5.36 4.15 949,347 4.15
6.01 - 9.00 3,202,647 9.87 8.93 - -
12.01 - 15.00 244,580 6.93 14.88 134,070 14.88
15.01 - 18.00 325,739 6.43 17.55 147,632 17.72
18.01 - 21.00 27,779 6.78 19.89 17,767 19.52
21.01 - 24.00 96,987 9.19 22.76 8,988 22.25
24.01 - 27.00 63,074 8.34 25.17 9,088 24.95
27.01 - 30.00 2,127 7.85 29.72 614 29.75
30.01 - 33.00 143,984 8.40 30.96 26,174 31.00
33.01 - 36.00 43,897 8.35 35.52 31,251 35.75
--------- ------- ---------- --------- ----------
6,362,121 7.71 $ 8.53 2,566,891 $ 5.13
========= ======= ========== ========= ==========
</TABLE>
Activity under the ENBC option plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
ENBC AVERAGE SHARE
OPTIONS EXERCISE PRICE
---------------------------- --------------------
1996 1997 1996 1997
---------- --------- ------- -------
<S> <C> <C> <C> <C>
Options outstanding at beginning
of fiscal year (or date of loan conversion)..... 3,410,734 3,478,075 $ 6.50 $ 6.87
Options granted............................... 239,714 2,327,327 12.57 11.48
Options exercised............................. (47,440) (269,904) 5.89 6.20
Options forfeited............................. (124,933) (579,611) 7.98 11.44
---------- --------- ------- -------
Options outstanding at end of fiscal year.......... 3,478,075 4,955,887 $ 6.87 $ 8.58
========== ========= ======= =======
Options exercisable at end of fiscal year.......... 275,824 557,816 $ 5.93 $ 6.56
========== ========= ======= =======
</TABLE>
54
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Information on ENBC options outstanding and exercisable as of December 28,
1997, is as follows:
<TABLE>
<CAPTION>
ENBC OPTIONS OUTSTANDING ENBC OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE PRICE
EXERCISE PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS PER SHARE
- --------------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.00 - $ 6.00 1,283,812 7.45 $ 5.88 406,151 $ 5.88
6.01 - 9.00 1,188,333 8.04 6.58 99,718 6.56
9.01 - 12.00 2,456,251 9.60 10.79 50,300 11.44
12.01 - 15.00 5,288 8.58 15.00 523 15.00
18.01 - 21.00 10,736 9.37 18.63 - -
27.01 - 30.00 9,124 8.94 29.59 911 29.59
30.01 - 33.00 1,546 8.77 32.65 137 32.63
33.01 - 34.00 797 8.81 33.66 76 33.67
--------- ------------ -------------- --------- --------------
4,955,887 8.67 $ 8.58 557,816 $ 6.56
========= ============ ============== ========= ==============
</TABLE>
As of December 28, 1997, the Company had 33,337,013 shares of common stock
reserved for issuance upon exercise of stock options and warrants and conversion
of convertible subordinated debentures and LYONs.
Earnings (Loss) Per Share
A reconciliation of the weighted average number of shares of common stock and
dilutive Company securities used in the computation of basic and diluted
earnings (loss) per share is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding to compute basic earnings (loss) per
share............................................... 47,312 62,857 67,339
Dilutive effect of common stock options,
warrants and convertible debentures................. 3,760 8,286 -
----------------- ------------------ ------------------
Diluted weighted average number of
shares outstanding.................................. 51,072 71,143 67,339
================= ================== ==================
</TABLE>
For the year ended December 29, 1996, net income was increased by $3.6
million in the computation of diluted earnings per share. The increase to net
income represents interest expense, net of income taxes on the Company's 4 1/2%
convertible subordinated debentures.
The calculation of diluted earnings (loss) per share excludes the Company's
liquid yield option notes and convertible subordinated debentures (other than
the impact in 1996 of the 4 1/2% convertible subordinated debentures) because
of their antidilutive effect. In addition, stock options and warrants
outstanding in 1995 and 1996, which had exercise prices greater than the average
market price of the Company's common stock, were excluded from the 1995 and 1996
computations because of their antidilutive effect. All stock options and
warrants outstanding in 1997 were excluded from the computation because of their
antidilutive effect.
12. RELATED-PARTY TRANSACTIONS
The Company and ENBC have entered into secured loan, area development, and
franchise agreements with certain area developers in which certain directors and
officers of the Company, ENBC and members of their families have a direct
55
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
or indirect equity interest. These entities have paid approximately $20.0
million, $41.0 million and $60.0 million in national and local advertising
contributions in 1995, 1996 and 1997. The Company and ENBC (since conversion on
June 17, 1996) have also sold to certain of these entities, stores, inventory,
equipment, and other miscellaneous assets, including reimbursement of the
Company's and ENBC's general and administrative costs and expenses, common
stock, and warrants to purchase common stock for which they received
approximately $14.6 million, $30.5 million and $3.6 million in 1995, 1996 and
1997, respectively. In 1997, the Company purchased from certain of these
entities, Boston Market stores and related assets for a purchase price of $25.6
million. The Company has paid to one of these area developers $100,000 in 1995
for various services. The Company believes that the terms of these agreements
are as favorable to the Company as those with other area developers of the
Company.
Pursuant to Statement of Financial Accounting Standards No. 57 "Related Party
Disclosures", all Company and ENBC financed area developers may be or may have
been deemed to be related parties as a result of the lending and franchise
relationships with their area developers. Total royalties and franchise related
fees earned from all financed area developers were $59.9 million, $110.9 million
and $116.6 million in 1995, and 1996 and 1997, respectively. Total interest
income earned from all financed area developers was $32.0 million, $57.1 million
and $81.6 million in 1995, 1996 and 1997, respectively. Total notes receivable
from all financed area developers were $788.0 million and $800.0 million at
December 29, 1996 and December 28, 1997, respectively.
Certain officers and directors of the Company have an equity interest in ENBC.
For the Company's 1995 fiscal year, ENBC paid to the Company approximately $1.2
million for the purchase of furniture, equipment, and other miscellaneous
assets. In addition, ENBC paid to the Company approximately $3.0 million and
$7.6 million in software license, software maintenance, real estate, financial
advisory, accounting fees, and interest on its loan with the Company during
fiscal 1995 and 1996 (prior to conversion on June 17, 1996), respectively.
As of December 29, 1996 and December 28, 1997, ENBC had notes receivable from
a stockholder of $3.4 million. The notes receivable bear interest at the
applicable reference rate of Bank of America National Trust and Savings
Association plus 1%. Principal and interest are due April 2001. The notes are
collateralized by various assets.
Certain officers and directors of the Company are officers and minority
investors in BCEF, having invested $4.2 million of an aggregate of $60.0 million
at December 28, 1997. The Company has been engaged by BCEF to be its manager
for which it received fees of $375,000 in 1995 and $125,000 in 1996. Neither
the Company nor ENBC has an equity interest in BCEF.
Certain officers and directors of the Company and ENBC and members of their
families are investors in Bagel Funding, having invested $16.3 million of an
aggregate of $89.6 million. ENBC is the manager of Bagel Funding. Bagel Funding
paid $250,000 to ENBC (since conversion on June 17, 1996) during 1996 in its
capacity as manager. Neither the Company nor ENBC has an equity interest in
Bagel Funding. Certain officers and directors of ENBC and members of their
families acquired equity interests in ENBC's area developers in exchange for
promissory notes. These equity interests were converted into equity interests in
Bagel Partners in December 1997 and were redeemed in exchange for cancellation
of such promissory notes (having an aggregate principal amount of approximately
$2.1 million) in January 1998.
Certain officers and directors of the Company have an equity interest in
Market Partners, having invested $9.4 million of an aggregate of $76.5 million
at December 28, 1997. Neither the Company nor ENBC has an equity interest in
Market Partners.
During 1997, the Company purchased approximately a 92% equity interest in PFCI
for $2.7 million in cash and notes in the principal amount of approximately $6.4
million from Saad Nadhir and Scott Beck (See Note 3). PFCI, prior to its
acquisition, paid $0.5 million in interest on its loan with the Company.
56
<PAGE>
BOSTON CHICKEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In July 1997, the Company sold to certain directors and members of their
family, all of its 20,000 shares 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. Such
per share price was 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.
During 1995 and 1996, the Company paid approximately $662,000 and $282,000,
respectively, to Bowana Aviation, Inc. ("Bowana") for the use of aircraft. Scott
Beck and a relative owned Bowana. The Company believes that the amounts charged
are at rates at least comparable to those charged by third parties.
13. ENBC EQUITY OFFERINGS
During 1996 and 1997, from the date of the conversion of the Company's loan
to ENBC, ENBC issued approximately 9.9 million shares of its common stock to
third parties pursuant to an initial and a subsequent public offering, a
concurrent non-underwritten public offering, and through the exercise of stock
options and warrants at prices ranging from $5.88 per share to $28.58 per share.
Prior to these transactions, the Company held approximately a 70% interest in
ENBC, and subsequent to these transactions at December 28, 1997, the Company
held approximately a 52% interest in ENBC. These transactions generated a pretax
gain of approximately $38.2 million in 1996 and $0.2 million in 1997, as a
result of ENBC issuing shares of common stock at prices per share greater than
the Company's carrying value. Deferred income taxes have been provided on the
gain.
14. IMPAIRMENT LOSS
In addition to the impairment loss on notes receivable (See Note 10), in
1997, the Company recognized an impairment loss of $76.3 million on various
long-lived assets. The loss resulted primarily from the planned disposition of
store related real estate for closed Boston Market stores and the
discontinuation of computer software, hardware and other store related programs,
all of which had a net book value of $80.1 million. The Company plans to dispose
of the real estate in 1998. In addition, ENBC recognized an impairment loss of
$10.8 million which related primarily to the planned closure of a bagel dough
production facility, anticipated to be disposed of in 1998. In addition, as a
result of ENBC's transition to a Company-owned system, ENBC wrote-off certain
store development costs and other store related programs. ENBC assets subject to
the impairment loss had a net book value of $11.6 million. The impairment losses
are included in general and administrative expenses in the accompanying
statement of operations.
15. SUBSEQUENT EVENT
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 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 of the Company and $10.0 million in
cash. 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 transaction is subject to approval of
holders owning at least two-thirds of the interest of each of BCEF and Market
Partners, regulatory approvals and final documentation.
57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Chicken, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Boston Chicken, Inc. and subsidiaries as of
December 29, 1996 and December 31, 1997, and for the fiscal years ended December
31, 1995, December 29, 1996 and December 28, 1997 included in this Form 10-K,
and have issued our report thereon dated February 18, 1998 (except Notes 6, 10
and 15 as to which the date is March 30, 1998). Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The supplemental schedule listed in Part IV, Item 14 of this Form 10-K is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 18, 1998
(except Notes 6, 10 and
15 as to which the date
is March 30, 1998)
58
<PAGE>
SCHEDULE II
BOSTON CHICKEN, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS(a) PERIOD
- ----------------------------------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 28, 1997:
ACCOUNTS RECEIVABLE-ALLOWANCE
FOR DOUBTFUL ACCOUNTS................. $ 424,000 $ 847,915(b) $ 111,915 $ 1,160,000
FISCAL YEAR ENDED DECEMBER 29, 1996:
Accounts Receivable-Allowance
for Doubtful Accounts................. 1,042,585 402,307 1,020,892 424,000
Fiscal year ended December 31, 1995:
Accounts Receivable-Allowance
for Doubtful Accounts.................. 246,193 796,392 - 1,042,585
Fiscal year ended December 28, 1997:
Due from Affiliates-Allowance
for Doubtful Accounts................. - 12,902,450 - 12,902,450
Fiscal year ended December 29, 1996:
Due from Affiliates-Allowance
for Doubtful Accounts................. - - - -
Fiscal year ended December 31, 1995:
Due from Affiliates-Allowance
for Doubtful Accounts................. - - - -
</TABLE>
(a) Deductions represent recoveries of doubtful accounts and write-offs of
uncollectible accounts.
(b) $800,000 of additions were charged to goodwill in connection with
acquisitions.
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. The information appearing under the caption "Election of
Directors" in the Company's Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held May 20, 1998 (the "Proxy Statement"), is
incorporated herein by reference.
Executive Officers. Information with respect to executive officers of the
Company is set forth under the caption "Executive Officers" in item 1 of this
report.
Compliance with Section 16(a) of the Exchange Act. The information appearing
under the caption "Principal Stockholders and Securities Ownership of
Management - Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Principal Stockholders and
Securities Ownership of Management" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Transactions" in the
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements, Schedules and Exhibits
1. The Company's Consolidated Financial Statements are set forth in Part
II, Item 8.
A. Report of Independent Public Accountants (Arthur Andersen LLP);
B. Consolidated Balance Sheets at December 29, 1996 and December 28,
1997;
C. Consolidated Statements of Operations for each of the three years
ended December 31, 1995, December 29, 1996 and December 28, 1997;
D. Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1995, December 29, 1996 and December 28,
1997;
E. Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1995, December 29, 1996 and December 28, 1997; and
F. Notes to Consolidated Financial Statements.
60
<PAGE>
2. The following schedules are set forth in Part II, Item 8.
A. Report of Independent Public Accountants (Arthur Andersen LLP);
B. Schedule II - Valuation and Qualifying Accounts.
3. EXHIBITS
(a) The exhibits to this report are listed in the Exhibit Index included
elsewhere herein. Included in the exhibits listed therein are the following
exhibits which constitute management contracts or compensatory plans or
arrangements:
(i) Amended and Restated 1991 Employee Stock Option Plan. Exhibit
10.4(a)
(ii) Amendment to Amended and Restated 1991 Employee Stock Option Plan.
Exhibit 10.4(b)
(iii) 1995 Employee Stock Option Plan. Exhibit 10.5(a)
(iv) Amendment to 1995 Employee Stock Option Plan. Exhibit 10.5(b)
(v) Second Amendment to 1995 Employee Stock Option Plan. Exhibit
10.5(c)
(vi) Amended and Restated 1991 Stock Option Plan for Non-Employee
Directors. Exhibit 10.6
(vii) Amendment to 1991 Stock Option Plan for Non-Employee Directors.
Exhibit 10.7
(viii) Consulting Agreement dated October 14, 1995, between the Company
and J. Bruce Harreld. Exhibit 10.16
(ix) Option Agreement between the Company and Mark W. Stephens dated as
of April 23, 1996. Exhibit 10.19
(x) Option Agreement between the Company and Mark R. Goldston dated as
of April 23, 1996. Exhibit 10.20
(xi) Option Agreement between the Company and Saad J. Nadhir dated as of
July 25, 1996. Exhibit 10.29
(xi) Letter Agreement between the Company and Jeffry J. Shearer dated as
of August 19, 1996. Exhibit 10.30
(xii) Letter Agreement between the Company and Thomas R. Sprague dated
December 27, 1996. Exhibit 10.33
(xiv) Transition and Consulting Agreement between the Company and
Laurence Zwain dated August 29, 1997. Exhibit 10.43
(xv) 1997 Stock Option Plan. Exhibit 10.45(a)
(xvi) Amendment to 1997 Stock Option Plan. Exhibit 10.45(b)
(xvii) Termination Agreement dated December 26, 1997 by and between the
Company and Mark R. Goldston. Exhibit 10.47
(xviii) Termination Agreement dated December 26, 1997 by and between ENBC
and Mark R. Goldston. Exhibit 10.48
(xix) Letter Agreement dated August 25, 1997 relating to employment of
Saad J. Nadhir. Exhibit 10.49(a)
(xx) Amendment to Letter Agreement dated January 19, 1998 relating to
employment of Saad J. Nadhir. Exhibit 10.49(b)
(xxi) Letter Agreement dated August 28, 1997 relating to employment of
Mark W. Stephens. Exhibit 10.50(a)
(xxii) Amendment to Letter Agreement dated January 19, 1998 relating to
employment of Mark W. Stephens. Exhibit 10.50(b)
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during the quarter ended December
28, 1997.
The first report was dated October 30, 1997 (the "October Form 8-K"). The
October Form 8-K reported under Item 5 (Other Events) (i) that the board of
directors of the Company had recommended that the Company change to a system in
which Boston Market Stores are owned by the Company instead of being owned by
area developers of the
61
<PAGE>
Company and that becoming a Company-owned system could best be achieved by the
Company first acquiring BC Equity Funding, L.L.C. and Market Partners, L.L.C.,
(ii) the Company's results for the third quarter ended October 5, 1997 and (iii)
that the Company had amended its senior credit facility to provide an $85
million revolving loan.
The second report was dated December 5, 1997 (the "December Form 8-K"). The
December Form 8-K reported under Item 2 (Acquisitions or Disposition of Assets)
that Einstein/Noah Bagel Corp. ("ENBC"), a 52% owned subsidiary of the Company,
acquired an approximately 77% interest in Einstein/Noah Bagel Partners, L.P.,
the surviving entity of the merger of ENBC's five area developers.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1998
Boston Chicken, Inc.
By: /s/ SAAD J. NADHIR
-------------------------------------------
Name: Saad J. Nadhir
Title: Co-Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 30, 1998.
SIGNATURE TITLE
--------- -----
/s/ SAAD J. NADHIR Co-Chairman of the Board, Chief
------------------------- Executive Officer, and Director
Saad J. Nadhir (Principal Executive Officer)
/s/ SCOTT A. BECK Co-Chairman of the Board, President
------------------------- and Director
Scott A. Beck
/s/ MARK W. STEPHENS Vice Chairman of the Board.
------------------------- Chief Financial Officer and
Mark W. Stephens Director
(Principal Financial Officer)
/s/ MARK A. LINK Vice President--Financial Reporting
------------------------- (Principal Accounting Officer)
Mark A. Link
/s/ ARNOLD C. GREENBERG Director
-------------------------
Arnold C. Greenberg
/s/ J. BRUCE HARRELD Director
-------------------------
J. Bruce Harreld
/s/ M HOWARD JACOBSON Director
-------------------------
M Howard Jacobson
/s/ PEER PEDERSEN Director
-------------------------
Peer Pedersen
63
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
NUMBER Exhibits
- ------- --------
<C> <S>
2.1 Form of Secured Loan Agreement by and between ENBC and each of Colonial Bagels, L.P.,
Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., Sunbelt Bagels, L.L.C. and Noah's
Pacific, L.L.C. (incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 5, 1997).
3.1(a) Certificate of Incorporation of the Company, as amended (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Reg. No. 33-71930)).
3.1(b) Certificate of Amendment to Certificate of Incorporation dated May 14, 1996 of the
Company (incorporated by reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 21, 1996).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1 (Reg. No. 33-81001).
4.1(a) Certificate of Incorporation of the Company, as amended (included in Exhibit 3.1(a)).
4.1(b) Certificate of Amendment to Certificate of Incorporation (included in Exhibit 3.1(b)).
4.2 Amended and Restated Bylaws of the Company (included in Exhibit 3.2).
4.3 Indenture dated as of February 1, 1994 by and between the Company and Harris Trust
and Savings Bank, as Trustee, which includes as Exhibit A the form of Debenture for
the Company's 4 1/2% Convertible Subordinated Debentures Due 2004 (the "4 1/2%
Debenture Indenture") (incorporated by reference to Exhibit 4.1 to the Company's 1993
annual report on Form 10-K).
4.4(a) Secured Revolving Credit Agreement dated as of December 9, 1996 among the Company,
Bankers Trust Company, as Documentation Agent, Bank of America National Trust and
Savings Association, as Agent, and the Lenders named therein ("Credit Agreement")
(incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-3 (Reg. No. 333-22917)).
4.4(b) First Amendment and consent dated October 24, 1997 ("Credit Agreement Amendment") to
Credit Agreement (incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 5, 1997).
4.5 Amended and Restated Facilities Agreement dated as of October 24, 1997, among the
Company, Bank of America National Trust and Savings Association, as Agent for certain
lenders and General Electric Capital Corporation, for itself and as Agent for certain
lease participants ("Amended and Restated Facilities Agreement") (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended October 5, 1997).
4.6 Concurrent Private Placement Agreement dated November 8, 1993 (incorporated by
reference to Exhibit 4.7 to the Company's Registration Statement on Form S-1 (Reg.
No. 33-73870)).
</TABLE>
Exhibit-1
<PAGE>
EXHIBIT
- -------
NUMBER
- ------ EXHIBIT
<TABLE> -------
<CAPTION>
<C> <S>
4.7 Second Amended and Restated Piggyback Registration Agreement dated November 8, 1993
(incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-73870)).
4.8 Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.7 to
the Company's Registration Statement on Form S-1 (Reg. No. 33-69256)).
4.9 Indenture dated as of June 1, 1995 by and between the Company and Chemical Bank, as
Trustee, which includes as an exhibit the form of LYON for the Company's Liquid Yield
Option Notes due 2015 (the "LYONs Indenture") (incorporated by reference to Exhibit
4.14 to the Company's Registration Statement on Form S-3 (Reg. No. 33-93872)).
4.10 Warrant Purchase Agreement dated as of July 18, 1996 by and between the Company and
Market Partners, L.L.C. ("Market Partners"), including the form of Warrant ("Warrant
Purchase Agreement") (incorporated by reference to Exhibit 4.17 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-15389)).
4.11 Registration Rights Agreement dated as of September 27, 1996 by and between the
Company and Market Partners (incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement on Form S-8 (Reg. No. 333-15389)).
4.12 Amended and Restated Warrant Certificate of the Company dated December 29, 1997
issued to General Electric Capital Corporation ("Amended and Restated GECC Warrant
Certificate").
4.13 Amended and Restated Registration Rights Agreement dated as of December 29, 1997 by
and between the Company and General Electric Capital Corporation.
4.14 Indenture dated as of April 28, 1997 by and between the Company and Bankers Trust
Company, as Trustee, which includes as an Exhibit the form of Debenture for the
Company's 7 3/4% Convertible Subordinated Debentures due 2004 (the "7 3/4%
Debenture Indenture") (incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 20, 1997).
4.15 Warrant Certificate of the Company dated December 5, 1997 issued to AT&T Commercial
Finance Corporation ("AT&T") ("AT&T Warrant Certificate").
4.16 Registration Rights Agreement dated as of December 5, 1997 by and between the Company
and AT&T.
4.17 Warrant Certificate of the Company dated December 5, 1997 issued to Sanwa Business
Credit Corporation ("Sanwa") ("Sanwa Warrant Certificate").
4.18 Registration Rights Agreement dated as of December 5, 1997 by and between the Company
and Sanwa.
10.1(a) Credit Agreement (included in Exhibit 4.4(a)).
10.1(b) Credit Agreement Amendment (included in Exhibit 4.4(b)).
</TABLE>
Exhibit-2
<PAGE>
EXHIBIT
- -------
NUMBER
- ------ EXHIBIT
<TABLE> -------
<CAPTION>
<C> <S>
10.2 Amended and Restated Facilities Agreement (included in Exhibit 4.5).
10.3 4 1/2% Debenture Indenture (included in Exhibit 4.3).
10.4(a) Amended and Restated 1991 Employee Stock Option Plan (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Reg. No. 33-69256)).
10.4(b) Amendment to Amended and Restated 1991 Employee Stock Option Plan.
10.5(a) 1995 Employee Stock Option Plan (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1 (Reg. No. 33-81001))
10.5(b) Amendment to 1995 Employee Stock Option Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 20,
1997).
10.5(c) Second Amendment to 1995 Employee Stock Option Plan.
10.6 Amended and Restated 1991 Stock Option Plan for Non-Employee Directors (the
''Directors Plan'') (incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-69256)).
10.7 Amendment to Directors Plan (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-81001)).
10.8 Concurrent Private Placement Agreement dated November 8, 1993 (included in Exhibit
4.6).
10.9(a) Amended and Restated Accounting and Administration Services Agreement dated as of May
28, 1996 between the Company and ENBC (incorporated by reference to Exhibit 10.12(a)
to the Registration Statement on Form S-1 of ENBC (Registration No. 333-04725)).
10.9(b) First Amendment to Amended and Restated Accounting and Administration Services
Agreement dated as of June 17, 1996 between the Company and ENBC (incorporated by
reference to Exhibit 10.12(b) to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
10.10(a) Amended and Restated Computer and Communications Systems Services Agreement dated as
of June 17, 1996 between the Company and ENBC (incorporated by reference to Exhibit
10.15(a) to the Registration Statement on Form S-1 of ENBC (Registration No.
333-04725)).
10.10(b) First Amendment to the Amended and Restated Computer Communications Systems Services
Agreement dated as of June 17, 1996 between the Company and ENBC (incorporated by
reference to Exhibit 10.15(b) to the Registration Statement on Form S-1 of ENBC
(Registration No. 333-04725)).
10.11(a) Amended and Restated Loan Agreement dated May 17, 1996 between the Company and ENBC
(incorporated by reference to Exhibit 10.1(a) to ENBC's Registration Statement on
Form S-1 (Reg. No. 333-04725)).
</TABLE>
Exhibit-3
<PAGE>
EXHIBIT
- -------
NUMBER EXHIBIT
- ------ -------
<TABLE>
<S> <C>
10.11(b) First Amendment to the Amended and Restated Loan Agreement between the Company and
ENBC dated July 19, 1996 (incorporated by reference to Exhibit 10.1(b) to the
Registration Statement on Form S-1 of ENBC (Registration No. 333-04725)).
10.11(c) Second Amendment to the Amended and Restated Loan Agreement between the Company and
ENBC dated September 16, 1996 and Second Amendment to Secured Demand Note of ENBC
dated September 16, 1996 (incorporated by reference to Exhibit 10.1(c) to ENBC's
Registration Statement on Form S-1 (Registration No. 333-12395)).
10.11(d) Third Amendment to the Amended and Restated Loan Agreement between the Company and
ENBC dated November 21, 1997 (incorporated by reference to Exhibit 10.1(d) to ENBC's
1997 annual report on Form 10-K (Exchange Act File No. 0-21097)).
10.11(e) Secured demand note of ENBC dated January 30, 1996, in favor of the Company
(incorporated by reference to Exhibit 10.23(d) to the Company's 1995 annual report on
Form 10-K).
10.11(f) First Amendment to Secured Demand Note of ENBC dated as of March 7, 1996
(incorporated by reference to Exhibit 10.3(b) to ENBC's Registration Statement on
Form S-1 (Reg. No. 333-04725)).
10.11(g) Second Amendment to Secured Demand note of ENBC dated as of September 16, 1996
(incorporated by reference to Exhibit 10.1(c) ENBC's Registration Statement on Form
S-1 (Reg. No. 333-04725).
10.11(h) Amended and Restated Nonconvertible Note of ENBC dated November 21, 1997
(incorporated by reference to Exhibit 10.3(d) to ENBC's 1997 annual report on Form
10-K (Exchange Act File No. 0-21097)).
10.12 LYONs Indenture (included in Exhibit 4.9).
10.13 Form of Area Development between the Company and its Area Developers (incorporated by
reference to Exhibit 99 to the Company's Report on Form 10-Q for the quarter ended
October 5, 1997).
10.14 Form of Franchise Agreement between the Company and Boston Market Franchisees
(incorporated by reference to Exhibit 99 to the Company's Report on Form 10-Q for the
quarter ended October 5, 1997).
10.15 Form of Secured Loan Agreement between the Company and Area Developers partially
financed by the Company (incorporated by reference to Exhibit 99 to the Company's
Report on Form 10-Q for the quarter ended October 5, 1997).
</TABLE>
Exhibit-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER Exhibits
- ------ --------
<C> <S>
10.16 Consulting Agreement dated October 14, 1995, between the Company and
J. Bruce Harreld (incorporated by reference to Exhibit 10.30 to the Company's 1995
annual report on Form 10-K).
10.17 Purchase and Supply Agreement (Amended and Restated as of April 1, 1996) between the
Company and Hudson Foods, Inc. (incorporated by reference to Exhibit 10 to Form 10-Q
for the quarter ended March 30, 1996 filed by Hudson Foods, Inc., Commission File No.
1-9050).
10.18 Concurrent Private Placement Agreement and Registration Agreement dated August 1,
1996 between the Company and ENBC (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 14, 1996).
10.19 Option Agreement between the Company and Mark W. Stephens dated as of April 23, 1996
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 14, 1996).
10.20 Option Agreement between the Company and Mark R. Goldston dated as of April 23, 1996
(incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 14, 1996).
10.21(a) Amended and Restated Secured Credit Agreement dated as of November 21, 1997 ("ENBC
Secured Credit Agreement") among ENBC, the Lenders named therein, and Bank of America
National Trust and Savings Association, as Agent (incorporated by reference to
Exhibit 10.6 to ENBC's Current Report on Form 8-K dated November 21, 1997 (Exchange
Act File No. 0-21097)).
10.21(b) First Amendment and Waiver dated March 27, 1998 to ENBC's Secured Credit Agreement
(incorporated by reference to Exhibit 10.4(b) to ENBC's 1997 Annual Report on Form
10-K) (Exchange Act File No. 0-21097).
10.22 Amended and Restated Option Agreement dated August 15, 1997 among ENBC, Harlan Bagel
Supply Company, L.L.C., and Hal P. Harlan, Hugh P. Harlan, and Doug H. Harlan (the
"Harlan's") (incorporated by reference to Exhibit 10.4 to ENBC's Quarterly Report on
Form 10-Q for the quarter ended October 5, 1997 (Exchange Act File No. 0-21097)).
10.23 Amended and Restated Project and Approved Supplier Agreement among Harlan Bagel
Supply Company, Harlan Bakeries, Inc., the Harlan's and ENBC (incorporated by
reference to Exhibit 10.3 to ENBC's Quarterly Report on Form 10-Q for the quarter
ended October 5, 1997 (Exchange Act File No. 0-21097)).
10.24 Right of First Refusal Agreement among ENBC, Harlan Bakeries, Inc. and the Harlan's
(incorporated by reference to Exhibit 10.26 to ENBC's Registration Statement on Form
S-1 (Registration No. 333-12395)).
10.25 Warrant Purchase Agreement (included in Exhibit 4.10).
</TABLE>
Exhibit-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER Exhibits
- ------ --------
<C> <S>
10.26 Amended and Restated GECC Warrant Certificate (included in Exhibit 4.12).
10.27 AT&T Warrant Certificate of the Company (included in Exhibit 4.15).
10.28 Sanwa Warrant Certificate of the Company (included in Exhibit 4.17).
10.29 Option Agreement between the Company and Saad J. Nadhir dated as of July 25, 1996
(incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 6, 1996).
10.30 Letter Agreement between the Company and Jeffry J. Shearer dated as of August 19,
1996 (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 6, 1996).
10.31 Sixth Amended and Restated Limited Liability Company Agreement of Bagel Store
Development Funding, L.L.C. dated as of December 5, 1997 (incorporated by reference
to Exhibit 10.16 to ENBC's 1997 annual report on Form 10-K (Exchange Act File No.
0-21097)).
10.32 Concurrent Offering Purchase Agreement dated November 26, 1996 between the Company
and ENBC (incorporated by reference to Exhibit 10.41 to the Company's 1996 annual
report on Form 10-K).
10.33 Letter Agreement dated December 27, 1996 between the Company and Thomas R. Sprague
(incorporated by reference to Exhibit 10.43 to the Company's 1996 annual report on
Form 10-K).
10.34(a) Master Lease Agreement No. 2 dated as of December 9, 1996 between the Company, as
Lessee, and General Electric Capital Corporation, for itself and as Agent for certain
participants (incorporated by reference to Exhibit 10.44(a) to the Company's 1996
annual report on Form 10-K).
10.34(b) Amendment No. 1 to Master Lease Agreement No. 2 dated as of February 28, 1997 between
the Company, as Lessee, and General Electric Capital Corporation, for itself and as
Agent for certain participants (incorporated by reference to Exhibit 10.44(b) to the
Company's 1996 annual report on Form 10-K).
10.34(c) Amendment No. 2 to Master Lease Agreement No. 2 dated as of March 18, 1997 between
the Company, as Lessee, and General Electric Capital Corporation, for itself and as
Agent for certain participants (incorporated by reference to Exhibit 10.44(c) to the
Company's 1996 annual report on Form 10-K/A filed with the Commission on April 25,
1997).
10.35 Secured Loan Agreement dated as of January 31, 1997 between the Company and HFMI
Acquisition Corporation, now known as Progressive Food Concepts, Inc. (incorporated
by reference to Exhibit 10.45 to the Company's 1996 annual report on Form 10-K).
</TABLE>
Exhibit-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER Exhibits
- ------ --------
<C> <S>
10.36(a) Amendment No. 1 to Master Lease Agreement dated as of September 28, 1995 between the
Company, as Lessee, and General Electric Capital Corporation, for itself and as Agent
for certain participants (incorporated by reference to Exhibit 10.46(a) to the
Company's report on Form 10-K/A filed with the Commission on April 25, 1997).
10.36(b) Amendment No. 2 dated as of December 9, 1996 to Master Lease Agreement between the
Company, as Lessee, and General Electric Capital Corporation, for itself and as Agent
for certain participants (incorporated by reference to Exhibit 10.46(b) to the
Company's 1996 annual Report on Form 10-K/A filed with the Commission on April 25,
1997).
10.36(c) Amendment No. 3 dated as of March 18, 1997 to Master Lease Agreement between the
Company, as Lessee, and General Electric Capital Corporation, for itself and as Agent
for certain participants (incorporated by reference to Exhibit 10.46(c) to the
Company's 1996 annual Report on Form 10-K/A filed with the Commission on April 25,
1997).
10.37 7 3/4% Debenture Indenture (included in Exhibit 4.14).
10.38 Indenture dated as of May 29, 1997 by and between ENBC and Bankers Trust Company, as
Trustee, which includes as Exhibits the forms of Debenture for ENBC's 7 1/4%
convertible subordinated debentures due 2004 (incorporated by reference to Exhibit
4.1 to ENBC's Current Report on Form 8-K dated as of May 22, 1997 (Exchange Act File
No. 0-21097)).
10.39 Uniform Franchise Offering Circular dated March 25, 1997 as amended July 11, and
August 15, 1997 (incorporated by reference to Exhibit 99 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 5, 1997).
10.40 Purchase Agreement dated as of August 27, 1997, among the Company, Scott A. Beck and
Saad J. Nadhir, including promissory notes from the Company in favor of Scott A. Beck
and Saad J. Nadhir (incorporated by reference to Exhibit 10.4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 5, 1997).
10.41 Assignment and Assumption Agreement dated August 27, 1997 by the Company in favor of
Scott A. Beck (incorporated by reference to Exhibit 10.4(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 5, 1997).
10.42 Assignment and Assumption Agreement dated August 27, 1997 by the company in favor of
Saad J. Nadhir (incorporated by reference to Exhibit 10.4(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 5, 1997).
10.43 Transition and Consulting Agreement dated August 29, 1997 between the Company and
Laurence Zwain (incorporated by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 5, 1997).
10.44 1998 Restricted Stock Unit Plan.
10.45(a) 1997 Stock Option Plan.
</TABLE>
Exhibit-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER Exhibits
- ------ --------
<C> <S>
10.45(b) Amendment to 1997 Stock Option Plan.
10.46 Purchase Agreement dated as of November 7, 1997, among the Company, Scott A. Beck and
Saad J. Nadhir, including amended and restated promissory notes from the Company in
favor of Scott A. Beck and Saad J. Nadhir.
10.47 Termination Agreement dated December 26, 1997 by and between the Company and Mark R.
Goldston.
10.48 Termination Agreement dated December 26, 1997 by and between ENBC and Mark R.
Goldston (incorporated by reference to Exhibit 10.25 to ENBC's 1997 Annual Report on
Form 10-K (Exchange Act File No. 0-21097)).
10.49(a) Letter Agreement dated August 25, 1997 relating to employment of Saad J. Nadhir.
10.49(b) Amendment to Letter Agreement dated January 19, 1998 between the Company and Saad J.
Nadhir.
10.50(a) Letter Agreement dated August 28, 1997 relating to employment of Mark W. Stephens.
10.50(b) Amendment to Letter Agreement dated January 19, 1998 between the Company and Mark W.
Stephens.
10.51 Area Developer Merger Agreement and Plan of Merger dated as of December 5, 1997 among
Colonial Bagels, L.P., Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., Sunbelt
Bagels, L.L.C. and Einstein/Noah Bagel Partners, L.P. (formerly Noah's Pacific,
L.L.C.) (incorporated by reference to Exhibit 10.1 to ENBC's Current Report on Form
8-K dated November 21, 1997 (Exchange Act File No. 0-21097)).
10.52 Partnership Agreement of Einstein/Noah Bagel Partners, L.P. (incorporated by
reference to Exhibit 10.2 to ENBC's Current Report on Form 8-K dated November 21,
1997 (Exchange Act File No. 0-21097)).
10.53 Loan Agreement dated as of December 5, 1997 by and between ENBC and Einstein/Noah
Bagel Partners, L.P. (incorporated by reference to Exhibit 10.3 to ENBC's Current
Report on Form 8-K dated November 21, 1997 (Exchange Act File No. 0-21097)).
10.54 Amended and Restated Development Agreement dated as of December 5, 1997 by and
between ENBC and Einstein/Noah Bagel Partners, L.P. (incorporated by reference to
Exhibit 10.4 to ENBC's Current Report on Form 8-K dated November 21, 1997 (Exchange Act File
No. 0-21097)).
10.55 Services Agreement dated as of December 15, 1997 by and among Einstein/Noah Bagel
Partners, L.P. and ENBC (incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K dated December 5, 1997 (Exchange Act File No. 0-21097)).
21 Subsidiaries of the Company.
</TABLE>
Exhibit-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER Exhibits
- ------ --------
<C> <S>
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for Fiscal Year Ended December 28, 1997.
27.2 Restated Financial Data Schedule for Fiscal Years Ended December 29, 1996 and
December 31, 1995.
27.3 Restated Financial Data Schedule including Columns for Quarters Ended April 20, 1997,
July 13, 1997 and October 5, 1997.
27.4 Restated Financial Data Schedule including Columns for Quarters Ended April 21, 1996,
July 14, 1996 and October 6, 1996.
99.1 Form of Amended and Restated Agreements between the Company and BC Equity Funding,
L.L.C. (incorporated by reference to Exhibit 99.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 14, 1996).
</TABLE>
Exhibit-9
<PAGE>
Exhibit 4.12
This Warrant has not been registered under the
Securities Act of 1933, as amended (the
"Securities Act") or under any applicable state
securities law, and in the absence of such
registration may not be sold or transferred
unless the issuer of this Warrant has received an
opinion of its counsel, or of counsel reasonably
satisfactory to it, that the proposed sale or
transfer will not violate the registration
requirements of the Securities Act or any
applicable state securities law
BOSTON CHICKEN, INC.
AMENDED AND RESTATED
WARRANT CERTIFICATE TO PURCHASE
SHARES OF COMMON STOCK
----------------------
Date of Issuance: December 29, 1997 Certificate W-GE-2
FOR VALUE RECEIVED, Boston Chicken, Inc., a Delaware corporation (the
"Company"), hereby grants to General Electric Capital Corporation (the
"Registered Holder") the right to purchase from the Company 69,600 shares of the
Company's Common Stock, $.01 par value, at a price per share of $10.5625 (as
adjusted from time to time in accordance herewith, the "Exercise Price"). This
Amended and Restated Warrant Certificate to Purchase Shares of Common Stock
hereby amends, restates and replaces in its entirety that certain Warrant
Certificate to Purchase Shares of Common Stock dated December 12, 1996 from the
Company in favor of the Registered Holder.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on Date of Issuance of this Warrant set
forth above and ending on December 12, 2001 (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
<PAGE>
(b) this Warrant;
(c) cash (payable by wire transfer of same day funds or a
certified or bank cashier's check) in an amount equal to the product of the
Exercise Price multiplied by the number of shares of Company Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price").
(ii) Certificates for shares of Common Stock, if any, purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser as
soon as reasonably practicable after the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, as soon as reasonably practicable, deliver
such new Warrant to the person designated for delivery in the Exercise
Agreement.
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such shares of Common Stock at the Exercise Time irrespective
of the date of delivery of certificates for shares of Common Stock.
(iv) The issuance of certificates for shares of Common Stock, if any,
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Common Stock (other than the Aggregate Exercise Price).
Each share of Common Stock issuable upon exercise of this Warrant shall, when
issued, be duly and validly issued and free from all taxes, liens and charges.
(v) The Company shall reasonably assist and cooperate with the
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any reasonable filings
required to be made by the Company), provided, however, that the Company will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph
(v), (B) subject itself to taxation in any such jurisdiction, (C) consent to
general service of process in any such jurisdiction, or (D) incur costs or fees
which are inordinate to the value of the securities sought to be sold in such
jurisdiction.
(vi) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock solely for the purpose of issuance upon
the exercise of this Warrant the maximum number of shares issuable upon the
exercise of this Warrant. All shares which are so issuable shall, when issued
in accordance herewith upon the payment of the Exercise Price, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be reasonably necessary
to assure that all such shares of Common Stock may be so issued without
violation of any
<PAGE>
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock of the Company or their
equivalents may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon such issuance).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering of the Company or any event described in Section 2B hereof, the
exercise of any portion of this Warrant may, at the election of the Registered
Holder hereof, be conditioned upon the consummation of the public offering or
the event described in Section 2B, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
(viii) Unless the shares of Common Stock to be issued upon exercise
of this Warrant have been registered under the Securities Act of 1933, as
amended, the certificates for such shares shall contain the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), or under any
applicable state securities law, and may not be resold or transferred unless
registered under the Securities Act or unless the Company has received an
opinion of its counsel, or of counsel reasonably satisfactory to it, that the
proposed transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law."
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit I hereto,
except that if the shares of Common Stock are not to be issued in the name of
the person in whose name this Warrant is registered, the Exercise Agreement
shall also state the name of the person to whom the shares of Common Stock are
to be issued. Such Exercise Agreement shall be dated the actual date of
execution thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the number of shares of Common Stock (or other securities)
obtainable upon exercise of this Warrant shall be subject to adjustment from
time to time as provided in this Section 2.
2A. Subdivision or Combination of Shares of Common Stock. If the Company
at any time subdivides (by any split, dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2B. Reorganization, Reclassification, Consolidation or Merger. The shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted as
follows: (a) in the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, there shall be substituted,
on an equitable basis, for each such share of Common Stock the number and kind
of shares of stock or other securities to which the holders of each share of
Common Stock of the Company will be entitled pursuant to the transaction; and
(b) in the event of any other substantially similar change in the capitalization
of the Company (other than cash dividends in the ordinary course of business),
an equitable adjustment shall be provided in the number of shares of Common
Stock. In the event of any such adjustment the purchase price per share shall
be proportionately adjusted.
2C. Notice of Adjustment. Promptly upon any adjustment of the
Exercise Price or the number of shares of Common Stock issuable upon exercise of
this Warrant, the Company shall give written notice thereof to the Registered
Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
2D. Other Notices. The Company shall give the Registered Holder
prompt prior notice of all record dates relating to the Common Stock.
Section 3. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a holder
of shares of Common Stock in the Company. No provision hereof, in the absence
of affirmative action by the Registered Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such holder for the Exercise Price of
Shares of Common Stock acquirable by exercise hereof or as a holder of shares of
Common Stock in the Company.
Section 4. Transferability. Except as provided in this Section 4, this
Warrant and all rights hereunder are not transferable without the prior written
consent of the Company in its sole discretion. The restrictions on transfer of
this Warrant shall continue during the entire term of this Warrant. Subject to
the transfer conditions referred to in the legend endorsed hereon and the
provisions of this Section 4, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant with properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company; provided that no transfer of all or any part of this Warrant may
be made if such transfer would cause the aggregate number of holders of warrants
derived from this Warrant to be held by more than seven persons; and provided,
further, each such transferee must be an "accredited investor" within the
meaning of Regulation D of the Securities Act. The Company shall not impose any
fee or charge for such transfer. No such transferee receiving this Warrant or
any warrant derived herefrom may transfer such warrant or any of its rights
without the prior written consent of the Company in its sole discretion. Shares
issued pursuant to this Warrant or any warrant derived herefrom shall be subject
to the same transfer restrictions as set forth herein for this Warrant, provided
that the restrictions on transferability of shares issuable upon exercise of any
such warrant shall only apply until (i) such securities shall have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and disposed of in accordance with a registration statement covering such
<PAGE>
securities, or (ii) such time as, in the reasonable opinion of counsel for the
Company, or upon the written opinion of counsel for the holder thereof
reasonably acceptable to the Company, such restrictions are not required in
order to comply with the Securities Act of 1933. Whenever such restrictions
shall terminate as to any shares issued upon exercise of any such warrant, the
holder thereof shall be entitled to receive from the Company, without expense,
new certificates of like tenor not bearing the restrictive legends required
hereby.
Section 5. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 7. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid), sent
by fax or sent by registered or certified mail, return receipt requested,
postage prepaid, as follows: (i) if given to the Company, at its principal
executive offices and (ii) if given to the Registered Holder of this Warrant, at
such holder's address as it appears in the records of the Company. Each such
notice shall be deemed to have been given upon the earlier of the receipt of
such notice by the intended recipient thereof, two business days after it is
sent by reliable overnight courier or sent by fax, or five business days after
it is mailed by registered or certified mail, return receipt requested.
Section 8. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number or class of shares of
Common Stock obtainable upon exercise of each Warrant without the written
consent of all of the Registered Holders of Warrants.
<PAGE>
Section 9. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
BOSTON CHICKEN, INC.
/s/ Joel M. Alam
By:____________________________________
Name: Joel M. Alam
Its: Senior Vice President
[Corporate Seal]
Attest:
/s/ Bernadette Dennehy
__________________________________
Secretary
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-___________), hereby agrees to purchase __________
shares of Common Stock covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature
_______________________________
Address
________________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-________________) with respect to the number of the shares
covered thereby set forth below, unto:
Name of Assignee: _________________________________
_________________________________
_________________________________
Address: _________________________________
_________________________________
_________________________________
No. of Shares _________________________________
Accompanying this Assignment is a certificate from the proposed transferee
certifying that such assignment and Assignee meet the requirements of Section 4
of the Warrant.
Dated: ______________________ Signature: ___________________________
___________________________
Witness: ___________________________
<PAGE>
Exhibit 4.13
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This amended and restated registration rights agreement (the "Agreement")
is entered into as of this 29th day of December, 1997, between Boston Chicken,
Inc., a Delaware corporation ("BCI"), and General Electric Capital Corporation,
a New York corporation ("GECC").
This Agreement amends, restates and replaces in its entirety that
Registration Rights Agreement dated as of December 12, 1996 between BCI and
GECC.
SECTION 1. Demand Registration.
(a) Registrable Securities. "Registrable Securities" shall mean those
restricted shares of BCI common stock, $.01 par value, acquired by GECC pursuant
to (i) that amended and restated warrant certificate issued to GECC of even date
herewith (the "Warrant") or (ii) any warrants derived from such Warrant.
(b) Request for Registration. At any time after the date hereof, the
holders of at least 51% of the Registrable Securities may request registration
under the Securities Act of 1933, as amended (the "Securities Act"), of all or
part of their Registrable Securities on Form S-2 or S-3 or any similar short-
form registration then available to BCI (the "Demand Registration"). The request
for a Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered. Within ten days after receipt of any
such request, BCI shall give written notice of such requested registration to
all other holders of Registrable Securities and shall include in such
registration all Registrable Securities with respect to which BCI has received
written requests for inclusion therein within 15 days after the date of BCI's
notice.
(c) Registration. The holders of Registrable Securities shall be entitled
to request one Demand Registration. A registration shall not count as the
permitted Demand Registration until it has become effective (unless such Demand
Registration has not become effective due solely to the fault of the holders
proposed to be included in such registration); provided that a Demand
Registration shall not count as the permitted Demand Registration unless (i) the
holders of Registrable Securities are able to register at least 90% of the
Registrable Securities requested to be included in such registration and (ii)
BCI shall have maintained the effectiveness of such registration for a period of
at least 90 days (or such shorter period as may be required until the sale of
the Registrable Securities so registered); provided, further, that, in any event
BCI shall pay all Registration Expenses as set forth in Section 5 hereof in
connection with any registration initiated as a Demand Registration whether or
not it has become effective, and whether or not such registration has counted as
the permitted Demand Registration (unless such Demand Registration does not
become effective due solely to the fault of the holders proposed to be included
in such registration).
<PAGE>
(d) Other Securities. BCI shall include in the Demand Registration all BCI
securities ("Earlier Securities") desired to be registered by persons or
entities having superior registration rights pursuant to (i) that certain Second
Amended and Restated Piggyback Registration Rights Agreement dated November 8,
1993 (the "1993 Agreement"), in accordance with the terms and conditions of the
1993 Agreement, and (ii) that certain Registration Rights Agreement dated
September 27, 1996 (the "1996 Agreement," and together with the 1993 Agreement,
the "Superior Agreements"), in accordance with the terms and conditions of the
1996 Agreement.
(e) Restrictions on Registration. Notwithstanding anything herein to the
contrary, BCI shall not be obligated to effect the Demand Registration within
180 days after the effective date of a previous registration statement in which
the holders of Registrable Securities were given piggyback rights pursuant to
paragraph 2 and in which there was no reduction in the number of Registrable
Securities requested to be included. BCI may postpone for up to 180 days the
filing or the effectiveness of a registration statement for the Demand
Registration if BCI determines in its reasonable good faith judgment that the
Demand Registration would reasonably be expected to have an adverse effect on
BCI or its subsidiaries or on any proposal or plan by BCI or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction; provided that in such event, the holders of Registrable
Securities initially requesting such Demand Registration shall be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as the permitted Demand Registration hereunder and
BCI shall pay all Registration Expenses in connection with such abandoned
registration.
SECTION 2. Piggyback Registrations.
(a) Right to Piggyback. Commencing on the date on which the holders of
Registrable Securities are first entitled to request the Demand Registration
pursuant to paragraph 1(b) above, whenever BCI proposes to register any of
shares of its Common Stock (other than shares of Common Stock underlying any
option, warrant, or convertible debt or other security) under the Securities Act
(other than pursuant to the Demand Registration) in either an underwritten
public offering or in connection with registration of Common Stock for resale on
the public markets and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), BCI shall
give prompt written notice (in any event within five business days after its
receipt of notice of any exercise of demand registration rights other than under
this Agreement) to the holders of Registrable Securities of its intention to
effect such a registration and, subject to the provisions hereof, shall include
in such registration all Registrable Securities with respect to which BCI has
received written requests for inclusion therein within 15 days after the date of
its notice. Notwithstanding anything herein to the contrary, BCI shall not be
required to effect any registration of Registrable Securities under this
paragraph 2: (i) incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers, subscription offers,
dividend reinvestment plans or stock option or other employee benefit plans, or
incidental to the filing of a registration statement
<PAGE>
for an offering to be made on a delayed or continuous basis pursuant to Rule 415
under the Securities Act or any similar rule that may be adopted by the SEC, or
(ii) if the Piggyback Registration is a primary registration on behalf of BCI
(whether or not underwritten) and BCI determines in its reasonable judgment that
including any Registrable Securities in such registration will adversely effect
such primary registration or BCI's objectives in connection therewith.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities shall be paid by BCI in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of BCI, and the managing
underwriters advise BCI in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to BCI, BCI will include in such registration (i) first, the
securities BCI proposes to sell, (ii) second, other securities requested to be
included in such registration pursuant to registration rights under the Superior
Agreements, (iii) third, the Registrable Securities requested to be included in
such registration, pro rata among the holders of Registrable Securities
requesting registration on the basis of the Registrable Securities owned by each
such holder, and (iv) fourth, other securities requested to be included in such
registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of BCI's securities,
and the managing underwriters advise BCI in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the holders initially requesting such registration, BCI
shall include in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration, (ii) second, other
securities requested to be included in such registration pursuant to
registration rights under the Superior Agreements, (iii) third, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of Registrable Securities requesting registration on the basis of the
Registrable Securities owned by each such holder, and (iv) fourth, other
securities requested to be included in such registration.
SECTION 3. Holdback Agreement.
No holder of Registrable Securities shall effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of BCI,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180-day period (or such
shorter period as the underwriters managing the registered public offering may
permit) beginning on the effective date of an underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
<PAGE>
SECTION 4. Registration Procedures.
(a) Whenever the holders of Registrable Securities have properly requested
that any Registrable Securities be registered pursuant to this Agreement, BCI
shall, subject to the provisions hereof, use its reasonable best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
BCI shall as expeditiously as reasonably practicable:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement and include therein the Registrable
Securities and such Earlier Securities as comply with the procedures of the
Superior Agreements, prepare and file all amendments, post-effective
amendments and supplements to such registration statement as may be
necessary under the Securities Act and the regulations thereunder to permit
the sale of such Earlier Securities and Registrable Securities to the
public, and use its reasonable best efforts to cause such registration
statement to become effective and remain effective for a period of not less
than one year or until such earlier time as all of the securities covered
by such registration statement have been sold (provided that before filing
such registration statement, BCI will furnish to counsel selected by the
holders of Registrable Securities, if any, copies of the registration
statement for review by such counsel);
(ii) use its reasonable best efforts to (a) register or qualify such
Earlier Securities and Registrable Securities under such other securities
or blue sky laws of such jurisdictions as any of the sellers of such
Earlier Securities and Registrable Securities (collectively, the "Sellers"
and individually, a "Seller") reasonably request, and (b) do any and all
other acts and things which may be reasonably necessary to allow Sellers to
consummate the disposition in such jurisdictions of such Earlier Securities
and Registrable Securities owned by such Sellers; provided, however, that
BCI will not be required to (w) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this subparagraph (ii), (x) subject itself to taxation in any such
jurisdiction, (y) consent to general service of process in any such
jurisdiction, or (z) incur costs or fees which are inordinate to the value
of the securities sought to be sold in such jurisdiction;
(iii) use its reasonable efforts to cause all such Earlier Securities
and Registrable Securities to be included for quotation on the Nasdaq
National Market;
(iv) furnish to each Seller such number of copies of such registration
statement, each amendment and supplement thereto, the
<PAGE>
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as each Seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Seller;
(v) notify each Seller, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the
request of such Seller, prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading; and
(vi) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of the registration statement.
(b) BCI hereby represents and warrants that it is eligible to file a
registration statement on Form S-3 pursuant to the rules and regulations
pertaining thereto under the Securities Act.
(c) Upon the request of BCI, each Seller will promptly furnish to BCI in
writing, during the period within which BCI is required to effect such
registration, all information and affidavits as may be reasonably requested by
BCI in connection with items required to be included in the registration
statement, or any amendment or supplement thereto. To the extent BCI reasonably
requests such information and affidavits and such Seller does not provide such
information or affidavits in a timely manner, then, BCI's obligation to register
such Seller's Registrable Securities hereunder shall be null and void.
SECTION 5. Registration Expenses.
The Sellers will bear all underwriting discounts and commissions, if any,
and the fees and disbursements of their legal counsel, accountants, and
personnel and agents in connection with the sale of Registrable Securities under
this Agreement. BCI will bear all other reasonable expenses in connection with
any registration or qualification of the Registrable Securities pursuant to this
Agreement.
<PAGE>
SECTION 6. Indemnification.
(a) BCI agrees to indemnify, to the extent permitted by law, each Seller,
and each person, if any, who controls such Seller within the meaning of the
Securities Act, against any and all losses, claims, damages or liabilities to
which such Seller may become subject under the Securities Act or any other
statute or common law by reason of its offer and sale of Registrable Securities
pursuant to the registration statement, and to reimburse such Seller for any
reasonable legal or other expenses actually and reasonably incurred in
connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions arise out of, or are based
upon:
(i) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained in or incorporated by reference in
the registration statement or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; or
(ii) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained or incorporated by reference in the
prospectus (as amended or supplemented if BCI shall have filed with the
Commission any amendment or supplement thereto), if used within the period
during which BCI is required to keep the registration statement in which
such prospectus is contained current pursuant to the terms of this
Agreement, or the omission or alleged omission to state therein a material
fact necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained herein shall not
apply to losses, claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or any such omission or alleged omission,
if such statement or omission was made in reliance upon, and in conformity with,
information furnished to BCI by or on behalf of the Sellers for use in
connection with the preparation of the registration statement or any prospectus
contained in the registration statement or any such amendment or supplement
thereto.
(b) The Sellers shall (in the same manner and to the same extent as set
forth in Section 6(a)), severally indemnify, to the extent permitted by law,
BCI, each person, if any, who controls BCI within the meaning of the Securities
Act, and their directors and officers, if such statement or omission was made in
reliance upon and in conformity with information furnished to BCI by or on
behalf of any Seller for use in connection with the preparation of the
registration statement or any amendment or
<PAGE>
supplement thereto; provided, however, that each Seller's obligations hereunder
shall be limited to an amount equal to the proceeds to such Seller of the
Registrable Securities sold pursuant to such Registration Statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided, however, that any failure by a person entitled
to indemnification hereunder to give such prompt written notice shall not
adversely affect such person's rights hereunder unless such failure prejudices
the rights of the indemnifying party hereunder) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of such counsel a conflict of interest may exist between such indemnified party
and any other of such indemnified parties with respect to such claim.
SECTION 7. Registration Rights of Other Security Holders. The
registration rights granted pursuant to this Agreement are granted subject to
any and all registration rights granted by BCI to holders of its securities
prior to the date hereof, and no provision herein shall be interpreted so as to
be superior to, inconsistent with, or adversely effect, any such previously
granted registration rights.
SECTION 8. Miscellaneous.
(a) Amendments. The provisions of this Agreement may be amended only upon
the written consent of BCI and GECC, or, in the event there is more than one
holder of Registrable Securities, only upon the written consent of BCI and the
holders of a majority of the Registrable Securities.
(b) Assignment. This Agreement is binding upon the parties hereto and their
respective successors and assigns. GECC may not assign its rights hereunder
without the prior written consent of BCI in its sole discretion, provided that
GECC may transfer rights hereunder to any transferee to which transfer is made
under and in accordance with the Warrant or any such transferee to which
transfer is made under and in accordance with any warrant derived from the
Warrant. Such transferee may not further transfer any rights hereunder without
the prior written consent of BCI in its sole discretion. Transfer of the
Registrable Securities shall not, in itself, be deemed an assignment of rights
hereunder.
<PAGE>
(c) Counterparts. This Agreement may be executed in separate counterparts,
each of which will be an original and all of which taken together will
constitute one and the same agreement.
(d) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered if delivered by hand or by electronic
transmission. If sent by reliable overnight delivery service and addressed as
follows, or at such other addresses as the parties hereto may from time to time
designate in writing, such notices, requests, demands and other communications
shall be deemed delivered upon the earlier of actual receipt or two business
days after being so duly sent.
To BCI:
Boston Chicken, Inc.
14123 Denver West Parkway
Golden, Colorado 80401-4086
Attn: General Counsel
Facsimile: (303) 216-5339
To GECC:
General Electric Capital Corporation
4 Northpark Drive, Suite 500
Hunt Valley, Maryland 21030
Attn: Region Counsel
Facsimile: (410) 229-5979
To any other holder of Registrable Securities:
At such address as such holder notifies BCI from time to time.
(e) Termination. This Agreement shall automatically terminate for any
Registrable Shares at such time as (1) such Registrable Shares are publicly
traded or (2) such Registrable Shares may be publicly traded without
registration under the Securities Act or applicable state securities law.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement on the day and year first above written.
BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
------------------------
Its: Senior Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Daniel Gioia
------------------------
Its: Senior Risk Analyst
<PAGE>
Exhibit 4.15
This Warrant has not been registered under the
Securities Act of 1933, as amended (the "Securities
Act") or under any applicable state securities law,
and in the absence of such registration may not be
sold or transferred unless the issuer of this Warrant
has received an opinion of its counsel, or of counsel
reasonably satisfactory to it, that the proposed sale
or transfer will not violate the registration
requirements of the Securities Act or any applicable
state securities law
BOSTON CHICKEN, INC.
WARRANT CERTIFICATE TO PURCHASE
SHARES OF COMMON STOCK
----------------------
Date of Issuance: December 5, 1997 Certificate -AT&T-1
FOR VALUE RECEIVED, Boston Chicken, Inc., a Delaware corporation (the
"Company"), hereby grants to AT&T Commerical Finance Corporation, a Delaware
corporation, or its permitted registered assigns ("AT&T," or the "Registered
Holder") the right to purchase from the Company 45,290 shares of the Company's
common stock, $.01 par value (the "Common Stock"), at a price per share of
$7.03125 (as adjusted from time to time in accordance herewith, the "Exercise
Price").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on Date of Issuance of this Warrant set
forth above and ending on the third annual anniversary of the Date of Issuance
(the "Exercise Period,"). In the event that the Company exercises its rights
pursuant to Section 2.1 or Section 2.2 of that certain Registration Rights
Agreement of even date herewith between the Company and AT&T (the "Registration
Agreement"), such that the Company has not filed a Resale Registration (as
defined in the Registration Agreement) under the Securities Act prior to the end
of the 18-month period immediately following the Closing Date (as defined in the
Registration Agreement), the Company hereby agrees that the Exercise Period
shall be extended one day for each such day after the 18-month period
immediately following the Closing Date for which the Company has not filed a
Resale Registration under the Securities Act. In the event that pursuant to
Section 2.5 of the Registration Agreement the Company requires the Selling
Stockholder (as defined in the Registration Agreement) not to make any sale of
Eligible Securities (as defined in the Registration Agreement) pursuant to the
Resale Registration at any time within the 30-day period prior to the expiration
of the Exercise Period, and this Warrant has not previously been exercised
<PAGE>
in full, the Exercise Period will be extended until such time as the Selling
Stockholder is again entitled to sell Eligible Securities pursuant to the Resale
Registration and for 30 continuous days thereafter.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the Company
has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit I hereto
evidencing the permitted assignment of this Warrant to the Purchaser, in
which case the Registered Holder shall have complied with the provisions
set forth in Section 5 hereof; and
(d) cash (payable by wire transfer of same day funds or a certified or
bank cashier's check) in an amount equal to the product of the Exercise
Price multiplied by the number of shares of the Common Stock being
purchased upon such exercise (the "Aggregate Exercise Price").
(ii) Certificates for shares of Common Stock, if any, purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser as
soon as reasonably practicable after the Exercise Time, but in any event, within
ten (10) business days after the Exercise Time. Unless this Warrant has expired
or all of the purchase rights represented hereby have been exercised, the
Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised, and shall, as soon as reasonably practicable, but in
any event, within ten (10) business days after the Exercise Time, deliver such
new Warrant to the person designated for delivery in the Exercise Agreement.
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such shares of Common Stock at the Exercise Time irrespective
of the date of delivery of certificates for shares of Common Stock.
(iv) The issuance of certificates for shares of Common Stock, if any, upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with
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<PAGE>
such exercise and the related issuance of shares of Common Stock (other than the
Aggregate Exercise Price). Each share of Common Stock issuable upon exercise of
this Warrant shall, when issued, be duly and validly issued and free from all
taxes, liens and charges.
(v) The Company shall reasonably assist and cooperate with the Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any reasonable filings required
to be made by the Company), provided, however, that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph (v), (B)
subject itself to taxation in any such jurisdiction, (C) consent to general
service of process in any such jurisdiction, or (D) incur costs or fees which
are inordinate to the value of the securities sought to be sold in such
jurisdiction.
(vi) The Company shall at all times reserve and keep available out of its
authorized but unissued Common Stock solely for the purpose of issuance upon the
exercise of this Warrant the maximum number of shares of Common Stock issuable
upon the exercise of this Warrant. The Company shall take all such actions as
may be reasonably necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock of the Company or their equivalents may be listed (except for
official notice of issuance which shall be immediately delivered by the Company
upon such issuance).
(vii) Notwithstanding any other provision hereof, if an exercise of any
portion of this Warrant is to be made in connection with a registered public
offering of the Company or any event described in Section 2.B. hereof, the
exercise of any portion of this Warrant may, at the election of the Registered
Holder hereof, be conditioned upon the consummation of the public offering, or
the event described in Section 2B, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
(viii) Unless the shares of Common Stock to be issued upon exercise of
this Warrant have been registered under the Securities Act of 1933, as amended,
the certificates for such shares shall contain the following legends:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), or under any
applicable state securities law, and may not be resold or transferred unless
registered under the Securities Act or unless the Company has received an
opinion of its counsel, or of counsel reasonably satisfactory to it, that the
proposed transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law."
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit II hereto,
except that if the shares of Common Stock are not to be issued in the name of
the person in whose name this Warrant is
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<PAGE>
registered, the Exercise Agreement shall also state the name of the person to
whom the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the permitted person to
whom a new Warrant for the unexercised portion of the rights hereunder is to be
delivered. Such Exercise Agreement shall be dated the actual date of execution
thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the number of shares of Common Stock (or other securities)
obtainable upon exercise of this Warrant shall be subject to adjustment from
time to time as provided in this Section 2.
2A. Subdivision or Combination of Shares of Common Stock. If the Company
at any time subdivides (by any split, dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation or Merger. The shares
of Common Stock issuable upon exercise of this Warrant shall be adjusted as
follows: (a) in the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, there shall be substituted,
on an equitable basis, for each such share of Common Stock the number and kind
of shares of stock or other securities to which the holders of each share of
Common Stock of the Company will be entitled pursuant to the transaction; and
(b) in the event of any other substantially similar change in the capitalization
of the Company (other than cash dividends in the ordinary course of business),
an equitable adjustment shall be provided in the number of shares of Common
Stock. In the event of any such adjustment the purchase price per share shall
be proportionately adjusted.
2C. Notice of Adjustment. Promptly upon any adjustment of the Exercise
Price or the number of shares of Common Stock issuable upon exercise of this
Warrant, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
Section 3. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a holder
of shares of Common Stock in the Company. No provision hereof, in the absence
of affirmative action by the Registered Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such holder for the Exercise Price of
Shares of Common Stock acquirable by exercise hereof or as a holder of shares of
Common Stock in the Company.
4
<PAGE>
Section 4. Transferability. This Warrant and all rights hereunder are not
transferable, in whole or in part, without the prior written consent of the
Company in its sole discretion; provided, however, that notwithstanding the
foregoing, AT&T shall be entitled to transfer this Warrant or any rights
hereunder, in whole or in part, without the consent of, or prior notice to, the
Company (it being agreed that AT&T shall give written notice to the Company of
any such transfer within a reasonable time after such transfer): (i) in
connection with or as part of any portfolio sale or any sale of all or
substantially all of the assets of AT&T, or (ii) in connection with or as part
of any merger, consolidation or similar transaction involving AT&T.
Section 5. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 7. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service, sent by fax or sent by
registered or certified mail, return receipt requested, postage prepaid, as
follows: (i) if given to the Company, at its principal executive offices at
14123 Denver West Parkway, Golden, Colorado 80401, Attn: General Counsel, and
(ii) if given to the Registered Holder of this Warrant, at such holder's address
as it appears in the records of the Company. Each such notice shall be deemed
to have been given upon the earlier of the receipt of such notice by the
intended recipient thereof, one business day after it is sent by reliable
overnight courier or sent by fax, or five business days after it is mailed by
registered or certified mail, return receipt requested. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
Section 8. Amendment and Waiver. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of this Warrant representing a
5
<PAGE>
majority of the shares of Common Stock obtainable upon exercise of this Warrant;
provided that no such action may change the Exercise Price of this Warrant or
the number or class of shares of Common Stock obtainable upon exercise of this
Warrant without the written consent of all of the Registered Holders of this
Warrant.
Section 9. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
---------------------------
Name: Joel M. Alam
Its: Senior Vice President
[Corporate Seal]
Attest:
/s/ J. Randal Miller
- -----------------------------------
Assistant Secretary
7
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns
and transfers without recourse, representation or warranty all of the rights of
the undersigned under the attached Warrant (Certificate No. _____________) with
respect to the number of shares of Common Stock covered thereby set forth below,
unto:
Names of Assignee Address Number of Shares
----------------- ------- ----------------
Dated: Signature ______________________________
Witness ________________________________
<PAGE>
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. ___________), hereby agrees to purchase __________
shares of Common Stock covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature ______________________________
Address ________________________________
<PAGE>
Exhibit 4.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of the 5th day
of December, 1997, by and between Boston Chicken, Inc., a Delaware corporation
(the "Company"), and AT&T Commercial Finance Corporation, a Delaware corporation
("AT&T").
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Business Day" means any day on which the Nasdaq National Market is
open for trading.
1.2 "Closing Date" means December 5, 1997.
1.3 "Common Stock" means the common stock, $.01 par value per share, of
the Company.
1.4 "Eligible Securities" means all or any portion of the shares of Common
Stock issuable upon the exercise of that warrant certificate issued to AT&T of
even date herewith (the "Warrant"), and all other securities issued with respect
thereto by reason of dividends, stock splits, combinations or similar
transactions. Securities shall cease to be Eligible Securities for all purposes
of this Agreement when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities are permitted to be sold pursuant to Rule 144(k)
(or any successor provision to such Rule) under the Securities Act, (iii) such
securities shall have been otherwise transferred pursuant to an applicable
exemption under the Securities Act, new certificates for such securities not
bearing a legend restricting further transfer shall have been delivered by the
Company and such securities shall be freely transferable to the public without
registration under the Securities Act, or (iv) a written opinion of counsel of
the Company addressed to the Stockholder owning such securities to the effect
that such securities may be sold without registration under the Securities Act
has been delivered to such Stockholder.
1.5 "Person" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or other
form of business organization, whether or not regarded as a legal entity under
applicable law, a trust (inter vivos or testamentary), an estate of a deceased,
insane or incompetent person, a quasi-governmental entity, a government or any
agency, authority, political subdivision or other instrumentality thereof, or
any other entity.
<PAGE>
1.6 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the SEC a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement.
1.7 "Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel,
accountants and other experts employed by the Company, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration.
1.8 "Resale Registration" shall have the meaning set forth in Article 2
hereof.
1.9 "SEC" means the Securities and Exchange Commission.
1.10 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
1.11 "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered on
behalf of the Stockholders and all fees and disbursements of counsel for the
Stockholders.
1.12 "Selling Stockholder" means any Stockholder selling Eligible
Securities registered pursuant to Article 2 hereof.
1.13 "Stockholder" means AT&T and any person holding Eligible Securities
to whom the rights under this Agreement have been transferred in accordance with
Section 5.9 hereof.
ARTICLE 2
RESALE REGISTRATION
2.1 Resale Registration. The Company hereby agrees to file under the
Securities Act, within the 18-month period immediately following the Closing
Date (such period, subject to extension as provided below, the "Resale
Registration Period"), a registration statement on Form S-1 or any similar long-
form registration statement or Form S-3 or any similar short-form registration
statement, at its election, to register all Eligible Securities, whether in
connection with a primary registration of its Common Stock or otherwise ("Resale
Registration"). The Company shall have the right to select the timing of the
Resale Registration within the Resale Registration Period. The Company shall
have the right to include in any such Resale Registration any other securities
of the Company, including, but not limited to, any securities of the Company
(the "Earlier Securities") desired to be registered by persons or entities also
having registration rights from the Company. The Resale Registration Period
shall be extended for a period of 6 additional months if the Company shall have
been advised in writing by a nationally recognized independent investment
banking firm that, in such firm's opinion, the filing of a registration
statement for the Resale Registration immediately prior to the end of the
original
2
<PAGE>
Resale Registration Period might materially and adversely affect the Company
(including the price of the Company's Common Stock).
2.2 Restrictions on Resale Registration. The Company may postpone for up
to three months the filing or effectiveness of a registration statement for a
Resale Registration if the Company believes that such Resale Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction; provided, however, that immediately following such
postponement, the Company shall file or request effectiveness of the Resale
Registration notwithstanding the expiration of the Resale Registration Period.
2.3 Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 2. The
Selling Stockholders (as between the Selling Stockholders and the Company) shall
be responsible for all Selling Expenses relating to Eligible Securities
registered on behalf of the Selling Stockholders.
2.4 [Intentionally Omitted].
2.5 Black-Out Period. The Company may, by notice given to all Selling
Stockholders under the Resale Registration, require such Selling Stockholders
not to make any sale of Eligible Securities pursuant to the registration
statement for the Resale Registration if (i) in the opinion of the Company, (x)
securities laws applicable to such sale would require the Company to disclose
material non-public information ("Non-Public Information") and (y) the
disclosure of such Non-Public Information would adversely affect the Company or
(ii) such sale would occur during the measurement period (a "Measurement
Period") for determining the amount of Common Stock, or the amount of any other
consideration the amount of which will be based on the price of the Common
Stock, in connection with the acquisition of a business or assets by the
Company. In the event the sales under the Resale Registration are deferred
because of the existence of Non-Public Information, the Company will notify the
Selling Stockholders promptly upon such Non-Public Information being included by
the Company in a filing with the SEC, being otherwise disclosed to the public
(other than through the actions of a Selling Stockholder) or ceasing to be
material to the Company, and upon such notice being given by the Company, the
Selling Stockholders shall again be entitled to sell Eligible Securities
pursuant to the Resale Registration. In the event such sales are deferred
because it is proposed to be made during a Measurement Period, the Company shall
specify, in notifying the Selling Stockholders of the deferral of its sale, when
the Measurement Period will end, at which time the Selling Stockholders shall
again be entitled to sell Eligible Securities pursuant to the Resale
Registration. If the Measurement Period is thereafter changed, the Company will
promptly notify the Selling Stockholders of such change and upon the end of the
Measurement Period as so changed, the Selling Stockholders will again be
entitled to sell Eligible Securities pursuant to the Resale Registration. If
the acquisition agreement to which such Measurement Period relates is terminated
prior to the end of the Measurement Period, the deferral period hereunder shall
end immediately and the Company will notify the Selling Stockholders of the end
of the deferral period.
3
<PAGE>
ARTICLE 3
REGISTRATION PROCEDURES
3.1 Registration and Qualification.
(a) The Company shall prepare and file with the SEC such amendments
and supplements to any registration statement registering Eligible Securities
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective, and comply with the provisions of the
Securities Act with respect to the disposition of all Eligible Securities, until
the earlier of such time as all of such Eligible Securities have been disposed
of in accordance with the intended methods of disposition by the Selling
Stockholders as set forth in the registration statement or the expiration of
three years after the date such registration statement has become effective;
provided, however, that in the event that the Company shall notify the Selling
Stockholders of the happening of any event which would cause the prospectus
included as part of such registration statement, as then in effect, to include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, such
Selling Stockholders shall thereafter sell no shares under such registration
statement until the Company has filed an amendment or supplement to the
prospectus to cause the prospectus not to include an untrue statement of a
material fact or omit to state any material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and, subject to Section 2.5 hereof, the
Company shall be obligated to promptly amend or supplement the prospectus so
that the prospectus does not include an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(b) The Company will use its reasonable best efforts to register or
qualify such Eligible Securities under the blue sky laws of such jurisdictions
as any Selling Stockholder reasonably requests and to do any and all other acts
which may be reasonably necessary to enable such Selling Stockholder to
consummate the disposition in such jurisdictions of the Eligible Securities
owned by such Selling Stockholder (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction);
(c) The Company may require the Selling Stockholders to furnish to the
Company such information regarding the Selling Stockholders and the distribution
of the Eligible Securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
with any registration;
(d) The Company shall provide to each Selling Stockholder such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other
4
<PAGE>
documents as such Selling Stockholder may reasonably request in order to
facilitate the disposition of the Eligible Securities registered pursuant to
such registration statement; and
(e) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement, and use its reasonable best efforts to cause the Eligible Securities
to be listed on each securities exchange or national market system on which the
Common Stock is then listed.
3.2 Underwriting. In the event that any registration pursuant to Article
2 hereof shall involve, in whole or in part, an underwritten offering, the
Company may require Eligible Securities to be included in such underwriting on
the same terms and conditions as shall be applicable to the Common Stock being
sold through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
provided in Article 4. The representations and warranties in such underwriting
agreement by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Selling Stockholders.
ARTICLE 4
INDEMNIFICATION
4.1 Indemnification.
(a) In the event of any registration of any Eligible Securities
hereunder, the Company hereby agrees to indemnify and hold harmless each
Stockholder and, to the extent applicable, its directors and officers, its
partners, its trustees and each Person who controls any of such Persons against
any losses, claims, damages, liabilities and expenses, joint or several, to
which such Person may be subject under the Securities Act or otherwise insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any final prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will promptly reimburse each such Person for any legal or any other
expenses reasonably incurred by such Person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any final prospectus, amendment or supplement in
reliance upon and in
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conformity with written information furnished to the Company by such Selling
Stockholders expressly for use in the registration statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of a Selling Stockholder or any such Person and shall survive the
transfer of such securities by the Selling Stockholders.
(b) The Selling Stockholders agree severally and not jointly to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in clause (a) of this Article 4) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
and each Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any final prospectus included therein, or any amendment
or supplement thereto, but only to the extent that such statement or omission
was made in reliance upon and in conformity with written information furnished
by such Selling Stockholders to the Company expressly for use in the
registration statement; provided that the obligation to indemnify will be
limited to the net amount of proceeds received by such holder from the sale of
Eligible Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of the
registered securities by the Selling Stockholders and the expiration of this
Agreement.
(c) Indemnification similar to that specified in the preceding
subdivisions of this Article 4 (with appropriate modifications) shall be given
by the Company and the Selling Stockholders with respect to any required
registration or other qualification of such Eligible Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
ARTICLE 5
MISCELLANEOUS
5.1 Captions. The captions or headings in this Agreement are for
convenience and reference only, and in no way define, describe, extend or limit
the scope or intent of this Agreement.
5.2 Severability. If any clause, provision or section of this Agreement
shall be invalid or unenforceable, the invalidity or unenforceability of such
clause, provision or section shall not affect the enforceability or validity of
any of the remaining clauses, provisions or sections hereof to the extent
permitted by applicable law.
5.3 Governing Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware, without reference to
its rules as to conflicts or choice of laws.
5.4 Modification and Amendment. This Agreement may not be changed,
modified, discharged or amended, except by an instrument signed by the
Stockholders owning at least 50% of the Eligible Securities.
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5.5 [Intentionally Omitted.]
5.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
5.7 Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties and supersedes any prior understandings and/or
written or oral agreements among them respecting the subject matter herein.
5.8 Notices. All notices, requests, demands, consents and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery
service, facsimile transmission or by certified mail, return receipt requested,
postage prepaid. Notices shall be deemed given when actually received, which
shall be deemed to be not later than the next Business Day if sent by overnight
courier or facsimile transmission or after five (5) Business Days if sent by
mail. Notice to Stockholders shall be made to the address listed on the stock
transfer records of the Company. Notice to the Company shall be made to the
Company's principal executive offices at 14123 Denver West Parkway, Golden,
Colorado 80401, Attn: General Counsel, or such other address for which the
Company has given written notice to the Stockholder.
5.9 Transfer of Registration Rights. The obligation of the Company to
register Eligible Securities granted to AT&T hereunder may be assigned to one or
more transferees or assignees of AT&T in connection with any transfer or
assignment in a private transaction of Eligible Securities; provided, however,
such assignee(s) of AT&T may not further assign such rights without the prior
written consent of the Company. Any transfer of registration rights pursuant to
this Section shall be effective upon receipt by the Company of written notice
from AT&T or such other Stockholder transferring Eligible Securities (i) stating
the name and address of the transferee, (ii) the number of Eligible Securities
transferred and (iii) the date of transfer, which notice shall be accompanied by
an agreement of the transferee stating that all of the terms and provisions of
this Agreement will be binding upon and enforceable against such transferee.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
--------------------------------------------
Title: Senior Vice President
-----------------------------------------
AT&T COMMERCIAL FINANCE CORPORATION
By: Signature Illegible
--------------------------------------------
Title: Vice President Capital Markets Division
-----------------------------------------
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Exhibit 4.17
This Warrant has not been registered under the
Securities Act of 1933, as amended (the "Securities
Act") or under any applicable state securities law,
and in the absence of such registration may not be
sold or transferred unless the issuer of this Warrant
has received an opinion of its counsel, or of counsel
reasonably satisfactory to it, that the proposed sale
or transfer will not violate the registration
requirements of the Securities Act or any applicable
state securities law
BOSTON CHICKEN, INC.
WARRANT CERTIFICATE TO PURCHASE
SHARES OF COMMON STOCK
----------------------
Date of Issuance: December 5, 1997 Certificate - SW-1
FOR VALUE RECEIVED, Boston Chicken, Inc., a Delaware corporation (the
"Company"), hereby grants to Sanwa Business Credit Corporation, a Delaware
corporation, or its permitted registered assigns ("Sanwa," or the "Registered
Holder") the right to purchase from the Company 40,761 shares of the Company's
common stock, $.01 par value (the "Common Stock"), at a price per share of
$7.03125 (as adjusted from time to time in accordance herewith, the "Exercise
Price").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in
part, the purchase rights represented by this Warrant at any time and from time
to time during the period commencing on Date of Issuance of this Warrant set
forth above and ending on the third annual anniversary of the Date of Issuance
(the "Exercise Period"). In the event that the Company exercises its rights
pursuant to Section 2.1 or Section 2.2 of that certain Registration Rights
Agreement of even date herewith between the Company and Sanwa (the "Registration
Agreement"), such that the Company has not filed a Resale Registration (as
defined in the Registration Agreement) under the Securities Act prior to the end
of the 18-month period immediately following the Closing Date (as defined in the
Registration Agreement), the Company hereby agrees that the Exercise Period
shall be extended one day for each such day after the 18-month period
immediately following the Closing Date for which the Company has not filed a
Resale Registration under the Securities Act. In the event that pursuant to
Section 2.5 of the Registration Agreement the Company requires the Selling
Stockholder (as defined in the Registration Agreement) not to make any sale of
Eligible Securities (as defined in the Registration Agreement) pursuant to the
Resale Registration at any time within the 30-day period prior to the expiration
of the Exercise Period, and this Warrant has not previously been exercised
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in full, the Exercise Period will be extended until such time as the Selling
Stockholder is again entitled to sell Eligible Securities pursuant to the Resale
Registration and for 30 continuous days thereafter.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit I hereto
evidencing the permitted assignment of this Warrant to the Purchaser, in
which case the Registered Holder shall have complied with the provisions
set forth in Section 5 hereof; and
(d) cash (payable by wire transfer of same day funds or a certified or
bank cashier's check) in an amount equal to the product of the Exercise
Price multiplied by the number of shares of the Common Stock being
purchased upon such exercise (the "Aggregate Exercise Price").
(ii) Certificates for shares of Common Stock, if any, purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser as
soon as reasonably practicable after the Exercise Time, but in any event, within
ten (10) business days after the Exercise Time. Unless this Warrant has expired
or all of the purchase rights represented hereby have been exercised, the
Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, as soon as reasonably practicable, but in
any event, within ten (10) business days after the Exercise Time, deliver such
new Warrant to the person designated for delivery in the Exercise Agreement.
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such shares of Common Stock at the Exercise Time irrespective
of the date of delivery of certificates for shares of Common Stock.
(iv) The issuance of certificates for shares of Common Stock, if any,
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with
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such exercise and the related issuance of shares of Common Stock (other than the
Aggregate Exercise Price). Each share of Common Stock issuable upon exercise of
this Warrant shall, when issued, be duly and validly issued and free from all
taxes, liens and charges.
(v) The Company shall reasonably assist and cooperate with the
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any reasonable filings
required to be made by the Company), provided, however, that the Company will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph
(v), (B) subject itself to taxation in any such jurisdiction, (C) consent to
general service of process in any such jurisdiction, or (D) incur costs or fees
which are inordinate to the value of the securities sought to be sold in such
jurisdiction.
(vi) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock solely for the purpose of issuance upon
the exercise of this Warrant the maximum number of shares of Common Stock
issuable upon the exercise of this Warrant. The Company shall take all such
actions as may be reasonably necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock of the Company or their equivalents may be listed (except
for official notice of issuance which shall be immediately delivered by the
Company upon such issuance).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering of the Company or any event described in Section 2.B. hereof, the
exercise of any portion of this Warrant may, at the election of the Registered
Holder hereof, be conditioned upon the consummation of the public offering, or
the event described in Section 2B, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
(viii) Unless the shares of Common Stock to be issued upon exercise
of this Warrant have been registered under the Securities Act of 1933, as
amended, the certificates for such shares shall contain the following legends:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), or under any
applicable state securities law, and may not be resold or transferred unless
registered under the Securities Act or unless the Company has received an
opinion of its counsel, or of counsel reasonably satisfactory to it, that the
proposed transfer will not violate the registration requirements of the
Securities Act or any applicable state securities law."
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit II hereto,
except that if the shares of Common Stock are not to be issued in the name of
the person in whose name this Warrant is
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registered, the Exercise Agreement shall also state the name of the person to
whom the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the permitted person to
whom a new Warrant for the unexercised portion of the rights hereunder is to be
delivered. Such Exercise Agreement shall be dated the actual date of execution
thereof.
Section 2. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the number of shares of Common Stock (or other securities)
obtainable upon exercise of this Warrant shall be subject to adjustment from
time to time as provided in this Section 2.
2A. Subdivision or Combination of Shares of Common Stock. If the
Company at any time subdivides (by any split, dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation or Merger. The
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
as follows: (a) in the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, there shall be
substituted, on an equitable basis, for each such share of Common Stock the
number and kind of shares of stock or other securities to which the holders of
each share of Common Stock of the Company will be entitled pursuant to the
transaction; and (b) in the event of any other substantially similar change in
the capitalization of the Company (other than cash dividends in the ordinary
course of business), an equitable adjustment shall be provided in the number of
shares of Common Stock. In the event of any such adjustment the purchase price
per share shall be proportionately adjusted.
2C. Notice of Adjustment. Promptly upon any adjustment of the
Exercise Price or the number of shares of Common Stock issuable upon exercise of
this Warrant, the Company shall give written notice thereof to the Registered
Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
Section 3. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a holder
of shares of Common Stock in the Company. No provision hereof, in the absence
of affirmative action by the Registered Holder to purchase shares of Common
Stock, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such holder for the Exercise Price of
Shares of Common Stock acquirable by exercise hereof or as a holder of shares of
Common Stock in the Company.
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Section 4. Transferability. This Warrant and all rights hereunder are not
transferable, in whole or in part, without the prior written consent of the
Company in its sole discretion; provided, however, that notwithstanding the
foregoing, Sanwa shall be entitled to transfer this Warrant or any rights
hereunder, in whole or in part, without the consent of, or prior notice to, the
Company (it being agreed that Sanwa shall give written notice to the Company of
any such transfer within a reasonable time after such transfer): (i) in
connection with or as part of any portfolio sale or any sale of all or
substantially all of the assets of Sanwa, or (ii) in connection with or as part
of any merger, consolidation or similar transaction involving Sanwa.
Section 5. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 6. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 7. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service, sent by fax or sent by
registered or certified mail, return receipt requested, postage prepaid, as
follows: (i) if given to the Company, at its principal executive offices at
14123 Denver West Parkway, Golden, Colorado 80401, Attn: General Counsel and
(ii) if given to the Registered Holder of this Warrant, at such holder's address
as it appears in the records of the Company. Each such notice shall be deemed
to have been given upon the earlier of the receipt of such notice by the
intended recipient thereof, one business day after it is sent by reliable
overnight courier or sent by fax, or five business days after it is mailed by
registered or certified mail, return receipt requested. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
Section 8. Amendment and Waiver. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of this Warrant representing a
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<PAGE>
majority of the shares of Common Stock obtainable upon exercise of this Warrant;
provided that no such action may change the Exercise Price of this Warrant or
the number or class of shares of Common Stock obtainable upon exercise of this
Warrant without the written consent of all of the Registered Holders of this
Warrant.
Section 9. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and the Registered Holder of this Warrant.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
------------------------
Name: Joel M. Alam
Its: Senior Vice President
[Corporate Seal]
Attest:
/s/ J. Randal Miller
- -----------------------------------
Assistant Secretary
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ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns
and transfers without recourse, representation or warranty all of the rights of
the undersigned under the attached Warrant (Certificate No. _____________) with
respect to the number of shares of Common Stock covered thereby set forth below,
unto:
Names of Assignee Address Number of Shares
----------------- ------- ----------------
Dated: Signature ______________________________
Witness ________________________________
<PAGE>
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. ___________), hereby agrees to purchase __________
shares of Common Stock covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature ______________________________
Address ________________________________
<PAGE>
Exhibit 4.18
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of the 5th day
of December, 1997, by and between Boston Chicken, Inc., a Delaware corporation
(the "Company"), and Sanwa Business Credit Corporation, a Delaware corporation
("Sanwa").
ARTICLE I
CERTAIN DEFINITIONS
1.1 "Business Day" means any day on which the Nasdaq National Market is
open for trading.
1.2 "Closing Date" means December, 1997.
1.3 "Common Stock" means the common stock, $.01 par value per share, of
the Company.
1.4 "Eligible Securities" means all or any portion of the shares of Common
Stock issuable upon the exercise of that warrant certificate issued to Sanwa of
even date herewith (the "Warrant"), and all other securities issued with respect
thereto by reason of dividends, stock splits, combinations or similar
transactions. Securities shall cease to be Eligible Securities for all purposes
of this Agreement when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities are permitted to be sold pursuant to Rule 144(k)
(or any successor provision to such Rule) under the Securities Act, (iii) such
securities shall have been otherwise transferred pursuant to an applicable
exemption under the Securities Act, new certificates for such securities not
bearing a legend restricting further transfer shall have been delivered by the
Company and such securities shall be freely transferable to the public without
registration under the Securities Act, or (iv) a written opinion of counsel of
the Company addressed to the Stockholder owning such securities to the effect
that such securities may be sold without registration under the Securities Act
has been delivered to such Stockholder.
1.5 "Person" means an individual, a partnership (general or limited),
corporation, joint venture, business trust, cooperative, association or other
form of business organization, whether or not regarded as a legal entity under
applicable law, a trust (inter vivos or testamentary), an estate of a deceased,
insane or incompetent person, a quasi-governmental entity, a government or any
agency, authority, political subdivision or other instrumentality thereof, or
any other entity.
<PAGE>
1.6 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the SEC a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement.
1.7 "Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel,
accountants and other experts employed by the Company, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration.
1.8 "Resale Registration" shall have the meaning set forth in Article 2
hereof.
1.9 "SEC" means the Securities and Exchange Commission.
1.10 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
1.11 "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered on
behalf of the Stockholders and all fees and disbursements of counsel for the
Stockholders.
1.12 "Selling Stockholder" means any Stockholder selling Eligible
Securities registered pursuant to Article 2 hereof.
1.13 "Stockholder" means Sanwa and any person holding Eligible Securities
to whom the rights under this Agreement have been transferred in accordance with
Section 5.9 hereof.
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ARTICLE 2
RESALE REGISTRATION
2.1 Resale Registration. The Company hereby agrees to file under the
Securities Act, within the 18-month period immediately following the Closing
Date (such period, subject to extension as provided below, the "Resale
Registration Period"), a registration statement on Form S-1 or any similar long-
form registration statement or Form S-3 or any similar short-form registration
statement, at its election, to register all Eligible Securities, whether in
connection with a primary registration of its Common Stock or otherwise ("Resale
Registration"). The Company shall have the right to select the timing of the
Resale Registration within the Resale Registration Period. The Company shall
have the right to include in any such Resale Registration any other securities
of the Company, including, but not limited to, any securities of the Company
(the "Earlier Securities") desired to be registered by persons or entities also
having registration rights from the Company. The Resale Registration Period
shall be extended for a period of 6 additional months if the Company shall have
been advised in writing by a nationally recognized independent investment
banking firm that, in such firm's opinion, the filing of a registration
statement for the Resale Registration immediately prior to the end of the
original Resale Registration Period might materially and adversely affect the
Company (including the price of the Company's Common Stock).
2.2 Restrictions on Resale Registration. The Company may postpone for up
to three months the filing or effectiveness of a registration statement for a
Resale Registration if the Company believes that such Resale Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction; provided, however, that immediately following such
postponement, the Company shall file or request effectiveness of the Resale
Registration notwithstanding the expiration of the Resale Registration Period.
2.3 Registration Expenses. The Company (as between the Company and the
Selling Stockholders) shall be responsible for the payment of all Registration
Expenses in connection with any registration pursuant to this Article 2. The
Selling Stockholders (as between the Selling Stockholders and the Company) shall
be responsible for all Selling Expenses relating to Eligible Securities
registered on behalf of the Selling Stockholders.
2.4 [Intentionally Omitted.]
2.5 Black-Out Period. The Company may, by notice given to all Selling
Stockholders under the Resale Registration, require such Selling Stockholders
not to make any sale of Eligible Securities pursuant to the registration
statement for the Resale Registration if (i) in the opinion of the Company, (x)
securities laws applicable to such sale would require the Company to disclose
material non-public information ("Non-Public Information") and (y) the
disclosure of such Non-Public Information would adversely affect the Company or
(ii) such sale would occur during the measurement period (a "Measurement
Period") for determining the amount of Common Stock, or the amount of any other
consideration the amount of which will be based on the price of the
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Common Stock, in connection with the acquisition of a business or assets by the
Company. In the event the sales under the Resale Registration are deferred
because of the existence of Non-Public Information, the Company will notify the
Selling Stockholders promptly upon such Non-Public Information being included by
the Company in a filing with the SEC, being otherwise disclosed to the public
(other than through the actions of a Selling Stockholder) or ceasing to be
material to the Company, and upon such notice being given by the Company, the
Selling Stockholders shall again be entitled to sell Eligible Securities
pursuant to the Resale Registration. In the event such sales are deferred
because it is proposed to be made during a Measurement Period, the Company shall
specify, in notifying the Selling Stockholders of the deferral of its sale, when
the Measurement Period will end, at which time the Selling Stockholders shall
again be entitled to sell Eligible Securities pursuant to the Resale
Registration. If the Measurement Period is thereafter changed, the Company will
promptly notify the Selling Stockholders of such change and upon the end of the
Measurement Period as so changed, the Selling Stockholders will again be
entitled to sell Eligible Securities pursuant to the Resale Registration. If
the acquisition agreement to which such Measurement Period relates is terminated
prior to the end of the Measurement Period, the deferral period hereunder shall
end immediately and the Company will notify the Selling Stockholders of the end
of the deferral period.
ARTICLE 3
REGISTRATION PROCEDURES
3.1 Registration and Qualification.
(a) The Company shall prepare and file with the SEC such amendments
and supplements to any registration statement registering Eligible Securities
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective, and comply with the provisions of the
Securities Act with respect to the disposition of all Eligible Securities, until
the earlier of such time as all of such Eligible Securities have been disposed
of in accordance with the intended methods of disposition by the Selling
Stockholders as set forth in the registration statement or the expiration of
three years after the date such registration statement has become effective;
provided, however, that in the event that the Company shall notify the Selling
Stockholders of the happening of any event which would cause the prospectus
included as part of such registration statement, as then in effect, to include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, such
Selling Stockholders shall thereafter sell no shares under such registration
statement until the Company has filed an amendment or supplement to the
prospectus to cause the prospectus not to include an untrue statement of a
material fact or omit to state any material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and, subject to Section 2.5 hereof, the
Company shall be obligated to promptly amend or supplement the prospectus so
that the prospectus does not include an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
4
<PAGE>
(b) The Company will use its reasonable best efforts to register or
qualify such Eligible Securities under the blue sky laws of such jurisdictions
as any Selling Stockholder reasonably requests and to do any and all other acts
which may be reasonably necessary to enable such Selling Stockholder to
consummate the disposition in such jurisdictions of the Eligible Securities
owned by such Selling Stockholder (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction);
(c) The Company may require the Selling Stockholders to furnish to the
Company such information regarding the Selling Stockholders and the distribution
of the Eligible Securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
with any registration;
(d) The Company shall provide to each Selling Stockholder such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Stockholder may
reasonably request in order to facilitate the disposition of the Eligible
Securities registered pursuant to such registration statement; and
(e) The Company will provide a transfer agent and registrar for all
Eligible Securities not later than the effective date of the registration
statement, and use its reasonable best efforts to cause the Eligible Securities
to be listed on each securities exchange or national market system on which the
Common Stock is then listed.
3.2 Underwriting. In the event that any registration pursuant to Article
2 hereof shall involve, in whole or in part, an underwritten offering, the
Company may require Eligible Securities to be included in such underwriting on
the same terms and conditions as shall be applicable to the Common Stock being
sold through underwriters under such registration. In such case, the holders of
Eligible Securities on whose behalf Eligible Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Selling
Stockholders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the extent
provided in Article 4. The representations and warranties in such underwriting
agreement by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Selling Stockholders.
5
<PAGE>
ARTICLE 4
INDEMNIFICATION
4.1 Indemnification.
(a) In the event of any registration of any Eligible Securities
hereunder, the Company hereby agrees to indemnify and hold harmless each
Stockholder and, to the extent applicable, its directors and officers, its
partners, its trustees and each Person who controls any of such Persons against
any losses, claims, damages, liabilities and expenses, joint or several, to
which such Person may be subject under the Securities Act or otherwise insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any final prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will promptly reimburse each such Person for any legal or any other
expenses reasonably incurred by such Person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any final prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholders expressly for use in the registration
statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of a Selling Stockholder or any such
Person and shall survive the transfer of such securities by the Selling
Stockholders.
(b) The Selling Stockholders agree severally and not jointly to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in clause (a) of this Article 4) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
and each Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any final prospectus included therein, or any amendment
or supplement thereto, but only to the extent that such statement or omission
was made in reliance upon and in conformity with written information furnished
by such Selling Stockholders to the Company expressly for use in the
registration statement; provided that the obligation to indemnify will be
limited to the net amount of proceeds received by such holder from the sale of
Eligible Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of the
registered securities by the Selling Stockholders and the expiration of this
Agreement.
(c) Indemnification similar to that specified in the preceding
subdivisions of this Article 4 (with appropriate modifications) shall be given
by the Company and the Selling
6
<PAGE>
Stockholders with respect to any required registration or other qualification of
such Eligible Securities under any federal or state law or regulation of
governmental authority other than the Securities Act.
ARTICLE 5
MISCELLANEOUS
5.1 Captions. The captions or headings in this Agreement are for
convenience and reference only, and in no way define, describe, extend or limit
the scope or intent of this Agreement.
5.2 Severability. If any clause, provision or section of this Agreement
shall be invalid or unenforceable, the invalidity or unenforceability of such
clause, provision or section shall not affect the enforceability or validity of
any of the remaining clauses, provisions or sections hereof to the extent
permitted by applicable law.
5.3 Governing Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware, without reference to
its rules as to conflicts or choice of laws.
5.4 Modification and Amendment. This Agreement may not be changed,
modified, discharged or amended, except by an instrument signed by the
Stockholders owning at least 50% of the Eligible Securities.
5.5 [Intentionally Omitted.]
5.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
5.7 Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties and supersedes any prior understandings and/or
written or oral agreements among them respecting the subject matter herein.
5.8 Notices. All notices, requests, demands, consents and other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery
service, facsimile transmission or by certified mail, return receipt requested,
postage prepaid. Notices shall be deemed given when actually received, which
shall be deemed to be not later than the next Business Day if sent by overnight
courier or facsimile transmission or after five (5) Business Days if sent by
mail. Notice to Stockholders shall be made to the address listed on the stock
transfer records of the Company. Notice to the Company shall be made to the
Company's principal executive offices at 14123 Denver West Parkway, Golden,
Colorado 80401, Attn: General Counsel, or such other address for which the
Company has given written notice to the Stockholder.
7
<PAGE>
5.9 Transfer of Registration Rights. The obligation of the Company to
register Eligible Securities granted to Sanwa hereunder may be assigned to one
or more transferees or assignees of Sanwa in connection with any transfer or
assignment in a private transaction of Eligible Securities; provided, however,
such assignee(s) of Sanwa may not further assign such rights without the prior
written consent of the Company. Any transfer of registration rights pursuant to
this Section shall be effective upon receipt by the Company of written notice
from Sanwa or such other Stockholder transferring Eligible Securities (i)
stating the name and address of the transferee, (ii) the number of Eligible
Securities transferred and (iii) the date of transfer, which notice shall be
accompanied by an agreement of the transferee stating that all of the terms and
provisions of this Agreement will be binding upon and enforceable against such
transferee.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
---------------------------------
Title: Senior Vice President
------------------------------
SANWA BUSINESS CREDIT CORPORATION
By: Signature Illegible
---------------------------------
Title: Vice President
------------------------------
9
<PAGE>
Exhibit 10.4(b)
BOSTON CHICKEN, INC.
AMENDMENT TO AMENDED AND RESTATED
1991 EMPLOYEE STOCK OPTION PLAN
1. The first sentence of the second paragraph of Section 4 of the Amended and
Restated 1991 Employee Stock Option Plan (the "Plan") of Boston Chicken,
Inc. (the "Company") is hereby amended and restated to read in its entirety
as follows:
"The Committee may grant options under which up to a total of
7,459,528 shares of the Common Stock may be purchased from the
Company, subject to adjustment as provided in Section 11."
2. Except as provided in paragraph 1 above, the Plan shall remain unchanged
and in full force and effect.
<PAGE>
Exhibit 10.5(c)
BOSTON CHICKEN, INC.
SECOND AMENDMENT TO 1995 EMPLOYEE STOCK OPTION PLAN
1. The first sentence of Section 4 of the 1995 Employee Stock Option Plan (the
"Plan") of Boston Chicken, Inc. (the "Company") is hereby amended and
restated to read in its entirety as follows:
"The Committee may grant options under which up to a total of 133,809
shares of the Common Stock may be purchased from the Company, subject
to adjustment as provided in Section 11."
2. Except as provided in paragraph 1 above, the Plan shall remain unchanged
and in full force and effect.
<PAGE>
Exhibit 10.44
Boston Chicken, Inc.
1998 Restricted Stock Unit Plan
<PAGE>
TABLE OF CONTENTS
Section 1. Purpose..........................................................1
Section 2. Definitions......................................................1
Section 3. Administration...................................................2
Section 4. Common Stock Subject to Plan.....................................2
Section 5. Awards...........................................................3
Section 6. Termination of Employment........................................4
Section 7. Adjustment Provisions............................................4
Section 8. Term.............................................................4
Section 9. General Provisions...............................................4
Section 10. Amendment or Discontinuance of the Plan..........................6
<PAGE>
Boston Chicken, Inc.
1998 Restricted Stock Unit Plan
Section 1. Purpose
The Board of Directors of Boston Chicken, Inc. has established the Boston
Chicken, Inc. 1998 Restricted Stock Unit Plan. The purpose of this plan is to
encourage Key Persons (as defined below) to have a greater financial investment
in Boston Chicken, Inc. by furthering their opportunity to own Common Stock of
Boston Chicken, Inc.
Section 2. Definitions
Account: An account maintained on behalf of a Participant on the books of
the Company in accordance with the terms hereof.
Award: Any grant of Units made pursuant to the terms of the Plan.
Board: The Board of Directors of the Company.
Committee: A Committee of the Board which consists of at least two members
of the Board.
Common Stock: The Common Stock, par value $.01, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 7.
Company: Boston Chicken, Inc., a Delaware corporation, and any successor
thereto.
Disability: Termination of employment because of permanent disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
Employer: Any entity designated by the Committee in connection with an
Award for which the Participant receiving such Award performs services.
Key Person: Any employee, consultant or advisor of or to the Company or a
subsidiary of the Company who the Committee determines to be a Key Person for
purposes of participating in the Plan, or any other person approved by the
Committee for participation in the Plan on the basis of his or her ability to
contribute significantly to the growth and profitability of the Company;
provided, however, no such Key Person shall be an officer or director of the
Company.
Participant: A Key Person to whom an Award has been granted which has not
lapsed, terminated, expired or been forfeited or canceled.
Plan: The Boston Chicken, Inc. 1998 Restricted Stock Unit Plan, as amended
from time to time.
<PAGE>
Restriction Period: With respect to any Award, the period of time during
which the Units granted pursuant to such Award remain subject to conditions
imposed by the Committee in connection with the granting of such Award that
might result in the forfeiture of such Award, as contemplated by Section 5 of
the Plan.
Retirement: Termination of employment because of early, normal or deferred
retirement under an approved retirement program of the relevant Employer (or
such other retirement plan or arrangement as may be designated by the Committee,
in its discretion, for this purpose with respect to any Award under the Plan).
Unit: A unit that is the subject of an Award evidencing the right to
receive one share of Common Stock (subject to adjustment as provided in Section
7) at some future date.
Section 3. Administration
The Plan shall be administered by the Committee appointed by the Board for
such purpose. The Committee shall have the authority to approve Key Persons for
participation; to construe and interpret the Plan; to establish, amend or waive
rules and regulations for its administration; and to terminate the Restriction
Period with respect to any Award or amend or waive any restriction or condition
applicable to any Award. Awards may be subject to such provisions as the
Committee shall deem advisable, and may be amended by the Committee from time to
time subject to the provisions of Section 10. Any decision made or action taken
in good faith by the Committee in connection with the administration,
interpretation, and implementation of the Plan and of its rules and regulations
shall, to the extent permitted by law, be conclusive and binding upon all
Participants under the Plan and upon any person claiming under or through a
Participant. No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee or such member with respect to
the Plan or any Award thereunder, and no other director of the Company shall be
liable for any such decision made or action taken by the Committee. The
Committee may obtain such advice or assistance as it deems appropriate from
persons not serving on the Committee.
Section 4. Common Stock Subject to Plan
Subject to Section 7, the aggregate number of Units with respect to which
Awards may be granted under the Plan shall not exceed 1,000,000. The shares of
Common Stock to be delivered under the Plan in connection with the conversion of
Units as provided in Section 5 will be made available, at the discretion of the
Committee, from authorized but unissued shares of Common Stock and/or from
previously issued shares of Common Stock reacquired by the Company. In the
event of a lapse, expiration, termination, forfeiture or cancellation of any
Award granted under the Plan, the Units subject to or reserved for such Award
may be used again for a new Award hereunder. Units canceled to pay withholding
taxes pursuant to Section 9(e) may be used again for a new Award hereunder.
2
<PAGE>
Section 5. Awards
(a) Grant of Awards. Subject to the further terms of this Section 5, with
respect to each Award of Units under the Plan, the Committee will determine (i)
the Key Person to whom such Award shall be made, (ii) the number of Units that
are subject to such Award, (iii) the time that such Award shall be granted, (iv)
any conditions under which such Award shall be subject to forfeiture during the
Restriction Period that are in addition to or other than those specified in
Section 6, as the Committee deems advisable, (v) the duration of the Restriction
Period applicable to any or all Units included in such Award, (vi) if a
condition of any Award relates to continued employment, the Employer or
Employers in whose employment the Key Person must remain in order for the
Restriction Period with respect to such Award to lapse, and (vii) if an Award is
to be evidenced by an agreement or document other than the Account maintained by
the Company, the form of such agreement or document. The number of Units granted
to any Participant under any Award shall be credited, as of the date of such
Award, to such Participant's Account. For all purposes of the Plan, the Account
maintained by the Company for each Participant shall be constitute conclusive
evidence of the Participant's Awards under the Plan, absent manifest error.
(b) Terms and Conditions of Awards. Units granted to Participants under
the Plan shall be subject to the following terms and conditions:
(i) No Award and no right under any such Award may be sold, assigned,
transferred, pledged or otherwise encumbered, except by will or by the laws
of descent and distribution, until the lapse of the applicable Restriction
Period (if any) and satisfaction of any other conditions specified by the
Committee;
(ii) Subject to the limitations of the Plan and any other terms and
conditions applicable to a particular Award, at the end of the Restriction
Period applicable to any Units, each such whole Unit (except for any Unit
canceled to pay withholding taxes pursuant to Section 9(e)) shall
automatically and without further action by the Company be converted into
one share of Common Stock (subject to adjustment as provided in Section 7)
and the Participant shall thereupon become a record holder of each such
share for all purposes. As promptly as practicable thereafter, the Company
shall issue to the Participant (or his or her legal representative,
beneficiary or heir) certificates for the shares of Common Stock issued
upon such conversion. No fractional shares of Common Stock shall be issued
pursuant to this Plan or any Award and instead cash will be paid in lieu of
any fractional shares on such basis as is determined by the Committee; and
(iii) At no time prior to the conversion of Units into shares of
Common Stock shall a Participant be entitled to any rights as a stockholder
of the Company in respect of such Units or the shares of Common Stock into
which such Units may be converted, including the right to receive dividends
in respect of, or to vote, any such shares of Common Stock.
3
<PAGE>
Section 6. Termination of Employment
(a) Forfeiture of Awards Upon Termination of Employment. Except as may be
determined otherwise by the Committee, all Units subject to an Award to a
Participant shall be forfeited upon termination of employment during the
Restriction Period by such Participant with the relevant Employer under the
terms of such Award for reasons other than Retirement, Disability or death.
(b) Vesting Upon Retirement, Disability or Death. Subject to Section 9(g)
and except as otherwise provided by the Committee in connection with the grant
of any Award, upon termination of employment by a Participant by reason of
Retirement, Disability or death, the Restriction Period for all outstanding
Units awarded to such Participant shall lapse and such Units shall be converted
into Common Stock subject to Section 5(b)(ii) hereof.
Section 7. Adjustment Provisions
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event affecting the Company, the Committee shall adjust equitably (a) the number
of Units that are the subject of Awards under the Plan, (b) the number and class
of shares or other securities that are available for issuance upon the
conversion of Units under the Plan, and (c) the performance criteria (if any)
applicable to any Award. Any determination by the Committee as to what
adjustments will be made and the extent thereof, so as to effectuate the intent
of this Section 7, will be final, binding and conclusive.
Section 8. Term
The Plan shall be deemed adopted and shall become effective on the date of
approval of the Plan by the Board and shall continue until (i) the right of the
Committee to make future Awards under the Plan shall have been terminated by the
Board or (ii) all Units available for issuance under Section 4 shall have been
converted into shares of Common Stock pursuant to the Plan, whichever occurs
first.
Section 9. General Provisions
(a) Employment. Nothing in the Plan or in any related instrument shall
confer upon any Participant any right to continue in the employ of the Company
or other relevant Employer (as applicable) or shall affect the right of the
Company or other relevant Employer (as applicable) to terminate, or otherwise
modify, the employment of any Participant with or without cause.
(b) Legality of Issuance of Units and Shares. No Units shall be issued
pursuant to an Award and no shares of Common Stock shall be issued upon
conversion of Units unless and until all legal requirements applicable to such
issuance have been satisfied.
(c) No Right to Awards. No Key Person, Participant or other person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Key Persons, Participants or holders
or beneficiaries of Awards under the Plan.
4
<PAGE>
Except as otherwise required by the Plan, the terms and conditions of Awards
need not be the same with respect to different Participants. No employee of the
Company or any of its subsidiaries (individually or as a member of a group), and
no beneficiary or other person claiming under or through any such employee,
shall have any right, title or interest in or to any Units or Common Stock
allocated or reserved for purposes of the Plan or subject to any Award except as
to Units or shares of Common Stock, if any, as shall have been issued to such
employee.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Colorado.
(e) Withholding of Taxes. Each Participant shall be responsible for any
Federal, state or local taxes applicable to any grant, exercise, vesting,
conversion, distribution or other event giving rise to income tax liability with
respect to an Award. It shall be a condition to the obligation of the Company to
deliver Common Stock to the Participant upon any conversion of Units, that the
Participant (or his or her legal representative, beneficiary or heir) pay to the
Company, upon its demand, such amount as may be required by the Company for the
purpose of satisfying any liability to withhold federal, state, local or foreign
income or other taxes. Unless the Committee shall determine otherwise, any
Participant may elect to have the Company cancel a portion of the Units credited
to such Participant in order to satisfy all or a portion of the income tax
liability that arises upon the vesting, conversion, distribution or other event
giving rise to income tax liability with respect to such Award. If a
Participant (or his or her legal representative, beneficiary or heir) has not
satisfied such obligation to the Company for such amount required by the Company
for the purpose of any liability to withhold federal, state, local or foreign
income or other taxes within fifteen (15) days after demand by the Company, the
Company may, but is not obligated to, cancel Units credited to the Participant
in order to satisfy all or a portion of such income tax liability. In connection
with any such cancellation of Units, the number of Units canceled shall
represent a whole number of shares of Common Stock that have a fair market
value, determined as of the date such Units are canceled, that is sufficient to
pay the amount of the required tax. If the value of the Units so canceled
exceeds the amount of required tax liability, such excess shall be applied
against other tax withholding obligations of the Participant, to the extent
permitted by law.
(f) No Trust or Fund. Neither the Plan nor any Award pursuant thereto
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
person.
(g) Forfeiture of Awards. The Committee may immediately forfeit an Award
if the Participant competes with the Company or engages in conduct that, in the
opinion of the Committee, materially and adversely affects the Company.
(h) Participation in Plan. Each Participant's participation in the Plan
shall be deemed to indicate the acceptance by the Participant and ratification
of, and consent to, any action taken under the Plan by the Company or Committee.
5
<PAGE>
(i) Certain Legal Requirements. Each Award under the Plan shall be subject
to the requirement that, if at any time the Committee determines, in its
discretion, that the listing, registration or qualification of the Units or
shares of Common Stock to be issued pursuant to the conversion of Units upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issue of such Units or shares, such
Units or shares shall not be issued unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. As a condition precedent to the
issuance of shares pursuant to the conversion of Units, the Committee may
require that the Participant take any reasonable action to meet such
requirement. The Committee may impose any restrictions it deems advisable on
Units or shares of Common Stock to be issued upon conversion of Units relating
to compliance with the Securities Act of 1933, as amended, and any other
applicable blue sky or other securities laws, and to the requirements of any
stock exchange or securities quotation system upon which such shares or shares
of the same class are then listed or quoted.
Section 10. Amendment or Discontinuance of the Plan
(a) Amendment or Discontinuance. The Plan may be amended or discontinued
by the Board from time to time. The Committee may (i) without the consent of a
Participant, make such modifications in the terms and conditions of an Award
held by such Participant as the Committee deems advisable and which do not
adversely affect the rights of such Participant in such Award and (ii) with the
consent of a Participant, make any other modifications in the terms and
conditions of an Award held by such Participant as the Committee deems
advisable.
(b) Effect of Amendment or Discontinuance on Awards. No amendment or
discontinuance of the Plan by the Board shall adversely affect the rights of a
Participant in any Award theretofore granted to such Participant without the
consent of such Participant.
* * * * *
6
<PAGE>
Exhibit 10.45(a)
BOSTON CHICKEN, INC.
1997 STOCK OPTION PLAN
----------------------
1. Statement of Purpose. The purpose of this 1997 Stock Option Plan (the
"Plan") is to benefit Boston Chicken, Inc. by offering certain present and
future employees and officers of, and consultants to, the Company and its
subsidiaries a favorable opportunity to become holders of the common stock of
the Company ("Common Stock") over a period of years, thereby giving them a long-
term stake in the growth and prosperity of the Company and encouraging the
continuance of their involvement with the Company. As used herein, the term
"subsidiary" means any corporation, partnership, limited liability company or
other entity for which the Company, in conformity with generally accepted
accounting principles, is required to report the results of operations on a
consolidated basis or in accordance with the equity method of accounting.
2. Administration. The Plan shall be administered by a committee (the
"Committee") which shall consist of at least two members of the Board of
Directors of the Company (the "Board"), each of whom is a "non-employee
director" (as such term is defined under Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")).
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its absolute discretion, (a) to determine the persons to be
granted options under the Plan, (b) to determine the number of shares subject to
each option, (c) to determine the time or times at which options will be
granted, (d) to determine the option price of the shares subject to each option,
(e) to determine the time or times when each option becomes exercisable and the
duration of the exercise period, (f) to prescribe the form or forms of the
agreements or other instruments evidencing any options granted under the Plan,
(g) to adopt, amend and rescind such rules and regulations as, in the
Committee's opinion, may be advisable in the administration of the Plan, and (h)
to construe and interpret the Plan, the rules and regulations and the agreements
evidencing options granted under the Plan and to make all other determinations
deemed necessary or advisable for the administration of the Plan. Any decision
made or action taken in good faith by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations shall, to the extent permitted by law, be conclusive and binding
upon all optionees under the Plan and upon any person claiming under or through
such an optionee, and no director of the Company shall be liable for any such
decision made or action taken by the Committee. The Committee may obtain such
advice or assistance as it deems appropriate from persons not serving on the
Committee.
3. Eligibility. Options may be granted to employees of the Company and
its subsidiaries who are employed on a full time basis, and to officers of, and
consultants to, the Company and its subsidiaries ("Eligible Persons"). The
Committee may grant options to Eligible Persons selected
<PAGE>
from time to time by the Committee. Eligible Persons may be selected
individually or by groups or categories, as determined by the Committee in its
discretion. No non-employee director of the Company shall receive an award under
the Plan.
4. Granting of Options. Subject to Section 10 hereof, the maximum number
of shares of Common Stock which may be issued upon exercise of options granted
under the Plan shall equal the sum of (x) that number of shares of Common Stock
which are subject to outstanding options granted under the Company's 1995
Employee Stock Option Plan and the Company's Amended and Restated 1991 Stock
Option Plan (the "Existing Plans") which are exchanged for options granted
pursuant to the Plan on such date (the "Exchange Date") as shall be determined
by the Committee and (y) that number of shares of Common Stock which are, as of
the Exchange Date, available for issuance under the Existing Plans but not
subject to options granted under the Existing Plans (including options to be
exchanged as contemplated by clause (x)). No option shall be granted under the
Plan subsequent to the tenth anniversary of the Exchange Date. Options granted
under the Plan are intended not to be treated as incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company, or interfere in any way with the right of the Company to terminate
his or her employment at any time.
5. Option Price. The options shall be granted at an exercise price
determined by the Committee at the date of grant.
6. Duration of Options, Increments, and Extensions. Subject to the
provisions of Section 8, each option shall be for such term of not more than ten
years as shall be determined by the Committee at the date of the grant. Each
option shall become exercisable in such installments, at such time or times, and
may be subject to such conditions, including conditions based upon the
performance of the Company, as the Committee may in its discretion determine at
the date of grant.
The Committee may in its discretion (i) accelerate the exercisability of
any option or (ii) at any time before the expiration or termination of an option
previously granted, extend the term of such option (including options held by
officers) for such additional period as the Committee, in its discretion, shall
determine, except that the aggregate option period with respect to any option,
including the original term of the option and any extensions thereof, shall
never exceed ten years.
7. Exercise of Option. As a condition to the exercise of any option, the
fair market value of the Common Stock on the date of exercise must equal or
exceed the option price of such option. An option may be exercised by giving
written notice to the Company, attention of the
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Secretary or such other person or persons as the Company may from time to time
designate for this purpose by notice to the holders of outstanding options under
the Plan, specifying the number of shares to be purchased, accompanied by the
full purchase price for the shares to be purchased either in cash, by check, by
a promissory note in a form specified by the Committee and payable to the
Company no later than 15 business days after the date of exercise of the option,
or, if so approved by the Committee, by shares of the Common Stock of the
Company, or by a combination of these methods of payment. For this purpose, the
per share value of Common Stock of the Company shall be the fair market value on
the date of exercise. The Committee may in its discretion permit an optionee to
deliver a promissory note in a form specified by the Committee and payable to
the Company no later than the fifteenth day of April in the year following the
year of exercise of any option in payment of any withholding tax requirements of
the Company with respect to such exercise.
8. Termination of Relationship -- Exercise Thereafter.
(a) In the event the employment relationship between the Company and
an officer or employee of the Company or any subsidiary who is an optionee
is terminated for any reason other than death, permanent disability, or
retirement, such optionee's option shall expire and all rights to purchase
shares pursuant thereto shall terminate on the date of termination of
employment, except that, to the extent the option is exercisable on the
date of termination, such option may be exercised for a period of fifteen
days after termination of employment (or until the scheduled termination of
the option, if earlier); provided, however, that with respect to all or any
portion of any option held by such optionee, the Committee may, in its sole
discretion, accelerate exercisability, permit vesting to continue in
accordance with the vesting schedule applicable to such option, or (subject
to Section 6) permit such option to remain exercisable for a term after the
fifteen-day period specified above, subject to such terms and conditions,
if any, as may be determined by the Committee in its sole discretion.
Temporary absence from employment because of illness, vacation, and
approved leaves of absence and transfer among the Company and its
subsidiaries shall not be considered to terminate employment or to
interrupt continuous employment.
(b) In the event of termination of said employment relationship
because of death or permanent disability (as that term is defined in
Section 22(e)(3) of the Code, as now in effect or as subsequently amended),
the option may be exercised in full (to the extent not previously
exercised) without regard to the vesting schedule applicable to such
option, by the optionee or, if he or she is not living, by his or her
heirs, legatees, or legal representative, as the case may be, during its
specified term prior to two years after the date of death or permanent
disability. In the event of termination of employment because of early,
normal or deferred retirement under an approved retirement program of the
Company (or such other plan or arrangement as may be approved by the
Committee, in its discretion, for this purpose), the option may be
exercised by the optionee (or, if he or she dies after such retirement, by
his or her heirs, legatees, or legal representative, as the case may be),
to the extent that any portion thereof would be exercisable on the date of
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such retirement (or with respect to such greater portion as determined by
the Committee), at any time during its specified term prior to one year
after the date of such retirement.
(c) Except as otherwise determined by the Committee, upon the
termination of the relationship between the Company or any subsidiary and
an optionee who is a consultant to the Company, such optionee's option
shall expire and all rights to purchase shares pursuant thereto shall
terminate.
(d) Notwithstanding the foregoing provisions of this Section 8, the
Committee may in the grant of any option make other and different
provisions with respect to its exercise after the optionee's termination of
relationship with the Company or any subsidiary.
9. Non-Transferability of Options. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules or regulations
thereunder. In addition, the Committee, in its discretion, may permit the
assignment or transfer of an option on such other terms and subject to such
other conditions as the Committee may deem necessary or appropriate or as
otherwise may be required by applicable law or regulation.
10. Adjustment. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company are changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted thereunder shall be proportionately adjusted;
(b) in the event of any merger or consolidation of the Company with any other
corporation or corporations or any reorganization, liquidation or dissolution of
the Company, there shall be substituted, on an equitable basis as determined by
the Committee, for each share of Common Stock then subject to the Plan, whether
or not at the time subject to outstanding options, the number and kind of shares
of stock or other securities or property to which the holders of shares of
Common Stock of the Company will be entitled pursuant to the transaction; and
(c) in the event of any other relevant change in the capitalization of the
Company, the Board shall provide for an equitable adjustment in the number of
shares of Common Stock then subject to the Plan, whether or not then subject to
outstanding options. In the event of any such adjustment the purchase price per
share payable upon exercise of outstanding options shall be proportionately
adjusted.
11. Change in Control. (a) 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 times of exercise established
pursuant to Section 6 hereof. The term "Change in Control" shall mean the
occurrence, at any time during the specified term of an option granted under the
Plan, of any of the following events:
(i) The Company is merged or consolidated or reorganized into or
with, or shares of stock of the Company are exchanged for stock
or securities of
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another corporation or other legal person (an "Acquiror") or an
Acquiror is merged or consolidated or reorganized into or with
the Company, and immediately following such merger,
consolidation, reorganization or exchange, the stockholders of
the Company immediately prior to such merger, consolidation,
reorganization or exchange (other than the Acquiror or any
corporation or other person controlling, controlled by or under
common control with the Acquiror) own, directly or indirectly,
in the aggregate, Voting Securities (as hereinafter defined) of
the surviving, resulting or acquiring corporation or other
legal person having less than a majority of the voting power of
the issued and outstanding Voting Securities of such surviving,
resulting or acquiring corporation or other legal person;
(ii) The Company sells all or substantially all of its business
and/or assets to an Acquiror, and immediately after such sale,
the stockholders of the Company immediately prior to such sale
(other than any corporation or other person controlling,
controlled by or under common control with the Acquiror) own,
directly or indirectly, in the aggregate, Voting Securities of
the Acquiror having less than a majority of the voting power of
the issued and outstanding Voting Securities of the Acquiror;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), as promulgated
pursuant to the Exchange Act, disclosing that 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), other than Scott A.
Beck, Saad J. Nadhir or a person or group controlled by them or
either of them (or any of their heirs or legatees), has become
the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) 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; provided, however, that no such person or group
shall for this purpose be deemed to be the beneficial owner of
any Voting Securities held by the Company or any of its
subsidiaries or any employee benefit plan (or any related
trust) of the Company or any of its subsidiaries; or
(iv) During any period of twenty four consecutive months or less,
individuals who at the beginning of such period constitute the
directors of the Company (together with any new director whose
election, or nomination for election, by the Company's
stockholders was approved by a vote of at least two-thirds of
the directors of the Company then still in office who either
were directors of the Company at the beginning of any such
period or whose election or nomination for election was
previously so approved)
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cease for any reason to constitute at least a majority of the
directors then in office.
(b) For purposes of Section 11(a) above, "Voting Securities," when used
with respect to any corporation or other legal person, shall mean voting
securities or other capital interests of such corporation or other legal person
that have the power under ordinary circumstances (and not merely upon the
happening of a contingency) to (in the case of a corporation) vote in the
election of directors of such corporation or to (in the case of an other legal
person) participate in the management and control of such other legal person.
12. Amendment of Plan. The Board or any authorized committee thereof may
at any time and from time to time terminate or modify or amend the Plan in any
respect. The termination or modification or amendment of the Plan shall not,
without the consent of the optionee, impair any option previously granted.
13. Exchange Act Compliance. The intent of this Plan is for transactions
hereunder to qualify for the exemption from the short-swing profit rules under
(S)16(b) of the Exchange Act for transactions approved by a committee of non-
employee directors under Rule 16b-3(d)(1) under the Exchange Act. To that end,
(i) any ambiguities or inconsistencies in the construction of the Plan shall be
interpreted to give effect to such intention, (ii) if any provision of the Plan
is found not to be in compliance with such rules, such provision shall be deemed
null and void to the extent required to permit the Plan and transactions
thereunder to comply with such rules, and (iii) if any provision of this Plan
does not comply with the requirements of such rules, or in the event that such
rules are revised or replaced, the Committee may modify this Plan in any respect
necessary to satisfy the requirements of such exemption.
14. Effective Date. The Plan was adopted by the Board on August 14, 1997
to be effective as of the Exchange Date. If the Exchange Date shall not occur
prior to December 31, 1997, the Plan shall be of no further force and effect.
15. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to be granted
an option under the Plan. Determinations made by the Committee under the Plan
need not be uniform and may be made selectively among eligible individuals under
the Plan, whether or not such eligible individuals are similarly situated.
(b) No participant or other person shall have any right with respect to the
Plan, the Common Stock reserved for issuance under the Plan or any option,
contingent or otherwise, until all the terms, conditions and provisions of the
Plan and the option applicable to such recipient (and each person claiming under
or through him) have been met.
(c) No shares of Common Stock shall be issued hereunder with respect to any
option unless counsel for the Company shall be satisfied that such issuance will
be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
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(d) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock, other securities or property,
or other forms of payment, or any combination thereof, upon exercise, settlement
or payment of any option under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes.
If the amount requested is not paid, the Company may refuse to issue Common
Stock, other securities or property, or other forms of payment, or any
combination thereof. Notwithstanding anything in the Plan to the contrary, the
Committee may, in its discretion, permit an eligible participant (or any
beneficiary or person entitled to act) to elect to pay a portion or all of the
amount requested by the Company for such taxes with respect to such option, at
such time and in such manner as the Committee shall deem to be appropriate
(including, but not limited to, by authorizing the Company to withhold, or
agreeing to surrender to the Company on or about the date such tax liability is
determinable, Common Stock, other securities or property, or other forms of
payment, or any combination thereof, owned by such person or a portion of such
forms of payment that would otherwise be distributed, or have been distributed,
as the case may be, pursuant to such option to such person, having a fair market
value equal to the amount of such taxes).
(e) The expenses of administering the Plan shall be borne by the Company.
(f) By accepting any option or other benefit under the Plan, each
participant and each person claiming under or through such person shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Committee.
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Exhibit 10.45(b)
BOSTON CHICKEN, INC.
AMENDMENT TO 1997 STOCK OPTION PLAN
1. The first two sentences of Section 4 of the 1997 Stock Option Plan (the
"Plan") of Boston Chicken, Inc. (the "Company") are hereby amended and
restated to read in their entirety as follows:
"Subject to Section 10 hereof, the maximum number of shares of Common
Stock which may be issued upon exercise of options granted under the
Plan shall equal 9,646,663 shares. No options shall be granted under
the Plan subsequent to November 10, 2007."
2. Section 14 of the Plan is hereby amended and restated to read in its
entirety as follows:
"The Plan was adopted by the Board on August 14, 1997 and became
effective as of November 10, 1997."
3. Except as provided in paragraphs 1 and 2 above, the Plan shall remain
unchanged and in full force and effect.
<PAGE>
Exhibit 10.46
PURCHASE AGREEMENT
This purchase agreement (the "Agreement") is made and entered into as of
the 7th day of November, 1997 by and between Scott A. Beck and Saad J. Nadhir
(each a "Seller" and collectively, the "Sellers"), and Boston Chicken, Inc., a
Delaware corporation (the "Purchaser" or "BCI").
Recitals
Progressive Food Concepts, Inc., a Delaware corporation formerly known as
HFMI Acquisition Corporation ("PFCI") was organized in January 1997. On August
27, 1997, each of the Sellers entered into a purchase agreement (the "Original
Purchase Agreement") with BCI pursuant to which BCI, among other things,
acquired from Sellers (i) a portion of the shares of common stock of PFCI held
by them and (ii) an option to acquire the remaining shares of PFCI held by
Sellers. Part of the consideration for the purchase under the Original Purchase
Agreement was the execution and delivery by BCI to each of the Sellers a
promissory note, each dated August 27, 1997, and each in the principal amount of
$3,181,480 (individually, a "Note" and collectively, the "Notes"). The Notes
are payable September 26, 1998 and are payable, at BCI's option, in cash or
shares of BCI.
Each of the Sellers desires to sell to the Purchaser, and the Purchaser
desires to purchase from each of the Sellers, on the terms and conditions
hereinafter set forth, the remaining shares of common stock of PFCI held by
them.
Covenants
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained, the parties hereto agree as
follows:
1.0 Purchase and Sale of Shares
1.1 Each of the Sellers severally agrees to sell, transfer, assign
and deliver to the Purchaser at the Closing (as defined herein), and the
Purchaser agrees to purchase and accept from each of the Sellers, on the terms
and subject to the conditions set forth in this Agreement, 333.3335 shares of
common stock of PFCI, for a total of 666.667 shares (the "Shares"), free and
clear of all liens, claims, charges, security interests, restrictions on
transfer (other than restrictions under federal and state securities laws),
options, warrants, voting trusts and any other encumbrances of any kind
whatsoever ("Encumbrances").
1.2 As consideration for the Shares (the "Purchase Price"), the
Purchaser agrees, on the terms and subject to the conditions set forth in this
Agreement, to pay to or for the account of each Seller $354,147.17 in cash. In
addition, Purchaser agrees to prepay at Closing a portion of the Notes equal to
one-half of the principal amount of such Notes plus all interest accrued thereon
through the Closing Date. Upon such prepayment, the Sellers will cancel the
Notes and accept, in their place and stead, amended and restated promissory
notes in the form shown on Exhibit A attached hereto.
2.0 Closing
<PAGE>
2.1 The closing of the purchase and sale of the Shares shall take
place at the offices of BCI in Golden, Colorado at 10:00 A.M., local time, on
November 7, 1997, or at such other place or on such other date as may be
mutually agreed by the Sellers and Purchaser. Throughout this Agreement, such
event is referred to as the "Closing" and such date and time are referred to as
the "Closing Date."
2.2 At the Closing:
2.2.1 The Sellers shall deliver to the Purchaser:
2.2.1.1 a copy of the amended and restated certificate of
incorporation of PFCI (the "Certificate of Incorporation"),
certified as of a date not more than ten business days prior to
the Closing Date by the Secretary of State of Delaware, and a
copy of the bylaws of PFCI (the "Bylaws"), certified as of the
Closing Date by the Secretary or Assistant Secretary of PFCI; and
2.2.1.2 certificates evidencing the Shares, each of which
shall have the assignment provisions appearing on the reverse
thereof completed and executed in favor of BCI and accompanied by
stock powers duly executed in blank.
2.2.2 The Purchaser shall deliver to the Sellers:
2.2.2.1 the Purchase Price, by wire transfer of
immediately available funds to accounts designated by the
respective Sellers; and
2.2.2.2 a resolution of the Board of Directors of BCI
authorizing BCI to enter into this Agreement and to consummate
the transactions contemplated hereby.
2.3 Within 10 days after Closing, Sellers shall deliver to Purchaser
a certificate of good standing of PFCI, certified as of a date not more than ten
business days after the Closing Date by the Secretary of State of Delaware.
3.0 Representations and Warranties of the Sellers
In order to induce the Purchaser to enter into this Agreement and to
purchase the Shares, each of the Sellers severally represents and warrants to
the Purchaser as follows:
3.1 This Agreement has been duly executed and delivered by such
Seller. This Agreement is a valid and legally binding obligation of such
Seller, enforceable in accordance with its terms.
3.2 The authorized capital stock of PFCI consists of 100,000 shares
of common stock, $.01 par value, 8,666,667 shares of which are issued and
outstanding, and 50,000 shares of preferred stock, $.01 par value, none of which
are issued and outstanding. There are no outstanding warrants, options or
rights of any kind to acquire from PFCI or such Seller any stock or securities
of any kind, and there are no pre-emptive rights with respect to the issuance or
sale
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of shares of PFCI. To the knowledge of the Sellers, PFCI has no obligation to
acquire any of its issued and outstanding stock or any other security issued by
it from any holder thereof. All of the Shares owned by such Seller will be
fully paid and nonassessable and delivery of the Shares by such Seller will vest
title to all of such Shares in the Purchaser, free and clear of all Encumbrances
(other than restrictions under federal and state securities laws and
Encumbrances created by the Purchaser).
3.3 Neither the execution, delivery and performance of this Agreement
by such Seller, nor the consummation by it of the transactions contemplated
hereby, will, to the knowledge of such Seller, violate any applicable law or
regulation, or any order, writ, injunction, or decree of the United States or
any court, arbitrator, or governmental or regulatory official, body,
subdivision, instrumentality, agency or authority, whether federal, state or
local ("Governmental Body"), or will conflict or be inconsistent with or result
in any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, any agreement to which such Seller is a party or by
which he is bound. To the knowledge of the Seller, no permit, consent,
approval, or authorization of, or declaration to or filing with, any
Governmental Body or any other person, except for the consent of PFCI (which was
granted August 27, 1997), is necessary for the execution and delivery by such
Seller of this Agreement or for the consummation by such Seller of the
transactions contemplated hereby.
3.4 Such Seller has no obligation to pay any fees or commissions to
any investment banker, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
4.0 Representations and Warranties of the Purchaser
In order to induce each of the Sellers to enter into this Agreement
and to sell the Shares, the Purchaser represents and warrants as follows:
4.1 The Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Purchaser has
the power to execute, deliver and perform its obligations under the terms of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement.
4.2 This Agreement has been duly executed and delivered by the
Purchaser. This Agreement is a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms. Neither the execution and
delivery of this by the Purchaser nor the consummation by it of the transactions
contemplated hereby, will, to the knowledge of the Purchaser, violate any
applicable law or regulation, or any order, writ, injunction, or decree of any
Governmental Body, or will conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, any agreement to which the Purchaser is a party or
by which it is bound. To the knowledge of the Purchaser, no permit, consent,
approval or authorization of, or declaration to or filing with, any Governmental
Body or any other person is required in connection with the execution and
delivery of this Agreement by the Purchaser and the consummation by it of the
transactions contemplated hereby.
4.3 The Purchaser has no obligation to pay any fees or commissions to
any investment banker, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
4.4 The Purchaser understands that the Shares have not been
registered under the 1933 Act and, therefore, cannot be sold or transferred
unless either they are subsequently registered under such Act (as well as under
any applicable state securities laws) or an exemption
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from such registration is available. The Purchaser understands that any
certificate or certificates representing the Shares shall bear a legend to such
effect. The Shares are being acquired by the Purchaser not with a view to any
distribution or resale thereof in any transaction which would be in violation of
the 1933 Act and the rules promulgated thereunder, or any state securities
statute.
4.5 The Purchaser is an accredited investor within the meaning of
Regulation D under the Securities Act of 1933.
5.0 Indemnification
5.1 Each of the Sellers severally agrees to indemnify, defend and
hold harmless the Purchaser, its officers, employees and agents, (collectively,
the "Purchaser Indemnified Persons"), from and against all losses, claims,
damages, liabilities, expenses (including legal fees and expenses), judgments,
fines, settlements and other amounts incurred or suffered by the Purchaser or
the Purchaser Indemnified Persons and arising out of the inaccuracy of any of
the representations and warranties made by such Seller in this Agreement or any
breach by such Seller of this Agreement. The Purchaser agrees that neither it
nor the Purchaser Indemnified Persons shall seek against the Seller, nor shall
the Sellers be liable for, any consequential, punitive, special or exemplary
damages for any breach of this Agreement or the agreements and transactions
contemplated hereby.
5.2 The Purchaser agrees to indemnify, defend and hold harmless each
of the Sellers from and against all losses, claims, damages, liabilities,
expenses (including legal fees and expenses), judgments, fines, settlements and
other amounts incurred or suffered by the Sellers and arising out of the
inaccuracy of any of the representations and warranties made by the Purchaser in
this Agreement or any breach by the Purchaser of this Agreement. Each of the
Sellers agrees that he shall not seek against the Purchaser or the Purchaser
Indemnified Persons, nor shall the Purchaser or the Purchaser Indemnified
Persons be liable for, any consequential, punitive, special or exemplary damages
for any breach of this Agreement or the agreements and transactions contemplated
hereby.
5.3 Any person entitled to indemnification hereunder will give prompt
written notice to the indemnifying person of any claim with respect to which it
seeks indemnification and, unless in such indemnified person's reasonable
judgment a conflict of interest between such indemnified and indemnifying
persons may exist with respect to such claim, permit such indemnifying person to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified person. If such defense is assumed, the indemnifying person will
not be subject to any liability for any settlement made by the indemnified
person without its or his consent (but such consent will not be unreasonably
withheld). An indemnifying person who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying person
with respect to such claim, unless in the reasonable judgment of such counsel a
conflict of interest may exist between such indemnified person and any other of
such indemnified persons with respect to such claim.
6.0 Conditions
6.1 The obligations of the parties to consummate the purchase and
sale of the Shares shall be subject to the satisfaction or waiver of the
following conditions:
6.1.1 The respective deliveries of the parties contemplated by
Section 2.2 shall have occurred at or prior to the Closing.
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7.0 Miscellaneous
7.1 The representations, warranties, covenants and indemnification
agreements contained herein are continuing in nature and the representations and
warranties of the parties shall survive until the first anniversary of the date
hereof except the representations and warranties in the last two sentences of
Section 3.2, which shall survive until the third anniversary of the date hereof,
regardless of any investigation made by or on behalf of any party to this
Agreement.
7.2 The parties hereto may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
7.3 Each party to this Agreement shall pay all of the expenses
incurred by it in connection with this Agreement, including without limitation
its legal and accounting fees and expenses, and the commissions, fees and
expenses of any person employed or retained by it to bring about, or to
represent it in, the transactions contemplated hereby.
7.4 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
7.5 This instrument and the exhibits and schedules attached hereto
contain the entire agreement of the parties hereto with respect to the purchase
of the Shares, and supersede all prior understandings and agreements of the
parties with respect to the subject matter hereof.
7.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
7.7 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
7.8 All notices provided for in this Agreement shall be in writing,
duly signed by the party giving such notice, and shall be sent by Federal
Express or other reliable overnight courier, sent by fax or mailed by registered
or certified mail, return receipt requested, as follows:
If to one of the Sellers, addressed to such party at:
Scott A. Beck
c/o Boston Chicken, Inc.
14103 Denver West Parkway
Golden, CO 80401
Saad J. Nadhir
c/o Boston Chicken, Inc.
14103 Denver West Parkway
Golden, CO 80401
If to the Purchaser, addressed to:
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Boston Chicken, Inc.
14103 Denver West Parkway
Golden, CO 80401
or at such other address as the recipient may specify from time to
time in writing. Each notice shall be deemed to have been given upon the
earlier of the receipt of such notice by the intended recipient thereof, two
days after it is sent by Federal Express or other reliable overnight courier or
sent by fax, or five days after it is mailed by registered or certified mail,
return receipt requested.
7.9 The Company agrees to use reasonable best efforts to assist each
of the Sellers in connection with any proposal of such Seller to transfer any of
the Notes, including by providing appropriate certifications as to factual
matters and similar actions, provided that the Company shall not be obligated to
pay any money or incur any additional monetary obligation or liability
hereunder.
7.10 This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado applicable to contracts made and to be
performed therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
/s/ Scott A. Beck
----------------------------------------------
Scott A. Beck
/s/ Saad J. Nadhir
----------------------------------------------
Saad J. Nadhir
Boston Chicken, Inc.
By: /s/ Michael R. Daigle
-------------------------------------------
Name: Michael R. Daigle
-----------------------------------------
Its: Vice President
------------------------------------------
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Exhibit A
NEITHER THIS PROMISSORY NOTE NOR THE SHARES DESCRIBED IN THIS PROMISSORY
NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER
THE SECURITIES LAWS OF ANY STATE AND THEY MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THIS PROMISSORY NOTE AND UNLESS
EITHER (A) THEY ARE REGISTERED UNDER THE ACT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR (B) BOSTON CHICKEN, INC. HAS RECEIVED EVIDENCE
SATISFACTORY TO IT THAT SUCH PROPOSED DISPOSITION IS EXEMPT FROM SUCH
REGISTRATION.
THE UNDERSIGNED WAIVES THE RIGHT TO ASSERT AGAINST ANY ASSIGNEE OF THE
HOLDER, OR ANY SUBSEQUENT ASSIGNEE, ANY DEFENSE, COUNTERCLAIM, OR SETOFF THAT
THE UNDERSIGNED COULD ASSERT AGAINST THE HOLDER IN AN ACTION BROUGHT BY THE
HOLDER UPON THIS NOTE OTHER THAN ANY DEFENSE, COUNTERCLAIM, OR SETOFF TO WHICH A
HOLDER IN DUE COURSE WOULD BE SUBJECT UNDER THE COLORADO UNIFORM COMMERCIAL
CODE.
AMENDED AND RESTATED PROMISSORY NOTE
$1,590,740 November 7, 1997
Golden, Colorado
For value received, the undersigned hereby promises to pay to the order of
Scott A. Beck (the "Holder"), on March 21, 1999, the principal amount of one
million five hundred ninety thousand seven hundred forty dollars ($1,590,740),
together with interest thereon as provided herein.
This Note is issued in exchange of and replacement for, and evidences the
same indebtedness incurred to the date hereof, under that certain Promissory
Note, dated August 27, 1997, from the undersigned in favor of Holder.
This Note shall bear interest from August 27, 1997 at a rate of 9.5% per
annum. Interest shall be payable quarterly on March 31, June 30, September 30
and December 31 of each year and at maturity. Interest shall be calculated for
actual days elapsed on the basis of a 360-day year. If any payment of principal
of, or interest on, or any other amount owed by the undersigned under this Note
becomes due and payable on other than a Business Day (as defined below), the
maturity thereof shall be extended to the next succeeding Business Day. The term
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"Business Day" means any day that is not a Saturday, Sunday or legal holiday in
Golden, Colorado on which banks are not authorized or required to be closed.
This Note shall be payable at the offices of Boston Chicken, Inc. (the
"Company"), 14123 Denver West Parkway, Golden, Colorado, or such other place in
the United States of America as the lawful holder hereof may from time to time
in writing designate.
The principal amount of this Note and any accrued interest due on the
payment date or otherwise may be paid at the Company's option in (x) lawful
money of the United States of America in immediately available funds (the
"Cash"), (y) shares (the "Shares") of common stock, $.01 par value per share, of
the Company (the "Common Stock") valued at the average of the closing sales
prices per share of the Common Stock quoted on the Nasdaq National Market, or,
in the event the Common Stock is not quoted on the Nasdaq National Market, on
such other securities exchange on which the Common Stock is then traded, as
reported in the Wall Street Journal (Western Edition), for the five (5) trading
days immediately prior to the second Business Day before the date of payment
(the "Average Price"), freely transferable by such Holder for a period of at
least 30 days from the date on which the Shares are delivered to or for the
account of the Holder (the "Date of Payment"), if such Holder is not an
Affiliate (as hereinafter defined) of the Company, or for a period of 365 days
from the Date of Payment, if such Holder is an Affiliate of the Company,
pursuant to an effective registration statement under the Act covering the
resale by such Holder of the Shares (the "Registration Statement") and approved
for listing on the Nasdaq National Market or such other securities exchange on
which the Common Stock is then listed or traded or (z) a combination of Cash and
Shares, determined with reference to the preceding clauses (x) and (y).
If during the 30-day period or 365-day period, as applicable, after the
Date of Payment there occurs any development or event which requires an
amendment to the Registration Statement or a supplement to the related
prospectus (the "Resale Prospectus") (in each case as amended or supplemented)
so that they will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading: (i) the Company shall immediately notify the Holder
of the occurrence of such development or event; (ii) upon receipt of such
notice, the Holder shall discontinue dispositions of the Shares until the Holder
shall have received copies of the amended or supplemented Resale Prospectus
contemplated above or been advised by the Company in writing that use of the
Resale Prospectus may be resumed; (iii) as promptly as practicable, but not
later than one hundred twenty (120) days after such notice, the Company shall
take such action as is necessary to amend the Registration Statement or
supplement the prospectus to permit sales of the Shares to be made thereunder
and shall furnish such amended or supplemented Resale Prospectus in reasonable
quantities (as thereafter deliverable to the purchasers of Shares) to the Holder
so that such Resale Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; and (iv) the 30-day
period or 365-day period, as applicable, shall be extended by the number of days
during which the Holder is
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required to discontinue dispositions of the Shares, but such extension shall not
increase the respective periods beyond a total of 30 days or 365 days, as the
case may be.
In the event (i) the Holder is not an Affiliate of the Company and the
Holder sells all of the Shares delivered to the Holder in connection with any
payment of principal and/or interest as provided in the fourth paragraph of this
Note within the first ten (10) trading days on which the Nasdaq National Market
is open for business immediately following the Date of Payment (the "Guarantee
Period") for cash in one or more bona fide broker's or market maker transactions
in accordance with Rule 145 under the 1933 Act, through or to Merrill Lynch,
Pierce, Fenner and Smith Incorporated ("Merrill Lynch"), to one or more persons
not affiliated with, related to, or associated with the Holder, in which the
Holder has instructed Merrill Lynch to make a good faith effort to maximize the
selling price; (ii) the average price per share received in such sales, net of
broker's commissions, is less than the Average Price (such difference being
referred to herein as the "Per-Share Shortfall"); and (iii) the Company receives
notice from the Holder within five (5) days of the expiration of the Guarantee
Period of the amount of the Per-Share Shortfall, the Company shall pay to the
Holder, within five (5) business days of receipt of the applicable confirmation
slips, an amount, in cash or Shares of Common Stock (valued as provided in the
following paragraph) at the Company's option, equal to the Per-Share Shortfall
multiplied by the number of Shares sold during the Guarantee Period (the
"Shortfall Amount").
In the event the Company elects to pay the Shortfall Amount under the
preceding paragraph in Shares of Common Stock (the "Shortfall Shares"), the
number of Shortfall Shares to be delivered to the Holder shall be determined by
dividing the Shortfall Amount by the average closing sales price per share of
the Common Stock quoted on the Nasdaq National Market, as reported in the Wall
Street Journal (Western Edition), for the five (5) trading days immediately
prior to the last business day before the date on which the Company delivers the
Shortfall Shares to the Holder. Any Shortfall Shares so delivered shall also be
freely transferable for a period of 30 days from the date of their payment by
such Holder pursuant to an effective registration statement under the Act
covering the resale by such Holder of the Shares and approved for listing on the
Nasdaq National Market or the securities exchange on which the Common Stock is
then listed or traded. The provisions of the fourth and fifth paragraphs of
this Promissory Note shall apply, mutatis mutandis, to the registration under
the Act of such Shortfall Shares.
The Company agrees to reimburse, to the extent permitted by law, the
Holder, its directors, officers, employees and agents, and each person, if any,
who controls the Holder within the meaning of the Act, for any and all losses,
claims, damages, expenses and liabilities to which they or any of them may
become subject under the Act or any other statute or common law or otherwise by
reason of its offer and sale of the Shares or Shortfall Shares, and to reimburse
the Holder for any reasonable legal or other expenses actually and reasonably
incurred in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, expenses, liabilities, or actions arise
out of, or are based upon:
(i) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained in or incorporated by reference in the
Registration Statement or any post-effective amendment thereto, or the omission
or alleged omission to state therein a material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; or
(ii) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained or incorporated by reference in the
Resale Prospectus (as amended or supplemented if the Company shall have filed
with the Securities and Exchange Commission any amendment or supplement
thereto), if used within the period during which the Company is required to keep
the Registration Statement and Resale Prospectus current, or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading;
provided, however, that the Company's obligations contained herein shall not
apply to losses, claims, damages, expenses, liabilities, or actions arising out
of, or based upon any such untrue statement or any such omission or alleged
omission, if such statement or omission was made in reliance upon, and in
conformity with, information relating to the Holder furnished to the Company by
the Holder expressly for use in connection with the preparation of the
Registration Statement or any Resale Prospectus or any such amendment or
supplement thereto.
The Holder, by its acceptance of this Promissory Note, shall (in the same
manner and to the same extent as set forth in the preceding paragraph),
reimburse, to the extent permitted by law, the Company, its directors, officers,
employees and agents, and each person, if any, who controls the Company within
the meaning of the Act, if such statement or omission was made in reliance upon
and in conformity with information relating to the Holder furnished to the
Company by the Holder expressly for use in connection with the preparation of
the Registration Statement or the Resale Prospectus or any amendment or
supplement thereto.
Any person entitled to reimbursement hereunder will (i) give written notice
to the reimbursing party of any claim with respect to which it seeks
reimbursement within 14 days of the person entitled to reimbursement receiving
notice thereof (provided, however, that any failure by a person entitled to
reimbursement hereunder to give such prompt written notice shall not adversely
affect such person's rights hereunder unless and then only to the extent that
such failure prejudices the rights of the reimbursing party hereunder) and (ii)
unless in such party's reasonable judgment a conflict or interest between such
party and the reimbursing parties may exist with respect to such claim, permit
such reimbursing party to assume the defense of such claim with counsel
reasonably satisfactory to the party being reimbursed. If such defense is
assumed, the reimbursing party will not be subject to any liability for any
settlement made by the party being reimbursed without its consent (but such
consent will not be unreasonably withheld). A reimbursing party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
being reimbursed by such reimbursing party with respect to such claim, unless in
the reasonable judgment of such counsel a conflict of interest may exist between
such party being reimbursed and any other of such reimbursed parties with
respect to such claim.
If the reimbursement provided for herein is unavailable to or insufficient
to hold harmless the party being reimbursed under the second and third preceding
paragraphs in respect of any
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losses, claims, damages, expenses or liabilities referred to therein, then each
applicable reimbursing party, in lieu of reimbursing such party, shall
contribute to the amount paid or payable by such party being reimbursed as a
result of such losses, claims, damages, expenses, or liabilities in such
proportion as is appropriate to reflect the relative fault of the Holder and the
Company in connection with the statements or omissions which resulted in such
losses, claims, damages, expenses, or liabilities. The relative fault of the
Holder and the Company shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Holder
or by the Company, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, expenses, and liabilities referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The Holder, by
its acceptance hereof, and the Company agree that it would not be just and
equitable if contribution pursuant hereto were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
As used herein, the term "Affiliate" means, with respect to any specified
person, any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person, for the
purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
The occurrence of any one of the following events shall constitute an event
of default ("Event of Default") under this Note: (a) if the undersigned fails to
pay the principal of this Note at the time and place when the same is due and
payable, (b) if the undersigned fails to pay any interest payment or Shortfall
Amount on this Note at the time and place when the same is due and such default
continues for a period of five days following receipt of notice of non-payment,
(c) if the undersigned breaches any covenant contained in this Note other than
the covenants to pay principal, and interest or the Shortfall Amount and such
breach is not cured within 10 business days of written notice thereof, or (d) if
the undersigned shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting the material allegations
of a petition filed against it in any such proceeding, or if, within 60 days
after the commencement of any proceeding against the undersigned seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
proceeding shall not have been dismissed or if, within 60 days after the
appointment without the consent or acquiescence of the
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undersigned of any trustee, receiver or liquidator of the undersigned or of all
or any substantial part of its properties, such appointment shall not have been
vacated.
If an Event of Default has occurred (whether or not it is continuing),
then the holder of this Note shall have the right at its sole option and in
addition to any other available remedy, to declare this Note to be due and
payable, whereupon the same shall forthwith mature and become due and payable
without presentment, demand, protest or notice, all of which are hereby waived.
In the case of an Event of Default, all payments of principal, interest, the
Shortfall Amount or other payments under this Note, shall be made in Cash. In
case of a default in the payment of any principal of, or interest on, this Note,
the undersigned will pay the holder hereof such further amount as shall be
sufficient to cover the reasonable cost and expense of collection, including
without limitation reasonable attorneys' fees. No course of dealing and no
delay on the part of the holder hereof in exercising any right shall operate as
a waiver thereof or otherwise prejudice such holder's rights. The rights and
remedies of the holder hereof are cumulative and are not exclusive of any rights
or remedies it would otherwise have.
The Company covenants and agrees, and each holder of this Promissory Note,
whether upon original issue or upon transfer or assignment hereof, by such
holder's acceptance hereof likewise covenants and agrees, that upon the payment
or distribution of the assets of the Company of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution, winding-up,
total or partial liquidation or reorganization of the Company (whether voluntary
or involuntary, or in bankruptcy, insolvency, reorganization, liquidation,
receivership proceedings, or upon an assignment for the benefit of creditors, or
any other marshaling of the assets and liabilities of the Company, or
otherwise), all Senior Indebtedness shall first be paid in full, in cash, or
have provision made for such payment, before any payment (other than in Shares
of Common Stock) is made other than in Shares of Common Stock on account of the
principal of or interest or Shortfall Amount on or other amounts due in respect
of the indebtedness evidenced by this Promissory Note. As used herein, the term
"Senior Indebtedness" means the principal of and premium, if any, and interest
(including, without limitation, any interest accruing subsequent to the filing
of a petition or other action concerning bankruptcy or other similar
proceedings, whether or not constituting an allowed claim in any such
proceedings) on, and fees, costs, enforcement expenses (including legal fees and
disbursements), collateral protection expenses and other reimbursement or
indemnity obligations in respect of, all indebtedness or obligations of the
Company to banks and other lending institutions for money borrowed or in respect
of credit or other banking or lease financing facilities, whether presently
outstanding or hereafter incurred or created and including any extensions,
renewals, modifications or amendments thereof, including, without limitation,
under (i) the Secured Revolving Credit Agreement dated as of December 9, 1996
among the Company, Bankers Trust Company, as Documentation Agent, Bank of
America Illinois, as Agent, and the Lenders named therein, (ii) the Facilities
Agreement dated as of December 9, 1996 among the Company, Bank of America
Illinois, as Agent for Certain Lenders and General Electric Capital Corporation,
(iii) Master Lease Agreement dated as of September 27, 1995 between the Company
and General Electric Capital Corporation, for itself and as agent for other
participants, as amended, and (iv) Master Lease Agreement No. 2 dated as of
December 9, 1996, between the Company and General Electric Capital Corporation,
for itself and as agent for other participants, and (v) any renewals,
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extensions, refundings, restructurings, amendments or modifications of the
facilities referred to in (i), (ii), (iii) or (iv).
Upon the happening of a default in payment (whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise) of the principal of
or interest on any Senior Indebtedness, as such default is defined under or in
respect of such senior Indebtedness or in any agreement pursuant to which such
Senior Indebtedness has been incurred (the relevant "Senior Debt Agreement"),
then, unless and until the amount of such Senior Indebtedness then due shall
have been paid in full or provision made therefor in a manner satisfactory to
the holders of such Senior Indebtedness, or such default shall have been cured
or waived or shall have ceased to exist, the Company shall not pay principal of
or interest or the Shortfall Amount on this Promissory Note and shall not
repurchase, redeem or otherwise retire this Promissory Note, in either case
other than in or for Shares of Common Stock (collectively, "payment of this
Promissory Note").
Upon the happening of an event of default with respect to any Senior
Indebtedness (other than under circumstances described in the immediately
preceding paragraph of this Promissory Note are applicable), as such event of
default is defined under the relevant Senior Debt Agreement, permitting the
holders thereof to immediately accelerate the maturity thereof, and upon written
notice thereof given to the Company and the Holder by any holders of such Senior
Indebtedness or their representative or any trustee therefor (a "Default
Notice"), then, unless and until such event of default shall have been cured or
waived in writing by the holders of such Senior Indebtedness or shall have
ceased to exist, no direct or indirect payment of this Promissory Note shall be
made; provided, however, that this paragraph shall not prevent the making of any
such payment (which is not otherwise prohibited by the immediately preceding
paragraph of this Promissory Note) for more than 89 days after the Default
Notice shall have been given unless the Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in its entirety,
in which case no such payment may be made until such acceleration has been
waived, rescinded or annulled, or such Senior Indebtedness shall have been paid
in full, or payment thereof shall be duly provided for in cash or in any other
manner than one Default Notice shall be given with respect to the same issue of
Senior Indebtedness within a period 360 consecutive days, and no event of
default which existed or was continuing on the date of any Default Notice and
was known to the holders of such issue of Senior Indebtedness shall be made the
basis for the giving of a subsequent Default Notice by the holders of such issue
of Senior Indebtedness.
In the event that, notwithstanding the foregoing three paragraphs of this
Promissory Note, any payment of this Promissory Note shall be made or on behalf
of the Company and received by the Holder, then, unless and until the amount of
such Senior Indebtedness then due shall have been paid in full or provision made
therefor or such default shall have been cured or waived, such payment shall be
held in trust for the benefit of, and shall be immediately paid over to, the
holders of Senior Indebtedness or their representative or any trustee therefor
ratably according to the aggregate amounts remaining unpaid on account of the
principal of and interest on, and fees and other charges in respect of, the
Senior Indebtedness held or represented by each, for application to the payment
of all Senior Indebtedness remaining unpaid to the extent necessary to
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pay all Senior Indebtedness in accordance with its terms, after giving effect to
any concurrent payment or distribution to or for the benefit of the holders of
Senior Indebtedness.
The undersigned shall have the right to prepay in whole or in part, and
from time to time, the remaining unpaid principal balance hereunder, without
penalty.
The undersigned hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.
This Note shall be governed by and construed in accordance with the laws of
the State of Colorado.
BOSTON CHICKEN, INC.
By: /s/ Michael R. Daigle
----------------------------------
Its: Vice President
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NEITHER THIS PROMISSORY NOTE NOR THE SHARES DESCRIBED IN THIS PROMISSORY
NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER
THE SECURITIES LAWS OF ANY STATE AND THEY MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THIS PROMISSORY NOTE AND UNLESS
EITHER (A) THEY ARE REGISTERED UNDER THE ACT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR (B) BOSTON CHICKEN, INC. HAS RECEIVED EVIDENCE
SATISFACTORY TO IT THAT SUCH PROPOSED DISPOSITION IS EXEMPT FROM SUCH
REGISTRATION.
THE UNDERSIGNED WAIVES THE RIGHT TO ASSERT AGAINST ANY ASSIGNEE OF THE
HOLDER, OR ANY SUBSEQUENT ASSIGNEE, ANY DEFENSE, COUNTERCLAIM, OR SETOFF THAT
THE UNDERSIGNED COULD ASSERT AGAINST THE HOLDER IN AN ACTION BROUGHT BY THE
HOLDER UPON THIS NOTE OTHER THAN ANY DEFENSE, COUNTERCLAIM, OR SETOFF TO WHICH A
HOLDER IN DUE COURSE WOULD BE SUBJECT UNDER THE COLORADO UNIFORM COMMERCIAL
CODE.
AMENDED AND RESTATED PROMISSORY NOTE
$1,590,740 November 7, 1997
Golden, Colorado
For value received, the undersigned hereby promises to pay to the order of
Saad J. Nadhir (the "Holder"), on March 21, 1999, the principal amount of one
million five hundred ninety thousand seven hundred forty dollars ($1,590,740),
together with interest thereon as provided herein.
This Note is issued in exchange of and replacement for, and evidences the
same indebtedness incurred to the date hereof, under that certain Promissory
Note, dated August 27, 1997, from the undersigned in favor of Holder.
This Note shall bear interest from August 27, 1997 at a rate of 9.5% per
annum. Interest shall be payable quarterly on March 31, June 30, September 30
and December 31 of each year and at maturity. Interest shall be calculated for
actual days elapsed on the basis of a 360-day year. If any payment of principal
of, or interest on, or any other amount owed by the undersigned under this Note
becomes due and payable on other than a Business Day (as defined below), the
maturity thereof shall be extended to the next succeeding Business Day. The term
"Business Day" means any day that is not a Saturday, Sunday or legal holiday in
Golden, Colorado on which banks are not authorized or required to be closed.
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This Note shall be payable at the offices of Boston Chicken, Inc. (the
"Company"), 14123 Denver West Parkway, Golden, Colorado, or such other place in
the United States of America as the lawful holder hereof may from time to time
in writing designate.
The principal amount of this Note and any accrued interest due on the
payment date or otherwise may be paid at the Company's option in (x) lawful
money of the United States of America in immediately available funds (the
"Cash"), (y) shares (the "Shares") of common stock, $.01 par value per share, of
the Company (the "Common Stock") valued at the average of the closing sales
prices per share of the Common Stock quoted on the Nasdaq National Market, or,
in the event the Common Stock is not quoted on the Nasdaq National Market, on
such other securities exchange on which the Common Stock is then traded, as
reported in the Wall Street Journal (Western Edition), for the five (5) trading
days immediately prior to the second Business Day before the date of payment
(the "Average Price"), freely transferable by such Holder for a period of at
least 30 days from the date on which the Shares are delivered to or for the
account of the Holder (the "Date of Payment"), if such Holder is not an
Affiliate (as hereinafter defined) of the Company, or for a period of 365 days
from the Date of Payment, if such Holder is an Affiliate of the Company,
pursuant to an effective registration statement under the Act covering the
resale by such Holder of the Shares (the "Registration Statement") and approved
for listing on the Nasdaq National Market or such other securities exchange on
which the Common Stock is then listed or traded or (z) a combination of Cash and
Shares, determined with reference to the preceding clauses (x) and (y).
If during the 30-day period or 365-day period, as applicable, after the
Date of Payment there occurs any development or event which requires an
amendment to the Registration Statement or a supplement to the related
prospectus (the "Resale Prospectus") (in each case as amended or supplemented)
so that they will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading: (i) the Company shall immediately notify the Holder
of the occurrence of such development or event; (ii) upon receipt of such
notice, the Holder shall discontinue dispositions of the Shares until the Holder
shall have received copies of the amended or supplemented Resale Prospectus
contemplated above or been advised by the Company in writing that use of the
Resale Prospectus may be resumed; (iii) as promptly as practicable, but not
later than one hundred twenty (120) days after such notice, the Company shall
take such action as is necessary to amend the Registration Statement or
supplement the prospectus to permit sales of the Shares to be made thereunder
and shall furnish such amended or supplemented Resale Prospectus in reasonable
quantities (as thereafter deliverable to the purchasers of Shares) to the Holder
so that such Resale Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; and (iv) the 30-day
period or 365-day period, as applicable, shall be extended by the number of days
during which the Holder is required to discontinue dispositions of the Shares,
but such extension shall not increase the respective periods beyond a total of
30 days or 365 days, as the case may be.
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In the event (i) the Holder is not an Affiliate of the Company and the
Holder sells all of the Shares delivered to the Holder in connection with any
payment of principal and/or interest as provided in the fourth paragraph of this
Note within the first ten (10) trading days on which the Nasdaq National Market
is open for business immediately following the Date of Payment (the "Guarantee
Period") for cash in one or more bona fide broker's or market maker transactions
in accordance with Rule 145 under the 1933 Act, through or to Merrill Lynch,
Pierce, Fenner and Smith Incorporated ("Merrill Lynch"), to one or more persons
not affiliated with, related to, or associated with the Holder, in which the
Holder has instructed Merrill Lynch to make a good faith effort to maximize the
selling price; (ii) the average price per share received in such sales, net of
broker's commissions, is less than the Average Price (such difference being
referred to herein as the "Per-Share Shortfall"); and (iii) the Company receives
notice from the Holder within five (5) days of the expiration of the Guarantee
Period of the amount of the Per-Share Shortfall, the Company shall pay to the
Holder, within five (5) business days of receipt of the applicable confirmation
slips, an amount, in cash or Shares of Common Stock (valued as provided in the
following paragraph) at the Company's option, equal to the Per-Share Shortfall
multiplied by the number of Shares sold during the Guarantee Period (the
"Shortfall Amount").
In the event the Company elects to pay the Shortfall Amount under the
preceding paragraph in Shares of Common Stock (the "Shortfall Shares"), the
number of Shortfall Shares to be delivered to the Holder shall be determined by
dividing the Shortfall Amount by the average closing sales price per share of
the Common Stock quoted on the Nasdaq National Market, as reported in the Wall
Street Journal (Western Edition), for the five (5) trading days immediately
prior to the last business day before the date on which the Company delivers the
Shortfall Shares to the Holder. Any Shortfall Shares so delivered shall also be
freely transferable for a period of 30 days from the date of their payment by
such Holder pursuant to an effective registration statement under the Act
covering the resale by such Holder of the Shares and approved for listing on the
Nasdaq National Market or the securities exchange on which the Common Stock is
then listed or traded. The provisions of the fourth and fifth paragraphs of
this Promissory Note shall apply, mutatis mutandis, to the registration under
the Act of such Shortfall Shares.
The Company agrees to reimburse, to the extent permitted by law, the
Holder, its directors, officers, employees and agents, and each person, if any,
who controls the Holder within the meaning of the Act, for any and all losses,
claims, damages, expenses and liabilities to which they or any of them may
become subject under the Act or any other statute or common law or otherwise by
reason of its offer and sale of the Shares or Shortfall Shares, and to reimburse
the Holder for any reasonable legal or other expenses actually and reasonably
incurred in connection with investigating any claims and defending any actions,
insofar as such losses, claims, damages, expenses, liabilities, or actions arise
out of, or are based upon:
(i) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained in or incorporated by reference in the
Registration Statement or any post-effective amendment thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or
3
<PAGE>
(ii) any untrue statement of a material fact or any alleged untrue
statement of a material fact contained or incorporated by reference in the
Resale Prospectus (as amended or supplemented if the Company shall have filed
with the Securities and Exchange Commission any amendment or supplement
thereto), if used within the period during which the Company is required to keep
the Registration Statement and Resale Prospectus current, or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading;
provided, however, that the Company's obligations contained herein shall not
apply to losses, claims, damages, expenses, liabilities, or actions arising out
of, or based upon any such untrue statement or any such omission or alleged
omission, if such statement or omission was made in reliance upon, and in
conformity with, information relating to the Holder furnished to the Company by
the Holder expressly for use in connection with the preparation of the
Registration Statement or any Resale Prospectus or any such amendment or
supplement thereto.
The Holder, by its acceptance of this Promissory Note, shall (in the same
manner and to the same extent as set forth in the preceding paragraph),
reimburse, to the extent permitted by law, the Company, its directors, officers,
employees and agents, and each person, if any, who controls the Company within
the meaning of the Act, if such statement or omission was made in reliance upon
and in conformity with information relating to the Holder furnished to the
Company by the Holder expressly for use in connection with the preparation of
the Registration Statement or the Resale Prospectus or any amendment or
supplement thereto.
Any person entitled to reimbursement hereunder will (i) give written notice
to the reimbursing party of any claim with respect to which it seeks
reimbursement within 14 days of the person entitled to reimbursement receiving
notice thereof (provided, however, that any failure by a person entitled to
reimbursement hereunder to give such prompt written notice shall not adversely
affect such person's rights hereunder unless and then only to the extent that
such failure prejudices the rights of the reimbursing party hereunder) and (ii)
unless in such party's reasonable judgment a conflict or interest between such
party and the reimbursing parties may exist with respect to such claim, permit
such reimbursing party to assume the defense of such claim with counsel
reasonably satisfactory to the party being reimbursed. If such defense is
assumed, the reimbursing party will not be subject to any liability for any
settlement made by the party being reimbursed without its consent (but such
consent will not be unreasonably withheld). A reimbursing party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
being reimbursed by such reimbursing party with respect to such claim, unless in
the reasonable judgment of such counsel a conflict of interest may exist between
such party being reimbursed and any other of such reimbursed parties with
respect to such claim.
If the reimbursement provided for herein is unavailable to or
insufficient to hold harmless the party being reimbursed under the second and
third preceding paragraphs in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then each applicable reimbursing party, in
lieu of reimbursing such party, shall contribute to the amount paid or payable
by such party being reimbursed as a result of such losses, claims, damages,
expenses, or
4
<PAGE>
liabilities in such proportion as is appropriate to reflect the relative fault
of the Holder and the Company in connection with the statements or omissions
which resulted in such losses, claims, damages, expenses, or liabilities. The
relative fault of the Holder and the Company shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Holder or by the Company, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, expenses, and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
The Holder, by its acceptance hereof, and the Company agree that it would not be
just and equitable if contribution pursuant hereto were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
As used herein, the term "Affiliate" means, with respect to any specified
person, any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person, for the
purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
The occurrence of any one of the following events shall constitute an
event of default ("Event of Default") under this Note: (a) if the undersigned
fails to pay the principal of this Note at the time and place when the same is
due and payable, (b) if the undersigned fails to pay any interest payment or
Shortfall Amount on this Note at the time and place when the same is due and
such default continues for a period of five days following receipt of notice of
non-payment, (c) if the undersigned breaches any covenant contained in this Note
other than the covenants to pay principal, and interest or the Shortfall Amount
and such breach is not cured within 10 business days of written notice thereof,
or (d) if the undersigned shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting the
material allegations of a petition filed against it in any such proceeding, or
if, within 60 days after the commencement of any proceeding against the
undersigned seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed or if, within
60 days after the appointment without the consent or acquiescence of the
undersigned of any trustee, receiver or liquidator of the undersigned or of all
or any substantial part of its properties, such appointment shall not have been
vacated.
5
<PAGE>
If an Event of Default has occurred (whether or not it is continuing), then
the holder of this Note shall have the right at its sole option and in addition
to any other available remedy, to declare this Note to be due and payable,
whereupon the same shall forthwith mature and become due and payable without
presentment, demand, protest or notice, all of which are hereby waived. In the
case of an Event of Default, all payments of principal, interest, the Shortfall
Amount or other payments under this Note, shall be made in Cash. In case of a
default in the payment of any principal of, or interest on, this Note, the
undersigned will pay the holder hereof such further amount as shall be
sufficient to cover the reasonable cost and expense of collection, including
without limitation reasonable attorneys' fees. No course of dealing and no delay
on the part of the holder hereof in exercising any right shall operate as a
waiver thereof or otherwise prejudice such holder's rights. The rights and
remedies of the holder hereof are cumulative and are not exclusive of any rights
or remedies it would otherwise have.
The Company covenants and agrees, and each holder of this Promissory Note,
whether upon original issue or upon transfer or assignment hereof, by such
holder's acceptance hereof likewise covenants and agrees, that upon the payment
or distribution of the assets of the Company of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution, winding-up,
total or partial liquidation or reorganization of the Company (whether voluntary
or involuntary, or in bankruptcy, insolvency, reorganization, liquidation,
receivership proceedings, or upon an assignment for the benefit of creditors, or
any other marshaling of the assets and liabilities of the Company, or
otherwise), all Senior Indebtedness shall first be paid in full, in cash, or
have provision made for such payment, before any payment (other than in Shares
of Common Stock) is made other than in Shares of Common Stock on account of the
principal of or interest or Shortfall Amount on or other amounts due in respect
of the indebtedness evidenced by this Promissory Note. As used herein, the term
"Senior Indebtedness" means the principal of and premium, if any, and interest
(including, without limitation, any interest accruing subsequent to the filing
of a petition or other action concerning bankruptcy or other similar
proceedings, whether or not constituting an allowed claim in any such
proceedings) on, and fees, costs, enforcement expenses (including legal fees and
disbursements), collateral protection expenses and other reimbursement or
indemnity obligations in respect of, all indebtedness or obligations of the
Company to banks and other lending institutions for money borrowed or in respect
of credit or other banking or lease financing facilities, whether presently
outstanding or hereafter incurred or created and including any extensions,
renewals, modifications or amendments thereof, including, without limitation,
under (i) the Secured Revolving Credit Agreement dated as of December 9, 1996
among the Company, Bankers Trust Company, as Documentation Agent, Bank of
America Illinois, as Agent, and the Lenders named therein, (ii) the Facilities
Agreement dated as of December 9, 1996 among the Company, Bank of America
Illinois, as Agent for Certain Lenders and General Electric Capital Corporation,
(iii) Master Lease Agreement dated as of September 27, 1995 between the Company
and General Electric Capital Corporation, for itself and as agent for other
participants, as amended, and (iv) Master Lease Agreement No. 2 dated as of
December 9, 1996, between the Company and General Electric Capital Corporation,
for itself and as agent for other participants, and (v) any renewals,
extensions, refundings, restructurings, amendments or modifications of the
facilities referred to in (i), (ii), (iii) or (iv).
6
<PAGE>
Upon the happening of a default in payment (whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise) of the principal of
or interest on any Senior Indebtedness, as such default is defined under or in
respect of such senior Indebtedness or in any agreement pursuant to which such
Senior Indebtedness has been incurred (the relevant "Senior Debt Agreement"),
then, unless and until the amount of such Senior Indebtedness then due shall
have been paid in full or provision made therefor in a manner satisfactory to
the holders of such Senior Indebtedness, or such default shall have been cured
or waived or shall have ceased to exist, the Company shall not pay principal of
or interest or the Shortfall Amount on this Promissory Note and shall not
repurchase, redeem or otherwise retire this Promissory Note, in either case
other than in or for Shares of Common Stock (collectively, "payment of this
Promissory Note").
Upon the happening of an event of default with respect to any Senior
Indebtedness (other than under circumstances described in the immediately
preceding paragraph of this Promissory Note are applicable), as such event of
default is defined under the relevant Senior Debt Agreement, permitting the
holders thereof to immediately accelerate the maturity thereof, and upon written
notice thereof given to the Company and the Holder by any holders of such Senior
Indebtedness or their representative or any trustee therefor (a "Default
Notice"), then, unless and until such event of default shall have been cured or
waived in writing by the holders of such Senior Indebtedness or shall have
ceased to exist, no direct or indirect payment of this Promissory Note shall be
made; provided, however, that this paragraph shall not prevent the making of any
such payment (which is not otherwise prohibited by the immediately preceding
paragraph of this Promissory Note) for more than 89 days after the Default
Notice shall have been given unless the Senior Indebtedness in respect of which
such event of default exists has been declared due and payable in its entirety,
in which case no such payment may be made until such acceleration has been
waived, rescinded or annulled, or such Senior Indebtedness shall have been paid
in full, or payment thereof shall be duly provided for in cash or in any other
manner than one Default Notice shall be given with respect to the same issue of
Senior Indebtedness within a period 360 consecutive days, and no event of
default which existed or was continuing on the date of any Default Notice and
was known to the holders of such issue of Senior Indebtedness shall be made the
basis for the giving of a subsequent Default Notice by the holders of such issue
of Senior Indebtedness.
In the event that, notwithstanding the foregoing three paragraphs of this
Promissory Note, any payment of this Promissory Note shall be made or on behalf
of the Company and received by the Holder, then, unless and until the amount of
such Senior Indebtedness then due shall have been paid in full or provision made
therefor or such default shall have been cured or waived, such payment shall be
held in trust for the benefit of, and shall be immediately paid over to, the
holders of Senior Indebtedness or their representative or any trustee therefor
ratably according to the aggregate amounts remaining unpaid on account of the
principal of and interest on, and fees and other charges in respect of, the
Senior Indebtedness held or represented by each, for application to the payment
of all Senior Indebtedness remaining unpaid to the extent necessary to pay all
Senior Indebtedness in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the benefit of the holders of
Senior Indebtedness.
7
<PAGE>
The undersigned shall have the right to prepay in whole or in part, and
from time to time, the remaining unpaid principal balance hereunder, without
penalty.
The undersigned hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.
This Note shall be governed by and construed in accordance with the laws of
the State of Colorado.
BOSTON CHICKEN, INC.
By: /s/ Michael R. Daigle
----------------------------------
Its: Vice President
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<PAGE>
Exhibit 10.47
TERMINATION AGREEMENT
This Agreement (the "Agreement") is made this 26th day of December 1997, by
and between Boston Chicken, Inc., a Delaware corporation (hereinafter referred
to as the "Company"), and Mark R. Goldston (hereinafter referred to as
"Goldston").
Recitals
--------
Goldston has served as a consultant to, and a director, officer and
employee of, the Company. Goldston resigned as Vice Chairman of the Board and as
a director of the Company effective December 26, 1997. In consideration of
the mutual covenants hereinafter set forth and in full satisfaction of any claim
Goldston may have or assert arising from or in any way relating to his
employment or engagement with, and separation from, the Company, the parties
hereto agree as follows:
Covenants
---------
In consideration of the mutual promises contained herein, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Termination Payments. In full satisfaction of any obligations the
Company may have to Goldston relating in any way to his employment or engagement
with, and separation from, the Company, the Company agrees to pay to Goldston
(a) the sum of $300,000 in cash, which shall be payable to Goldston on the later
of (i) January 5, 1998 or (ii) five business days after the expiration of the
revocation period described in Section 12(c) hereof, and (b) the sum of $240,000
in cash, which shall be payable in twenty-six (26) substantially equal
installments over the one-year period commencing upon the expiration of the
revocation period described in Section 12(c) hereof. The Company shall be
entitled to deduct from all such payments all applicable FICA contributions,
federal and state income taxes and any other payroll taxes. The Company shall
have the option to pay the amounts provided for herein in registered shares of
common stock, $.01 par value per share, of the Company.
2. Confidentiality. Goldston acknowledges that he is a party to the
Confidentiality Agreement dated as of June 2, 1995, a copy of which is attached
hereto as Schedule A (the "Confidentiality Agreement"), reaffirms his
obligations thereunder and agrees to comply therewith.
3. Inventions, Designs and Product Developments. All inventions,
innovations, designs, ideas and product developments developed or conceived by
Goldston, solely or jointly with others, whether or not patentable or
copyrightable, at any time during the employment or engagement of Goldston by
the Company and that relate to the actual or then-currently planned business
activities of the Company or its
<PAGE>
subsidiaries (collectively, the "Developments") and all of Goldston's right,
title and interest therein, shall be the exclusive property of the Company.
Goldston hereby assigns, transfers and conveys to the Company all of his right,
title and interest in and to any and all such Developments. At any time and from
time to time, upon the request of the Company, Goldston shall execute and
deliver to the Company any and all instruments, documents and papers, give
evidence and do any and all other acts that, in the opinion of counsel for the
Company, are or may be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark registrations or copyrights
under United States or foreign law with respect to any Developments or to obtain
any extension, validation, reissue, continuance or renewal of any such patent,
trademark or copyright. The Company will be responsible for the preparation of
any such instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse Goldston for all reasonable expenses incurred by
him in compliance with the provisions of this Section.
4. Covenant Restricting Solicitation. For a period of two years from the
date hereof Goldston shall not, directly or indirectly, solicit or attempt to
solicit for employment any person who is an employee of the Company on the date
of Goldston's date of termination.
5. Covenant Restricting Competition. The obligations of Goldston set
forth in this Section 5 are separate from and in addition to those obligations
set forth in any other sections of this Agreement. For a period of two years
from the date hereof, Goldston agrees not to compete against the Company and/or
any subsidiary or developer thereof by directly or indirectly, owning, managing,
operating, controlling, being employed by, participating in, or being connected
in any manner with the ownership, management, operation, or control of (A) any
entity that prepares, serves, or sells, and derives more than 5% of its revenues
(directly or indirectly) from, rotisserie roasted chicken, roasted turkey, baked
ham, meat loaf, or pot pies, or (B) any entity, at least 15% of the revenue of
which is derived either from items which include chicken products or from any
other product which accounts for at least 15% of the revenue of any Boston
Market establishment owned or operated by the Company and/or any subsidiary or
developer thereof at the time Goldston commences or significantly increases his
ownership, management, or other participation therein, which entity described in
either (A) or (B) above, is or has outlets located within five miles of any
store owned or operated by the Company and/or any subsidiary or developer
thereof or within any standard metropolitan statistical area or Designated
Market Area in which the Company and/or any subsidiary or developer thereof
engage, or have developed specific plans to engage, in business. Nothing in this
Section 5 shall prevent Goldston from participating as an investor, officer, or
director in any restaurant venture not covered by the foregoing applicable
restrictions, and does not prevent Goldston from investing so as to hold less
than 2% of the outstanding shares of any company which is a "reporting company"
under the Securities Exchange Act of 1934, as amended.
2
<PAGE>
6. Nondisparagement. Goldston and the Company each agree not to
disparage, or otherwise speak negatively of, the other. The Company further
agrees to use reasonable best efforts to cause its directors not to disparage,
or otherwise speak negatively, of Goldston.
7. Equitable Relief. Each of the parties acknowledges that the
restrictions contained in the Confidentiality Agreement and Sections 3, 4, 5 and
6 are reasonable and necessary to protect the legitimate interests of the
Company and Goldston, and that any violation of any provisions of those Sections
by a party will result in irreparable injury to the other party. Each party
also acknowledges that the other party shall be entitled in enforcing the
provisions of the Confidentiality Agreement or those Sections to obtain
temporary and permanent injunctive relief, without the necessity of proving
actual damages, and to an equitable accounting of all earnings, profits and
other benefits arising from any such violation, which rights shall be cumulative
of and in addition to any other rights or remedies to which such party may be
entitled.
8. Stock Options. (a) Goldston has been granted stock options on shares
of the Company and, pursuant to that certain Option Agreement dated as of April
8, 1996, on shares of Einstein/Noah Bagel Corp. all as set forth on Schedule B
attached hereto (collectively, the "Options"). The Options to purchase 125,362
shares of common stock granted on November 10, 1997 shall continue to vest in
accordance with their terms and to be exercisable in each case for a period of
one year after they have vested, provided, however, that the Company shall have
the right to terminate, at any time and for any reason, the vesting and
exercisability of all of such Options other than the options to purchase 41,787
shares which vest on November 10, 1998 and provided further that all of such
Options shall terminate and be of no further force and effect upon any material
breach by Goldston of the Confidentiality Agreement or Sections 3, 4, 5 or 6
hereof. All other Options shall continue to vest for a period of one year from
the date hereof and shall continue to be exercisable for a period of two years
from the date hereof, in each case pursuant to and in accordance with the terms
thereof; provided, however, that such options shall terminate and be of no
further force and effect upon any material breach by Goldston of the
Confidentiality Agreement or Sections 3, 4, 5 or 6 hereof. In the event that the
Company intends to terminate Goldston's options pursuant to this Section 8(a),
in the event of a material breach that is capable of being cured, the Company
shall first provide Goldston written notice thereof, which notice shall set
forth in reasonable detail Goldston's breach of covenants. Upon receipt of such
notice Goldston shall have ten (10) days in which to cure any such alleged
breach which is capable of being cured.
(b) Goldston shall not be eligible for any additional stock option
grants after the date hereof.
9. Goldston Representations. Goldston represents and warrants to
the Company that (i) he is free to enter into this Agreement and (ii) this
Agreement does not violate the terms of any other agreement to which Employee is
a party or by which he is bound.
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<PAGE>
10. Waiver. Failure by either party to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or remedy hereunder at any one or more times be
deemed a waiver or relinquishment of such right or remedy at any other time or
times.
11. Severability. Each section, paragraph, term and provision of
this Agreement, and any portion thereof, shall be considered severable and if
for any reason any such portion of this Agreement is held to be invalid,
contrary to, or in conflict with any applicable present or future law or
regulation in a final, unappealable ruling issued by any court, agency or
tribunal with competent jurisdiction in a proceeding to which the Company is a
party, that ruling shall not impair the operation of, or have any other effect
upon, such other portions of this Agreement as may remain otherwise
intelligible, which shall continue to be given full force and effect and bind
the parties hereto. Goldston agrees that if any provisions hereof shall be
adjudicated to be invalid or unenforceable in whole or in part, such
modifications made to this Agreement as a result of such adjudication shall be
effective only in the particular jurisdiction in which such adjudication is
made. To the extent any provision hereof is deemed unenforceable by virtue of
its scope but may be enforceable by limitations thereon, the parties hereto
agree that the same shall be enforceable to the fullest extent permissible under
the laws and public policies applied in such jurisdiction in which the
enforcement is sought. The parties hereto hereby authorize any court of
competent jurisdiction to modify the restrictive covenants to the extent
necessary to make the same enforceable.
12. Releases. (a) In partial consideration for the termination
payments provided for in Section 1 hereof, Goldston acknowledges and agrees that
he, for himself and his successors, assigns and legal representatives, fully and
forever releases and discharges the Company, its subsidiaries and area
developers and their respective officers, directors, employees, agents,
representatives and insurers (collectively, the "Company Released Parties") from
and against any and all claims, liabilities, demands, obligations, damages,
actions, or causes of action of any nature or type whatsoever, whether or not
presently known, including future claims, liabilities, demands, obligations,
damages, actions or causes of action if based in whole or part on acts or
omissions occurring before he delivers this release to the Company, in any way
relating to his employment or engagement with, his separation from, or his
investment in the Company, except, in each case, for his rights described in
this Agreement, rights under the Company's Director and Officer Insurance
Policy, under the indemnification provisions of the Company's Certificate of
Incorporation and under the provisions of Section 145 of the Delaware General
Corporation Law ("DGCL"), in each case as they relate to his duties and service
as an officer and director of the Company, if any. Goldston acknowledges and
agrees that the legal rights and claims that he is giving up include, but are
not limited to, his rights, if any, under all state and federal statutes that
protect him from discrimination in employment on the basis of sex, race,
national origin, religion, disability and age, such as the Age Discrimination in
Employment Act of 1987, Title VII of the Civil Rights Act of
4
<PAGE>
1964, as amended, the Rehabilitation Act of 1973, the Americans With
Disabilities Act, the Family and Medical Leave Act, the Equal Pay Act, and the
Colorado Civil Rights Act, as well as all common law rights and claims, such as
breach of contract, express or implied, tort, whether negligent or intentional,
wrongful discharge and any claim for fraud, omission or misrepresentation
against the Company Released Parties.
(b) The Company acknowledges and agrees that it, for itself and its
successors and assigns fully and forever releases and discharges Goldston, his
heirs and legal representatives from and against any and all claims,
liabilities, demands, obligations, damages, actions, or causes of action of any
nature or type whatsoever, whether or not presently known, including future
claims, liabilities, demands, obligations, damages, actions or causes of action
if based in whole or in part on acts or omissions occurring before it delivers
this release to Goldston, except, in each case, for the Company's rights
described in this Agreement, the Company's rights under the Company's Director
and Officer Insurance policy and the Company's right under Section 145 of the
DGCL to be reimbursed by Goldston, if required by law, for expenses of any
litigation advanced to him in defense of such litigation, including the
Undertaking relating to reimbursement of expenses incurred in connection with
Case No. 97-WM-1308 entitled In re Boston Chicken, Inc. Securities Litigation.
(c) Goldston acknowledges that he has up to 21 days after he has
received this Agreement to consider whether to sign it. In addition, after he
has signed and delivered this Agreement to the Company, it will not be effective
or enforceable until the end of a seven-day revocation period beginning the day
that he delivers it to the Company. During this seven-day period, Goldston may
revoke this Agreement, without reason and in his sole judgment, but he may do so
only by delivering a written statement of revocation to the Company as provided
in Section 18. If the Company does not receive Employee's written statement of
revocation by the end of the revocation period, then this Agreement will become
legally enforceable and Goldston may not thereafter revoke it. Any termination
of this Agreement in accordance with its terms shall not effect the validity of
the releases contained in this Section 12.
(d) Goldston acknowledges that he has been fully advised of the
contents of Section 1542 of the Civil Code of the State of California and he
hereby expressly waives all rights and benefits under that section and under any
law of any jurisdiction of similar effect with respect to his release of any
claims he may have against the Company. Section 1542 reads as follows:
"Section 1542. (General Release Claims Extinguished). A
general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time
of executing the release, which if known by him must have
materially affected his settlement with the debtor."
5
<PAGE>
13. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the Company, its successors and assigns. This Agreement
shall inure to the benefit of and be enforceable by the personal or legal
representatives, executors, administrators, successors, assigns, heirs,
distributees and/or legatees of Goldston, except that duties and
responsibilities of Goldston under this Agreement are personal to him, and are
not subject to assignment or transfer by him.
14. Entire Agreement. This Agreement and the Confidentiality Agreement
contain the entire agreement between the parties concerning the termination of
Goldston's employment with the Company. This Agreement may not be modified or
rescinded except by a written agreement to such effect signed by both parties.
15. Arbitration. Any controversy, claim or dispute between the parties
relating to or arising out of this Agreement will be finally settled by
arbitration governed by the then current Commercial Arbitration Rules of the
American Arbitration Association in accordance with the terms of this Agreement,
provided, however, that the Company shall not be prevented from seeking or
obtaining in any court of competent jurisdiction appropriate injunctive relief
in the event of a breach of the Confidentiality Agreement or any of the
provisions of Sections 3, 4, 5 or 6 of this Agreement. Any arbitration will be
conducted in Denver, Colorado by a panel of three neutral arbitrators.
16. Confidentiality and Publicity. (a) The parties agree to maintain the
confidentiality of this Agreement and the terms hereof (the "Confidential
Information"), except that (i) either party may make disclosures of Confidential
Information that has become publicly known other than by an action of the
disclosing party, or a person acting on their behalf, in violation of the terms
of this Agreement, (ii) the Company may make such disclosure of Confidential
Information as it may determine to be required under applicable securities laws
or the rules of any applicable securities exchange or quotation system, or in
connection with the preparation of any disclosure document to be distributed to
investors, lenders or similar persons, (iii) either party may disclose
Confidential Information that it may be legally compelled to disclose (after
using reasonable best efforts to notify the other party hereto in advance of
such disclosure, and reasonably cooperating in efforts of the other party to
resist such disclosure), (iv) either party may disclose such Confidential
Information as may be required to permit it to enforce the provisions of this
Agreement, and (v) either party may disclose Confidential Information to its
attorneys, accountants or other professional advisors.
(b) The Company agrees to provide Goldston, to the extent he is
available, the opportunity to review prior to its issuance any press release to
be issued by the Company that mentions his name, provided, however, that this
section shall not be interpreted to limit Company's ability to issue any press
release that mentions Goldston's name that the Company deems necessary, based on
the advice of its counsel, with or without his review.
6
<PAGE>
(c) Goldston agrees to provide the Company an opportunity to review
any press release or other public communication or statement he may make
regarding the Company prior to the issuance of such press release or, to the
extent practicable, making of such communication or statement.
17. Future Cooperation. Goldston agrees to cooperate in good faith
with the Company in any third-party litigation instituted by or against the
Company with respect to matters which occurred during the period in which
Goldston was employed by or served as a director or officer of the Company. The
Company agrees to reimburse Goldston or reasonable expenses incurred by him in
connection with such cooperation with respect to such matters.
18. Notices. All notices, request, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or by electronic transmission. If mailed,
first class, certified mail, postage prepaid, or sent by reliable overnight
delivery service and addressed as follows, or at such other addresses as the
parties hereto may from time to time designate in writing, such notices,
requests, demands, and other communications shall be deemed delivered three
business days after being so duly posted:
to the Company: Boston Chicken, Inc.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
to Employee: Mark R. Goldston
3347 Clerendon Road
Beverly Hills, CA 90210
Facsimile: (818) 784-4454
19. Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of Colorado applicable to contracts made and to be performed
therein.
20. Survival. The parties acknowledge and agree that the covenants
contained in this Agreement and Confidentiality Agreement shall survive the
termination of Goldston's employment or engagement with the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
EMPLOYEE: BOSTON CHICKEN, INC.
By: /s/ Joel M. Alam
----------------------------
/s/ Mark R. Goldston Its: Senior Vice President
- ---------------------------- ---------------------------
Mark R. Goldston
8
<PAGE>
Exhibit 10.49(a)
[BOSTON CHICKEN LETTERHEAD]
August 25, 1997
Saad Nadhir
1973 Keats Ct.
Highland Park, IL 60035
Dear Saad:
This letter is intended to confirm your compensation. Your base salary is
$400,000 paid bi-weekly. Your annual bonus opportunity targets a range with a
guaranteed floor of 50% of base pay and ceiling of 200% of base pay ($200,000 -
800,000). Payment of bonus in excess of 50% of base pay will be based on
achievement of specific objectives.
The Board of Directors may approve a new stock option plan that will afford you
the choice of exchanging any previously issued options that are priced above the
current stock price, for new options at market price. Additionally, the Board
may be granting you a new stock option grant of 500,000 shares vesting ratably
over 3 years. Also, a restricted grant of 400,000 shares vesting ratably over 3
years may be approved by the Board.
On an on-going basis, the Company intends annually to award a combination stock
option grant and restricted stock grant with at least 50% restricted stock,
equal to 4 times base salary. Additionally, prior to December 31, 1997, the
Compensation Committee of the Board will review jointly with you, a strategic
plan for the Company and, based on acceptance of that plan, will consider
granting you a one-time grant of stock options and/or restricted stock as
additional incentive.
The Company also recognizes that this position will require you unwinding your
planned move to California. The Company intends to reimburse you for expenses
associated with the move, to include loss on sale, your second mortgage carrying
cost beginning now, and gross-up of those expenses by 35%.
The company recognizes your need to retain separate counsel in connection with
the defense of current or future litigation against or relating to the Company,
and in which you are named as an individual defendant. The Company agrees to
reimburse you for all reasonable expenses incurred by you, including legal fees,
regarding such matters.
We're excited about your appointment as CEO effective October 1, 1997. In the
interim, I look forward to working with you on a transition plan.
Sincerely,
/s/ Scott A. Beck
Scott A. Beck
Chairman
Boston Chicken, Inc.
<PAGE>
Exhibit 10.49(b)
[BOSTON CHICKEN LETTERHEAD]
January 19, 1998
Saad J. Nadhir
1973 Keats Court
Highland Park, IL 60035
Dear Saad:
Reference is made to that letter dated August 25, 1997 regarding your
compensation (the "August Letter"). This letter reflects actions taken by the
Compensation Committee and Stock Option Committee (with your agreement) to amend
and restate the terms of the August Letter in its entirety and serves to confirm
your compensation for 1997. Since your return in 1997, your base salary was
$400,000, payable bi-weekly and your annual bonus, as determined by the
Compensation Committee pursuant to the August Letter, was $400,000, which you
voluntarily agreed to waive.
In addition to your participation in the Company's stock option exchange
program, which was effective November 10, 1997, the Stock Option Committee has
approved a grant to you of options to acquire 750,000 shares of common stock of
the Company ("Common Stock"), 450,000 of which shares vest 100% on October 1,
1998 and the remaining 300,000 of which shares vest ratably over four years. The
Company hereby acknowledges that of the options to acquire 750,000 shares of
Common Stock, you have agreed to accept options to acquire 250,000 shares of
Common Stock in lieu of receiving a restricted stock award as provided in the
August Letter. You acknowledge that this stock option grant is intended to be
for fiscal years 1997 and 1998.
The Company recognizes that in connection with your return to the Company as Co-
Chairman and Chief Executive Officer on October 1, 1997, you were required to
unwind your planned move to California. Accordingly, the Company has reimbursed
you, as additional compensation, for expenses associated with the move,
including the loss on sale, your second mortgage carrying cost from August 25,
1997, and a gross-up of those expenses by 35% for income tax purposes.
The Company recognizes your need to retain separate counsel in connection with
the defense of the current litigation entitled In re Boston Chicken, Inc.
--------------------------
Securities Litigation, Case No. 97-WM-1308, and any future cases consolidated
- ----------------------
therewith and Hoiseth et al v. Boston Chicken, Inc., Scott A. Beck, Mark W.
-------------------------------------------------------------
Stephens, Saad J. Nadhir, Alex Brown & Sons, Inc., Merrill Lynch & Co. and
- --------------------------------------------------------------------------
Arthur Andersen LLP, Case No. 97-CV-2543, and any cases consolidated therewith
- --------------------
(collectively, the "Litigation") in which you are named as an individual
defendant. The Company agrees to reimburse you for reasonable legal fees, as
incurred, of one counsel to represent you in the Litigation. Additionally, in
the event of any future or threatened litigation or inquiry involving you in
connection with your service as a director, officer or employee of the Company
at any time, the Company will reimburse you, as incurred, any and all reasonable
costs, including reasonable costs of your own counsel, incurred by you in
defending such litigation or inquiry; provided that you deliver to the Company
an undertaking to repay all amounts so advanced if it shall ultimately be
determined that you are not entitled to be indemnified under the Company's
certificate of incorporation.
Those provisions contained in the August Letter regarding future stock option
grants and restricted stock awards are hereby terminated and are of no further
force or effect. Any future equity incentive awards to you are within the sole
discretion of the Stock Option Committee.
If the following accurately reflects your understanding, please sign below and
return a fully executed copy of this letter to me.
Sincerely,
/s/ Joel M. Alam
- ----------------
Joel M. Alam
Senior Vice President
Boston Chicken, Inc.
AGREED AND ACCEPTED
/s/ Saad J. Nadhir
- ------------------
Saad J. Nadhir
<PAGE>
Exhibit 10.50(a)
[BOSTON CHICKEN LETTERHEAD]
August 28, 1997
Mark Stephens
5620 S. Bellaire Ct.
Greenwood Village, CO 80121
Dear Mark:
This letter is intended to confirm your compensation as Vice-Chairman of Boston
Chicken, Inc. Your base salary is $400,000, paid bi-weekly. Your annual bonus
opportunity targets a range with a floor of 50% of base pay and a ceiling of
200% of base pay ($200,000 - $800,000), based on achievement of specific
objectives. The compensation committee of the board also has the ability to
provide incremental bonus payments based on superior performance. Five Hundred
Thousand dollars ($500,000) of your 1997 bonuses has been paid.
The Board of Directors approved a new stock option plan that will afford you the
choice of exchanging any previously issued options that are priced above the
current stock price for new options at market price. Additionally, the Board
will be granting you a new stock option grant of 450,000 shares vesting ratably
over 3 years. Also a restricted stock grant of 200,000 shares vesting ratably
over 3 years will be approved by the Board.
On an on-going basis, the Company intends annually to award a combination stock
option grant and restricted stock grant equal to 3 times base salary.
Thank you,
/s/ Scott A. Beck
Scott A. Beck
Chairman
Boston Chicken, Inc.
<PAGE>
Exhibit 10.50(b)
[BOSTON CHICKEN LETTERHEAD]
January 19, 1998
Mark W. Stephens
5620 S. Bellaire Court
Greenwood Village, CO 80121
Dear Mark:
Reference is made to that letter dated August 28, 1997 regarding your
compensation (the "August Letter"). This letter reflects actions taken by the
Compensation Committee and Stock Option Committee (with your agreement) to amend
and restate the terms of the August Letter in its entirety and serves to confirm
your compensation for 1997. For 1997, your base salary was $400,000, payable bi-
weekly, and your annual bonus as determined by the Compensation Committee
pursuant to the August Letter, was $950,000, $150,000 of which you voluntarily
agreed to accept in lieu of receiving a restricted stock award as provided in
the August Letter.
In addition to your participation in the Company's stock option exchange
program, which was effective November 10, 1997, the Stock Option Committee has
approved a grant to you of options to acquire 750,000 shares of common stock of
the Company ("Common Stock"), 450,000 of which shares vest 100% on October 1,
1998 and the remaining 300,000 of which shares vest ratably over four years. The
Company hereby acknowledges that of the options to acquire 750,000 shares of
Common Stock, you have agreed to accept options to acquire 250,000 shares of
Common Stock in lieu of receiving a restricted stock award as provided in the
August Letter. You acknowledge that this stock option grant is intended to be
for fiscal year 1997 and 1998.
Those provisions contained in the August Letter regarding future stock option
grants and restricted stock awards are hereby terminated and are of no further
force or effect. Any future equity incentive awards to you are within the sole
discretion of the Stock Option Committee.
If the following accurately reflects your understanding, please sign below and
return a fully executed copy of this letter to me.
Sincerely,
/s/ Joel M. Alam
- ---------------------
Joel M. Alam
Senior Vice President
Boston Chicken, Inc.
AGREED AND ACCEPTED
/s/ Mark W. Stephens
- --------------------
Mark W. Stephens
<PAGE>
Exhibit 21
SUBSIDIARIES
------------
<TABLE>
NAME JURISDICTION
---- ------------
<S> <C>
Einstein/Noah Bagel Corp. Delaware
BC Real Estate Investments, Inc. Delaware
Mid-Atlantic Restaurant Systems, Inc. Delaware
BC New York L.L.C. Delaware
Mayfair Partners, L.P. Delaware
BCI Mayfair, Inc. Delaware
Progressive Food Concepts, Inc. Delaware
BCI Acquisition Sub, L.L.C. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (registration nos. 33-71930
and 333-15389) and previously filed Registration Statements on Form S-3
(registration nos. 33-915912 and 33-93872).
/s/ Arthur Andersen LLP
Denver, Colorado
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 90,559
<SECURITIES> 0
<RECEIVABLES> 13,894
<ALLOWANCES> 0
<INVENTORY> 16,132
<CURRENT-ASSETS> 124,374
<PP&E> 530,582
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,005,127
<CURRENT-LIABILITIES> 132,531
<BONDS> 739,462
0
0
<COMMON> 714
<OTHER-SE> 918,266
<TOTAL-LIABILITY-AND-EQUITY> 2,005,127
<SALES> 261,077
<TOTAL-REVENUES> 462,368
<CGS> 94,736
<TOTAL-COSTS> 94,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 128,000
<INTEREST-EXPENSE> 38,209
<INCOME-PRETAX> (248,092)
<INCOME-TAX> (8,415)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (223,892)
<EPS-PRIMARY> (3.32)
<EPS-DILUTED> (3.32)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 DEC-26-1994
<PERIOD-END> DEC-29-1996 DEC-31-1995
<CASH> 100,800 310,436
<SECURITIES> 0 0
<RECEIVABLES> 22,438 13,445
<ALLOWANCES> 0 0
<INVENTORY> 2,585 0
<CURRENT-ASSETS> 146,462 343,815
<PP&E> 334,478 258,550
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,543,616 1,073,877
<CURRENT-LIABILITIES> 87,633 30,332
<BONDS> 312,454 307,178
0 0
0 0
<COMMON> 642 591
<OTHER-SE> 935,198 716,240
<TOTAL-LIABILITY-AND-EQUITY> 1,543,616 1,073,877
<SALES> 83,950 51,566
<TOTAL-REVENUES> 264,508 159,479
<CGS> 31,160 19,737
<TOTAL-COSTS> 31,160 19,737
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,446 13,179
<INCOME-PRETAX> 115,183 54,373
<INCOME-TAX> 42,990 20,814
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 66,958 33,559
<EPS-PRIMARY> 1.07 0.71
<EPS-DILUTED> 0.99 0.66
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER OTHER OTHER
<FISCAL-YEAR-END> DEC-28-1997 DEC-28-1997 DEC-31-1997
<PERIOD-START> DEC-30-1996 DEC-30-1996 DEC-30-1996
<PERIOD-END> APR-20-1997 JUL-13-1997 OCT-05-1997
<CASH> 2,443 176,132 113,725
<SECURITIES> 0 0 0
<RECEIVABLES> 18,388 26,989 25,317
<ALLOWANCES> 0 0 0
<INVENTORY> 4,661 4,805 5,753
<CURRENT-ASSETS> 47,064 227,447 162,126
<PP&E> 398,130 395,374 430,345
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 1,635,917 2,005,771 2,127,835
<CURRENT-LIABILITIES> 50,648 44,867 77,833
<BONDS> 316,571 732,480 735,945
0 0 0
0 0 0
<COMMON> 650 662 713
<OTHER-SE> 968,339 997,020 1,073,933
<TOTAL-LIABILITY-AND-EQUITY> 1,635,917 2,005,771 2,127,835
<SALES> 50,092 108,178 165,982
<TOTAL-REVENUES> 116,764 233,360 344,186
<CGS> 18,744 40,225 61,379
<TOTAL-COSTS> 18,744 40,225 61,379
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 7,229 16,540 27,322
<INCOME-PRETAX> 39,467 71,050 91,654
<INCOME-TAX> 15,433 27,942 38,199
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 21,448 38,686 49,650
<EPS-PRIMARY> 0.33 0.59 0.75
<EPS-DILUTED> 0.31 0.56 0.72
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER OTHER OTHER
<FISCAL-YEAR-END> DEC-29-1996 DEC-29-1996 DEC-29-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> APR-21-1996 JUL-14-1996 OCT-06-1996
<CASH> 155,483 110,932 59,358
<SECURITIES> 0 0 0
<RECEIVABLES> 14,002 18,002 18,907
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 224,281 150,483 99,941
<PP&E> 265,521 354,429 358,567
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 1,187,557 1,371,414 1,422,770
<CURRENT-LIABILITIES> 25,528 45,206 50,092
<BONDS> 302,886 306,031 309,235
0 0 0
0 0 0
<COMMON> 626 639 640
<OTHER-SE> 835,166 884,722 911,689
<TOTAL-LIABILITY-AND-EQUITY> 1,187,557 1,371,414 1,422,770
<SALES> 1,314 26,738 55,402
<TOTAL-REVENUES> 47,347 111,908 186,218
<CGS> 480 9,948 20,515
<TOTAL-COSTS> 480 9,948 20,515
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,900 6,335 10,138
<INCOME-PRETAX> 25,756 52,384 82,876
<INCOME-TAX> 10,107 19,798 30,992
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,649 31,565 48,865
<EPS-PRIMARY> 0.26 0.51 0.78
<EPS-DILUTED> 0.24 0.48 0.73
</TABLE>
